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Financialization of economy as economic parasitism,
the mechanism of redistributing the wealth up under neoliberalism

Financialization and Globalization: Lifting Barriers -- Losing Control

"The financialized economy – including stocks, corporate bonds and real estate – is now booming. Meanwhile, the bulk of the population struggles to meet daily expenses." -- Ellen Brown
News Neoliberalism Recommended Links Financilization of economy as the mechanism of redistributing the wealth up Ayn Rand and her Objectivism Cult Classification of Corporate Psychopaths Neoclassical Pseudo Theories and Crooked and Bought Economists  
Corporatist Corruption: Systemic Fraud under Clinton-Bush-Obama Regime Amorality and criminality of neoliberal elite Audacious Oligarchy and "Democracy for Winners" Financial Sector Induced Systemic Instability of Economy In Goldman Sachs we trust: classic example of regulatory capture by financial system hackers The Deep State Resurgence of neo-fascism as reaction on crisis of neoliberalism
The Great Transformation Neoliberalism as secular religion, "idolatry of money" The Iron Law of Oligarchy   Over-consumption of Luxury Goods as Market Failure Globalization of Financial Flows Globalization of Corporatism
Greenspan as the Chairman of Financial Politburo Friedman --founder of Chicago school of deification of market Pope Francis on danger of neoliberalism Techno-fundamentalism Neoliberalism Bookshelf Greenspan humor Etc
Financialization is a process whereby financial markets, financial institutions, and financial elites gain greater influence over economic policy and economic outcomes. Financialization transforms the functioning of economic systems at both the macro and micro levels.

Its principal impacts are to (1) elevate the significance of the financial sector relative to the real sector, (2) transfer income from the real sector to the financial sector, and (3) increase income inequality and contribute to wage stagnation. Additionally, there are reasons to believe that financialization may put the economy at risk of debt deflation and prolonged recession.

Financialization operates through three different conduits: changes in the structure and operation of financial markets, changes in the behavior of nonfinancial corporations, and changes in economic policy.

Countering financialization calls for a multifaceted agenda that (1) restores policy control over financial markets, (2) challenges the neoliberal economic policy paradigm encouraged by financialization, (3) makes corporations responsive to interests of stakeholders other than just financial markets, and (4) reforms the political process so as to diminish the influence of corporations and wealthy elites.

Thomas Palley, See http://www.levyinstitute.org/pubs/wp_525.pdf

Considering both the domestic and international aspects of neoliberalism -- free-market economics, free trade, and the free mobility of capital -- neoliberalism is  definitely big finance friendly social system.  A new more harsh discipline was imposed on labor and new managerial criteria and policies established (with significant differences among countries). The so-called “free market” is an instrument of financial oligarchy and it serves mostly, albeit not exclusively, its objectives.

Globalization of financial flows and one of the most important features of neoliberalism. Although the process of globalization financial flows can be traced back to the early, even preliminary, stages of capitalism, commercial and state barrier for translational financial flows were by and large eliminated since  1990th. “Neoliberal globalization” is first of all global neoliberal financial globalization. As such it is more than a phase of globalization.  It is a new social phenomenon.

Financialization of everything is the essence of neoliberalism. Like globalization, financialization refers to mechanisms as old as capitalism and even to earlier pre-capitalist market economies, but one crucial aspect of the neoliberal decades is certainly the culmination of financial mechanisms reaching unprecedented levels of sophistication and expansion. In the present study, “financialization” always denotes, on the one hand, the expansion of financial institutions and mechanisms (and the corresponding masses of assets and debt), taking account of innovative procedures and, on the other hand, the imposition on them specific managerial criteria such as the creation of value for the shareholder. The comparative size and profit rate of the financial sector is also quite different with  previous stages.  The same is true of the expansion of the financial component of management within financial institutions and within nonfinancial corporations, as well as the spectacular rise of the income paid to financial managers.

Given the role conferred on financial sector under neoliberalism, the term "financialization" is also used in a broader sense in the literature. With the term casino capitalism as equivalent  to the term neoliberalism. There is a lot of sense in this equivalence. in the assertion that neoliberalism is a "financialized capitalism with elevated role of stock market and financial instruments."

In a way, neoliberalism as a class phenomenon puts financial oligarchy in leading role in the society. Several facts support this interpretation. The income of the upper income brackets of financial brass became dramatically higher than others, with the exception of a few owners  of companies in such lucrative spheres as technology, and oil and gas. They simply earn tremendously more money, literally millions.  The second factor is the rise of capital income (interest, dividends, and capital gains) under neoliberalism. Via 401K plans neoliberalism forces everybody play in stock market, whether they wish it or not. That is another side of neoliberalism that confirm aptness of the name "casino capitalism".

Class wise neoliberalism is characterized by the tripolar class configuration of the traditional owners  of capital (capitalists), upper management and upper strats of highly educated professionals (doctors programmers, accountants, etc), and "popular classes" (workers and lower middle class including small entrepreneurs). Capitalists now can be represented indirectly via mutual funds which became an important  feature of neoliberalism.  Which tremendous increase the power of upper management of corporation, who de facto in many cases are the "real" owners  of the company. Regular shareholders are just shmucks, to be exploited for fun and profit.

Excessive financialization of economy might be viewed as a sophisticated form of kleptocracy. Neoliberalism has a proven tendency to install kleptocratic regimes in third world countries and xUSSR. Yeltsin, Kuchma and Yanukovich are pretty telling examples of this tendency.  In Western countries it has slightly different form of outsize role of financial institutions in the economy. But basic mechanism of redistribution of wealth via parasitic rents up stays the same.

Giant financial institutions like Wells Fargo are very adepts in creating parasitic rents.  In some cases using criminal methods.

Financial oligarchy engaged in the gradual dismantling of social protection, enforsing the more demanding labor conditions, and the so-called "flexible" labor market, that is, the freedom to hire and fire and is dominated by cotractors and temporary workers.

Management also had to adapt to the new objectives. The difference between workers and managers is, however, that, in the stick-and-carrot metaphor, workers are on the stick side and upper management on the carrot side. Actually, management, in particular its upper layers, increased gradually its capability to set apart an increasing fraction of the surplus generated within enterprises to their benefit under the form of high wages in the broad sense used here.

Concerning management, besides the inducement to seek high profitability levels, one finds the subjection of private managers to a corporate governance aimed at the maximizing of stock value and the distribution of dividends. But there is also a policy component to these new rules, in which government officials and representatives are involved. Its main aspects are monetary policies intending to curb inflationary pressures instead of stimulating growth and employment, the privatization of social protection, the partial substitution of pension funds for pay-as-you-go public systems, and deregulation.

The two pillars of the international aspect of finacialization (as well neoliberalism in general) are free trade and the free international mobility of capital. The imposition of free trade was the outcome of a long and gradual process since World War II.

Neoliberalism imposed the “open model” around the world, with the collaboration of local elites. Capital controls were gradually dismantled, beginning with the United States during the 1970s. From the 1990s onward, the flows of direct investment abroad (DIA) increased dramatically.

Globalization placed the workers of advanced capitalist countries in a situation of competition with workers of the periphery. The imports of cheap consumption goods from countries where labor costs are particularly low decreased the nominal wages necessary to buy a given basket of goods within advanced countries. They, thus contributed to the restoration of profit rates, given the constancy (or decline) of the purchasing power of the bulk of wage earners.

The rising debt of government and households was a source of large flows of interest. Second, financial deregulation and innovation allowed for the explosion of the activity and income of the financial sector. The procedures tending to the obtainment of high returns were pushed to the extreme, as well as the payment of dividends and very high wages. These practices reached the point when storck market became quote detached from real economy. The collaboration of goverment officials (Fed put) and financial oligarchy was crucial in achiving this stage. The notions of Finance and financial hegemony, as used in this study, refer to the upper segments of the capitalist classes and financial institutions. As is well known, there is a strong hierarchy within capitalist classes from the owners of small or medium enterprises to the holders of large portfolios of shares of transnational corporations. There is a process of concentration of capital historically, but new firms are still created and the traditional hier- archy between larger and smaller business is still there in contemporary capitalism. Small business is often subject to the domination of both large Financial corporations became corporation controlling the whole economy. Many aspects of this preeminence are related to financial mechanisms (but not all, for example, the dependency and control resulting from outsourcing is out of scope) . Due to achived financial hegemony, the overall social dynamics, economics, and politics are dominated by the upper fraction of the capitalist classes. These large owners were the main actors in the establishment of neoliberalism, the neoliberal coup deata in major western countries.

Financial institutions were graduallyderegulated. The new framework emerged consisitng along with traditiona players stock exchanges; mutual, pension, and hedge funds; private equity firms and family offices; agencies and government-sponsored enterprises (GSEs); central banks; international institutions such as the IMF and the World Bank; a wealthmanagement companies and so on

They play a central role within neoliberalism, be they private enterprises, government institutions, such as central banks, or international institutions.

The power of individual capitalists would remain quite limited in the absence of financial institutions. States were the agents of deregulation and imposition of free trade and the free movements of capital interna nionally. But, besides states, financial institutions are the agents of neoliberalism. Central banks impose policies favorable to the stability of prices instead of full employment, intending to increase capital income. Huge masses of capital are handled by asset managers (including the capital of pension funds) imposing neoliberal norms to nonfinancial corporations. More restricted financial institutions concentrate the cutting edge of fi-

See Casino Capitalism for introductory article on financialization.

Also important is the book Profiting Without Producing:  How Finance Exploits Us All Costs by Costas Lapavitsas.  Here is one Amazon review

The concept of "casino capitalism" which was put forward by Susan Strange in her 1983 book is closely related to the concept of "financialization". so this is not new and not the first attempt to analyze this aspect of neoliberalism. But the author managed to write a very interesting and insightful book.

Again, the fact that financialization is at the core of neoliberalism (as the term "Casino Capitalism" implies) is well established, but the details of how this mechanism works and how finance institutions position themselves under neoliberalism as universal intermediates of almost any activities: education (via student loans), pensions (via 401k Plans), heath (via heath insurance), consumption (via credit cards), extracting rents from each of them is not well known or understood. This is the area in which this book provide some deep insights. Brief overview of the book from the author can be found in his lecture on YouTube (Profiting Without Producing How Finance Exploits Us All -- A lecture by Costas Lapavitsas ) and in his Guardian article "Finance's hold on our everyday life must be broken ".

Converting the whole economy into one giant casino where you can bet on almost anything, commodities prices, interests rate and even volatility of the market has profound social effects. And those effects are different on large enterprises and small enterprises and population at large.

The author argues that "Financialization represents a historic and deep-seated transformation of mature capitalism. Big businesses have become "financialized" as they have ample profits to finance investment, rely less on banks for loans and play financial games with available funds. Big banks, in turn, have become more distant from big businesses, turning to profits from trading in open financial markets and from lending to households. Households have become "financialized" too, as public provision in housing, education, health, pensions and other vital areas has been partly replaced by private provision, access to which is mediated by the financial system. Not surprisingly, households have accumulated a tremendous volume of financial assets and liabilities over the past four decades. "

When like in casino sheer luck begins to determine more and more of what happens to financial well-being of people due to their exposition to stock markets (hypertrophied under neoliberalism into some incredible monster due to 401K plans participation) , and skill, effort, initiative, determination and hard work count for less and less, then inevitably faith and confidence in the social and political system quickly fades.

That's what's happens with casino capitalism in the USA and that's why Trump was elected.

Paradoxically, as people more and more play in stock market (including with their 401K money) then respect the system less and less. In a way neoliberalism brings with is 'casino capitalism" mentality" its own demise. Frustration and anger become sharper and prone to be violently expressed when the realm of inequality becomes too large and when the system seems to operate so very unequally and biased toward the top 1% or, more correctly, the top 0.01%. That's what Pope Francis "LAUDATO SI" is about.

As author states "This book has a distinctive argument to make regarding financialization, including particularly the predatory and expropriating character of financial profit and its implications for social stratification. Light could thus be shed on the tendency to crisis that has characterized financialization since its inception."

Highly recommended.

The following is an extended quote extracted from the chapter 1 of this book Profiting Without Producing How Finance Exploits Us All Costs

1. Introduction: the rise and rise of finance

... ... ...

The crisis of the 2000s will prove fertile ground for economic historians for decades to come with regard to both its causes and consequences. However, the crisis has already had one definite outcome: it has finally lifted the curtain on the transformation of mature and developing capitalist economies during the last three decades, confirming the pivotal role of finance, both domestically and internationally. Financial capital permeates economic activity, and interacts with financial markets in ways capable of generating enormous profits but also precipitating global crises. In terms that will be used throughout this book, contemporary capitalism is ‘financialized’ and the turmoil commencing in 2007 is a crisis of ’financialization’.

The economic processes - and the social relations - characteristic of financialization represent a milestone in the development of capitalism. The catalyst of crisis in 2007 was speculative mortgage lending to the poorest workers in the US during the 2000s, the loans being subsequently traded in ‘securitized’ form in global financial markets. It is hard to exaggerate what an extraordinary fact this is. Under conditions of classical, nineteenth-century capitalism it would have been unthinkable for a global disruption of accumulation to materialize because of debts incurred by workers, including the poorest. But this is precisely what has happened under conditions of financialized capitalism, an economic and social system that is much more sophisticated than its nineteenth-century predecessor.

Financialization has emerged gradually during recent decades, and its content and implications are the focus of this book. To be sure, capitalist economies are continually restructured due to pressures of competition and to the underlying drive to maintain profitability. However, some transformations have a distinctive historical significance, and financialization is one of those. The chanee that has taken place in mature capitalist economies and societies since the late 1970s requires appropriate attention to be paid to finance. Consider the following features of financialization to substantiate this claim. Context and structural aspects of financialization

Mature capitalism has been historically marked by deep transformations of economy and society. Toward the end of the nineteenth century, for instance, there emerged new methods of production in heavy industry, accompanied by the rise of monopolistic, joint-stock enterprises. Ihe change coincided with a long depression, 1873-96, and led to a rebalancing of global productive power away from Britain and toward the US and Germany. Similarly, at the end of the Second World War, mass consumption emerged across several developed countries based on methods of mass production. A long boom occurred, lasting until 1973-74, during which production became increasingly dominated by transnational monopolistic enterprises, while finance operated under a system of controls domestically and internationally. For nearly three decades, the US was the dominant economic force in global production and trade.

The transformation represented by financialization is of a similar order of importance. Since the 1970s, there have been profound changes in production methods deriving from information and telecommunications technologies. Transnational enterprises have become dominant over global production and international trade. The centre of gravity of global productive capacity has partly shifted from mature economies in the West toward rising economies in the East, primarily China. Meanwhile, the institutional framework of capitalist activity has been altered as deregulation has prevailed in important markets, above all, for labour and finance. Throughout this period, accumulation has lacked dynamism in mature countries, inequality was exacerbated, and crises have become sharper and more frequent.

The most striking feature of the period, however, has been the rise of finance, the start of which can be usefully placed in the late 1970s. The financial sector had become progressively larger in the 1950s and 1960s, while still operating within the regulatory framework characteristic of the long post-war boom. However, even by the late 1970s, the domestic and international importance of finance remained modest. The three decades that followed have witnessed unprecedented expansion of financial activities, rapid growth of financial profits, permeation of economy and society by financial relations, and domination of economic policy by the concerns of the financial sector. At the same time, the productive sector in mature countries has exhibited mediocre growth performance, profit rates have remained below the levels of the 1950s and 1960s, unemployment has generally risen and become persistent, and real wages have shown no tendency to rise in a sustained manner. An asymmetry has emerged between the sphere of production and the ballooning sphere of circulation. The rise of finance has been predicated 011 a radical alteration of the monetary framework of capitalist accumulation, both internationally and domestically. International monetary conditions have been stamped by the collapse of the Bretton Woods Agreement in 1971-73. Bretton Woods had enforced the convertibility of the US dollar into gold at S35 to the ounce, thus fixing exchange rates during the long boom. Its collapse led to the gradual emergence of alternative international monetary arrangements based on the US dollar functioning as inconvertible quasi-world-money. The new arrangements have generated considerable instability of exchange and interest rates, thereby spurring the growth of international financial markets. Growth of international capital flows during the same period, partly in response to exchange and interest rate instability, has led to financialization in developing countries. Domestic monetary conditions, in contrast, have been marked by the steady accumulation of power by central banks as controllers of credit money backed by the state. Central banks have emerged as the dominant public institution of financialization, the defender of the interests of the financial sector.

The ascendancy of central banks is hardly surprising, since financialization in general would have been impossible without active and continuous intervention by the state. Financialization has depended on the state to deregulate the financial system with regard to prices, quantities, functions and cross-border flows of capital. Equally, financialization has depended on the state to regulate the adequacy of own capital, the management of risk, and the rules of competition among financial institutions. Even more decisively, financialization has depended on the state to intervene periodically to underwrite the solvency of banks, to provide extraordinary liquidity and to guarantee the deposits of the public with banks. Ultimately, however, the rise of finance has resulted from changes deep within capitalist accumulation. Three characteristic tendencies of accumulation in mature countries have shaped financialization as a structural transformation of contemporary capitalism. First, non-financial enterprises have become increasingly involved in financial processes on an independent basis, often undertaking financial market trans-actions on own account. The financialization of industrial and commercial enterprises has affected their profitability, internal organization, and investment outlook. Non-financial enterprises have become relatively more remote from banks and other financial institutions. Second, banks have focused on transacting in open financial markets with the aim of making profits through financial trading rather than through outright borrowing and lending. At the same time banks have turned toward individual and household income as a source of profit, often combining trading in open markets with lending to households, or collecting household savings. Third, individuals and households have come increasingly to rely on the formal financial system to facilitate access to vital goods and services, including housing, education, health, and transport. The savings of households and individuals have also been increasingly mobilized by the formal financial system.

The transformation of the conduct of non-financial enterprises, banks and households constitutes the basis of financialization. Examining these relations theoretically and empirically, and thus establishing the deeper content of financialized capitalism, is the main task of this book. Hie concepts and methods deployed for the purpose derive from Marxist political economy. To summarize, the capitalist economy is treated as a structured whole that comprises different spheres of activity - namely production, circulation, and distribution - among which production is dominant. Both production and circulation possess their own internal logic, even though the two spheres are inextricably linked. Production creates value; its motive is profit (surplus value) deriving from the exploitation of labour; its aim is the accumulation of capital. Circulation does not create value; it results in profits, but these derive mostly - though not exclusively - from redistributing surplus value. Finance is a part of circulation, but also possesses mechanisms standing aside commodity trading and its corresponding flows of money. The traded object of finance is loanable money capital, the cornerstone of capitalist credit. Production, circulation and distribution give rise to class relations, pivoting on the ownership of the means of production, but also determined by the appropriation of profits.

Financialization reflects a growing asymmetry between production and circulation - particularly the financial component of the latter - during the last three decades. The asymmetry has arisen as the financial conduct of non-financial enterprises, banks and households has gradually changed, thus fostering a range of aggregate phenomena of financialization. A telling aspect of the transformation has been the rise of profits accruing through financial transactions, including new forms of profit that could even be unrelated to surplus value. This process is summed up as ‘financial expropriation’ in subsequent chapters. New social layers have emerged as financial profit has burgeoned.

Financial markets and banks

It might seem paradoxical at first sight to associate financialization with the conduct of banks, given that the rise of finance has had far more extravagant aspects. Financializa- tion, for instance, appears to relate more to the global spread of financial markets, the proliferation of traded financial instruments, and the emergence of novel, market-re- lated financial transactions, rather than to the behaviour of banks. Compared to the expanding and rapidly changing world of financial markets, banks seem old-fashioned and even staid. And yet, as is shown in the rest of the book, banks have been a decisive factor in the financialization of capitalism. Banks remain the cornerstone of contempo- rary finance and several of the most visible market-related features of financialization emanate from banks. It is not accidental that the crisis of financialization in the late 2000s has revolved around banks rather than other financial institutions.

To establish the importance of banks in the course ot financialization consider some general features of the derivatives markets, arguably the most prominent finan- cial markets of recent years.1 Simply put, a derivative is a contract that establishes a claim on an underlying asset - or on the cash value of that asset - which must be executed at some definite point in the future. The underlying asset could be a com- modity, such as wheat; or another financial asset, such as a bond; or a financial price, for example the value of a currency; or even an entirely non-economic entity like the weather. The units of the underlying asset stated on the contract and multiplied by the spot price define the notional value of the derivative. Historically, derivatives have been associated with agricultural production: a forward or a futures contract would specify the quantity and price of an agricultural commodity that would be delivered at a definite point in the future. A forward contract would be a private agreement between two parties agreeing to trade some specific output at a certain price and time (e.g., the wheat produced by one of the contracting parties); a futures contract would also be a private agreement between two parties but the commodity traded would be generic (e.g., any wheat of a certain type and quality).

Capitalist farmers could use derivatives to hedge against unforeseen fluctuations in the price of output. In addition to hedging, derivatives could also be used to speculate on the future movement of prices, or to arbitrage among different markets exhibiting unwarranted price divergences in the underlying asset. Thus, the standard way of intro- ducing derivatives in textbooks is as instruments that make for hedging, speculation or arbitrage among market traders.* Derivatives markets are typically perceived as spontaneously emerging entities which supplement the services offered by the markets in underlying assets, and hence improve the efficiency of the capitalist economy. Even with this simple definition of derivatives, a key distinction is apparent - one between a contract that meets the specific conditions of two counterparties (a for- ward) and a contract that is more generic and could be traded freely in open mar- kets (a future). The former is similar to an over-the-counter derivative, the latter to an exchange-traded derivative. They represent two different ways of undertaking the trading process - the forward depends on the specific decisions of the trading parties, the future depends on the impersonal and ‘third’ institution of the ‘exchange’ which organizes the trading. The exchange’ standardizes futures contracts, steps between buyers and sellers to clear purchases and sales by the counterparties and, critically, demands a daily ‘margin’ in cash as protection from failure to meet contracted obli- gations at maturity.

The most important development in the evolution of derivatives trading in recent years has been the move to cash settlement of the contract, thus freeing the counter- parties from the need to deliver the underlying asset.' On this basis, derivatives have become essentially a punt on the future direction of the price of the underlying asset that is subsequently settled in cash. Consequently, the trading of derivatives has come to include underlying assets that could never be delivered, such as a stock market index. In effect, the derivative has become what could be called a contract-for-differ- ences - an agreement between buyer and seller to exchange the difference between the current value of a share, currency, commodity, or index and its value at maturity of the contract. If the difference is positive, the seller pays the buyer; if it is negative, the buyer is the one who loses money. Profit, in this context, depends on the difference between a fixed financial parameter and its uncertain value in the future.4

Spurred by cash settlement, the growth ol derivatives markets in the years of hnan- cialization has been breathtaking: from practical irrelevance in the 1980s, their notion- al sum in 2011 was in the vicinity of 700 trillion US dollars for over-the-counter and probably a similar sum for exchange-traded derivatives.' Yet, at the core of the enor- mously expanded derivatives markets lie a few international banks, which have also been one of the driving forces of financialization. Banks are the pillar of contemporary of the 1980s to the end of the 2000s the notional outstanding appears to have doubled every two or three years for most of the period.

Consider now the role of banks in these enormous markets. The importance of banks is most apparent in the over-the-counter market, which naturally lacks the organizing role played by the exchange’ in the exchange-traded market. Banks func- tion as market-makers, that is, as agents that stand ready to buy and sell in the over- the-counter market; they are the dealers that are integral to market functioning. Banks also provide the necessary market infrastructure through vital market institutions such as the International Swaps and Derivatives Association (ISDA). Table 2 classifies over-the-counter transactions in terms of the counterparties, which are split into dealer banks, other financial institutions, and non-financial customers.8

... ... ...

Approximately US sjotn is not allocated either because it refers to commodity derivatives, or because it represents adjustments in BIS statistics. In practice, over-the-counter derivatives function as banking instruments. Almost a third of the trading in over-the-counter derivatives in 2011 took place in dealer-to-deal- er transactions, while all transactions had at least one dealer bank as a counterparty. There were, perhaps, seventy sizeable dealer banks in about twenty countries transact- ing with many thousands of end users of derivatives; indeed, concentration appears to have been even greater than that, and perhaps fifteen to twenty dealers controlled the overwhelming bulk of over-the-counter trading across the world." These dealers were

large global banks that were also fundamental to financialization. The same banks were among the largest participants in the exchange-traded markets, though data is hard to obtain for the latter. There is no doubt, however, that the large dealer banks were heavily involved in the management of the ‘exchanges’, including determination of risk management procedures and ‘margin’ levels.

Given the dominant presence of banks in the derivatives markets, it is hardly surprising that banks have encouraged the broadening of derivatives trading to include underlying assets with which they are most familiar - financial securities. Table 2 shows that less that ю percent of over-the-counter transactions actually involved non-financial enterprises: the great bulk comprised transactions that took place among financial institutions, and thus referred mostly to financial derivatives. In fact, growth in the derivatives markets has generally been dominated by inter- est-rate and foreign-exchange derivatives; since the early 2000s the strongest growth has been in credit default swaps (CDS), which are briefly discussed in Part III of this book.10

The price of financial derivatives depends, among other factors, on the rate of interest, and the rate that is typically used to value most financial derivatives is the London Interbank Offered Rate (LIBOR). The LIBOR is determined by a committee comprising several of the banks that dominate the derivatives markets; its determination involves the simple averaging of interest rates (excluding outliers) submitted by LIBOR committee banks daily. These are rates at which the LIBOR banks think that they can borrow from each other, although no LIBOR bank is obliged to undertake borrowing at the submitted rate. The LIBOR acts as a rate of interest that determines the value of derivatives, but it is not a rate of interest in the normal sense since no actual transactions need to take place at the rates declared by the committee banks.

In short, the banks that dominate derivatives trading are also the banks that set the interest rate at which derivatives are traded and valued, although the banks are not obliged to trade at the declared rate. No wonder, then, that one of the most egregious scandals of financialization appears to be the manipulation of the LIBOR by large deal- er banks, a matter which has been under police investigation since 2010. The problem is not a few ‘rotten apples’ amidst the LIBOR committee, criminally colluding with each other and with brokers to influence the LIBOR. Rather, a deeply flawed structure has allowed dealer banks to dominate derivatives markets while effectively manipulating the terms of derivatives trading."

Banks are at the heart of the derivatives markets which have been such a prominent feature of financialization. Derivatives markets rely on banks, in particular on the price-making skills and general organizational capabilities of banks. Indeed, banks are so dominant in derivatives markets that they are even capable of manipulating the key rate on the basis of which derivatives prices are formed. The vast growth of derivatives markets reflects in part the turn of banks toward trading in open financial markets, which is one of the fundamental tendencies of financialization. In sum, at the root of financialization lie the vast banks of mature and other economies. The theoretical and empirical analysis of financialization in the rest of this book, therefore, focuses on banks as well as non-financial enterprises and households.

Highlights from Killing the Host- How Financial Parasites and Debt Bondage Destroy the Global Economy by Michael Hudson - Rapid Shift

May 15, 2017

The “Forgash Plan,” named for Florida Senator Morris Forgash, proposed a World Bank for Economic Acceleration with an alternative policy to the existing World Bank – lending in domestic currency for land reform and greater self-sufficiency in food instead of plantation export crops. My first evening’s visit with him transfixed me with two ideas that have become my life’s work. First was his almost poetic description of the flow of funds through the economic system. He explained why most financial crises historically occurred in the autumn when the crops were moved. 39

Finance, natural resources and industry were parts of an interconnected system much like astronomy – and to me, an aesthetic thing of beauty. But unlike astronomical cycles, the mathematics of compound interest leads economies inevitably into a debt crash, because the financial system expands faster than the underlying economy, overburdening it with debt so that crises grow increasingly severe. Economies are torn apart by breaks in the chain of payments. 44

For the next twenty years, Terence and I spoke about an hour a day on current economic events. He had translated A History of Economic Doctrines: From the Physiocrats to Adam Smith, the first English-language version of Marx’s Theories of Surplus Value – which itself was the first real history of economic thought. 49

they are not taught in any university departments: the dynamics of debt, and how the pattern of bank lending inflates land prices, or national income accounting and the rising share absorbed by rent extraction in the Finance, Insurance and Real Estate (FIRE) sector. 55

the more prices rise, the more banks are willing to lend – as long as more people keep joining what looks like a perpetual motion wealth-creating machine. The process works only as long as incomes are rising. Few people notice that most of their rising income is being paid for housing. They feel that they are saving – and getting richer by paying for an investment that will grow. At least, that is what worked for sixty years after World War II ended in 1945. But bubbles always burst, because they are financed with debt, which expands like a chain letter for the economy as a whole. Mortgage debt service absorbs more and more of the rental value of real estate, and of homeowners’ income as new buyers take on more debt to buy homes that are rising in price. Tracking the upsweep of savings and the debt-financed rise in housing prices turned out to be the best way to understand how most “paper wealth” has been created 66

despite the fact that the economy’s largest asset is real estate – and is both the main asset and largest debt for most families – the analysis of land rent and property valuation did not even appear in the courses that I was taught in the evenings working toward my economics PhD. 75

export earnings and other foreign exchange receipts, which served as were a measure of how much revenue might be paid as debt service on new borrowings from U.S. banks. 80

international banks view the hard-currency earnings of foreign countries as potential revenue to be capitalized into loans and paid as interest. The implicit aim of bank marketing departments – and of creditors in general – is to attach the entire economic surplus for payment of debt service. 82

foreign debts mounted up at compound interest, an exponential growth that laid the ground for the crash that occurred in 1982 when Mexico announced that it couldn’t pay. In this respect, lending to Third World governments anticipated the real estate bubble that would crash in 2008. Except that Third World debts were written down in the 1980s (via Brady bonds), unlike mortgage debts. 89

using “flags of convenience” in Liberia and Panama enabled them to avoid paying income taxes either in the producing or consuming countries by giving the illusion that no profits were being made. The key was “transfer pricing.” Shipping affiliates in these tax-avoidance centers bought crude oil at low prices from Near Eastern or Venezuelan branches where oil was produced. These shipping and banking centers – which had no tax on profits – then sold this oil at marked-up prices to refineries in Europe or elsewhere. The transfer prices were set high enough so as not to leave any profit to be declared. 94

My charts revealed that the U.S. payments deficit was entirely military in character throughout the 1960s. The private sector – foreign trade and investment – was exactly in balance, year after year, and “foreign aid” actually produced a dollar surplus (and was required to do so under U.S. law). 110

I quickly discovered that of all the subdisciplines of economics, international trade theory was the silliest. Gunboats and military spending make no appearance in this theorizing, nor do the all-important “errors and omissions,” capital flight, smuggling, or fictitious transfer pricing for tax avoidance. These elisions are needed to steer trade theory toward the perverse and destructive conclusion that any country can pay any amount of debt, simply by lowering wages enough to pay creditors. All that seems to be needed is sufficient devaluation (what mainly is devalued is the cost of local labor), or lowering wages by labor market “reforms” and austerity programs. This theory has been proved false everywhere it has been applied, but it remains the essence of IMF orthodoxy. 116

Academic monetary theory is even worse. Milton Friedman’s “Chicago School” relates the money supply only to commodity prices and wages, not to asset prices for real estate, stocks and bonds. It pretends that money and credit are lent to business for investment in capital goods and new hiring, not to buy real estate, stocks and bonds. There is little attempt to take into account the debt service that must be paid on this credit, diverting spending away from consumer goods and tangible capital goods. So I found academic theory to be the reverse of how the world actually works. 122

early economists recognized the problems of governments (or others) relying on creditors for policy advice. As Adam Smith explained, a creditor of the public, considered merely as such, has no interest in the good condition of any particular portion of land, or in the good management of any particular portion of capital stock. … He has no inspection of it. He can have no care about it. Its ruin may in some cases be unknown to him, and cannot directly affect him. The bondholders’ interest is solely to extricate as much as they can as quickly as possible with little concern for the social devastation they cause. Yet they have managed to sell the idea that sovereign nations as well as individuals have a moral obligation to pay debts, even to act on behalf of creditors instead of their domestic populations. 129

My focus here too was to warn that Third World economies could not pay their foreign debts. Most of these loans were taken on to subsidize trade dependency, not restructure economies to enable them to pay. 158

IMF “structural adjustment” austerity programs – of the type now being imposed across the Eurozone – make the debt situation worse, by raising interest rates and taxes on labor, cutting pensions and social welfare spending, and selling off the public infrastructure (especially banking, water and mineral rights, communications and transportation) to rent-seeking monopolists. This kind of “adjustment” puts the class war back in business, on an international scale. 160

Although Wall Street bankers usually see the handwriting on the wall, their lobbyists insist that all debts can be paid, so that they can blame countries for not “tightening their belts.” Banks have a self-interest in denying the obvious problems of paying “capital transfers” in hard currency. My experience with this kind of bank-sponsored junk economics infecting public agencies inspired me to start compiling a history of how societies through the ages have handled their debt problems. It took me about a year to sketch the history of debt crises as far back as classical Greece and Rome, as well as the Biblical background of the Jubilee Year. But then I began to unearth a prehistory of debt practices going back to Sumer in the third millennium BC. 165

how interest-bearing debt first came into being – in the temples and palaces, not among individuals bartering. Most debts were owed to these large public institutions or their collectors, which is why rulers were able to cancel debts so frequently: They were cancelling debts owed to themselves, to prevent disruption of their economies. 172

shares were sold in Buenos Aires and San Paolo, mainly to the elites who held the high-yielding dollar bonds of their countries in offshore accounts. This showed us that the financial managers would indeed keep paying their governments’ foreign debts, as long as they were paying themselves as “Yankee bondholders” offshore. The Scudder fund achieved the world’s second highest-ranking rate of return in 1990. 184

most of the public is interested in understanding a great crash only after it occurs, not during the run-up when good returns are to be made. 190

the Near Eastern tradition of Biblical debt cancellations was firmly grounded. Two decades ago economic historians and even many Biblical scholars thought that the Jubilee Year was merely a literary creation, a utopian escape from practical reality. I encountered a wall of cognitive dissonance at the thought that the practice was attested to in increasingly detailed Clean Slate proclamations. Each region had its own word for such proclamations: Sumerian amargi, meaning a return to the “mother” (ama) condition, a world in balance; Babylonian misharum, as well as andurarum, from which Judea borrowed as deror, and Hurrian shudutu. Egypt’s Rosetta Stone refers to this tradition of amnesty for debts and for liberating exiles and prisoners. Instead of a sanctity of debt, what was sacred was the regular cancellation of agrarian debts and freeing of bondservants in order to preserve social balance. Such amnesties were not destabilizing, but were essential to preserving social and economic stability. 205

an economics curriculum in Modern Monetary Theory (MMT) at UMKC. For the past twenty years our aim has been to show the steps needed to avoid the unemployment and vast transfer of property from debtors to creditors that is tearing economies apart today. I presented my basic financial model in Kansas City in 2004, with a chart that I repeated in my May 2006 cover story for Harper’s. 225

The disabling force of debt was recognized more clearly in the 18th and 19th centuries (not to mention four thousand years ago in the Bronze Age). This has led pro-creditor economists to exclude the history of economic thought from the curriculum. Mainstream economics has become censorially pro-creditor, pro-austerity (that is, anti-labor) and anti-government (except for insisting on the need for taxpayer bailouts of the largest banks and savers). Yet it has captured Congressional policy, universities and the mass media to broadcast a false map of how economies work. 233

Spouting ostensible free market ideology, the pro-creditor mainstream rejects what the classical economic reformers actually wrote. One is left to choose between central planning by a public bureaucracy, or even more centralized planning by Wall Street’s financial bureaucracy. The middle ground of a mixed public/private economy has been all but forgotten – denounced as “socialism.” Yet every successful economy in history has been a mixed economy. 240

As for financial dynamics in the business sector, today’s “activist shareholders” and corporate raiders are financializing industry in ways that undercut rather than promote tangible capital formation and employment. Credit is increasingly predatory rather than enabling personal, corporate and government debtors to earn the money to pay. This pattern of debt is what classical economists defined as unproductive, favoring unearned income (economic rent) and speculative gains over profits earned by employing labor to produce goods and services. I therefore start by reviewing how the Enlightenment and original free market economists spent two centuries trying to prevent precisely the kind of rentier dominance that is stifling today’s economies and rolling back democracies to create financial oligarchies. 247

what is at work is an Orwellian strategy of rhetorical deception to represent finance and other rentier sectors as being part of the economy, not external to it. This is precisely the strategy that parasites in nature use to deceive their hosts that they are not free riders but part of the host’s own body, deserving careful protection. 254

leeches inject an anti-coagulant enzyme that helps prevent inflammation and thus steers the body to recovery. 270

countries under public sponsorship. Across the political spectrum, from “state socialism” under Bismarck to Marxist theorists, bankers were expected to become the economy’s central planners, by providing credit for the most profitable and presumably socially beneficial uses. A three-way symbiotic relationship emerged to create a “mixed economy” of government, high finance and industry. For thousands of years, from ancient Mesopotamia through classical Greece and Rome, temples and palaces were the major creditors, coining and providing money, creating basic infrastructure and receiving user fees as well as taxes. The Templars and Hospitallers led the revival of banking in medieval Europe, whose Renaissance and Progressive Era economies integrated public investment productively with private financing. To make this symbiosis successful and free immune to special privilege and corruption, 19th-century economists sought to free parliaments from control by the propertied classes that dominated their upper houses. 284

Parliamentary reform extending the vote to all citizens was expected to elect governments that would act in society’s long-term interest. Public authorities would take the lead in major capital investments in roads, ports and other transportation, communications, power production and other basic utilities, including banking, without private rent-extractors intruding into the process. The alternative was for infrastructure to be owned in a pattern much like absentee landlordship, enabling rent-extracting owners to set up tollbooths to charge society whatever the market would bear. Such privatization is contrary to what classical economists meant by a free market. They envisioned a market free from rent paid to a hereditary landlord class, and free from interest and monopoly rent paid to private owners. The ideal system was a morally fair market in which people would be rewarded for their labor and enterprise, but would not receive income without making a positive contribution to production and related social needs. 294

Adam Smith, David Ricardo, John Stuart Mill and their contemporaries warned that rent extraction threatened to siphon off income and bid up prices above the necessary cost of production. Their major aim was to prevent landlords from “reaping where they have not sown,” as Smith put it. Toward this end their labor theory of value (discussed in Chapter 3) aimed at deterring landlords, natural resource owners and monopolists from charging prices above cost-value. Opposing governments controlled by rentiers. 303

Recognizing how most great fortunes had been built up in predatory ways, through usury, war lending and political insider dealings to grab the Commons and carve out burdensome monopoly privileges led to a popular view of financial magnates, landlords and hereditary ruling elite as parasitic by the 19th century, epitomized by the French anarchist Proudhon’s slogan “Property as theft.” 307

Instead of creating a mutually beneficial symbiosis with the economy of production and consumption, today’s financial parasitism siphons off income needed to invest and grow. Bankers and bondholders desiccate the host economy by extracting revenue to pay interest and dividends. Repaying a loan – amortizing or “killing” it – shrinks the host. Like the word amortization, mortgage (“dead hand” of past claims for payment) contains the root mort, “death.” A financialized economy becomes a mortuary when the host economy becomes a meal for the financial free luncher that takes interest, fees and other charges without contributing to production. 311

The answer depends on whether the host can remain self-steering in the face of a parasitic attack. Taking control of the host’s brain/government Modern biology provides the basis for a more elaborate social analogy to financial strategy, by describing the sophisticated strategy that parasites use to control their hosts by disabling their normal defense mechanisms. To be accepted, the parasite must convince the host that no attack is underway. To siphon off a free lunch without triggering resistance, the parasite needs to take control of the host’s brain, at first to dull its awareness that an invader has attached itself, and then to make the host believe that the free rider is helping rather than depleting it and is temperate in its demands, only asking for the necessary expenses of providing its services. In that spirit bankers depict their interest charges as a necessary and benevolent part of the economy, providing credit to facilitate production and thus deserving to share in the surplus it helps create. 319

distinguish financial claims on wealth from real wealth creation. Their interest charges and fees typically eat into the circular flow of payments and income between producers and consumers. To deter protective regulations to limit this incursion, high finance popularizes promotes a “value-free” view that no sector exploits any other part. Whatever creditors and their financial managers take is deemed to be fair value for the services they provide 329

David Ricardo aimed his rent theory at Britain’s landlords while remaining silent about the financial rentiers – the class whose activities John Maynard Keynes playfully suggested should be euthanized. Landed proprietors, financiers and monopolists were singled out as the most visible free lunchers – giving them the strongest motive to deny the concept in principle. Familiar parasites in today’s economy include Wall Street’s investment bankers and hedge fund managers who raid companies and empty out their pension reserves; also, landlords who rack-rent their tenants (threatening eviction if unfair and extortionate demands are not met), and monopolists who gouge consumers with prices not warranted by the actual costs of production. Commercial banks demand that government treasuries or central banks cover their losses, claiming that their credit-steering activity is necessary to allocate resources and avoid economic dissolution. So here again we find the basic rentier demand: “Your money, or your life.” A rentier economy is one in which individuals and entire sectors levy charges for the property and privileges they have obtained, or more often that their ancestors have bequeathed. 352

The great reversal of classical Industrial Era reform ideology to regulate or tax away rentier income occurred after World War I. Bankers came to see their major market to be real estate, mineral rights, and monopolies. Lending mainly to finance the purchase and sale of rent-extracting opportunities in these sectors, banks lent against what buyers of land, mines and monopolies could squeeze out of their rent-extracting “tollbooth” opportunities.  The effect was to pry away the land rent and natural resource rent that classical economists expected to serve as the natural tax base. In industry, Wall Street became the “mother of trusts,” creating mergers into monopolies as vehicles to extract monopoly rent. Precisely because a “free lunch” (rent) was free – if governments did not tax it away – speculators and other buyers sought to borrow to buy such rent-extracting privileges. 382

Biological nature provides a helpful analogy for the banking sector’s ideological ploys. A parasite’s toolkit includes behavior-modifying enzymes to make the host protect and nurture it. Financial intruders into a host economy use Junk Economics to rationalize rentier parasitism as if it makes a productive contribution, as if the tumor they create is part of the host’s own body, not an overgrowth living off the economy. A harmony of interests is depicted between finance and industry, Wall Street and Main Street, and even between creditors and debtors, monopolists and their customers. Nowhere in the National Income and Product Accounts is there a category for unearned income or exploitation. 409

about half of what the media report as “industrial profits” are FIRE-sector rents, that is, finance, insurance and real estate rents – and most of the remaining “profits” are monopoly rents for patents (headed by pharmaceuticals and information technology) and other legal privileges. Rents are conflated with profit. This is the terminology of financial intruders and rentiers seeking to erase the language and concepts of Adam Smith, Ricardo and their contemporaries depicting rents as parasitic. 416

The financial sector’s strategy to dominate labor, industry and government involves disabling the economy’s “brain” – the government – and behind it, democratic reforms to regulate banks and bondholders. Financial lobbyists mount attacks on public planning, accusing public investment and taxes of being a deadweight burden, not as steering economies to maximize prosperity, competitiveness, rising productivity and living standards. Banks become the economy’s central planners, and their plan is for industry and labor to serve finance, not the other way around. 420

today’s high (and low) finance rarely leaves the economy enough tangible capital to reproduce, much less to feed the insatiable exponential dynamics of compound interest and predatory asset stripping. In nature, parasites tend kill hosts that are dying, using their substance as food for the intruder’s own progeny. The economic analogy takes hold when financial managers use depreciation allowances for stock buybacks or to pay out as dividends instead of replenishing and updating their plant and equipment. Tangible capital investment, research and development and employment are cut back to provide purely financial returns. When creditors demand austerity programs to squeeze out “what is owed,” enabling their loans and investments to keep growing exponentially, they starve the industrial economy and create a demographic, economic, political and social crisis. This is what 443

As wages fall, suicide rates rise, life spans shorten, and marriage and birth rates plunge. Failure to reinvest enough earnings in new means of production shrinks the economy, prompting capital flight to less austerity-ravaged economies. 452

Today’s banks don’t finance tangible investment in factories, new means of production or research and development – the “productive lending” that is supposed to provide borrowers with the means to pay off their debt. Banks largely lend against collateral already in place, mainly real estate (80 percent of bank loans), stocks and bonds. The effect is to transfer ownership of these assets, not produce more. 3. Borrowers use these loans to bid up prices for the assets they buy on credit: homes and office buildings, entire companies (by debt-leveraged buyouts), and infrastructure in the public domain on which to install tollbooths and charge access rents. Lending against such assets bids up their prices – Asset-Price Inflation. 4. Paying off these loans with interest leaves less wage or profit income available to spend on consumer goods or capital goods. This Debt Deflation is the inevitable successor to Asset-Price Inflation. Debt service and rent charges shrink markets, consumer spending, employment and wages. 505

Austerity makes it harder to pay debts, by shrinking markets and causing unemployment. That is why John Maynard Keynes urged “euthanasia of the rentier” if industrial capitalism is to thrive. He hoped to shift the focus of fortune-seeking away from banking, and implicitly from its major loan markets in absentee landlordship and privatization of rent-extracting monopolies. 6. Mainstream policy pretends that economies are able to pay their debts without reducing their living standards or losing property. But debts grow exponentially faster than the economy’s ability to pay as interest accrues and is recycled (while new bank credit is created electronically). The “magic of compound interest” doubles and redoubles savings and debt balances by purely mathematical laws that are independent of the economy’s ability to produce and pay. Economies become more debt-leveraged as claims for payment are concentrated in the hands of the One Percent.514

Debts that can’t be paid, won’t be. The question is: how won’t they be paid? There are two ways not to pay. The most drastic and disruptive way (euphemized as “business as usual”) is for individuals, companies or governments to sell off or forfeit their assets. The second way to resolve matters is to write down debts to a level that can be paid. Bankers and bondholders prefer the former option, and insist that all debts can be paid, given the “will to do so,” that is, the will to transfer property into their hands. This is the solution that mainstream monetarist economists, government policy and the mass media popularize as basic morality. But it destroys Economy #1 to enrich the 1 percent who dominate Economy #2.522

Banks and bondholders oppose debt write-downs to bring debt in line with earnings and historical asset valuations. Creditor demands for payment run the economy in the interest of the financialized Economy #2 instead of protecting the indebted production-and-consumption Economy #1. The effect is to drive both economies bankrupt. 10. The financial sector (the One Percent) backs oligarchies. Eurozone creditors recently imposed “technocrats” to govern debt-strapped Greece and Italy, and blocked democratic referendums on whether to accept the bailouts and their associated austerity terms. This policy dates from the 1960s and ’70s when the IMF and U.S. Government began backing creditor-friendly Third World oligarchies and military dictatorships. 11. Every economy is planned. The question is, who will do the planning: banks or elected governments? Will planning and structuring the economy serve short-term financial interests (making asset-price gains and extracting rent) or will it promote the long-term upgrading of industry and living standards?536

That is why consumer spending has not risen since 2008. Even when income rises, many families find their paychecks eaten up by debt service. That is what debt deflation means. Income paid to creditors is not available for spending on goods and services. 566

Debt deflation leads to defaults and foreclosures, while bondholders and banks get bailed out at government expense. In the workplace, many employees are so deep in debt that they are afraid to complain about working conditions out of fear losing their jobs and thus missing a mortgage payment or utility bill, which would bump their credit-card interest rates up to the penalty range of circa 29 percent. This has been called the debt-traumatized worker effect, and it is a major cause of wage stagnation. 572

Finance and land rent: How bankers replaced the landed aristocracy The Norman Conquest of Britain in 1066 and similar conquests of the land in other European realms led to a constant fiscal struggle over who should receive the land’s rent: the king as his tax base, or the nobility to whom the land had been parceled out for them to manage, nominally on behalf of the palace. Increasingly, the hereditary landlord class privatized this rent, obliging kings to tax labor and industry. This rent grab set the stage for the great fight of classical free market economists, from the French Physiocrats to Adam Smith, John Stuart Mill, Henry George and their contemporaries to tax land and natural resource rents as the fiscal base. Their aim was to replace the vested aristocracy of rent recipients with public taxation or ownership of what was a gift of nature 576

The main aim of political economy for the past three centuries has been to recover the flow of privatized land and natural resource rent that medieval kings had lost. The political dimension of this effort involved democratic constitutional reform to overpower the rent-levying class. By the late 19th century political pressure was rising to tax landowners in Britain, the United States and other countries. In Britain a constitutional crisis over land taxation in 1910 ended the landed aristocracy’s power in the House of Lords to block House of Commons tax policy. Sun Yat-Sen’s revolution in China in 1911 to overthrow the Qing dynasty was fueled by demands for land taxation as the fiscal base. And when the United States instituted the income tax in 1913, it fell mainly on rentier income from real estate, natural resources and financial gains. Similar democratic tax reform was spreading throughout the world. 588

most of the rental income hitherto paid to a landlord class is now paid to banks as mortgage interest, not to the government as classical doctrine had urged. Today’s financial sector thus has taken over the role that the landed aristocracy played in feudal Europe. But although rent no longer supports a landed aristocracy, it does not serve as the tax base either. It is paid to the banks as mortgage interest. Homebuyers, commercial investors and property speculators are obliged to pay the rental value to bankers as the price of acquiring it. 604

The buyer who takes out the biggest mortgage to pay the bank the most gets the asset. So real estate ends up being worth whatever banks will lend against it. 608

Finance as the mother of monopolies The other form of rent that Adam Smith and other classical economists sought to minimize was that of natural monopolies such as the East India Companies of Britain, France and Holland, and kindred special trade privileges. This was what free trade basically meant. Most European countries kept basic infrastructure in the public domain – roads and railroads, communications, water, education, health care and pensions so as to minimize the economy’s cost of living and doing business by providing basic services at cost, at subsidized rates or even freely. 609

The financial sector’s aim is not to minimize the cost of roads, electric power, transportation, water or education, but to maximize what can be charged as monopoly rent. Since 1980 the privatization of this infrastructure has been greatly accelerated. Having financialized oil and gas, mining, power utilities, financial centers are now seeking to de-socialize society’s most important infrastructure, largely to provide public revenue to cut taxes on finance, insurance and real estate (FIRE). 615

The reality is that debt service (interest and dividends), exorbitant management fees, stock options, underwriting fees, mergers and acquisitions add to the cost of doing business. 624

Property speculators and buyers of price-gouging opportunities for monopoly rent on credit have a similar operating philosophy: “rent is for paying interest.” The steeper the rate of monopoly rent, the more privatizers will pay bankers and bond investors for ownership rights. The financial sector ends up as the main recipient of monopoly rents and land rents, receiving what the landlord class used to obtain. 625

banks rarely fund new means of production. They prefer to lend for mergers, management buyouts or raids of companies already in place. As for bondholders, they found a new market in the 1980s wave of high-interest “junk-bond” takeovers. Lower interest rates make it easier to borrow and take over companies – and then break them up, bleed them via management fees, and scale back pensions by threatening bankruptcy. 639

Bank lending focused on trade financing, not capital investment. 643

industry has become financialized, “activist shareholders” treat corporate industry as a vehicle to produce financial gains. Managers are paid according to how rapidly they can increase their companies’ stock price, which is done most easily by debt leveraging. This has turned the stock market into an arena for asset stripping, using corporate profits for share buybacks and higher dividend payouts instead of for long-term investment (Chapter 8). 645

Financializing industry thus has changed the character of class warfare from what socialists and labor leaders envisioned in the late 19th century and early 20th century. Then, the great struggle was between employers and labor over wages and benefits. Today’s finance is cannibalizing industrial capital, imposing austerity and shrinking employment while its drive to privatize monopolies increases the cost of living. 649

budget deficits have increased the power of financial lobbyists who have pushed politicians to reverse progressive income taxation and cut taxes on capital gains. Instead of central banks monetizing deficit spending to help the economy recover, they create money mainly to lend to banks for the purpose of increasing the economy’s debt overhead. Since 2008 the U.S. Federal Reserve has monetized $4 trillion in Quantitative Easing credit to banks. The aim is to re-inflate asset prices for the real estate, bonds and stocks held as collateral by financial institutions (and the One Percent), not to help the “real” economy recover. 655

Financial sector advocates have sought to control democracies by shifting tax policy and bank regulation out of the hands of elected representatives to nominees from world’s financial centers. The aim of this planning is not for the classical progressive objectives of mobilizing savings to increase productivity and raise populations out of poverty. The objective of finance capitalism is not capital formation, but acquisition of rent-yielding privileges for real estate, natural resources and monopolies. These are precisely the forms of revenue that centuries of classical economists sought to tax away or minimize. By allying itself with the rentier sectors and lobbying on their behalf – so as to extract their rent as interest – banking and high finance have become part of the economic overhead from which classical economists sought to free society. 667

The result of moving into a symbiosis with real estate, mining, oil, other natural resources and monopolies has been to financialize these sectors. As this has occurred, bank lobbyists have urged that land be un-taxed so as to leave more rent (and other natural resource rent) “free” to be paid as interest – while forcing governments to tax labor and industry instead. To promote this tax shift and debt leveraging, financial lobbyists have created a smokescreen of deception that depicts financialization as helping economies grow. They accuse central bank monetizing of budget deficits as being inherently inflationary – despite no evidence of this, and despite the vast inflation of real estate prices and stock prices by predatory bank credit. 674

Money creation is now monopolized by banks, which use this power to finance the transfer of property – with the source of the quickest and largest fortunes being infrastructure and natural resources pried out of the public domain of debtor countries by a combination of political insider dealing and debt leverage – a merger of kleptocracy with the world’s financial centers. 680

The financial strategy is capped by creating international financial institutions (the International Monetary Fund, European Central Bank) to bring pressure on debtor economies to take fiscal policy out of the hands of elected parliaments and into those of institutions ruling on behalf of bankers and bondholders. This global power has enabled finance to override potentially debtor-friendly governments. 683

Financial oligarchy replaces democracy All this contradicts what the 18th, 19th and most of the 20th century fought for in their drive to free economies from landlords, monopolists and “coupon clippers” living off bonds, stocks and real estate (largely inherited). Their income was a technologically and economically unnecessary vestige of past conquests – privileges bequeathed to subsequent generations. When parliamentary reform dislodged the landed aristocracy’s control of government, the hope was that extending the vote to the population at large would lead to policies that would manage land, natural resources and natural monopolies in the long-term public interest. Yet what Thorstein Veblen called the vested interests have rebuilt their political dominance, led by the financial sector which used its wealth to gain control of the election process to create a neo-rentier society imposing austerity. 686

A cultural counter-revolution has taken place. If few people have noticed, it is because the financial sector has rewritten history and re-defined the public’s idea of what economic progress and a fair society is all about. The financial alternative to classical economics calls itself “neoliberalism,” but it is the opposite of what the Enlightenment’s original liberal reformers called themselves. Land rent has not ended up in government hands, and more and more public services have been privatized to squeeze out monopoly rent. Banks have gained control of government and their central banks to create money only to bail out creditor losses, not to finance public spending. 696

finance has backed the rent-extracting sectors. And instead of central banks creating money to finance their budget deficits, governments are now forced to rely on bondholders, leaving it up to commercial banks and other creditors to provide the credit that economies need to grow. The result is that today’s society is indeed moving toward the central planning that financial lobbyists have long denounced. But the planning has been shifted to financial centers (Wall Street, the City of London or Frankfurt). And its plan is to create a neo-rentier society. Instead of helping the host economy grow, banking, bond markets and even the stock market have become part of a predatory, extractive dynamic. 704

This destructive scenario would not have been possible if memory of the classical critique of rentiers had remained at the center of political discussion. Chapter 2 therefore reviews how three centuries of Enlightenment reform sought to free industrial capitalism from the rentier overhead bequeathed by feudalism. Only by understanding this legacy can we see how today’s financial counter-Enlightenment is leading us back to a neo-feudal economy. 710

Marxism diagnosed the main inner contradiction of industrial capitalism to be that its drive to increase profit by paying labor as little as possible would dry up the domestic market. The inner contradiction of finance capitalism is similar: Debt deflation strips away the economy’s land rent, natural resource rent, industrial profits, disposable personal income and tax revenue – leaving economies unable to carry their exponential rise in credit. Austerity leads to default, as we are seeing today in Greece. The financial sector’s response is to double down and try to lend enough to enable debtors to pay. When this financial bubble bursts, creditors foreclose on the public domain of debtor economies, much as they foreclose on the homes of defaulting mortgage debtors. Central banks flood the economy with credit in an attempt to inflate a new asset-price bubble by lowering interest rates. U.S. Treasury bonds yield less than 1 percent, and the interest rate on German government bonds is actually negative, reflecting the “flight to safety” when debt write-downs look inevitable. In the end even zero-interest loans cannot be paid. 713

The underlying theme of this book thus can be summarized in a single sentence: Debts that can’t be paid, won’t be. But trying to pay such debts will plunge economies into prolonged depression. 723

The Long Fight to Free Economies from Feudalism’s Rentier Legacy If you do not own them, they will in time own you. They will destroy your politics [and] corrupt your institutions. — Cleveland mayor Tom Johnson (1901-09) speaking of power utilities726

Classical economics was part of a reform process to bring Europe out of the feudal era into the industrial age. This required overcoming the power of the landed aristocracy, bankers and monopolies to levy charges that were unfair because they did not reflect actual labor or enterprise. Such revenue was deemed “unearned.” The original fight for free markets meant freeing them from exploitation by rent extractors: owners of land, natural resources, monopoly rights and money fortunes that provided income without corresponding work – and usually without tax liability. Where hereditary rental and financial revenue supported the richest aristocracies, the tax burden was shifted most heavily onto labor and industry, in addition to their rent and debt burden. 730

The classical reform program of Adam Smith and his followers was to tax the income deriving from privileges that were the legacy of feudal Europe and its military conquests, and to make land, banking and monopolies publicly regulated functions. 736

Neoliberals have re-defined “free markets” to mean an economy free for rent-seekers, that is, “free” of government regulation or taxation of unearned rentier income (rents and financial returns). 738

The best way to undo their counter-revolution is to revive the classical distinction between earned and unearned income, and the analysis of financial and debt relations (the “magic of compound interest”) as being predatory on the economy at large. This original critique of landlords, bankers and monopolists has been stripped out of the current political debate in favor of what is best characterized as trickle-down junk economics. 741

The title of Adam Smith’s chair at the University of Edinburgh was Moral Philosophy. This remained the name for economics courses taught in Britain and America through most of the 19th century. Another name was Political Economy, and 17th-century writers used the term Political Arithmetic. The common aim was to influence public policy: above all how to finance government, what best to tax, and what rules should govern banking and credit. 744

The French Physiocrats were the first to call themselves économistes. Their leader François Quesnay (1694-1774) developed the first national income models in the process of explaining why France should shift taxes off labor and industry onto its landed aristocracy. Adam Smith endorsed the view of the Marquis de Mirabeau (father of Honoré, Comte de Mirabeau, an early leader of the French Revolution) that Quesnay’s Tableau Économique was one of the three great inventions of history (along with writing and money) for distinguishing between earned and unearned income. The subsequent debate between David Ricardo and Thomas Malthus over whether to protect agricultural landlords with high tariffs (the Corn Laws) added the concept of land rent to the Physiocratic analysis of how the economic surplus is created, who ends up with it and how they spend their income. 749

The guiding principle was that everyone deserves to receive the fruits of their own labor, but not that of others. Classical value and price theory provided the analytic tool to define and measure unearned income as overhead classical economics. It aimed to distinguish the necessary costs of production – value – from the unnecessary (and hence, parasitic) excess of price over and above these costs. This monopoly rent, along with land rent or credit over intrinsic worth came to be called economic rent, the source of rentier income. An efficient economy should minimize economic rent in order to prevent dissipation and exploitation by the rentier classes. 756

For the past eight centuries the political aim of value theory has been to liberate nations from the three legacies of feudal Europe’s military and financial conquests: land rent, monopoly pricing and interest. Land rent is what landlords charge in payment for the ground that someone’s forbears conquered. Monopoly rent is price gouging by businesses with special privileges or market power. These privileges were called patents: rights to charge whatever the market would bear, without regard for the actual cost of doing business. Bankers, for instance, charge more than what really is needed to provide their services. 761

Bringing prices and incomes into line with the actual costs of production would free economies from in these rents and financial charges. Landlords do not have to work to demand higher rents. Land prices rise as economies become more prosperous, while public agencies build roads, schools and public transportation to increase site values. Likewise, in banking, money does not “work” to pay interest; debtors do the work. 766

Distinguishing the return to labor from that to special privilege (headed by monopolies) became part of the Enlightenment’s reform program to make economies more fair, and also lower-cost and more industrially competitive. But the rent-receiving classes – rentiers – argue that their charges do not add to the cost of living and doing business. Claiming that their gains are invested productively (not to acquire more assets or luxuries or extend more loans), their supporters seek to distract attention from how excessive charges polarize and impoverish economies. The essence of today’s neoliberal economics is to deny that any income or wealth is unearned, or that market prices may contain an unnecessary excessive rake-off over intrinsic value. If true, it would mean that no public regulation is necessary, or public ownership of infrastructure or basic services. Income at the top is held to trickle down, so that the One Percent serve the 99 Percent, creating rather than destroying jobs and prosperity. 770

The Churchmen’s theory of Just Price was an incipient labor theory of value: The cost of producing any commodity ultimately consists of the cost of labor, including that needed to produce the raw materials, plant and equipment used up in its production. Thomas Aquinas (122574) wrote that bankers and tradesmen should earn enough to support their families in a manner appropriate for their station, including enough to give to charity and pay taxes. The problem that he Aquinas and his fellow Scholastics addressed was much like today’s: it was deemed unfair for bankers to earn so much more for the services they performed (such as transferring funds from one currency or realm to another, or lending to business ventures) than what other professionals earned. It resembles today’s arguments over how much Wall Street investment bankers should make. The logic of Church theorists was that bankers should have a living standard much like professionals of similar station. This required holding down the price of services they could charge (e.g., by the usury laws enacted by most of the world prior to the 1980s), by regulating prices for their services, and by taxing high incomes and luxuries. 786

It took four centuries to extend the concept of Just Price to ground rent paid to the landlord class. Two decades after the Norman Conquest in 1066, for instance, William the Conqueror ordered compilation of the Domesday Book (1086). This tributary tax came to be privatized into ground rent paid to the nobility when it revolted against the greedy King John Lackland (1199-1216). The Magna Carta (1215) and Revolt of the Barons were largely moves by the landed aristocracy to avoid taxes and keep the rent for themselves, shift the fiscal burden onto labor and the towns. The ground rent they imposed thus was a legacy of the military conquest of Europe by warlords who appropriated the land’s crop surplus as tribute. 796

By the 18th century, attempts to free economies from the rent-extracting privileges and monopoly of political power that originated in conquest inspired criticisms of land rent and the aristocracy’s burdensome role (“the idle rich”). These flowered into a full-blown moral philosophy that became the ideology driving the Industrial Revolution. Its political dimension advocated democratic reform to limit the aristocracy’s power over government. The aim was not to dismantle the state as such, but to mobilize its tax policy, money creation and public regulations to limit predatory rentier levies. That was the essence of John Stuart Mill’s “Ricardian socialist” theory and those of America’s reform era with its anti-trust regulations and public utility regulatory boards. 802

Tax favoritism for rentiers and the decline of nations What makes these early discussions relevant today is that economies are in danger of succumbing to a new rentier syndrome. Spain might have used the vast inflows of silver and gold from its New World conquests to become Europe’s leading industrial power. Instead, the bullion it looted from the New World flowed right through its economy like water through a sieve. Spain’s aristocracy of post-feudal landowners monopolized the inflow, dissipating it on luxury, more land acquisition, money lending, and more wars of conquest. The nobility squeezed rent out of the rural population, taxed the urban population so steeply as to impose poverty everywhere, and provided little of the education, science and technology that was flowering in northern European realms more democratic and less stifled by their landed aristocracy. 808

The “Spanish Syndrome” became an object lesson for what to avoid. It inspired economists to define the various ways in which rentier wealth – and the tax and war policies it supported – blocked progress and led to the decline and fall of nations. Dean Josiah Tucker, a Welsh clergyman and political economist, pointed out in 1774 that it made a great difference whether nations obtained money by employing their population productively, or by piracy or simply looting of silver and gold, as Spain and Portugal had done with such debilitating effects, in which “very few Hands were employed in getting this Mass of Wealth … and fewer still are supposed to retain what is gotten.” 816

…Taxes were tripled between 1556 and 1577. Spending went up even faster… By 1600, interest on the national debt took 40 percent of the budget. Spain descended into bankruptcy and never recovered. Despite its vast stream of gold and silver, Spain became the most debt-ridden country in Europe – with its tax burden shifted entirely onto the least affluent, blocking development of a home market. Yet today’s neoliberal lobbyists are urging similar tax favoritism to un-tax finance and real estate, shift the tax burden onto labor and consumers, cut public infrastructure and social spending, and put rentier managers in charge of government. The main difference from Spain and other post-feudal economies is that interest to the financial sector has replaced the rent paid to feudal landlords. And as far as economic discussion is concerned, there is no singling out of rentier income as such. 825

The main distinction between today’s mode of conquest and that of 16th-century Spain (and 18th-century France) is that it is now largely financial, not military. Land, natural resources, public infrastructure and industrial corporations are acquired by borrowing money. The cost of this conquest turns out to be as heavy as overt military warfare. Landlords pay out their net rent as interest to the banks that provide mortgage credit for them to acquire property. Corporate raiders likewise pay their cash flow as interest to the bondholders who finance their takeovers. Even tax revenue is increasingly earmarked to pay creditors (often foreign, as in medieval times), not to invest in infrastructure, pay pensions or spend for economic recovery and social welfare. 835

Today’s monopolization of affluence by a rentier class avoiding taxes and public regulation by buying control of government is the same problem that confronted the classical economists. Their struggle to create a fairer economy produced the tools most appropriate to understand how today’s economies are polarizing while becoming less productive. The Physiocrats, Adam Smith, David Ricardo and their successors refined the analysis of how rent-seeking siphons off income from the economy’s flow of spending. 842

The classical critique of economic rent Classical value theory provides the clearest conceptual tools to analyze the dynamics that are polarizing and impoverishing today’s economies. The labor theory of value went hand-in-hand with a “rent theory” of prices, broadening the concept of economic rent imposed by landholders, monopolists and bankers. Rent theory became the basis for distinguishing between earned and unearned income. Nearly all public regulatory policy of the 20th century has followed the groundwork laid by this Enlightenment ideology and political reform from John Locke onward, defining value, price and rent as a guide to progressive tax philosophy, anti-monopoly price regulation, usury laws and rent controls. 846

Defenders of landlords fought back. Malthus argued that landlords would not simply collect rent passively, but would invest it productively to increase productivity. Subsequent apologists simply left unearned income out of their models, hoping to leave it invisible so that it would not be taxed or regulated. 853

Instead of acknowledging the reality of predatory rentier behavior, financial lobbyists depict lending as being productive, as if it normally provides borrowers with the means to make enough gain to pay. Yet little such lending has occurred in history, apart from investing in trade ventures. Most bank loans are not to create new means of production but are made against real estate, financial securities or other assets already in place. The main source of gain for borrowers since the 1980s has not derived from earnings but seeing the real estate, stocks or bonds they have bought on credit rise as a result of asset-price inflation – that is, to get rich from the debt-leveraged Bubble Economy. 859

What makes classical economics more insightful than today’s mainstream orthodoxy is its focus on wealth ownership and the special privileges used to extract income without producing a corresponding value of product or service. Most inequality does not reflect differing levels of productivity, but distortions resulting from property rights and other special privileges. Distinguishing between earned and unearned income, classical economists asked what tax philosophy and public policy would lead to the most efficient and fair prices, incomes and economic growth. 865

Government was situated to play a key role in allocating resources. But although nearly all economies in history have been mixed public/private economic systems, today’s anti-government pressure seeks to create a one-sided economy whose control is centralized in Wall Street and similar financial centers abroad. Democratic political reforms were expected to prevent this development, by replacing inherited privilege with equality of opportunity. The aim was to do away with such privileges and put everyone and every business on an equal footing. Economies were to be freed by turning natural monopolies and land into public utilities. 869

This is how classical free market reforms evolved toward socialism of one form or another on the eve of the 20th century. The hereditary landlord class was selling its land to buyers on credit. That is how land and home ownership were democratized. The unanticipated result has been that banks receive as mortgage interest the rental income formerly paid to landlords. The financial sector has replaced land ownership as the most important rentier sector, today’s post-industrial aristocracy. 874

In Britain, the House of Lords lost its ability to block revenue bills passed by the House of Commons in 1910. 881

The objective of most lending is to extract interest charges by attaching debt to real estate rent, corporate profits and personal income streams, turning them into a flow of interest charges. The “real” economy slows in the face of these exponentially growing financial claims (bank loans, stocks and bonds) that enrich primarily the One Percent. Instead of finance being industrialized, industry has become financialized. The stock and bond markets have been turned into arenas for debt-leveraged buyouts and asset stripping (described in Chapters 9 and 10 below). These dynamics represent a counter-revolution against classical ideas of free markets. Today’s neoliberal tax and financial philosophy is corrosive and destructive, not productive. Instead of promoting industry, capital formation and infrastructure, finance has moved into a symbiosis with the other rentier sectors: real estate, natural resource extraction, and natural monopolies.Acquisition of rent-yielding privileges on credit (or simply by insider dealing and legal maneuvering) does not require the fixed capital investment that manufacturing entails. 884

The Critique and Defense of Economic Rent, From Locke to Mill The main substantive achievement of neoliberalization … has been to redistribute, rather than to generate, wealth and income. [By] ‘accumulation by dispossession’ I mean … the commodification and privatization of land and the forceful expulsion of peasant populations; conversion of various forms of property rights (common, collective, state, etc.) into exclusive private property rights; suppression of rights to the commons; … colonial, neocolonial, and imperial processes of appropriation of assets (including natural resources); …and usury, the national debt and, most devastating of all, the use of the credit system as a radical means of accumulation by dispossession. … To this list of mechanisms we may now add a raft of techniques such as the extraction of rents from patents and intellectual property rights and the diminution or erasure of various forms of common property rights (such as state pensions, paid vacations, and access to education and health care) won through a generation or more of class struggle. The proposal to privatize all state pension rights (pioneered in Chile under the dictatorship) is, for example, one of the cherished objectives of the Republicans in the US. —David Harvey, A Brief History of Neoliberalism (Oxford, 2005)895

The phenomena cited by Harvey represent opportunities for rent extraction. Neoliberals claim that such special privileges and expropriation of hitherto public assets promote economic efficiency. Classical free marketers defined the rents they yielded as neither earned nor necessary for production to occur. They were a post-feudal overhead. 907

The year 1690 usually is treated as the takeoff point for the classical distinction between earned and unearned wealth and its income stream. At issue then was the contrast between real wealth created by labor, and special privileges – mainly post-feudal overhead – from which society could free itself and thus lower its cost structure. John Locke’s guiding axiom was that all men have a natural right to the fruits of their labor. A corollary to this logic was that landlords have a right only to what they themselves produce, not to exploit and appropriate the labor of their tenants: Though the earth and all inferior creatures be common to all men, yet every man has a property in his own person … The labour of his body and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property. … For this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, at least where there is enough and as good left in common for others. 910

Locke’s labor theory of property and wealth ownership set the stage for distinguishing between the portion of land rent that resulted from its owner’s expenditure of labor and capital investment, and what was received simply from ownership rights without labor effort. This contrast guided tax reform down through the Progressive Era in the early 20th century. Despite his conflation of former and present landholder’s labor, Locke’s exposition initiated a centuries-long discussion. By the 19th century the rising price of land sites was seen as occurring independently of effort by landlords. The rent they charged reflected prosperity by the rest of the economy, not their own effort. Economists call this kind of gain a windfall. It is like winning a lottery, including in many cases the inheritance lottery of how much wealth one’s parents have. 922

Classical economists argued that labor and capital goods require a cost necessary to bring them into production. Labor must receive wages sufficient to cover its basic subsistence, at living standards that tend to rise over time to sustain personal investment in better skills, education and health. And capital investment will not take place without the prospect of earning a profit. More problematic are accounting for land and natural resources. Production cannot take place without land, sunlight, air and water, but no labor or capital cost is necessary to provide them. They can be privatized by force, legal right or political fiat (sale by the state). 931

Classical economists focused on this kind of property claim in defining a fair distribution of income from land and other natural resources as between their initial appropriators, heirs and the tax collector. At issue was how much revenue should belong to the economy at large as its natural patrimony, and how much should be left in the hands of discoverers or appropriators and their descendants. The resulting theory of economic rent has been extended to monopoly rights and patents such as those which pharmaceutical companies obtain to charge for their price gouging. 938

The history of property acquisition is one of force and political intrigue, not labor by its existing owners. The wealthiest property owners have tended to be the most predatory – military conquerors, landed aristocracies, bankers, bondholders and monopolists. Their property rights to collect rent for land, mines, patents or monopolized trade are legal privileges produced by the legal system they control, not by labor. Medieval land grants typically were given to royal companions in return for their political loyalty. This land acquisition process continued from colonial times down through America’s land grants to the railroad barons and many other political giveaways to supporters in most countries, often for bribery and similar kinds of corruption. Most recently, the post-Soviet economies gave political insiders privatization rights to oil and gas, minerals, real estate and infrastructure at giveaway prices in the 1990s. 943

Russia and other countries followed American and World Bank advice to simply give property to individuals, as if this would automatically produce an efficient (idealized) Western European-style free market. What it actually did was to empower a class of oligarchs who obtained these assets by insider dealings. Popular usage coined the word “grabitization” to describe “red company” managers getting rich by registering natural resources, public utilities or factories in their own name, obtaining high prices for their shares by selling large chunks to Western investors, and keeping most of their receipts for these shares abroad as flight capital (about $25 billion annually since 1991 for Russia). This neoliberal privatization capped the Cold War by dismantling the Soviet Union’s public sector and reducing it to a neofeudal society. 950

The great challenge confronting post-Soviet economies is how to undo the effects of these kleptocratic grabs. One way would be to re-nationalize them. This is difficult politically, given the influence that great wealth is able to buy. A more “market oriented” solution is to leave these assets in their current hands but tax their land or resource rent to recapture portions of the windfall for the benefit of society. Without such restructuring, all that Vladimir Putin can do is informal “jawboning”: pressuring Russia’s oligarchs to invest their revenue at home. 957

these economies are going directly into neoliberal rentier decadence. The problem of how an economy can best recover from such grabitization is not new. Classical economists in Britain and France spent two centuries analyzing how to recapture the rents attached to such appropriations. Their solution was a rent tax. Today’s vested interests fight viciously to suppress their concept of economic rent and the associated distinction between earned and unearned income. It would save today’s reformers from having to reinvent the methodology of what constitutes fair value. Censoring or rewriting the history of economic thought aims at thwarting the logic for taxing rent-yielding assets. 962

Seeking to reform the French monarchy in the decades preceding the 1789 Revolution, the Physiocrats popularized the term laissez faire, “let us be.” Coined in the 1750s to oppose royal regulations to keep grain prices and hence land rents high, the school’s founder, Francois Quesnay, extended the slogan to represent freedom from the aristocracy living off its rents in courtly luxury while taxes fell on the population at large. Quesnay was a surgeon. The word Physiocracy reflected his analogy of the circulation of income and spending in the national economy with the flow of blood through the human body. This concept of circular flow inspired him to develop the first national income accounting format, the Tableau Économique in 1759 to show how France’s economic surplus – what was left after defraying basic living and business expenses – ended up in the hands of landlords as groundrent. 969

they did not characterize landlords as taking rent by virtue of their labor. The crop surplus was produced by the sun’s energy. This logic underlay their policy proposal: a Single Tax on land, l’impôt unique. Taxing land rent would collect what nature provided freely (sunlight and land) and hence what should belong to the public sector as the tax base. The 19th century came to characterize landlords and other rentiers as the Idle Rich. 979

Quesnay’s ploy was to claim that the class that produces the surplus is the natural source of taxation. Depicting agricultural land as the ultimate source of surplus implied that all taxes would end up being paid out of it. Deeming manufacturing to be “sterile,” merely working up the raw materials supplied by nature, meant that taxing industry or the labor it hired would raise the break-even cost that business needed to cover. Any taxes on industry or labor would simply be passed on to the source of the surplus (agricultural landlords). In effect, the Physiocrats said: “Indeed you landowners are the source of our nation’s wealth. That is why all taxes end up being paid by you, indirectly if not directly. Let us avoid the convoluted pretenses at work and tax you directly by our Single Tax instead of impoverishing French industry and commerce.” 990

the net surplus (produit net), defined as income over and above break-even costs. They asked who ends up with it, and who ended up bearing the tax? 997

Adam Smith broadens Physiocratic rent theory Adam Smith met Quesnay and Les Économistes on his travels in France during 1764-66. He agreed with the need to free labor and industry from the land rent imposed by Europe’s privileged nobilities: “Ground-rents and the ordinary rent of land are … the species of revenue which can best bear to have a peculiar tax imposed on them.” But in contrast to the Physiocratic description of industry being too “sterile” to tax, Smith said manufacturing was productive. In his lectures at Edinburgh a decade before he wrote The Wealth of Nations, Smith generalized the concept of rent as passive, unearned income – and used the labor theory of value to extend this idea to finance as well as land ownership: The labour and time of the poor is in civilized countries sacrificed to the maintaining of the rich in ease and luxury. The landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his exactions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full enjoyment of the fruits of his own labours; there are no landlords, no usurers, no tax gatherers. 1003

Failure to tax this rent burden shifted taxes onto commerce and industry, eroding its profits and hence capital accumulation. In addition to bearing the cost of land rents, populations had to pay excise taxes levied to pay interest on public debt run up as a result of the failure to tax landlords. 1016

In 1848, John Stuart Mill explained the logic of taxing it away from the landlord class: “Suppose that there is a kind of income which constantly tends to increase, without any exertion or sacrifice on the part of the owners: those owners constituting a class in the community.” Rejecting the moral justification that Locke provided for landownership – that their land owed its value to their own labor – Mill wrote that landlords grow richer, as it were in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent … ? The value of land rose as a result of the efforts of the entire community. Mill concluded that rising site value should belong to the public as the natural tax base rather than leaving it as “an unearned appendage to the riches of a particular class.” 1020

Mill justified taxing land rent on grounds of national interest as well as moral philosophy. The aim was to avoid taxing labor and industry, but on income that had no counterpart in labor. In time the labor theory of value was applied to monopoly rents. The remainder of the 19th century was filled with proposals as to how best to tax or nationalize the land’s economic rent. 1029

orthodox trade theory explaining the (supposed) virtues of global specialization of labor. Ricardo’s logic reflected the self-interest of his banking class: Globalization promoted commerce, which was still the major market for bank lending in the early 19th century. 1050

The desirability of sites in good neighborhoods is enhanced by public infrastructure investment in transportation and other improvements, combined with the general level of prosperity – and most of all in recent times, by bank credit on easier (that is, more debt-leveraged) lending terms. Owners enjoy a price rise without having to invest more of their own money – the situation Ricardo described with regard to agricultural landowners. 1073

Contrary to Ricardo’s description of rent as “a transfer of wealth, advantageous to the landlords and proportionally injurious to the consumers,” Malthus countered that new capital investment in the land could not be afforded without high crop prices: 1086

Landlords were what today’s One Percent call themselves: “job creators” who hired coachmen, tailors and seamstresses, butlers and other servants, and bought coaches, fine clothes and furnishings. So even when rent recipients spent their revenue on luxuries, they augmented the demand for labor. This argument failed to recognize that if workers did not have to pay such high food prices, they could spend more on the products of industry – or, if they still earned only the subsistence wage (as Ricardo assumed), industrial profits would be higher at the expense of land rent. The real choice thus was between luxury consumption by the landed aristocracy or higher living standards for the rest of the population and more industrial investment. 1093

what Malthus described is best characterized as rentier demand by the One Percent. He was justifying what the late 19th-century cartoonist Thomas Nast depicted: Wall Street plutocrats dressed in finery and so fat from gluttonous over-eating that the buttons on their jackets nearly burst. 1100

defining economic rent as the excess of price over costs of production shaped subsequent conceptualization of rent theory. 1106

in the cheapest market leaves the economy dependent on foreign producers. The long-term risk of dependency on imported food and basic consumer goods escaped Ricardo’s attention, as did the problem of financing trade deficits 1111

As Parliamentary spokesman for his fellow financiers, he accused only landlords of draining income out of the economy, not creditors. So his blind spot reflects his profession and that of his banking family. (The Ricardo Brothers handled Greece’s first Independence Loan of 1824, for instance, on quite ruinous terms for Greece.) Seeing no parallel between paying interest to bankers and paying rents to landlords, Ricardo sidestepped Adam Smith’s warning about how excise taxes levied on food and other necessities to pay bondholders on Britain’s war debt drove up the nation’s subsistence wage level. His one-sided focus on land rent diverted attention from how rising debt service – the financial analogue to land rent – increases break-even costs while leaving less income available for spending on goods and services. Treating money merely as a veil – as if debt and its carrying charges were not relevant to cost and price levels – Ricardo insisted that payment of foreign debts would be entirely recycled into purchases of the paying-nation’s exports. There was no recognition of how paying debt service put downward pressure on exchange rates or led to domestic austerity. 1132

keeping debts on the books while prices decline enhances the value of creditor claims for payment. This polarization between creditors and debtors is what happened after the Napoleonic Wars, and also after America’s Civil War, crucifying indebted farmers and the rest of the economy “on a cross of gold,” as William Jennings Bryan characterized price deflation. The financial sector now occupies the dominant position that landlords did in times past. Debt service plays the extractive role that land rent did in Ricardo’s day. 1143

creditors recycle most of their receipt of interest into new loans. This increases the debt burden without raising output or living standards. 1148

Today, banking has found its major market in lending to real estate and monopolies, adding financial charges to land and monopoly rent overhead. The financial counterpart to diminishing returns that raise the cost of living and doing business takes two forms. Interest rates rise to cover the growing risks of lending to debt-strapped economies. And the “magic of compound interest” extracts an exponential expansion of debt service as creditors recycle their interest income into new loans. The result is that debts grow more rapidly and inexorably than the host economy’s ability to pay. 1153

The All-Devouring “Magic of Compound Interest”1158

overgrowth of debt is at the root of today’s economic crisis. Creditors make money by leaving their savings to accrue interest, doubling and redoubling their claims on the economy. This dynamic draws more and more control over labor, land, industry and tax revenue into the hands of creditors, concentrating property ownership and government in their hands. The way societies have coped with this deepening indebtedness should be the starting point of financial theorizing. 1163

Money is not a “factor of production.” It is a claim on the output or income that others produce. Debtors do the work, not the lenders. Before a formal market for wage labor developed in antiquity, money lending was the major way to obtain the services of bondservants who were compelled to work off the interest that was owed. Debtors’ family members were pledged to their creditors. In India, and many other parts of the world, debt peonage still persists as a way to force labor to work for their creditors. In a similar way, getting inducing landholders into debt was the first step to pry away their subsistence lands, beaching archaic communalistic land tenure systems. In this respect creditors are like landlords, obtaining the labor of others and growing richer in the way that J. S. Mill described: “in their sleep,” without working. 1166

The idea of such exponential growth is expressed in an Egyptian proverb: “If wealth is placed where it bears interest, it comes back to you redoubled.” A Babylonian image compared making a loan to having a baby. This analogy reflects the fact that the word for “interest” in every ancient language meant a newborn: a goat-kind (mash) in Sumerian, or a young calf: tokos in Greek or foenus in Latin. The “newborn” paid as interest was born of silver or gold, not from borrowed cattle (as some economists once believed, missing the metaphor at work). What was born was the “baby” fraction of the principal, 1/60th each month. (In Greece, interest was due on the new moon.) The growth was purely mathematical with a “gestation period” for doubling dependent on the interest rate. 1195

Sumer in the third millennium BC, which already had a term mashmash, “interest (mash) on the interest.” Students were asked to calculate how long it will take for one mina to multiply 64 times, that is, 26 – in other words, six doubling times of five years each. The solution involves calculating powers of 2 (22 = 4, 23 = 8 and so forth). A mina multiplies fourfold in 10 years (two gestation periods), eightfold in 15 years (three periods), sixteenfold in 20 years (four periods), and 64 times in 30 years. The 30-year span consisted of six fiveyear doubling periods. 1203

Martin Luther depicted usurers scheming “to amass wealth and get rich, to be lazy and idle and live in luxury on the labor of others.” The growing mass of usurious claims was depicted graphically as a “great huge monster … who lays waste all … Cacus.” Imbuing victims with an insatiable desire for money, Cacus encouraged an insatiable greed that “would eat up the world in a few years.” A “usurer and money-glutton … would have the whole world perish of hunger and thirst, misery and want, so far as in him lies, so that he may have all to himself, and every one may receive from him as from a God, and be his serf for ever. … For Cacus means the villain that is a pious usurer, and steals, robs, eats everything.” 1213

the 19th century German economist, Michael Flürscheim, cast this exponential doubling and redoubling principle into the form of a Persian proverb telling of a Shah who wished to reward a subject who had invented chess, and asked what he would like. The man asked only “that the Shah would give him a single grain of corn, which was to be put on the first square of the chess-board, and to be doubled on each successive square,” until all sixty-four squares were filled with grain. Upon calculating 64 doublings of each square from the preceding, starting from the first gain and proceeding 1, 2, 4, 8, 16, 32, 64 and so on. At first the compounding of grain remained well within the physical ability of the kingdom to pay, even after twenty squares were passed. But by the time the hypothetical chessboard was filled halfway, the compounding was growing by leaps and bounds. The Shah realized that this he had promised “an amount larger than what the treasures of his whole kingdom could buy.” The moral is that no matter how much technology increases humanity’s productive powers, the revenue it produces will be overtaken by the growth of debt multiplying at compound interest. The major source of loanable funds is repayments on existing loans, re-lent to finance yet new debts – often on an increasingly risky basis as the repertory of “sound projects” is exhausted. Strictly speaking, it is savings that compound, not debts themselves. Each individual debt is settled one way or another, but creditors recycle their interest and amortization into new interest-bearing loans. The only problem for savers is to find enough debtors to take on new obligations. 1224

The Rule of 72 A mathematical principle called the “Rule of 72” provides a quick way to calculate such doubling times: Divide 72 by any given rate of interest, and you have the doubling time. To double money at 8 percent annual interest, divide 72 by 8. The answer is 9 years. In another 9 years the original principal will have multiplied fourfold, and in 27 years it will have grown to eight times the original sum. A loan at 6 percent doubles in 12 years, and at 4 percent in 18 years. This rule provides a quick way to approximate the number of years needed for savings accounts or prices to double at a given compound rate of increase. 1238

The exponential growth of savings (= other peoples’ debts) One of Adam Smith’s contemporaries, the Anglican minister and actuarial mathematician Richard Price, graphically explained the seemingly magical nature of how debts multiplied exponentially. As he described in his 1772 Appeal to the Public on the Subject of the National Debt: Money bearing compound interest increases at first slowly. But, the rate of increase being continually accelerated, it becomes in some time so rapid, as to mock all the powers of the imagination. One penny, put out at our Saviour’s birth at 5% compound interest, would, before this time, have increased to a greater sum than would be obtained in a 150 millions of Earths, all solid gold. But if put out to simple interest, it would, in the same time, have amounted to no more than 7 shillings 4½d. 1246

In his Observations on Reversionary Payments, first published in 1769 and running through six editions by 1803, Price elaborated how the rate of multiplication would be even higher at 6 percent: “A shilling put out at 6% compound interest at our Saviour’s birth would … have increased to a greater sum than the whole solar system could hold, supposing it a sphere equal in diameter to the diameter of Saturn’s orbit.” 1254

Balances snowball in the hands of bankers, bondholders and other savers, as if there always will be enough opportunities to find remunerative projects and credit-worthy borrowers to pay the interest that is accruing. The moral is that the economy’s ability to produce and earn enough of a surplus to pay exponentially rising interest charges is limited. The more it is stripped to pay creditors, the less able it is to produce and pay as a result of unemployment, underutilization of resources, emigration and capital flight. 1265

In the two thousand years since the birth of Christ, the European economy has grown at a compound annual rate of 0.2 percent, far lower than the level at which interest rates have stood. Yet financial fortunes have crashed again and again – in part because interest payments have absorbed the revenue that otherwise would have been available for new direct investment. The inability of productive investment opportunities to keep pace with the expansion of credit is the Achilles heel of finance-based growth. How can compound interest be paid? Who will end up paying it? Who will receive it, and what will they do with it? If banks and a creditor class receive this money, will they spend it domestically to maintain balance, or will they drain the economy’s income stream and shift it abroad to new loan markets, leaving the economy strapped by the need to pay interest on the growing debt? If the state accrues this money, how will it recirculate it back into the economy? 1270

“The Magic of Compound Interest” vs. The Economy’s Ability to Pay 1. Neither money nor credit is a factor of production. Debtors do the work to pay their creditors. This means that interest is not a “return to a factor of production.” Little credit is used to expand production or capital investment. Most is to transfer asset ownership. 2. If loan proceeds are not used to make gains sufficient to pay the creditor (productive credit), then interest and principal must be paid out of the debtor’s other income or asset sales. Such lending is predatory. 3. The aim of predatory lending in much of the world is to obtain labor to work off debts (debt peonage), to foreclose on the land of debtors, and in modern times to force debt-strapped governments to privatize natural resources and public infrastructure. 1278

Most inheritance consists of financial claims on the economy at large. In antiquity, foreclosure for non-payment was the major lever to pry land away from traditional tenure rights inheritable within the family. (Early creditors got themselves adopted as Number One sons.) Today, most financial claims are on the land’s rent, leaving ownership “democratized” – on credit. 5. Most interest-bearing debt always has been predatory, apart from lending for commerce. Carrying a rising debt overhead slows material investment and economic growth.1286

The rate of interest never has reflected the rate of profit, the rise in physical productivity or the borrower’s ability to pay. The earliest interest rates were set simply for ease in mathematical calculation: 1/60 per month in Mesopotamia, 1/10 annually in Greece, and 1/12 in Rome. (These were all the unit fractions in their respective fractional systems.) In modern times the rate of interest has been set mainly to stabilize the balance of payments and hence exchange rates. Since 2008 it has been set low to re-inflate asset prices and bank profits. 7. Any rate of interest implies a doubling time for money lent out. See the Rule of 72 (e.g., five years in Mesopotamia).1291

Modern creditors avert public cancellation of debts (and making banks a public utility) by pretending that lending provides mutual benefit in which the borrower gains – consumer goods now rather than later, or money to run a business or buy an asset that earns enough to pay back the creditor with interest and still leave a profit for the debtor. 9. This scenario of productive lending does not typify the banking system as a whole. Instead of serving the economy’s production trends, the financial sector (as presently organized) makes the economy top-heavy, by transferring assets and income into the hands of an increasingly hereditary creditor class.1297

The exponential growth of debt shrinks markets and slows and investment, reducing the economy’s ability to pay debts, while increasing the debt/output and debt/income ratios. 11. The rising volume of debt changes the distribution of property ownership unless public authorities intervene to cancel debts and reverse expropriations. In antiquity, royal “Jubilee” proclamations liberated bondservants and restored lands that had been foreclosed. 12. Cancelling debts was politically easiest when governments or public institutions (temples, palaces or civic authorities) were the major creditors, because they were cancelling debts owed to themselves. This is an argument for why governments should be the main suppliers of money and credit as a public utility.1303

Gustavus Myers’ History of the Great American Fortunes. In 1895, J. W. Bennett warned of a rentier caste drawing the world’s wealth into its hands as the inventive powers of industry were outrun by the mathematics of compound interest, “the principle which asserts that a dollar will grow into two dollars in a number of years, and keep on multiplying until it represents all of the wealth on earth.” Although not much noticed at the time, Bennett was one of the first to recognize that financial recycling of interest receipts into new lending was the driving force of the business cycle. Despite the rising role of industry, “financial systems are founded on rent and interest-taking,” and “interest-bearing wealth increases in a ratio which is ever growing more and more rapid,” leaving few assets unattached by debt. The exponential growth of debt makes business conditions more risky, because “there are not available assets to meet [creditor] demands and at the same time keep business moving.” Bankers call in their loans, causing a crash followed by “a trade depression every ten years or oftener and panics every twenty years.” 1319

The mathematics of compound interest explain “the extremely rapid accumulation of wealth in the hands of a comparatively few non-producers,” as well as “the abject poverty of a large percentage of the producing masses.” Non-producers receive “much the largest salaries,” despite the fact that their “income is often in inverse ratio to the service which [they do for their] fellow men.” As a result, Bennett concluded: “The financial group becomes rich more rapidly than the nation at large; and national increase in wealth may not mean prosperity of the producing masses.” All this sounds remarkably modern. The same basic criticisms were made after the 2008 crash, as if the discovery of predatory finance was something new. 1328

Bennett’s contemporary John Brown (not the abolitionist) argued that compound interest “is the subtle principle which makes wealth parasitic in the body of industry – the potent influence which takes from the weak and gives to the strong; which makes the rich richer and the poor poorer; which builds palaces for the idle and hovels for the diligent.” Only the wealthy are able to save up significant amounts and let sums simply accumulate and accrue interest over time. Small savers must live off their savings, drawing them down long before the mathematics of compound interest become truly significant. What is remarkable is that this principle of compound interest has come to be viewed as a way to make populations richer rather than poorer. It is as if workers can ride the exponential growth of financial debt claims, by saving in mutual funds or investing in pension funds to financialize the economy. This rosy scenario assumes that the increase in debt does not dry up the growth in markets, investment and employment in much the way that Ricardo imagined landlords and their rent would stifle industrial capitalism. 1334

How the One Percent Holds the 99 Percent in Exponentially Deepening Debt [W]hat Smith and Marx shared, critically, was the belief that it was entirely possible for an activity to be revenue- and profit-generative without actually contributing to the creation of value. There was no paradox. (Or rather, for Marx at any rate, the paradox was not that banks made profits without producing value, but that industrial capitalists allowed them to do so.) J. P. Morgan and John D. Rockefeller are said to have called the principle of compound interest the Eighth Wonder of the World. For them it meant concentrating financial fortunes in the hands of an emerging oligarchy indebting the economy to itself at an exponential rate. This has been the key factor in polarizing the distribution of wealth and political power in societies that do not take steps to cope with this dynamic. The problem lies in the way that savings and credit are lent out to become other peoples’ debts without actually helping them earn the money to pay them off.1343

the financial sector this poses a banking problem: how to prevent losses to creditors when loan defaults occur. Such defaults prevent banks from paying their depositors and bondholders until they can foreclose on the collateral pledged by debtors and sell it off. But for the economy at large, the problem is bank credit and other loans loading the economy down with more and more debt, “crowding out” spending on current output. Something has to give – meaning that either creditors or debtors must lose. Politicians thus face a choice of whether to save banks and bondholders or the economy. Do they simply reward their major campaign contributors by giving banks enough central bank or taxpayer money to compensate losses on bad loans? Or do they restructure debts downward, imposing losses on large bank depositors, bondholders and other creditors by writing down bad debts so as to keep debt-strapped families solvent and in possession of their homes? It is politically convenient in today’s world to solve the banking dimension of this problem in ways that please the financial sector. After the 1907 crash hit the United States harder than most economies, the Federal Reserve was founded in 1913 to provide public back-up credit in times of crisis. The assumption was that debt problems were merely about short-term liquidity for basically solvent loans whose carrying charges were temporarily interrupted by crop failures or a major industrial bankruptcy. The exponential growth of debt was not anticipated to reach a magnitude that would bring economic growth to a halt. That worry has faded almost entirely from mainstream discussion for the past century. 1352

The Glass Steagall Act, also passed in 1933, separated normal banking from the risky speculation until 1999, when its provisions were gutted under Bill Clinton. Banks were regulated to make loans to borrowers who could provide sound collateral and earn enough to carry their debts. 1372

The economy was idealized as rising and falling fairly smoothly around a steady upward trend. The mathematics of compound interest should have alerted regulators to the need “to take away the punch bowl just as the party gets going,” as McChesney Martin, long-term Federal Reserve Chairman (1951-70) famously quipped. But the combination of New Deal reforms and soporific economic theory (assuming that economies could carry a rising debt burden ad infinitum) led regulators to lower their guard against the strains created by banks and bondholders lending on increasingly risky terms at rising debt/income and debt/asset ratios. Alan Greenspan promised the public before the 2008 crash that a real estate implosion was impossible because such a decline would be only local in scope, not economy-wide. But by this time the pro-Wall Street drive by the Clinton Administration’s orchestrated by Treasury Secretary Robert Rubin (later to chair Citibank, which became the most reckless player) had opened the floodgates that led rapidly to widespread insolvency. Nearly ten million homes fell into foreclosure between 2008 and mid-2014 according to Moody’s Analytics. Cities and states found themselves so indebted that they had to start selling off their infrastructure to Wall Street managers who turned roads, sewer systems and other basic needs into predatory monopolies. 1377

Across the board, the U.S. and European economies were “loaned up” and could not sustain living standards and public spending programs simply by borrowing more. Repayment time had arrived. That meant foreclosures and distress sales. That is the grim condition that the financial sector historically has sought as its backup plan. For creditors, debt produces not only interest, but property ownership as well, by indebting their prey. 1388

Wages and profits rose steadily from 1945 to the late 1970s. So did savings. Banks lent them to fund new construction, as well as to bid up prices for housing already in place. This recycling of savings plus new bank credit into mortgage lending obliged homebuyers to borrow more as interest rates rose for 35 years, from 1945 to 1980. The result was an exponential growth of debt to buy housing, automobiles and consumer durables. Financial wealth – what the economy owes bankers and bondholders – increases the volume of debt claims from one business cycle to the next. Each business recovery since World War II has started with a higher debt level. Adding one cyclical buildup on top of another is the financial equivalent of driving a car with the brake pedal pressed tighter and tighter to the floor, slowing the speed – or like carrying an increasingly heavy burden uphill. The economic brake or burden is debt service. The more this debt service rises, the slower markets can grow, as debtors are left with less to spend on goods and services because they must pay a rising portion of income to banks and bondholders. Markets shrink and a rising proportion of debtors default. New lending stops, and debtors must start repaying their creditors. This is the debt deflation stage in which business upswings culminate. By the mid-1970s entire countries were reaching this point. New York City nearly went bankrupt. Other cities could not raise their traditional source of tax revenue, the property tax, without forcing mortgage defaults. 1400

Deterioration of loan quality to interest-only loans and “Ponzi” lending Hyman Minsky has described the first stage of the financial cycle as the period in which borrowers are able to pay interest and amortization. In the second stage, loans no longer are self-amortizing. Borrowers can only afford to pay the interest charges. In the third stage they cannot even afford to pay the interest. They have to borrow to avoid default. In effect, the interest is simply added onto the debt, compounding it. Default would have obliged banks to write down the value of their loans. To avoid “negative equity” in their loan portfolio, bankers made new loans to enable Third World governments to pay the interest due each year on their foreign debts. That is how Brazil, Mexico, Argentina and other Latin American countries got by until 1982, when Mexico dropped the “debt bomb” by announcing that it could not pay its creditors. Leading up to the 2008 financial crash, the U.S. real estate market had entered the critical stage where banks were lending homeowners the interest as “equity loans.” Housing prices had risen so high that many families could not afford to pay down their debts. To make the loans work “on paper,” real estate brokers and their banks crafted mortgages that automatically added the interest onto the debt, typically up to 120 percent of the property’s purchase price. Bank credit thus played the role of enticing new subscribers into Ponzi schemes and chain letters. Over-lending kept the economy from defaulting until 2008. 1414

These are paid out of the proceeds from more and more new players joining the scheme, e.g., by new homebuyers taking out ever-rising mortgage loans to buy out existing owners. The newcomers hope that returns on their investment (like a chain letter) can keep on expanding ad infinitum. But the scheme inevitably collapses when the inflow of new players dries up or banks stop feeding the scheme. 1430

Higher prices for the houses being borrowed against seemed to justify the process, without much thought about how debts could be paid by actually earning wages or profits. Banks created new credit on their keyboards, while the Federal Reserve facilitated the scheme by sustaining the exponential rise in bank loans (without anyone having to save and deposit the money). However, this credit was not invested to increase the economy’s productive powers. Instead, it saved borrowers from default by inflating property prices – while loading down property, companies and personal incomes with debt. The fact that price gains for real estate are taxed at a much lower rate than wages or profits attracted speculators to ride the inflationary wave as lending standards were loosened, fostering lower down payments, zero-interest loans and outright fictitious “no documentation” income statements, forthrightly called “liars’ loans” by Wall Street. But property prices were bound to crash without roots in the “real” economy. Rental incomes failed to support the debt service that was owed, inaugurating a “fourth” phase of the financial cycle: defaults and foreclosures transferring property to creditors. On the global plane, this kind of asset transfer occurred after Mexico announced its insolvency in 1982. Sovereign governments were bailed out on the condition that they submit to U.S. and IMF pressure to sell off public assets to private investors. Every major debt upswing leads to such transfers. These are the logical consequence of the dynamics of compound interest. 1437

Table B.100 from the Federal Reserve’s flow-of-funds statistics shows the consequences of U.S. debt pyramiding. By 2005, for the first time in recent history, Americans in the aggregate held less than half the market value of their homes free of debt. Bank mortgage claims accounted for more than half. By 2008 the ratio of home equity ownership to mortgage debt had fallen to just 40 percent. Bank mortgages now exceed homeowners’ equity, which fell below 40% in 2011. 1450

What happens when the exponential buildup of debt ends During the financial upswing the financial sector receives interest and capital gains. In the fallback period after the crisis, the economy’s private- and public-sector assets are expropriated to pay the debts that remain in place. A “Minsky moment” erupts at the point when creditors realize that the game is over, run for the exits and call in their loans. The 2008 crash stopped bank lending for mortgages, credit cards and nearly all other lending except for U.S. government-guaranteed student loans. Instead of receiving an infusion of new bank credit to break even, households had to start paying it back. Repayment time arrived. This “saving by paying down debt” interrupts the exponential growth of liquid savings and debt. But that does not slow the financial sector’s dominance over the rest of the economy. Such “intermediate periods” are free-for-alls in which the more powerful rentiers increase their power by acquiring property from distressed parties. 1455

Financial emergencies usually suspend government protection of the economy at large, as unpopular economic measures are said to be necessary to “adjust” and restore “normalcy” – finance-talk for a rollback of public regulatory constraints on finance. “Technocrats” are placed in control to oversee the redistribution of wealth and income from “weak” hands to strong under austerity conditions. 1464

reverse mortgages. Retirees and other homeowners signed agreements with banks or insurance companies to receive a given annuity payment each month, based on the owner’s expected lifetime. The annuity was charged against the homeowner’s equity as pre-payment for taking possession upon the owner-debtor’s death. The banks or insurance companies ended up with the property, not the children of the debtors. (In some cases the husband died and the wife received an eviction notice, on the ground that her name was not on the ownership deed.) The moral is that what is inherited in today’s financialized economy is creditor power, not widespread home ownership. So we are brought back to the fact that compound interest does not merely increase the flow of income to the rentier One Percent, but also transfers property into its hands. 1469

economies veer out of balance as revenue is diverted to pay bankers and bondholders instead of to expand business. Yet this has not discouraged economists from projecting national income or GDP as growing at a steady trend rate year after year, assuming that productivity growth will continue to raise wage levels and enable thrifty individuals to save enough to retire in affluence. The “magic” of compound interest is held to raise the value of savings as if there are no consequences to increasing debt on the other side of the balance sheet. The internal contradiction in this approach is the “fallacy of composition.” Pension funds have long assumed that they and other savers can make money financially without inflicting adverse effects on the economy at large. Until recently most U.S. pension funds assumed that they could make returns of 8.5 percent annually, doubling in less than seven years, quadrupling in 13 years and so forth. This happy assumption suggested that state and local pension funds, corporate pension funds and labor union pension funds would be able to pay retirees with only minimal new contributions. The projected rates of return were much faster than the economy’s growth. Pension funds imagined that they could grow simply by increasing the value of financial claims on a shrinking economy by extracting a rise in interest, dividends and amortization. 1478

It is as if savings can keep accruing interest and make capital gains without shrinking the economy. But a rate of financial growth that exceeds the economy’s ability to produce a surplus must be predatory over time. Financialization intrudes into the economy, imposing austerity and ultimately forcing defaults by siphoning off the circular flow between producers and consumers. To the extent that new bank loans find their counterpart in debtors’ ability to pay in today’s bubble economies, they do so by inflating asset prices. Gains are not made by producing or earning more, but by borrowing to buy assets whose prices are rising, being inflated by credit created on looser, less responsible terms. Today’s self-multiplying debt overhead absorbs profits, rents, personal income and tax revenue in a process whose mathematics is much like that of environmental pollution. 1490

The twenty-ninth day,” that is, one day before the half the pond’s lilies double for the final time, stifling its surface. The end to exponential growth thus comes quickly. The problem is that the pond’s overgrowth of vegetation is not productive growth. It is weeds, choking off the oxygen needed by the fish and other life below the surface. This situation is analogous to debt siphoning off the economic surplus and even the basic needs of an economy for investment to replenish its capital and to maintain basic needs. Financial rentiers float on top of the economy, stifling life below. Financial managers do not encourage understanding of such mathematics for the public at large (or even in academia), but they are observant enough to recognize that the global economy is now hurtling toward this pre-crash “last day.” That is why they are taking their money and running to the safety of government bonds. Even though U.S. Treasury bills yield less than 1 percent, the government can always simply print the money. The tragedy of our times is that it is willing to do so only to preserve the value of assets, not to revive employment or restore real economic growth. Today’s creditors are using their gains not to lend to increase production, but to “cash out” their financial gains and buy more assets. The most lucrative assets are land and rent-yielding opportunities in natural resources and infrastructure monopolies to extract land rent, natural resource rent and monopoly rent. 1500

Finance has converted its economic power into the political power to reverse the classical drive to tax away property rent, monopoly rent and financial income, and to keep potential rent-extracting infrastructure in the public domain. Today’s financial dynamics are leading back to shift the tax burden onto labor and industry while banks and bondholders have obtained bailouts instead of debts being written down. This is the political dimension of the mathematics of compound interest. It is the pro-rentier policy that the French Physiocrats and British liberals sought to reverse by clearing away the legacy of European feudalism. 1515

the forefront of the news by the statistical research of Thomas Piketty 1529

statistical research of Thomas Piketty and Emmanuel Saez showing the increasing concentration of income in the hands of the richest One Percent. The main remedies they propose are a wealth tax (especially on inherited estates) and a return to steeper progressive income taxation. The idea of taxing higher income brackets more without regard for whether their gains are earned “productively” or in extractive rentier ways represents a victory in dissuading critics from focusing on the policy aim of Adam Smith and other classical economists: preventing “unearned” income from being obtained in the first place. As Chapter 3 has described, they recognized not only that rentier revenue (and capital gains) is earned in a predatory and unproductive way, but also that land rent, monopoly rent and financial charges are mainly responsible for the rising wealth of the One Percent as compared to that held by the rest of society. 1530

FIRE sector revenue appears as a cost of producing an equivalent amount to Gross Domestic Product (GDP), not as unearned income or “empty” pricing. And neither the NIPA nor the Federal Reserve’s flow-of-funds statistics recognize how the economy’s wealthiest financial layer makes its fortunes by land-price gains and other “capital” gains. A cloak of invisibility thus is drawn around how FIRE sector fortunes are amassed. 1546

The foundation myth of pro-rentier economics is that everyone receives income in proportion to the contribution they make to production. This denies that economic rent is unearned. Hence, there is no exploitation or unearned income, and no need for the reforms advocated by classical political economy. 1550

Robber barons, landlords and bankers are depicted as part of the production process, and prices are assumed to settle at their cost of production, defined to include whatever rentiers manage to obtain. This closed logical circle excludes any criticism that markets may work in an unfair way. To Clark and other “free market” economists, “the market” is simply the existing status quo, taking for granted the existing distribution of wealth and property rights. Any given distribution of property rights, no matter how inequitable, is thought of as part of economic nature. The logic is that all income is earned by the recipient’s contribution to production. It follows that there is no free lunch – and also that There Is No Alternative to the extent that the existing distribution of wealth is a result of natural law. 1566

Treating any revenue-yielding asset as capital conflates financial and rentier claims on production with the physical means of production. The vantage point is that of financiers or investors buying land and real estate, oil and mineral deposits, patents, monopoly privileges and related rent extraction opportunities without concern for whether economists classify their returns as profit or as rent. Today’s tax laws make no such distinction. 1575

failure to distinguish manmade capital from property rights that did not involve any necessary or intrinsic cost of production. The result, Patten said, was to conflate profits earned on tangible industrial capital investment with land and monopoly rent. To real estate investors or farmers buying properties on mortgage, the financial and monopoly charges built into their acquisition price appear as an investment cost. “The farmer thinks that land values depend on real costs” because he had to pay good money for his property, explained Patten, “and the city land speculator has the same opinion as to town lots.” This individualistic view is antithetical to the socialist and Progressive Era reforms being introduced in the late 19th century. That is what makes classical concerns with the economics of national development different from the financialized investor’s-eye view of the world. At issue was what constitutes the cost of production in terms of real value, as distinct from extractive rentier charges. Freeing economies from such charges seemed to be the destiny of industrial capitalism. 1581

“Institutionalist” and sociological reformers retained rent theory Patten pointed out that land sites, like mineral rights provided by nature and financial privileges provided by legal fiat, do not require labor to create. But instead of describing their economic rent as an element of price without real cost or labor effort, Clark viewed whatever amount investors spent on acquiring such assets as their capital outlay and hence as a market cost of doing business. “According to the economic data he presents,” Patten wrote, “rent in the economic sense, if not wholly disregarded, at least receives no emphasis. Land seems to be a form of capital, its value like other property being due to the labor put upon it.” But its price simply capitalizes property rights and financial charges that are not intrinsic. 1590

For national economies, the problem is that and land rent and natural resource rent are taken at the expense of wage earnings as well as from industrial profits. “It seems to me,” Patten wrote, that the doctrine of Professor Clark, if carried out logically, would deny that the laborers have any right to share in the natural resources of the country. … All the increase of wealth due to fertile fields or productive mines would be taken gradually from workmen with the growth of population, and given to more favored persons … When it is said that the workingman under these conditions gets all he is worth to society, the term ‘society,’ if analyzed, means only the more favored classes … They pay each laborer only the utility of the last laborer to them, and get the whole produce of the nation minus this amount. This is why Patten’s contemporary reformers urged that land, natural resources and monopolies be kept in the public domain, so as to minimize the rake-off of national patrimony “given to more favored persons.” The idea of unearned income as a subtraction from the circular flow of income available for labor and industry as wages and profits has vanished from today’s post-classical NIPA. Now, whatever is paid to rentiers is considered a bona fide cost of doing business as if it embodies intrinsic value for a product. 1606

Clark’s claim that no income is unearned defines all economic activities as being productive in proportion to how much income they obtain. No one way of making money is deemed more or less productive than any other. 1617

Everyone earns just what he or she deserves. Natural law will proportion income and wealth to their recipients’ contribution to production, if not “interfered” with. Today’s highest paying occupations are on Wall Street, running banks, hedge funds or serving as corporate Chief Financial Officers. In Clark’s view they earn everything they get, and everyone else only deserves whatever is left over. Gary Becker, the University of Chicago economist, followed this logic in justifying such incomes as being earned productively, warning that progressive taxation would discourage their enterprise and hence productivity: “A highly progressive income tax structure tends to discourage investment in human capital because it reduces take-home pay and the reward to highly skilled, highly paid occupations.” Rentier income, inherited wealth, landlords and monopolies making money off the economy is thus interpreted as “earnings” on one’s “human capital,” the neoliberal catchall residual to absorb whatever cannot be explained in terms of actual labor effort or cost. It replaces what former economists called unearned income. It is as if the One Percent and the FIRE sector do not make money off the property they have (either inherited or built up far beyond what anyone’s individual labor and enterprise could explain), but out of their own human talents. Finance capital, rentier capital, land and monopoly rights are all conflated with “capital.” 1619

Keynes worried that as economies grew richer, people would save a larger proportion of their income instead of spending on consumption. This drain from the circular flow would lead to depression, unless governments compensated by infusing money into the economy, hiring labor for public works. Keynes depicted saving simply as hoarding – withdrawing revenue from the spending stream of production and consumption. 1647

There always is an economic gain for some party in sponsoring bad theory. Many erroneous economies can be traced to policies endorsed by the bad theorists. Leaving rentier income and spending out of the equation enables anti-labor economists to demand monetary austerity and a balanced government budget as their knee-jerk policy response. The narrow-minded MV=PT tautology enables economists to blame wages for inflationary pressures, not the cost of living being pushed up by debt-leveraged housing prices and other FIRE sector expenses, or by the rising corporate debt service built into the pricing of goods and services. In reality, asset prices rise or fall at a different rate from commodity prices and wages. This is a result precisely of the fact that the Federal Reserve and other central banks “inject” money into the economy via Wall Street, the City of London or other financial centers, by buying and selling Treasury securities or providing commercial bank reserves, e.g., in the post-2008 waves of Quantitative Easing. 1666

The assumption is that people only receive income for what they produce. This assumption rests on a tunnel vision that reflects the ideological victory that landlords and vested financial interests achieved in the late 19th century against the classical drive to tax economic rent. The effect of excluding land rent, natural resource rent and monopoly rent – the drain of income from producers and consumers to pay landlords, privatizers, monopolists and their bankers – is to deter measurement of what I call rent deflation. That is the analogue to debt deflation – the diversion of income to pay debt service. 1687

There also is no measure of criminal income, smuggling or fictitious accounting for tax avoidance. No category of spending is counted as overhead, not even pollution cleanup costs or crime prevention, not to mention financial bailouts. Economists dismiss these as “externalities,” meaning external to the statistics deemed relevant. Yet despite the rising proportion of spending that takes the form of rent extraction, environmental pollution cleanup costs, debt pollution and its bailout costs, GDP is treated as a an accurate measure of economic welfare. The result confuses healthy growth with that of a tumor on the body politic. Taken together, these omissions deter the kind of systemic analysis that would have alerted policy makers and voters to the distortions leading up to the 2008 crash. 1693

Rental income obtained by commercial investors and natural resource owners is called “earnings” on a par with profits and wages. This diverts attention away from how fortunes are made without labor or out-of-pocket production costs. It also requires a convoluted reorganization of statistics to discover how large the actual cash-flow return to absentee real estate ownership is, given the heavy component of interest and the “just pretend” economic category of over-depreciation. 1704

Land rent appears to have disappeared into the Orwellian memory hole. It is as if commercial real estate investors and owners receive no land rent at all. This terminological sleight of hand helped divert attention from how bank over-lending led to the real estate bubble that burst in 2008. It also trivializes international trade theory, by failing to recognize how capitalizing land rent into mortgage loans raises the cost of housing and other debt-leveraged prices. What the NIPA do make clear is that most real estate rental income is paid to the banks as interest. NIPA accountants find real estate and banking are so intertwined in the symbiotic FIRE sector that for many years financial and real estate income was not separated in the statistics. The activities of mortgage brokers and real estate agents seem to belong to Finance, Insurance or Real Estate in common. 1715

The NIPA also show how the tax fiction of over-depreciation (writing off a building more than once, over and over again) offsets otherwise taxable earnings for commercial real estate, enabling commercial real estate, oil and mining companies to operate decade after decade without a reportable taxable profit. An army of accountants has been backed by political lobbyists to write “loopholes” (a euphemism for distorting economic reality) into the tax code to make it appear that landlords and oil companies lose money, not make it! According to the NIPA, real estate earnings do not cover the rate at which landlords pay interest as a cost of production and buildings depreciate. Depreciation and the rate of return For industrial capital that wears out or obsolesces (becoming high-cost as a result of improving technology, e.g., computers that quickly get out of date even though they remain in working order), depreciation is a return of capital, and hence not part of surplus value strictly speaking. But this is not the case in the real estate, because buildings do not wear out – and rather than their technology becoming obsolete, older buildings tend to have much more desirable construction, or else have been renovated as a result of the ongoing maintenance repairs that typically absorb about 10 percent of rental income (or a property’s equivalent rental value). So for real estate, depreciation is largely a fictitious category of income designed to make rental revenue tax-free. The same building can be depreciated all over again – at a rising price – each time the property is sold to a commercial investor. (Homeowners are not allowed this tax subsidy.) 1723

Thus, despite the pretense by accountants that real estate is losing its value, the land’s site value (and the decline in interest rates) actually is increasing its value. Reality and seemingly empirical statistics tell opposite stories. No wonder the wealthiest One Percent have widened their wealth gap over the rest of the economy, defending this just-pretend statistical picture as if it is empirical science and therefore objective simply because its deception has decimal points. 1737

What actually happens is that landlords, oil and gas companies, mining companies, monopolies and banks charge rents for access to the land, natural resources and credit needed for production to take place. These payments drain the circular flow of spending between producers and consumers, shrinking markets and causing unemployment. Rentiers spend their income not only to hire labor and buy its products (as Malthus described, and as Keynes applauded) but also to buy financial assets and more property. Banks use their revenue to make more loans. This creates yet more debt while bidding up asset prices, obliging new homebuyers to borrow even more for ownership rights. 1742

the NIPA provide a cloak of invisibility for rent-extracting activities. The vested interests have won the fight against creating more relevant statistical categories. Their hope evidently is that if exploitative activities are not seen or quantified, they are less likely to be taxed or regulated. 1753

Today’s major rentier sector is banking and high finance. Most bank loans are geared not to produce goods and services, but to transfer ownership rights for real estate, stocks (including those of entire companies) and bonds. This has led national income theorists to propose treating the revenue of such institutions as transfer payments, not payments for producing output or “product.” 1757

Thorstein Veblen 2117

the Paris Bourse and Frankfurt, instead of in public hands as socialists 2141

Most U.S. and European corporations pay for their capital investment out of their current earnings, not by borrowing from bondholders or banks. The financial system extends credit mainly to buy property already in place, from real estate (the focus of most bank lending today) to entire companies. This shift in ownership adds to debt without increasing output, merely transferring ownership. Existing stockowners are bought out by new owners who issue high-interest bonds and borrow takeover loans from banks. And corporations borrow increasingly to buy up their own stock, and even to pay dividends, creating gains by inflating asset prices. 2173

As early as 1910, Rudolf Hilferding’s Finanzkapital described high finance as extractive: “Property ceases to express any specific relation of production and becomes a claim to the yield, apparently unconnected with any particular activity.” 2322

The tax subsidy for debt over stock market financing is a major catalyst to debt-leveraged buyouts (LBOs) and share buybacks. The new breed of corporate raiders and “financial engineers” pay themselves interest and produce capital gains with the profits hitherto shared with federal, state and local tax collectors. The government budget deficits deepens, and the Treasury issues more bonds (and looks to raise taxes from labor and consumers). The entire economy becomes more debt-leveraged, paying income to creditors – headed by the One Percent – instead of investing it or spending to raise living standards. This phenomenon is the major theme of this book. 2346

Debts require interest to be paid at a stipulated pace without regard for what the debtor earns. If a payment is missed, creditors have the right to foreclose on whatever assets are pledged as collateral. To protect themselves, debtors keep a liquid savings cushion on hand to cover the risk of declining income. Paying interest and amortization thus leaves less available to spend. 2356

Banks hesitate to finance new ventures. They prefer to lend against collateral on which they can foreclose if debtors cannot meet their scheduled payment. This obliges debtors to keep liquid savings on hand, leaving less for current spending. In antiquity, debtors who could not pay fell into bondage to their creditors. That is the original literal meaning of bond: a fetter imprisoning the debtor. Now that debtors’ prisons have been phased out, creditors have recourse to the debtor’s property and future earnings. Homeowners pledge their real estate to back their mortgage debts, companies pledge their assets, and clients of payday loan sharks pledge their kneecaps. 2363

The problem is that instead of raising capital to fund new capital investment and avoid debt, the stock market has been turned into a vehicle for debt-financed takeovers, replacing equity with debt. Starting with the high-interest “junk” bonds issued from 1977 onward, a class of raiders and “buyout kings” like Carl Icahn emerged to become Wall Street’s most lucrative market. Financial empire builders borrowed from banks and institutional bond buyers to buy out existing stockholders. Takeover financing pays an interest rate premium because of the relatively high risk that the process will drive targeted companies bankrupt, or at least will strip their capital and slow their growth by raising their debt/equity ratio. The process is called debt leveraging. It has been welcomed as “wealth creation,” as if it enriches the economy rather than leaving less for new investment and hiring. 2368

Researchers at Stanford University have concluded that pressure to meet quarterly earnings targets may be reducing research and development spending, and cutting US growth by 0.1 percentage points a year. Others have found that privately held companies, free to take a longer-term approach, invest at almost 2.5 times the rate of publicly held counterparts in the same industries. This persistent lower investment rate among America’s biggest 350 listed companies may be reducing US growth by an additional 0.2 percentage points a year. Much of the problem stems from the way the vast majority of asset owners pay the people who manage their money. On average, 74 per cent of remuneration is paid in cash, and tied to outperforming an annual stock market benchmark. The result is an obsession with next quarter’s earnings rather than the next 10 years’. — Financial Times, April 1, 2015 2380

The origins of banking, financial partnerships and shares in enterprises are to be found in the temples and palaces of the ancient Near East at the inception of the Bronze Age (3200-1200 BC). From the time interest-bearing debt was innovated in Mesopotamia to finance commerce and provide agricultural credit around 3000 BC, there is no trace of borrowing to manufacture goods in workshops, and rarely to buy land. Business credit came into the picture initially to consign temple handicrafts or commodities to seafaring merchants and caravans for long-distance commerce. 2393

The wealthy used their profits from this commerce and money lending to buy land, which was the major determinant of social status and economic patronage throughout antiquity. (What modern historians call “banks” were family or public lenders using mainly their own money, not deposits.) Purchases of real estate and other assets were for cash. Even in modern times it has been rare for banks to finance investment in industrial production. Until the 19th century most business loans were to fund the sale (usually exportation) of goods after they were produced, not to put workshops and factories in place. Banks thus found their major market in international trade, which helps explain why the British bank spokesman David Ricardo advocated an international specialization of labor instead of national self-sufficiency in food and other basic needs. 2399

Historically, most lending to governments has focused on war borrowing. When the Habsburgs and other rulers had trouble paying their debts, bankers pressed for payment in the form of a transfer of ownership of mines and other natural resources in the public domain. Rulers also created commercial monopolies to privatize: the East and West Indies Companies of Holland, Britain and France, and similar exclusive privileges (literally “private law”) to trade with specific regions or similar. These Crown Corporations paid dividends out of monopoly rent extraction, not profits from industrial manufacturing. 2423

To maximize what they received for these monopolies, governments promoted stock markets as a speculative vehicle. 2432

To dispose of France’s royal debt, he created the Mississippi Company to develop plantation slavery in what later was called the Louisiana territory (named for Louis XIV). Britain emulated the scheme, hoping to retire its war debts by privatizing the asiento slave trade monopoly its navy had won from Spain. This treaty became the sole asset of the newly incorporated South Sea Company, named for the South Atlantic across which slaves were shipped from Africa to the New World. Together, these two government-sponsored bubbles promised enormous wealth from 18th century’s the major growth sector: the African slave trade, that century’s version the dot.com bubble of the 1990s. The beneficiaries were the French and British governments, along with insiders who became part of what today is called a pump and dump operation. 2439

The French and British governments accepted payment for stock in these companies in their own bonds – at full par value. This provided a giveaway to bondholders, because the bonds could be bought at a steep discount, reflecting widespread doubt that they could actually be paid. Bond prices rose as new buyers used them to buy shares in the Mississippi and South Sea companies. Almost no money raised by these companies was actually invested to undertake business and generate a profit. What was sold was hope – shares in purely potential gains. Investors only needed to put down about 10 percent of the purchase price of the stock to subscribe. By the time the second payment was due, the stock price may have been bid up by at least that amount, doubling the initial down payment. This debt leveraging – buying on credit with only a small down payment – magnifies gains and losses in asset prices on both the upside and downside. It was the strategy Margaret Thatcher used to popularize the privatization of British Telecom and subsequent selloffs of government assets, providing quick speculative gains to early buyers with small down payments. 2446

The government tactic was to sell stocks in order to retire its bonds instead of defaulting on them, by persuading bondholders to swap their bonds for shares in the new companies. When the swap was completed, the stock price was allowed to plunge. The government shed crocodile tears at the “madness of crowds” that it itself had encouraged! It was a carefully orchestrated madness. Insiders avoided loss by selling out in time. 2455

Making stock market gains from financial leverage and rent extraction The privatization of monopolies, canals or national railroad systems always has been associated with insider dealing and fraud, ending with latecomer buyers holding a collapsing financial bag. Yet despite insider manipulations and subsequent collapse, the idea of making capital gains while putting down only a fraction of the purchase price seized the public imagination. It offered the temptation of outsiders making the huge gains that insiders tended to monopolize. 2459

The irony of the stock market is that corporations were created to replace short-term partnerships for voyages and other such ventures. Instead of having to divide up profits at the end of each voyage or upon the death of major partners, corporations have been given a permanent existence, divided into shares that were transferable. Yet the financial time frame is still short-term. This is especially true of bankers, who did little to finance the Industrial Revolution. The economic historian George W. Edwards has found that Britain’s “investment banking houses had little to do with the financing of corporations or with industrial undertakings. The great investment houses bitterly opposed the numerous corporate issues which were floated in 1824 and 1825,” hoping to control industry by bank credit. “The investment houses for a long time refused to take part even in the financing of the British railways.” Banks and other lenders advanced credit to industry only if proprietors could show orders for their products, or bills falling due for sales. Most of all, banks financed shipments of goods, spanning the time gap between production, delivery and receipt of payment by the customer, usually payable after 90 days. This financing involved foreign exchange fees for the banks as well as interest. But it was a short-term business. 2465

the Industrial Revolution’s leading entrepreneurs could obtain bank credit only after investing their own funds to get production underway. From James Watt’s steam engine in the late 18th century to Henry Ford’s automobile in the early 20th century, banks were not in the foresight business. Stock markets really began to take off in the 19th century for railroads and canals, other basic infrastructure, monopolies and trusts. These undertakings were rife with financial fraud, headed by the Panama and Suez Canal schemes. America’s stock market consisted mainly of railroad stocks during its early years, which transferred enormous sums of British and other European savings to the United States. Wall Street operators skimmed off much of the inflow. A favorite tactic was “stock watering,” a practice of proprietors issuing stock to themselves, “diluting” the ownership of existing shareholders. Banks favored railroads and public utilities whose income streams could be easily forecast, and large real estate borrowers with land pledged as collateral. Manufacturing enterprises only obtained significant bank and stock market credit after companies had grown fairly large with stable earnings. Growth potential hardly qualified. By the 1920s, Britain’s banks were broadly criticized for their failure to finance industry, and for favoring international clients rather than domestic ones. 2477

Apart from infrastructure speculation, the stock market was mainly a vehicle for manipulators to buy ownership rights of natural monopolies and rent-seeking privileges, especially to create large trusts such as U.S. Steel and Standard Oil. Banks, pension funds and other financial institutions have lent increasingly for speculation in stocks and bonds, including today’s debt-leveraged buyouts for mergers, acquisitions and outright raids. Trade financing was evolving into investment banking, focusing on real estate, oil and other natural resources, and funding speculation in stocks, foreign bonds and currencies. These high-risk activities held consumer and business deposits hostage to financial gambling and raiding, leading to the 1929 crash and the Great Depression. 2490

The economic wreckage made it obvious that the U.S. financial system needed to be insulated from such speculation. Congress passed the Glass-Steagall Act in 1933 to isolate financial speculation from personal and basic business banking. Other New Deal reforms included creation of the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corp. (FDIC) and a shift to 30-year home mortgages instead of the short three-year time frame. These reforms succeeded in stabilizing banking through the 1940s up to the 1970s. 2496

high finance has promoted debt at the expense of equity, and used it to make short-term financial returns rather than funding new capital investment. 2510

The result is that despite 20th-century reformers’ hopes to see the stock market promote industrial capital formation, it has become a vehicle for loading companies down with debt and cutting back their long-term investment. Unlike dividends to shareholders, interest charges on debt cannot be reduced when sales and earnings turn down. 2512

Companies that replace equity with debt lose economic flexibility and must live on short financial leashes. 2515

The term “junk bonds” was coined to reflect high-interest bonds issued to corporate raiders and takeover kings to buy companies with borrowed credit (or, less negatively, to finance smaller new business without a track record or deemed too risky to obtain normal bank credit). 2518

Adam Smith long ago remarked that profits often are highest in nations going fastest to ruin. There are many ways to create economic suicide on a national level. The major way throughout history has been by indebting the economy. Debt always expands to reach a point where it cannot be paid by large swaths of the economy. That is the point where austerity is imposed and ownership of wealth polarizes between the One Percent and the 99 Percent. Today is not the first time this has occurred in history. But it is the first time that running into debt has occurred deliberately, applauded as if most debtors can get rich by borrowing, not reduced to a condition of debt peonage. 2664

Finance vs. Industry: Two Opposite Sides of the Balance Sheet Last year, the corporations in the Russell 3000, a broad U.S. stock index, repurchased $567.6 billion worth of their own shares – a 21% increase over 2012 … That brings total buybacks since the beginning of 2005 to $4.21 trillion – or nearly one-fifth of the total value of all U.S. stocks today. — Jason Zweig, “Will Stock Buybacks Bite Back?” Wall Street Journal, March 22, 2014. Today’s financial sector is raiding what was expected a century ago to be the social functions of capital: to expand output and employment. Economies are slowing in the face of exponentially growing financial claims (bank loans, stocks and bonds) that enrich the One Percent at the expense of the 99 Percent. This polarization leads to unemployment and also to corporate underinvestment by leaving companies too cash-strapped to undertake new capital spending to raise productivity.2679

Business schools teach today’s new breed of managers that the proper aim of corporations is not to expand their business but to make money for shareholders by raising the stock price. Instead of warning against turning the stock market into a predatory financial system that is de-industrializing the economy, they have jumped on the bandwagon of debt leveraging and stock buybacks. Financial wealth is the aim, not industrial wealth creation or overall prosperity. The result is that while raiders and activist shareholders have debt-leveraged companies from the outside, their internal management has followed the post-modern business school philosophy viewing “wealth creation” narrowly in terms of a company’s share price. The result is financial engineering that links the remuneration of managers to how much they can increase the stock price, and by rewarding them with stock options. This gives managers an incentive to buy up company shares and even to borrow to finance such buybacks instead of to invest in expanding production and markets. 2688

Conventional wisdom throughout the 20th century described low interest rates as spurring new investment and employment by lowering the cost of borrowing, and hence supposedly the cost of new investment. But few bank loans or bonds are for this purpose. Instead, low interest rates provide easier credit for raiders to attack companies, or simply for mergers and acquisitions. 2707

The effect of financial interlopers buying a company and making it appear more profitable in the short run by “bleeding” its balance sheet (hoping to find a buyer who will believe that the company has been “streamlined,” not depleted) is like a landlord stinting on maintenance and repairs, paying bills more slowly, and letting the property deteriorate by laying off doormen and other niceties. The property is left debt-ridden, with a stagnating rent roll unable to cover the mortgage. If we view industry as part of the economic and social environment, today’s breed of corporate raiders and shareholder activists are strip-mining companies, causing debt pollution, clear-cutting industry and leading to economic drought. Such short-termism is much like a debt-strapped family having to rely on a junk-food diet in order to make ends meet, leading to long-term medical costs and shorter lifespans. Living in the short run does not help make economies lower-cost and more productive. The aim is simply to report bigger profits so that managers and stockholder “activists” can exercise their stock options at a higher price. 2764

Even the public sector has adopted financial management criteria to squeeze out a positive cash flow. Governments are reducing their budget deficits by cutting back on maintenance and repair of bridges, roads and other infrastructure, and selling off public real estate and other assets. The effect is to inject less purchasing power and employment to support economic recovery. 2807

The financial sector promised to inaugurate a postindustrial economy in which bank customers could make money from borrowed credit created on computer keyboards without a need for industrial capital formation or employment. 2821

banking was on its way to becoming a public utility in the years leading up to World War I. 2830

public banking would be less likely to extend credit for the asset-stripping and asset-price inflation that characterizes today’s financial system. 2833

Most futurists a century ago believed that public regulation was needed to keep predatory finance and rent-seeking in check. But bankers and financiers successfully instituted a deregulatory economic philosophy and have seized control of governments to use its money-creating power to subsidize high finance, while leaving creditors “free” to stifle the economy’s real growth with debt deflation. 2834

Today’s financial interests denounce public regulation and rentier taxes as socialism. But “socialism” was not initially a term of invective for classical theorists. John Stuart Mill was called a Ricardian socialist because classical economists were moving toward reforms they themselves characterized as social – and hence, as socialist. Most reformers referred to themselves as socialists of one kind or another, from Christian socialists to Marxist socialists and reformers across the political spectrum. The question was what kind of socialism “free market” capitalism would evolve into. 2838

The resulting financial overhead consists of claims on the economy’s actual means of production. Yet most people think of these bonds, bank loans and stocks and creditor claims as wealth, not its antithesis on the debit side of the balance sheet. This inside-out doublethink is a precondition for the bubble economy to be applauded by the mass media, keeping its corrosive momentum expanding. 2881

Most capital investment in the U.S. and other economies normally is self-financed out of retained corporate earnings, not by borrowing from banks or bondholders. During the 35-year upswing spanning the return to peace after World War II until the late 1980s, “profits and overall net investment in the US tracked each other closely … with both about 9 per cent of gross domestic product,” noted a recent Financial Times report. But this correlation between capital investment and corporate profits “began to break down” in the Reagan/Thatcher era. By 2012 the National Income and Product Accounts (NIPA) were reporting that pre-tax corporate profits had risen to a record 12 per cent-plus of GDP, “while net investment is barely 4 per cent of output.” Although corporate profits have soared in recent years, they are not leading to new tangible investment, output or employment. The explanation for this disconnect is financialization. 2891

Some 40 percent of profits are now registered by the banking and financial sector, not industry. In the manufacturing sector, managers increase reported profits by cutting back basic spending, letting their physical investment run down, and replacing long-term skilled employees with less highly paid new recruits, while using the remaining corporate profits increasingly for share buybacks and higher dividend payouts. These practices have decoupled financial management from investment in new means of production. The idea that economies can get rich mainly from the debit side of the national balance sheet reflects the degree to which creditor interests have taken over the economy’s brain. 2899

Mainstream economists called the 1990-2007 era the Great Moderation. But then, bankers were in charge of naming it (in this case, David Shulman of Salomon Brothers). In reality it was the Great Indebtedness, leading to the Great Polarization that paved the way for today’s Great Austerity. When the bubble crashed, Wall Street blamed “the madness of crowds.” This blame-the-victim view depicted borrowers as being immoderate and greedy, and it seemed only moral that the “mad crowd” should now pay the price for its reckless indebtedness, not the creditors. So the most reckless banks were bailed out, as if it were not they and the Federal Reserve that were mad and immoderate. What made this period immoderate was deregulation of the financial sector. 2919

To new homebuyers, housing prices rose so high that by 2008 taking out a mortgage to buy a home meant cutting back consumption and living standards – unless one ran up credit-card debt and other borrowing. Many homeowners took out home equity loans (“second mortgages”), using their homes as an ATM to draw against a bank account. 2930

Every economic recovery since 1945 has started with a higher debt level than the one before it, and each successive recovery has been weaker. The rising debt overhead explains why the bank bailout that resolved the 2008 financial crisis has failed to yield a real “recovery.” To banks and other creditors, recovery means keeping the debts on the books, and indeed, re-inflating prices for homes by creating yet new debt. The bankers’ “solution” is to extend a new wave of credit to bid real estate, stock and bond prices back up. But debt is the problem. What is depressing today’s economies is that the debts have been kept in place, acting as a financial brake blocking a business upswing. The “solution” that banks offer is austerity: Most of the economy is geared to work off its debts, not write them down to levels that can be paid without pushing the economy into austerity. Austerity is Wall Street’s (and the Eurozone’s) new definition of “moderation.” 2933

Creditors and debtors thus have naturally opposing worldviews. Labor (“consumers”) and industry are obliged to pay a rising proportion of their income in the form of rent and interest to the Financial and Property sector for access to property rights, savings and credit. This leaves insufficient wages and profits to sustain market demand for consumer goods and investment in new means of production (capital goods). The main causes of economic austerity and polarization are rent deflation (payments to landlords and monopolists) and debt deflation (payments to banks, bondholders and other creditors). To the banks, “moderation” simply means not defaulting. From the 1990s to 2007, this eventuality was postponed by consumers running deeper into debt to pay their scheduled debt service and other rentier charges. Banks created enough new credit to finance rising personal budget deficits by lending mortgage credit and home equity loans to a widening segment of the population, without much regard for their ability to pay. Supplemented by soaring credit-card debt, this bank credit enabled consumers to support the living standards that their wages were unable to cover. The hope was that somehow they would come out ahead, as long as bank credit continued to bid up prices for real estate, stocks and bonds. 2941

Government deficits are deemed “good” as long as they are spent to bail out banks and bondholders. They are only “bad” when they are spent on labor and the “real” economy. Federal Reserve credit (“Quantitative Easing”) is good if it helps inflate asset prices for the One Percent and improves bank balance sheets. But public money creation is deemed “irresponsible” if it spurs recovery in employment and wages, helping the 99 Percent break even and recover its former share of national income and wealth. Rising asset prices for real estate, stocks and bonds are “good” because they increase the power of the One Percent over the rest of the economy. Rising wages and commodity prices are deemed bad, because they threaten to erode this power of debt over the economy. 2958

The reality is that bank loans do not fund direct investment and employment. They extract debt service while inflating asset prices to provide “capital” gains. This makes homes more expensive to buy, requiring new owners to take out larger mortgage loans. That is the Asset-Price Inflation phase of the financial cycle. At some point, repayment time arrives. Paying off debts absorbs income that otherwise would be available for spending on the goods and services that labor produces. This is the Debt Deflation phase. Each business upswing leaves a higher level of debt, diverting a rising proportion of income to pay debt service. The post-2008 bailout and imposition of austerity aimed to squeeze out enough income to carry the debt claims. But austerity generates even more defaults and a deeper crash. 2985

In contrast to industrial profits, capital gains are the product largely of the wave of asset-price inflation – that is, the wave of bank credit on easier terms for debt leveraging. Since interest rates began their 30-year decline in 1980, a financial wave of credit has enabled borrowers to buy these assets and their flow of incomes with higher amounts of low-interest credit. Price/earnings ratios rise when interest rates fall (described below). Making such gains therefore is different from earning them by labor and enterprise. These profits are what 19th-century writers called the “unearned increment,” especially when they accrue for the land’s rising site value. 3011

Public investment in roads and other transportation, schools and parks, water and other infrastructure is provided freely or at prices subsidized by taxpayers as a whole. The result is that taxpayers as well as rent-payers end up paying to create wealth for landlords – enabling them to borrow more or obliging new homebuyers to borrow more to obtain ownership of such sites. To the extent that rental values are paid to the banks as interest, landlords as well as taxpayers end up creating revenue and wealth for the financial sector. 3036

Capital gains are fueled mainly by debt leveraging – buying with as little of one’s own money as possible. As financial wealth mounts up, banks compete for new business by loosening their lending terms. The process becomes self-feeding as property prices rise. Speculators and homeowners are willing to pay their banks the rental value, hoping to get a capital gain. The logical end is reached at the point where the financial carrying charges absorb all the rental income or profits. This willingness of borrowers to pay all the rental income to creditors is the driving force behind asset-price bubbles. 3041

Pension funds diversified into junk bonds in the 1980s, and into packaged mortgages after the dot.com bubble burst in 2000. Mortgages became the highest-yielding form of security, steering pension savings into the real estate market by providing banks with a market for loans they originated. Tax favoritism for capital gains and inherited wealth When the U.S. income tax was inaugurated in 1913, capital gains were taxed as normal income. The logic was that a price gain for a stock, bond or real estate builds up the owner’s net worth just as do savings out of wages or profits. 3052

The Reagan-Bush Administration eased it yet more, especially for real estate. Landlords were allowed to pretend that their buildings depreciated in just over seven years, creating a fictitious charge that offset the rental income. This made commercial and absentee real estate basically income-tax free. Real estate gains are not taxed if they are re-invested in new property acquisition. Many European countries do not tax capital gains at all. British landlords can evade taxes by holding their property in an Isle of Man account or other tax-avoidance enclave. This favoritism has enabled real estate fortunes to be built up largely free of income and capital gains taxes. When owners die, all tax liability is forgiven and the heirs can continue the buildup. No wonder the One Percent now controls the lion’s share of U.S. wealth and income! 3059

selling the mortgage loans it has originated 3093

Together these payments to the FIRE sector (and the tax shift off it onto consumers) absorb roughly two-thirds of many blue-collar family budgets, leaving only about a third available to spend on current output: Rent or home ownership costs (incl. property tax): 35 to 40% Other debt service (credit cards, student loans etc.): 10% FICA wage withholding (Social Security and Medicare): 7.5%  Other taxes (income and sales taxes and health insurance): 10 to 15% TOTAL: about 67% There is no way for an economy with such high debt service, real estate and tax charges to compete with less financialized economies where housing is not so debt-leveraged, where family budgets do not have such high debt carrying charges, and where taxes have not been shifted so regressively off the FIRE sector onto labor and industry. Debt Deflation Meanwhile, the rentier overhead leaves consumers with less to spend on current output. This imposes deepening austerity as asset-price inflation gives way to debt deflation: 3110

(Phase 1) Consumer Demand = wages + new borrowing (that is, increase in debt) Paying back the rising debt taken on prior to 2008 led to the Debt Deflation phase of the credit cycle: (Phase 2) Demand = wages minus debt service. Asset-price inflation turns into debt deflation when paying amortization and interest (not to mention late fees) drains income from the economy’s circular flow of production and consumption spending (“Say’s Law” discussed in Chapter 3). This slows growth. The economy tapers off while the volume of credit and debt grows exponentially. Carrying this rising debt leaves less available to spend on goods and services, while government tax revenues and new money creation are paid to bondholders instead of being spent on public infrastructure, education, health and other social programs. 3121

Bernanke’s denial that rising debt levels do not reduce overall market demand for goods and services is reminiscent of Malthus’s argument that landlords spend their rents back into the economy. In trying to absolve the financial sector from causing austerity, Bernanke claimed that “debt-deflation represented no more than a redistribution from one group (debtors) to another (creditors). Absent implausibly large differences in marginal spending propensities among the groups, it was suggested, pure redistributions should have no significant macroeconomic effects.” In other words, if creditors (or real estate moguls) spend the same proportion of their income and capital gains on consumer goods and investment goods as do average wage earners, there would be no debt deflation or general spending shortfall, but simply a transfer of purchasing power from debtors to creditors and their fellow rentiers. 3139

But the whole point is that “spending propensities” do differ between the One Percent and the 99 Percent, between rentiers on the one hand, and consumers and producers on the other. 3145

when today’s Wall Street financiers do spend their multi-million dollar salaries and bonuses money on themselves, it is largely on fine art trophies, luxury apartments that already have been built, on yachts and high fashion – largely imported, as was noted already in Malthus’s day. But most important, the super-rich lend out most of their gains, indebting the rest of the economy to themselves. 3148

President Obama and Republicans sought to reduce the government’s budget deficit, not spend more money into the economy. For Bernanke, monetary inflation after 2008 was limited to providing easy Federal Reserve credit money for banks. He expressed the hope that they would extend credit to the real estate, stock and bond markets to re-inflate asset prices. The “real” economy was left to suffer debt deflation. But more debt overhead involves carrying charges that drain consumption and investment spending. And paying down the debt overhead intensifies the austerity. This transforms the character of “saving” to mean a pay-down of debt, not money in the bank. 3155

The “saving” in question was an accounting entry in the national income accounts – a negation of a negation, and hence a positive. The only way these savings were “money in the bank” was that they were paid by debtors to their banks and credit card companies. This debt deflation shows how false the image is of using one’s home like the proverbial piggy bank. Running up a debt is not at all like withdrawing cash from a savings account. Bankers euphemize taking out equity loans (borrowing more against the property’s rising market price) as “cashing out” on one’s equity, as if this does not leave a legacy of debts, which constrain future spending by diverting more income to pay creditors. The more the “savings rate” rose in the post-2008 world, the less money “savers” had to spend. Debtors ate cheaper foods and ran down whatever liquid savings they had. This “upside down” saving led to debt deflation. 3178

To restore prosperity, the way the economy operates must be changed – mainly by writing down the debt overhead. Piketty and Saez have documented the extent to which just One Percent of the population owns most of the stocks and bonds in the banks and other firms, and receive their surplus in the form of dividends, profits, interest, rent and capital gains. A realistic model or picture of how the economy operates would require separating the “wealthy” households from the wage earners that live by their own labor rather than on dividends, rents, interest and capital gains. There is no way for markets to maintain full employment and grow in the face of debt deflation and regressive tax systems that have reached today’s magnitudes. 3190

at the heart of Citigroup’s loss. Nobody could know in advance precisely 3264

mainstream economics has become a lobbying effort to dismantle government power to regulate and tax rentiers. Well-subsidized models promote a trickle-down rationalization for the status quo, as if it were produced by inexorable economic laws. “Free market” ideologues then reason backward to construct a logic “proving” that economies become lower-cost and more efficient by lowering wage levels, removing taxes on wealth, cutting back public spending and privatizing infrastructure monopolies. In the resulting symbiosis between bankers and other rentiers, debt is created mainly to purchase rent-extracting privileges and other rent-yielding properties, turning their economic rent into interest and related financial fees. Nearly all new credit since 1980 has been extended to the FIRE sector – credit to transfer ownership of assets while running the economy into debt, not to create new wealth. 3288

The intended effect is to leave financial management to “technocrats,” who turn out to be bank lobbyists toting around a few academics as useful idiots embedded in well-subsidized “think tanks.” Much as the oil industry subsidizes Junk Science to deny how carbon emissions contribute to global warming, so Wall Street subsidizes Junk Economics to deny that debt pollution plunges economies into chronic austerity and unemployment. Their conclusion is that no public regulation is needed, and no cleanup charges to compensate for the damage being caused. 3297

Much as the oil industry subsidizes Junk Science to deny how carbon emissions contribute to global warming, so Wall Street subsidizes Junk Economics to deny that debt pollution plunges economies into chronic austerity and unemployment. 3298

Questions that a relevant economic theory needs to answer Today, years after the 2008 financial crisis, the most pressing task for economic theory should be to explain why employment and consumption spending have not recovered. The Federal Reserve has given banks $4 trillion and the European Central Bank €1 trillion in Quantitative Easing to help the financial layer atop the economic pyramid, not to write down debts or revive the “real” economy by public spending. This enormous act of money creation could have enabled debtors to free themselves of debt so that they could resume spending to keep the circular flow of production and consumption in motion. Instead, governments have left the economy debt-strapped, creating money only to give to financial institutions. Orwellian rhetoric is invoked to describe governments running budget deficits and creating central bank credit to help banks and bondholders but not employment and production. This is called “preserving the system.” However, what is intended to be preserved is not the indebted economy, but the debt overhead owed to the financial sector. Central banks assiduously avoid any attempt to quantify how far wages, profits and tax revenue can be diverted to pay creditors without causing economic collapse and insolvency. 3301

through the early 1970s, wages had risen faster than overall prices. But since the late 1970s, they have hardly moved. Consumer prices also have stabilized over the past thirty years. What have risen are asset prices, fueled by a tidal wave of bank credit inflating the greatest bond market rally in history. More money has been made in the stock market, bonds and real estate than by employing labor to produce goods for sale. 3320


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NEWS CONTENTS

Old News ;-)

[Apr 26, 2021] Services, which accounted for about 40% of GDP in the 1950s, now account for about 60% of it

Apr 26, 2021 | www.wsj.com

The U.S. isn't driven by manufacturing like it once was. Services, which accounted for about 40% of GDP in the 1950s, now account for about 60% of it. Many of the effects of the Covid-crisis were also unique, such as the way it hammered services like travel and restaurant spending while touching manufacturing far more lightly.

That makes it easy to spin plausible stories where things go well or poorly. For example, the work-from-home revolution the crisis helped spark might help businesses run more efficiently, boosting productivity, raising potential GDP and allowing the economy to run faster over the long run without overheating. Or, the thicket of supply-chain problems the crisis caused , and difficulties scaling up services to meet demand, could cause a more serious bout of inflation than most economists expect. Other uncertainties abound, including how successful President Biden will be getting his remaining spending and tax plans passed.

[Apr 24, 2021] -Our Bullish Conviction Is Now Lower-- JPM Joins Major Banks In Turning Bearish On -Easy- Market Gains - ZeroHedge

Apr 24, 2021 | www.zerohedge.com

Yen Cross 21 hours ago

FOAD- JPM. What you really mean to say is the stimmy money is running down so you're running outta sheep to fleece.

Rainman 21 hours ago

There's been so much stimmy the shoeshine boy who are doing dollar averaging...

Soloamber 20 hours ago

Criminal investment bank speaks and no one listerns .

venturen 21 hours ago (Edited)

We are on a Permanent High Plataue of Zero Interest Easy Money... We don't need jobs, businesses or revenue!

https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm

Soloamber 20 hours ago

Translation JP Morgan has it's shorts in place .

Time to kick the legs out of the casino .

Hezekiah PREMIUM 17 hours ago (Edited)

Even those with half a brain can twig that JP Morgan are a bunch of crooks. Simply Google "JP Morgan fines".

Those who are market savvy should Google "JP Morgan fines".

Surely in literally everly market segment the CEO, Jamie Dimond, would be banged up in prison?!!!!!!!!!!!!!!!!!!

nsurf9 21 hours ago (Edited)

You think this guy understands that, even with more than 50% of the, country in plandemic lock-down, shutter/closed and/or bankrupt for a solid year, the "markets" have literally doubled.

Wake me up when the Treasury Securities Operational Details daily theft goes to zero.

Gentleman Bastard 21 hours ago remove link

This just means that JPM like the other whores have taken their short positions and will now do everything in their power to ensure that they cash out.

[Apr 01, 2021] Archegos's Collapse Is a Wakeup Call for Regulators

Apr 01, 2021 | www.wsj.com

...history shows that one messy unwind can easily spread. The U.S. Office of Financial Research finds that the ten largest hedge funds were leveraged far more heavily than the next 40 largest funds, as of June. And many family offices may not be counted in these statistics at all, which mostly rely on disclosure forms they are able to avoid.

There are some obvious responses for regulators, such as mandating disclosure of the total return swaps that allowed Archegos to build big positions out of the public eye. But there are no easy answers to the wider challenge of overseeing leverage within the broadest financial complex when debt is almost free.

The system has held up under the latest strain, but this isn't a victory. Archegos means one who leads the way. Regulators must do what they can to ensure as few as possible follow.

Write to Rochelle Toplensky at [email protected] and Telis Demos at [email protected]

[Apr 01, 2021] Deutsche Bank Dodged Archegos Hit With Quick $4 Billion Sale - Bloomberg

Apr 01, 2021 | www.bloomberg.com

Swiss rival Credit Suisse expects a hit in the billions of dollars from Archegos, people with knowledge of the matter have said, while Nomura Holdings Inc. has signaled it may lose as much as $2 billion. Analysts at JPMorgan Chase & Co. estimate the Archegos blowup may cause as much as $10 billion of combined losses for banks.

David Herro, chief investment officer of Harris Associates -- one of Credit Suisse's biggest shareholders -- said on Bloomberg Television on Wednesday that the Archegos incident was a "wake-up call" for Credit Suisse and should lead to sweeping changes to its culture and oversight practices.

Shares of Credit Suisse tumbled 21% this week on concern over the size of its potential Archegos hit. Deutsche Bank is down 2.9%.

[Mar 31, 2021] Looks like Goldman and Morgan managed to sell thier shares in Archegos meltdown first as usual pushing other clients under the bus: Billions in Secret Derivatives at Center of Archegos Blowup

Casino capitalism is the fertile ground for the most sleazy types of speculators. The stock market has become a giant slot machine financed by 401K lemmings. The marks here are 401K investors.
Excessive leverage is a immanent feature of the pre-collapse stage of Minsky cycle. So those who argue that we are close to another crash get some additional confirmation due to this event. The Masters of the Universe rediscovered the hidden areas of huge risk, and like in 2008 are afraid but can't and do not want to anything.
TBTF such as Goldman and Morgan aid the most sleazy types as they bring outsized profits for them. So this a catch 22 as Goldman and other TBFT controls SEC not the other way around.
It would be prudent to view banksters as a special type of mafia and treat accordingly and prohibit for them serving in government. But this is impossible under neoliberal as financial oligarchy has all political power.
The question is: Is there another fund that's larger, that's more leveraged with the same characteristics that could prove to be a more systemic event? That's the major concern right now." Wall Street's hottest trades such as pure-tech plays and high-flying tech/media like the ones bet on by Hwang -- could be unwound. The Hwang blowup wakes up investors to the realization that many parts of the market are overvalued and it's time to sell -- and quickly as yields are going up. For the the FAANGS, the Tesla's out there -- the fundamentals don't support the stock. So it would be logical to a large correction.
Notable quotes:
"... The idea that one firm can quietly amass outsized positions through the use of derivatives could set off another wave of criticism directed against loosely regulated firms that have the power to destabilize markets. ..."
Mar 31, 2021 | finance.yahoo.com

Much of the leverage used by Hwang's Archegos Capital Management was provided by banks including Nomura Holdings Inc. and Credit Suisse Group AG through swaps and so-called contracts-for-difference, according to people with direct knowledge of the deals. It means Archegos may never actually have owned most of the underlying securities -- if any at all.

While investors who own a stake of more than 5% in a U.S.-listed company usually have to disclose their holdings and subsequent transactions, that's not the case with positions built through the type of derivatives apparently used by Archegos. The products, which are transacted off exchanges, allow managers like Hwang to amass exposure to publicly-traded companies without having to declare it.

The swift unwinding of Archegos has reverberated across the globe, after banks such as Goldman Sachs Group Inc. and Morgan Stanley forced Hwang's firm to sell billions of dollars in investments accumulated through highly leveraged bets. The selloff roiled stocks from Baidu Inc. to ViacomCBS Inc., and prompted Nomura and Credit Suisse to disclose that they face potentially significant losses on their exposure.

One reason for the widening fallout is the borrowed funds that investors use to magnify their bets: a margin call occurs when the market goes against a large, leveraged position, forcing the hedge fund to deposit more cash or securities with its broker to cover any losses. Archegos was probably required to deposit only a small percentage of the total value of trades.

The chain of events set off by this massive unwinding is yet another reminder of the role that hedge funds play in the global capital markets. A hedge fund short squeeze during a Reddit-fueled frenzy for Gamestop Corp. and other shares earlier this year spurred a $6 billion loss for Gabe Plotkin's Melvin Capital and sparked scrutiny from U.S. regulators and politicians.


The idea that one firm can quietly amass outsized positions through the use of derivatives could set off another wave of criticism directed against loosely regulated firms that have the power to destabilize markets.


Bob 2 days ago This is another major reminder that the stock market is not as rational as we want to believe. A small group of very large, leveraged funds can have far more impact on the market than dozens or hundreds of well thought out and researched programs. Sigh. Take your lumps and move on. Hasso 2 days ago 2008 - Hwang's Tiger Asia suffered losses from the Volkswagen short, 2012 - Hwang's Tiger Asia paid $44M to settle insider trading charges, banned 2014- Hong Kong fined him $5.3M & banned him for four years. 2021 - And here we are again.
Tyrone 2 days ago Gee, Credit Suisse involved in sleezy investments. Again. I'm shocked, just shocked!
Manohar 2 days ago Banks haven't learnt anything yet...you know why? Because its other people's money and the no one gets prosecuted when they are caught with hand in the cookie jar.
killer klown 2 days ago it's a sign that the market and it's regulators have learned nothing.........to even pretend that a penny difference in assumed earnings versus actual earnings using the GAAP accounting (which itself says it's not exact but generally accepted accounting principles)moves a stock is in itself a joke, this situation of a BIG BLACK BOX calls for the complete dismantle of the derivatives market which was created to lay off risk. Bill Hawng should be FLAT Broke his possesions seized, The board of Credit Suisse and Nomura et all should be unemployed as of 8:31 this morning. But they won't and it's only going to happen again and again.
Amvet 2 days ago Market manipulators have a free rein in the USA. Are politicians also involved? Reply 16 3 George 2 days ago Just amazing how some of the world's most sleazy characters have access to cosmic sums of money and remain under the radar and legal(???). Then nothing seems to happen except that loads of other folk get burned while they move on to the next bright idea. Reply 13 1 Rick 2 days ago So clearly limiting those who can purchase these to exclude amateur players has not been successful. Recklessness is not limited to amateurs. Mr. H. 2 days ago In 2008 high finance was playing very high risk games with clients money at the undefined edge between legal and illegal. A bunch of firms went away along with many billions of dollars because a bunch of players were playing CYA. They came up with the term "too big to fail" when they were picking winners and losers. "too big to fail" is is fetid bovine excrement. The SEC, that is the administrative government, was not doing its job! There were many questions about government employee competence to do those jobs. The government should have let the market place pick the winners and losers, then the government should have prosecuted everyone who failed to perform their fiduciary duty and set a major precedent about high risk play with other people's money; keep it legal or go to jail and lose your shirt. That is what should happen this time too! Noone 2 days ago Almost like something that is so dangerous and risky to both the market AND the "investor" that retail traders ARE BANNED from doing it should.. idk.. BE ILLEGAL FOR EVERYONE? Useless SEC. Do your job right.
Philip 2 days ago Ironic that Hedge Funds are the most unhedged game going.... Dan 1 day ago The managers of these HFs lack morality, they steal from other companies because they believe in their twisted little minds if they set up a system whereby they can trade in dark pools with illegal naked shorting, counterfeit shares and stock manipulation under the radar -- it makes the crime okay. All of this criminality is been done with the aid of supplementary leverage ratio (SLR) If they can manage to bankrupt the company they short with Government SLR they end up paying no tax and pocket the money GME/AMC and more for example.. Bingo the most audacious robbery attempt in the history of the state. Oh boys did they fail, wow what a spectacular failure. Now they have to deleverage destabilizing the entire market. Do these HF managers rank their values differently to the moral code we all live by? Obviously they do! There's no doubt they'll get lots of time to think about their behaviour when they're in the slammer. Each case will have to be evaluated on its own merit at some stage of course. On the face of it, all indications points to a tradeoff that benefits themselves at the disadvantaging of other. Sad for them! I rest my case!
Jodes 1 day ago The spikes in shares like ROKU, BIDU, SHOP and many more have huge parabolic spikes at the top accounting for the disfunctional market as we were seeing it at the top. They had huge buy orders to artificially spike the prices keep them up and then experts come in after and raise price targets and put a BUY rating on the stock. Then get retail to buy in and then drop them like a rock. Greedy and dispicibale. All probably done for a huge bonus. While retail suffers for their greed.
Vince 2 days ago More than 100 Trillion (with a T) are moving around the world in Derivatives each and every day., some say closer to 200 Trillion! You figure it our when THAT bubble bursts! Reply 2 1 SniffMopWho 2 days ago Interesting how these guys make millions and billions, just by pressing keys on a keyboard.
... 2 days ago More sleaze trying to bring down the market by making risky bets with swaps and derivatives, yet the regulators are caught asleep again. Just more proof of incompetence by Biden and his hired idiots at the SEC.

[Mar 31, 2021] Us market collapsed in March2020, but nobody has courage to admit that.

Mar 31, 2021 | www.unz.com

anon [406] Disclaimer , says:

[Mar 29, 2021] Hedge fund blowup sends shockwaves through Wall Street and the City

Mar 29, 2021 | finance.yahoo.com

A little known hedge fund that blew up last week has sent shockwaves through the world of investment banking.

Shares in Credit Suisse ( CSGN.SW ) and Nomura ( 8604.T ) sunk over 10% on Monday after both warned they faced potentially billions in losses linked to hedge fund Archegos Capital.

Banks that worked with Archegos and lent it money to buy shares were scrambling to offload Archegos' investments after a handful of risky bets made by the hedge fund went bad. The rush to exit these positions hit public shares prices, leaving banks with huge losses.

Hedge funds typically borrow money from banks to invest, a process known as margin trading. This allows funds to leverage up the cash they hold and increase their positions -- potentially earning far greater returns if their bets come good. However, it also means hedge funds can theoretically lose more money than they hold in client funds.

If trades made on margin turn sour, banks will ask a client to put up more money as collateral to limit potential losses. This process is known as a margin call.

Archegos faced margin calls on its positions last week but failed to provide extra cash. As a result, banks began selling off stocks held on the hedge fund's behalf -- a fire sale known in the City as liquidating positions. The business press reported on Friday that Goldman Sachs ( GS ) and Morgan Stanley ( MS ) were selling huge chunks of shares in businesses including ViacomCBS ( VIAC ), Discovery ( DISCA ) and Chinese stocks Baidu ( BIDU ) and Tencent Music ( TME ). The block sales are estimated to be worth around $20bn (£14.5bn), according to the Financial Times .

Shares in Credit Suisse sunk after it warned of 'significant losses' linked to the blow up at Archegos Capital. Photo: Fabrice Coffrini/AFP via Getty Images

A little known hedge fund that blew up last week has sent shockwaves through the world of investment banking.

Shares in Credit Suisse ( CSGN.SW ) and Nomura ( 8604.T ) sunk over 10% on Monday after both warned they faced potentially billions in losses linked to hedge fund Archegos Capital.

Banks that worked with Archegos and lent it money to buy shares were scrambling to offload Archegos' investments after a handful of risky bets made by the hedge fund went bad. The rush to exit these positions hit public shares prices, leaving banks with huge losses.

Hedge funds typically borrow money from banks to invest, a process known as margin trading. This allows funds to leverage up the cash they hold and increase their positions -- potentially earning far greater returns if their bets come good. However, it also means hedge funds can theoretically lose more money than they hold in client funds.

If trades made on margin turn sour, banks will ask a client to put up more money as collateral to limit potential losses. This process is known as a margin call.

Archegos faced margin calls on its positions last week but failed to provide extra cash. As a result, banks began selling off stocks held on the hedge fund's behalf -- a fire sale known in the City as liquidating positions. The business press reported on Friday that Goldman Sachs ( GS ) and Morgan Stanley ( MS ) were selling huge chunks of shares in businesses including ViacomCBS ( VIAC ), Discovery ( DISCA ) and Chinese stocks Baidu ( BIDU ) and Tencent Music ( TME ). The block sales are estimated to be worth around $20bn (£14.5bn), according to the Financial Times .

"Things started going wrong for Archegos when shares of companies such as Viacom started to slide mid-last week," said Michael Brown, a senior market analyst at Caxton Business. "It was at that point that margins were called, and couldn't be provided, hence the block sales seen Friday."

A fire sale can have a negative impact on stock prices and shares in both ViacomCBS and Discovery sunk 27% on Friday. Banks therefore risked making less back from the sales than they lent to clients to fund the investments.

Credit Suisse on Monday warned it was facing "highly significant" losses linked to Archegos that could be "material to our first quarter results".

The Swiss lender didn't name Archegos but said: "A significant US-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks."

Credit Suisse said it was "in the process" of selling shares held by Archegos. The bank said it was "premature" to estimate how much it would likely lose from the crisis.

"We intend to provide an update on this matter in due course," Credit Suisse said.

Shares sunk 13.4% in Zurich.

"One would assume that, judging by the size of positions sold, the 'game is up' for Archegos," Brown said.

He said it was "unlikely" that Archegos would pose a systemic risk to the financial system. Neil Wilson, chief market analyst at Markets.com, said the hedge fund "appears to have been too concentrated in a number of risky stocks."

A hedge fund blow up is relatively unusual and Archegos' undoing has raised concerns that other funds could find themselves in similar positions.

"Block equity-trades stemming from margin-calls on Archegos will have sent the market's spidey senses a tingle," said Bill Blain, a senior strategist at Shard Capital. "Who is next?"

Alex Harvey, a portfolio manager at Momentum, said: "We tend to find out after the event that other funds get caught up as sometimes hedge funds may be crowded into similar trades."

"When we look at this and think about the GameStop saga and the decline in Tesla as two examples -- what we're seeing are more and more pockets of very unusual trading activity in some stocks," he said. "You worry that this sort of frothy trading activity in turn creates pockets of distress among investors and banks that leads to larger unwinds and losses for financials."

[Mar 26, 2021] Absurd NFT PRices Expose a Global Financial House of Cards - ZeroHedge

Mar 26, 2021 | www.zerohedge.com


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Absurd NFT PRices Expose a Global Financial House of Cards BY SKWEALTHACADEMY FRIDAY, MAR 26, 2021 - 5:59

The insanity of absurd NFT prices reveals the fraud of the global currency system. The pricing for assets worldwide has gone insane at a time when the vast majority of the world's population became poorer, not wealthier, over the past 12 months due to the global economic lockdowns. As an example, there was an article in the Philadelphia Inquirer the other day of a cassette tape of hip hop icon Nas's Illmatic album selling for $13,999 . Not a CD, but a cassette tape. A rectangular piece of cardboard, known as an NBA trading card, for star Luka Doncic's rookie trading card, recently auctioned for $4.6M. Luka Doncic is not a star that played in 1925, and for this reason, his rookie card is worth so much. Luka Doncic entered the NBA in the 2018-19 season, less than three years ago. Nostalgic or collector items are simply selling for insane price because, in my opinion, wealthy people have captured so much of the world's wealth through a global currency system designed and engineered to produce this end result, that they have no better use for their money than to pay $14,000 for a music item that the vast majority of people do not even have the necessary hardware to actually play and to pay more than $4.5M for a piece of cardboard. Anyone that truly understands the difference between a sound and an unsound monetary system realizes that the likelihood, under a sound monetary system, of people paying exorbitant prices for the types of assets and NFTs described above would be a fraction of the probability at which they are occurring today.

Banksy, a UK-based street artist infamous for mocking the very wealthy people that pay millions for his artwork, even titling a piece "Morons" which depicted an art auction with a framed picture of the words "I can't believe you morons actually buy this shit". Instead of being offended by the artist's mockery, someone paid nearly 44,000 pounds for it and it recently sold for nearly 10 times the original purchase price when the piece was destroyed and the act of destruction was turned into an NFT. By the way Banksy also sold a very simple drawing of a girl with a red balloon that was mounted inside a frame in which he had hidden a shredder. After it sold for $1.4M, Banksy remotely activated the hidden shredder and shredded his artwork into thin strips as perhaps "revenge" against the idiocy of narcissistic, wealthy art collectors that can't find any better use of their money than purchasing stencil created art for which no rational person would ever pay $1.4M. To demonstrate the idiocy of the art world, Sotheby's immediately coined the shredding of the art piece as "the first work in history ever created during a live auction", which art collectors worldwide seemed to accept, and thereby increased the value of the destroyed piece of art to perhaps as high as double the original auction price at the current time and avoiding a more rational valuation for the art piece to near zero.

I once read a book called the $12M Stuffed Shark, in which the author revealed that US hedge fund manager Steve Cohen paid $12M to an artist to kill a shark and put it in a vat of plexiglass sealed formaldehyde that he could display in the foyer of his house and basically concluded, after a careful introspection into the art world, that pieces of art like pyramids built from tiny Godiva chocolates and stainless-steel colored balloon animals ($58M or more) would be priced at whatever price dealers could convince the dumbest rich person it was worth. Certainly this conclusion seemed to be supported when someone purchased an "art installation" of a banana taped to the wall with duct tape at a Miami Beach art gallery for $120,000 at the end of 2019 . When people conclude that the best use for $5M or $58M is to buy a piece of cardboard or a steel balloon animal during a period in which Rome is burning (i.e. exploding homelessness numbers in Los Angeles nearing 70,000 as evidenced here and here ), either this is a sign of the fraud of the monetary system, the decline of civilization, or both. If you have ever lived in Los Angeles, as I have, and watch the video referenced in the second link, you will find it astonishing that massive homeless encampments have sprung up throughout Los Angeles in areas that prior to recent years, had no homelessness. (depending on the social media platform you may be watching this on, the soaring prices for which art that I consider to be the lowest form of art that many do not even consider as art is selling for such absurd prices, including NFTs that I will soon discuss, is certainly reflective of the rapid decline of civilization.

This rapid decline of civilization is also reflected in the fact that giant titans of the tech world and social media platforms continue to promote and push the most morally reprehensible content to the top positions of success on their platforms. When popular YouTube Logan Paul visited the "suicide forest" in Japan and found a dead body hanging from the tree, he filmed it and mocked the dead person and YouTube quickly promoted his video as one of their top trending videos on their entire platform for 24 hours, until Logan Paul, not YouTube executives, deleted the video due to the outrage it provoked. Another popular YouTuber, David Dobrik, has had many of his reprehensible videos monetize bullying and belittling of others, often promoted on YouTube among the top trending videos. Recently Dobrik came under fire for allegedly monetizing a video of an actual rape on his channel, and he was roundly mocked when his initial apology consisted of trying to blame the rape victim, who was allegedly underage and too drunk to consent to sex. In his "apology", Dobrik stated he always gains consent for his videos, but sometimes people he victimizes consent at first but then change their minds later, and that is why it appears in many of his videos that he is monetizing morally reprehensible behavior. In any event, YouTube executives allegedly allowed such morally and cowardly behavior to be monetized to massive sums of income for such YouTubers and seem to be more focused on demonetizing anyone that challenges a narrative, true or false, forwarded by the oligarchs.

And as ludicrous as are the prices paid for some of the assets I've mentioned above, the level of insanity paid for NFTs, in my opinion, are at an even exponentially higher level. For those of you that may not know what are NFTs, Non-Fungible Tokens are unique blockchain-based digital assets that represent an increasing number of commodities, from art and real estate to collectibles like sports trading cards. One platform, Original Protocol, recently auctioned off the world's first NFT music album by American DJ 3LAU. Collectively, the artist's fanbase paid out more than $11 million for 33 NFTs contained on 3LAU's album Ultraviolet. In this case, since musicians are routinely ripped off by giant record labels and often have such suffocating, unfair contracts that make it near impossible to earn any significant income from album releases, the digitization of music in the form of NFTs that allow musicians to control their income is a wonderful aspect of the new digital economy of NFTs.

The Non-Fungibility of NFTs and Most Cryptocurrencies Disqualify Them for Use in Financial Derivative Currency Swaps

NFTs sell digital representations of items, including some that used to be represented in the physical world, like trading cards and pieces of art. As is the case in the fine art world, an NFT's price is the highest price you can convince someone to pay for it, a pool of clients that often overlaps with the over indulgent, narcissistic people that comprise the bidders for modern art pieces that sell for millions of dollars. Perhaps the most amazing quality of NFTs is that they actually have a more meaningful value than any cryptocurrency not backed by any type of hard asset. For example, bitcoin is a digital asset, but one would be hard pressed to describe its intrinsic value. One cannot say its fungibility is its price because its price is denominated in fiat currencies with intrinsic values of near zero. Furthermore, for those that constantly and very wrongly argue that non hard-asset backed cryptocurrencies are sound money, if bankers truly believed that bitcoin even remotely qualified as sound money, they would have zero problem offering currency swap derivative contracts between any fiat currency and bitcoin.

Yet, there is not a single corporation in the entire world that has a currency swap that hedges their corporate cash treasury holdings with bitcoin. You can never have any type of financial contract without unlimited risk if it is denominated in bitcoin in which both parties realistically have no idea of the price range of that currency for the maturity of that contract. No rational party will lock themselves into a contract in which a currency presents unlimited risk to them. The simple understanding of why there are no derivative currency swaps or hedging contracts denominated in bitcoin should easily explain to any rational person the very reason why BTC is not considered as sound money by a single banker in the entire world. On the contrary, even as volatile in price as gold and silver may be, gold and silver mining companies routinely hedge their inventory risk and their revenue risk of yet-to-be-mined gold and silver ounces by establishing open positions of gold and silver futures contracts years into the future.

You can't argue that BTC's intrinsic value is the block of the blockchain that records the transaction, because whether that block is used to record an NFT, BTC, or ownership of real estate, a photo or song, the price represented by that block could possibly vary from just a few dollars to several million dollars. So the blockchain has no intrinsic value either. However, with NFTs, its value, is more uniquely determinable than the block upon which a bitcoin transaction is stored that records the price of bitcoin, because that value is simply the highest price willing to be paid by all available bidders at any given time. If there are no available bidders willing to bid on a particular NFT for weeks or perhaps months on end, then one can assume the price of that NFT, even if the last paid price was $100,000, is likely zero. But even if there is one available bidder for that NFT at a price of $1,000,000 then the market price of that NFT is $1M. Though one may state that the bidding mechanism is much more controlled in BTC markets and that BTC could never be priced at zero or $1M per BTC in such a cavalier manner that mimics the pricing of NFTs, the similarities between the pricing mechanisms based upon lack of fungibility should not be ignored when considering the inherent risk imbedded in the price of BTC in its near $60,000 per coin current price. You will either understand this risk and behave accordingly, or ignore this risk and likely expose yourself to strong downside risk in the future at some point that should be expected but will remain unexpected to those that cannot, or will not, accept this existing risk.

The five biggest whales that own BTC in order from top to bottom, are believed to be as follows: (1) The collective of institutions/people called Satoshi Nakamoto; (2) The FBI; (3) The Winklevoss Twins; (4) Micree Zhan; and (5) Jihan Wu. Other notable owners among the top 10 BTC whales are Huobi, Tim Draper and the North Korean State. In 2017, Bloomberg reported that only 1,000 people owned 40% of all BTC in the entire world. Given that in the past two years, it has been reported that the top whales had been cornering the BTC market and increasing their market share, it would not be surprising if they had increased their market share to 50% or perhaps even higher by 2021. In any event, this translates into 0.00012658% of the world's population likely controlling majority ownership of BTC. I don't know of any world in which such a statistic does not translate into enormous risk.

Unanswered Questions

But fungibility is what reveals why cryptocurrencies like BTC and NFTs cannot ever qualify as sound money. For those that don't understand why sound money needs to be a fungible asset, take gold for example. Fungibility essentially means that money should never vary in its qualitative properties but only its quantitative properties. All gold has electroconductivity properties no matter its form. Electroconductivity is an intrinsic quality of gold. Because all purified four nine gold has the same density, the same volume will always be measured by the exact same weight in grams, again another fungible quality of gold. However, depending on how paper gold futures markets are being manipulated and the date, that same gram of gold will vary wildly in fiat currency price. Fiat currency price, thus can never be the quantitative property used to value gold. Weight is the constant that should be used for gold's value when it is to be used as sound money, because this quantitative property is always unwavering, always constant no matter if one is using gold as money in Moscow, Capetown, Montevideo, Santiago, Montreal, Phoenix, Miami, Mogadishu, Kiev, Paris, Heidelberg, Reykjavik, Chiangmai, or Seoul.

What quantitative property of bitcoin that is consistent and always the same across all uses? This is a question without an answer. For this same reason, NFTs could never serve as sound money either. No matter the latest fiat currency price paid for a Banksy "Morons" drawing set on fire, how can one determine the exchange rate for this NFT and an NFT representing a Mark Cuban tweet. Should the Banksy NFT be priced 10 million times higher than a Mark Cuban tweet NFT? Is an NBA TopShot NFT worth 1/1000 the price of a Banksy burning piece of art NFT? And even though NFTs have more uniqueness than say, a satoshi of BTC, because price assigned to that uniqueness is entirely subjective, the uniqueness leaves it no more fit to use as sound money than a cryptocurrency that has no backing of a hard asset. Miami-based art collector Pablo Rodriguez-Fraile proved the absurd pricing mechanism for NFT when he recently sold an NFT that he acquired for $66,666 in October, a 10-second computer-generated video clip of a slogan-covered giant Donald Trump created by digital artist Beeple , for mor than 100 times his original cost at $6.6M.

The last point of irony in the BTC is the solution to the unsound global fiat currency system narrative is that many HODLers of BTC are well aware of the oligarch's use of their power consolidation strategy of (1) Create a crisis; (2) Present the solution to the artificially created crisis; and (3) Implement the solution to consolidate power, yet will never give any type of consideration to the possibility of how perfectly the creation of BTC, in response to the 2008 global financial crisis, fits this exact historical narrative that oligarchs have repeatedly implemented, instead choosing to believe that BTC is the special unique exception to this oft-deployed strategy.

This despite, three US employees of the Central Bank, Galina Hale, Marianna Kudlyak, and Patrick Shultz, and one US university professor, Arvind Krishnamurthy, admitting that the premise I presented to my social media followers in December of 2017, when BTC hit $20,000, that the introduction of the US bitcoin futures market was going to be used to slash the BTC price drastically, essentially writing the premise for the referenced US Central Banker paper five months before it was written. In that paper, titled "How Futures Changed Bitcoin Prices", the four authors basically echoed my premise, and stated,

"We suggest that the rapid rise of the price of bitcoin and its decline following issuance of futures on the CME is consistent with pricing dynamics suggested elsewhere in financial theory and with previously observed trading behavior. Namely, optimists bid up the price before financial instruments are available to short the market (Fostel and Geanakoplos 2012). Once derivatives markets become sufficiently deep, short-selling pressure from pessimists leads to a sharp decline in value. While we understand some of the factors that play a role in determining the long-run price of bitcoin, our understanding of the transactional benefits of bitcoin is too imprecise to quantify this long-run price. But as speculative dynamics disappear from the bitcoin market, the transactional benefits are likely to be the factor that will drive valuation."

While they did not name the players in the BTC futures markets that drove BTC prices downward from $20,000 to $3,000 in 2018, the implication is that Central Bankers were involved in this downward spiral. And if Central Bankers were involved in this downward spiral, the downward price spiral would of course, been far easier to execute, if Central Bankers were also among the members of the collective that constitutes the largest BTC whale, Satoshi Nakamoto. Even though these dots, though purely speculative, are clearly possible, most every BTC HODLer that is confident in the achievement of end-year $300,000 BTC prices or higher, will never consider this possibility, even for a nanosecond, despite heavy suggestions of three US Central Bank employees that Central Bankers were involved in the 2018 BTC price crash. But if one did, as is the rational and logical thing to do, then one would have far greater difficulties distinguishing the mechanisms that set the price for NFTs and BTC. And as the introduction of the first BTC ETFs seem to be on the near horizon now, one would be smart to heed the lessons learned after trading of BTC futures was introduced at the end of 2017. Subscribe to my youtube channel here , to my free newsletter here , to my podcast here , and to learn more about bonus content delivered to skwealthacademy patreons every week, click here , and to download the skwealthacademy fact sheet, click here .

[Mar 24, 2021] BlackRock, others' risks should be studied, 'systemic' tag may not be best- Yellen

Mar.24 -- Senator Elizabeth Warren (D-MA) asks Treasury Secretary Janet Yellen if she would direct the Financial Stability Oversight Council (FSOC) to consider designating BlackRock as a firm whose failure could threaten the financial system.
Mar 24, 2021 | finance.yahoo.com

(Reuters) - Treasury Secretary Janet Yellen said on Wednesday it is important to "look carefully" at systemic risks posed by asset managers, including BlackRock Inc, but said designating them as systematically important financial institutions may not be the right approach.

Yellen's remarks came in response to questions from Senator Elizabeth Warren, a longtime Wall Street critic, who demanded to know why BlackRock and other large asset managers had not been added to the list of designated institutions.

"I believe it is important to look very carefully at the risks posed by the asset management industry, including BlackRock and other firms," Yellen, who as Treasury secretary, chairs the Financial Stability Oversight Council (FSOC), which is charged with making such designations.

"FSOC began to do that, I believe, in 2016 and 2017, but the risks it focused on were ones having to do with open-end mutual funds that can experience massive withdrawals and be forced to sell off assets that could create fire sales. That is actually a risk we saw materialize last spring in March," she said.

In 2014, BlackRock and other asset managers won a battle in their fight against tighter regulation when a panel of top financial regulators agreed to revamp their review of asset-management firms to focus on potentially risky products and activities rather than individual firms.

"I think that with respect to asset management, rather than focus on designation of companies, I think it is important to focus on an activity like that and consider what the appropriate restrictions are," Yellen said.

"The past two administrations in the US, and numerous global regulators, have studied our industry for a decade and concluded that asset managers should be regulated differently from banks, with the primary focus being on the industry's products and services," BlackRock said in a statement.


[Mar 23, 2021] The Collapse Of Greensill- 'Unwise Enablers' A Dearth Of Due Diligence - ZeroHedge

How many additional Greenville exists?
Mar 23, 2021 | www.zerohedge.com

The collapse of Greensill involved a predicable cast of unwise enablers, but it should serve as a warning to the growing number of Alternative Asset buyers on the dangers of complex deals which promise much but deliver less. Due diligence is critical in the highly illiquid alternatives sector.

You really can't make it up when it comes to the collapse of supply chain charlatan Greensill. I suspect it will make a great film It should also send a judder down our spines, reminding us things are seldom what they seem in complex structured finance:

At least former UK premier David Cameron will be happy. A majority comprising Tory MPs on the UK's Treasury Select Committee blocked an inquiry into Greensill yesterday on the basis it may be politically influenced. The fact Call-Me-Dave was texting chancellor Rishi Sunak pleading for GFC to be a special case for Covid Bailout loans says it all about the dangers of lobbying. The SNP will be equally delighted at the lack of scrutiny of dodgy dealings up in the Highlands.

The Greensill collapse is unlikely to be the last time financial chicanery is exposed as sham. And that is why holders of European Alternatives and Asset backed transactions should be nervous. The lessons of the Greensill deals are multiple:

Let's review the unfolding Greensill mess:

There over 1000 holders of the $10 bln plus of defaulted Greensill investment structures packaged and issued by Credit Suisse – which marketed them as ultra-safe secured investments. Under the law, what the holders recover on these deals will rather depend on how much the administrator and the courts can jemmy out of Sanjay Gupta's dead-firm walking ; steel and commodities business GFC Alliance. (I have no hesitation in saying GFC will go to the wall – there can't be a single sane financial firm on the planet willing to finance them as the story of its' Greensill relationship emerges and its connected in-house banking arrangements become clearer – although, apparently, a state rescue is under consideration to save jobs.)

Investors will be lucky to see much more than the 30% recovery already in the pot from non-Gupta related investments in the Greensill funds – but Credit Suisse may decide to make its investors good. The reputational damage of seeing their private and investment banking clients clobbered for their stupidity, which would negate their private banking brand, may mean it's worth taking the hit. No wonder CS staff are very grumpy about their bonuses.

Successful financial scams require willing participants. All the usual fools are there in the mix.

Yet again the German regulator missed what was going on in Greensill's German bank and its exposures to Gupta. The team at Credit Suisse who agreed to warehouse Greensill originated "future receivables" and sell them as pristine secured assets have a limited shelf life. The insurance broker who managed to convince an insurance fund the underlyings were AAA quality looks vulnerable. Or what about the sales teams in Morgan Stanley who actually marketed the deals. Yet again Softbank is in the frame after it invested in excess of $1.5 bln at a $4-7 bln valuation, hailing Greensill as a leading Finech, when the actual truth is that its high-tech driven lending algos were nothing more than basic Excel spread sheets.

Greensill's financial magic was little more than sheer chutzpah – being able to persuade investors that the dull old low margin conservative business of factoring – short-term secured lending against invoices and accounts receivable, was something incredibly clever, undervalued and able to generate huge returns based on unique proprietary tech.

Greensill deals went further. Rather than just factoring Gupta's bills to suppliers and its invoices, the firm conjured up "future receivables" – pledging the company's expected future earnings for lending now. That's not necessarily a bad thing – its basic credit – but it only works if these earnings were completely predictable like obligated mortgage payments. What Greensill was doing was lending on future earnings on very volatile commodities. Remember – oil prices went negative in 2020.

In return for funding challenging names we know Greensill took divots out these clients. It made over £36 mm financing Gupta's deals in Scotland, and an amazing $108mm in fees from the $850mm Bluestone coal deals in the US – for which it is now being taken to court. All these fees gave Lex Greensill the wherewithal for his private Air Greensill fleet – but didn't make the financings any safer.

Any smart investors would probably have asked questions – but what's not to like about a deal that's secured on receivables, offers a high coupon, is wrapped with an insurance package from reputable insurer and involves major investment firms like Credit Suisse banking them, and Morgan Stanley marketing them?

One question is how did Greensill get away with it so long?

It was clear as early as 2017 there were major issues with some of the supply chain financing deals Greensill was putting together. The following year a major Swiss investment group, GAM, blew up when deals a leading fund manager had bet the shop on were questioned internally. A review by external investigators discovered a lack of information and documentation on a whole series of Greensill deals. They questioned how due diligence was done on the deals. The fund manager was suspended and later dismissed – triggering a redemption run on the fund. The whistle-blower was also shown the door on the back of massive client exits.

GAM invested in the funds because it's very hard to turn down the promise of a low risk / high return deal that promised so much more than the tiny yields available in conventional credit markets.

Despite the events at GAM, Credit Suisse went on to package $10 bln plus of Greensill deals. It was all done with an insurance wrap from a single name put them in its safe bucket. I know other insurance firms refused the deals. The trigger for the collapse of the Greensill scam was the withdrawl of that critical insurance – causing Credit Suisse to stop. Greensill has known for a year Tokyo Marine (which sacked the underwriter involved) would not renew and had been unable to find alternative cover.

Perhaps Credit Suisse bought the story and Softbank link that Greensill was a remarkable new Fintech with the Midas touch of changing dull, conservative factoring into a money machine? All that glitters is not gold.

One of the major developing themes in markets has been a shift from financial assets – which are seriously mispriced due to monetary distortion and financial asset inflation – into real assets, the so-called alternatives market. Alternative because they are not stocks or bonds, but cash flows and real assets. The collapse of Greensill will heighten awareness of due diligence risks in these non-standard, off-market, asset backed alternatives. Alternative asset holders will be looking at holdings for what else might be wobbly.

For instance, I might urge them not to be hypnotised by the assumptions underlying a well-known fund investing in music royalties, the basis of which is also being questioned by analysts. (I certainly won't mention the fund by name as the manager is a well-known litigant.) I have no reason to believe or disbelieve what analysts, the FT and a US investment bank have said about it overpaying for assets or questioning the valuation hikes it puts on future revenues when it acquires catalogues. Personally I like music assets, know their value, and, given certain circumstances the fund in question might come good. Equally.. it might not.

To understand how these deals works its critical to understand exactly what's occurring within the structures – how real are the assets, how the cash flows, how its accounted, and where it goes. That's why having top notch accountants and lawyers is such an important requirement for any deal. However, if they are working in the interests of the issuers and bankers – then investors are the likely patsies. There is a real difference between the way US and European Asset Backed deals are structured – basically US deals are transparent. European deals tend to be opaque.

Alternative deals based on real assets and tangible cash flows are often, but not always, decorrelated from distorted financial assets, allowing low risk deals to yield better long- term returns. They tick can the box in terms of risk vs return and provide significant diversification away from conventional markets. The major negative is there is little pretence they will be liquid assets. If you want to sell – even in good markets it will not be easy.

The only way you should participate in Alternative type deals is by knowing exactly what's going on. And – yes, my day job is Head of Alternative Assets. Happy to discuss in depth any time.

[Mar 19, 2021] The US and Europe are pretty much controlled by the same set of oligarchs and the most powerful of the oligarchs are the bankers. Once you realise that it is the bankers driving most of this garbage all of the elephants are explained.

Mar 19, 2021 | www.moonofalabama.org

MarkU , Mar 18 2021 23:14 utc | 39

I don't understand why so many otherwise intelligent people are seemingly unable to bring themselves to question the fundamental 'model' that supposedly describes what is going on in the 'West'. If political 'models' were subjected to the same sort of analysis that scientific ones were, then the model used by b and most of the people who comment here would undoubtedly be rejected. There are simply too many elephants in the room.

Why are European countries going along with all the stupidity? Such as America's rampage through the middle east, originating and perpetuated with proven lies, flooding Europe with migrants as a result.

Why are European countries apparently happy to go along with the Russophobia and the Sinophobia. Are their leaders really so lame-brained that they took the ludicrous Skripal poisoning story and the even more ridiculous Navalny yarn at face value?

Why are European countries going along with the stupid and unfair sanctions? sanctions that cost Europe far more than they do America.

Why is Europe going along with the increased militarisation of the of the border with the Russian federation and the open war-mongering? Surely European leaders realise that they are wantonly courting WW3 and risking a nuclear conflagration? Could they really be so stupid as to imagine that lining the border they share with the Russians with ABM's was actually 'defensive' in nature?

Last but certainly not least, why is Israel so important? How come a tiny country in the middle east gets to thumb its nose at international law on a daily basis? Why is it OK for them to have nukes? Why is it OK when they shoot literally thousands of unarmed protesters? killing hundreds. How come they can build walls and that is OK, How come they can run an openly apartheid state but somehow be immune to criticism?

The answer to all these questions is actually quite simple, the US and Europe are pretty much controlled by the same set of oligarchs and the most powerful of the oligarchs are the bankers. Once you realise that it is the bankers driving most of this garbage all of the elephants are explained.

norecovery , Mar 18 2021 23:44 utc | 40

MarkU @ 39 -- HossKara struck gold with his suggestion @34, to which I responded @35.

It's all about the Benjamins, particularly the Petrodollar controlled by what Psychohistorian euphemistically calls "Private Finance" and is the world's reserve currency. Any attempt to circumvent the Petrodollar in trade, especially energy resources, brings violent aggression to punish the wayward country and its leaders.

"Private Finance" in this context really means the thug standing behind you with a baseball bat. "You don't know who you're dealing with, punk." Iran trades with other countries in other currencies, so does Venezuela, so does China, so does Russia. Get the picture?

Saddam Hussein announced that he was going to accept other currencies than the dollar for Iraq's oil -- look what happened to him. Same with Gaddafi. They and their countries were made examples of what happens when you deny Uncle Ratschild his pound of flesh.

[Mar 07, 2021] SEC Issues Devastating Risk Alert on Private Equity Abuses; Effectively Admits Failure of Last 5+ Years of Enforcement by Yves Smith

Notable quotes:
"... In the Risk Alert below, the itemization of various forms of abuses, such as the many ways private equity firms parcel out interests in the businesses they buy among various funds and insiders to their, as opposed to investors' benefit, alone should give pause. And the lengthy discussion of these conflicts does suggest the SEC has learned something over the years. Experts who dealt with the agency in its early years of examining private equity firms found the examiners allergic to considering, much the less pursuing, complex abuses. ..."
"... Undermining legislative intent of new supervisory authority the SEC never embraced its new responsibilities to ride herd on private equity and hedge funds. ..."
"... The agency is operating in such a cozy manner with private equity firms that as one investor described it: It's like FBI sitting down with the Mafia to tell them each year, "Don't cross these lines because that's what we are focusing on." ..."
"... Advisers charged private fund clients for expenses that were not permitted by the relevant fund operating agreements, such as adviser-related expenses like salaries of adviser personnel, compliance, regulatory filings, and office expenses, thereby causing investors to overpay expenses ..."
"... Current SEC chairman Jay Clayton came from Sullivan & Cromwell, bringing with him Steven Peikin as co-head of enforcement. And the Clayton SEC looks to have accomplished the impressive task of being even weaker on enforcement than Mary Jo White. ..."
"... On the same side though, fraud is a criminal offence, and it's SEC's duty to prosecute. And I believe that a lot of what PE engage in would happily fall under fraud, if SEC really wanted. ..."
"... Crimogenic: Producing or tending to produce crime or criminality. An additional factor is that, in the main, the criminals do not take their money and leave the gaming tables but pour it back in and the crime metastasizes. AKA, Kleptocracy. ..."
"... You might add that the threat of consequences for these crimes makes the criminals extremely motivated to elect officials who will not prosecute them (e.g. Obama). They're not running for office, they're avoiding incarceration. ..."
"... Andrew Levitt, for instance, complained bitterly that Joe Lieberman would regularly threaten to cut the SEC's budget for allegedly being too aggressive about enforcement. Lieberman was the Senator from Hedgistan. ..."
"... More banana republic level grift. What happens when investors figure out they can't believe anything they are told? ..."
"... Can we come up with a better descriptor for "private equity"? I suggest "billionaire looters". ..."
"... Where is the SEC when Bain Capital (Romney) wipes out Toys-R-Us and Dianne Feinstein's husband Richard Blum wipes out Payless Shoes. They gain control of the companies, pile on massive debt and take the proceeds of the loan, and they know the company cannot service the loan and a BK is around the corner. ..."
"... Thousands lose their jobs. And this is legal? And we also lost Glass-Steagal and legalized stock buy-backs. The Elite are screwing the people. It's Socialism for the Rich, the Politicians and Govt Employees and Feudalism for the rest of us. ..."
Jun 26, 2020 | www.nakedcapitalism.com

We've embedded an SEC Risk Alert on private equity abuses at the end of this post. 1 What is remarkable about this document is that it contains a far longer and more detailed list of private abuses than the SEC flagged in its initial round of examinations of private equity firms in 2014 and 2015. Those examinations occurred in parallel with groundbreaking exposes by Gretchen Morgenson at the New York Times and Mark Maremont in the Wall Street Journal.

At least some of the SEC enforcement actions in that era look to have been triggered by the press effectively getting ahead of the SEC. And the SEC even admitted the misconduct was more common at the most prominent firms.

Yet despite front-page articles on private equity abuses, the SEC engaged in wet noodle lashings. Its pattern was to file only one major enforcement action over a particular abuse. Even then, the SEC went to some lengths to spread the filings out among the biggest firms. That meant it was pointedly engaging in selective enforcement, punishing only "poster child" examples and letting other firms who'd engaged in precisely the same abuses get off scot free.

The very fact of this Risk Alert is an admission of failure by the SEC. It indicates that the misconduct it highlighted five years ago continues and if anything is even more pervasive than in the 2014-2015 era. It also confirms that its oft-stated premise then, that the abuses it found then had somehow been made by firms with integrity that would of course clean up their acts, and that now-better-informed investors would also be more vigilant and would crack down on misconduct, was laughably false.

In particular, the second section of the Risk Alert, on Fees and Expenses (starting on page 4) describes how fund managers are charging inflated or unwarranted fees and expenses. In any other line of work, this would be called theft. Yet all the SEC is willing to do is publish a Risk Alert, rather than impose fines as well as require disgorgements?

The SEC's Abject Failure

In the Risk Alert below, the itemization of various forms of abuses, such as the many ways private equity firms parcel out interests in the businesses they buy among various funds and insiders to their, as opposed to investors' benefit, alone should give pause. And the lengthy discussion of these conflicts does suggest the SEC has learned something over the years. Experts who dealt with the agency in its early years of examining private equity firms found the examiners allergic to considering, much the less pursuing, complex abuses.

Undermining legislative intent of new supervisory authority the SEC never embraced its new responsibilities to ride herd on private equity and hedge funds.

The SEC has long maintained a division between the retail investors and so-called "accredited investors" who by virtue of having higher net worths and investment portfolios, are treated by the agency as able to afford to lose more money. The justification is that richer means more sophisticated. But as anyone who is a manager for a top sports professional or entertainer, that is often not the case. And as we've seen, that goes double for public pension funds.

Starting with the era of Clinton appointee Arthur Levitt, the agency has taken the view that it is in the business of defending presumed-to-be-hapless retail investors and has left "accredited investor" and most of all, institutional investors, on their own. This was a policy decision by the agency when deregulation was venerated; there was no statutory basis for this change in priorities.

Congress tasked the SEC with supervising the fund management activities of private equity funds with over $150 million in assets under management. All of their investors are accredited investors. In other words, Congress mandated the SEC to make sure these firms complied with relevant laws as well as making adequate disclosures of what they were going to do with the money entrusted to them. Saying one thing in the investor contracts and doing another is a vastly worse breach than misrepresentations in marketing materials, yet the SEC acted as if slap-on-the-wrist-level enforcement was adequate.

We made fun when thirteen prominent public pension fund trustees wrote the SEC asking for them to force greater transparency of private equity fees and costs. The agency's position effectively was "You are grownups. No one is holding a gun to your head to make these investments. If you don't like the terms, walk away." They might have done better if they could have positioned their demand as consistent with the new Dodd Frank oversight requirements.

Actively covering up for bad conduct . In 2014, the SEC started working at giving malfeasance a free pass. Specifically, the SEC told private equity firms that they could continue their abuses if they 'fessed up in their annual disclosure filings, the so-called Form ADV. The term of art is "enhanced disclosure". Since when are contracts like confession, that if you admit to a breach, all is forgiven? Only in the topsy-turvy world of SEC enforcement.

And the coddling of crookedness continued. From a January post :

The agency is operating in such a cozy manner with private equity firms that as one investor described it: It's like FBI sitting down with the Mafia to tell them each year, "Don't cross these lines because that's what we are focusing on."

Specifically, as we indicated, the SEC was giving advanced warning of the issues it would focus on in its upcoming exams, in order to give investment managers the time to get their stories together and purge files. And rather than view its periodic exams as being designed to make sure private equity firms comply with the law and their representations, the agency views them as "cooperative" exercises! Misconduct is assumed to be the result of misunderstanding and error, and not design.

It's pretty hard to see conduct like this, from the SEC's Risk Alert, as being an accident:

Advisers charged private fund clients for expenses that were not permitted by the relevant fund operating agreements, such as adviser-related expenses like salaries of adviser personnel, compliance, regulatory filings, and office expenses, thereby causing investors to overpay expenses

The staff observed private fund advisers that did not value client assets in accordance with their valuation processes or in accordance with disclosures to clients (such as that the assets would be valued in accordance with GAAP). In some cases, the staff observed that this failure to value a private fund's holdings in accordance with the disclosed valuation process led to overcharging management fees and carried interest because such fees were based on inappropriately overvalued holdings .

Advisers failed to apply or calculate management fee offsets in accordance with disclosures and therefore caused investors to overpay management fees.

We're highlighting this skimming simply because it is easier for laypeople to understand than some of the other types of cheating the SEC described. Even so, industry insiders and investors complained that the description of the misconduct in this Risk Alert was too general to give them enough of a roadmap to look for it at particular funds.

Ignoring how investors continue to be fleeced . The SEC's list includes every abuse it sanctioned or mentioned in the 2014 to 2015 period, including undisclosed termination of monitoring fees, failure to disclose that investors were paying for "senior advisers/operating partners," fraudulent charges, overcharging for services provided by affiliated companies, plus lots of types of bad-faith conduct on fund restructurings and allocations of fees and expenses on transactions allocated across funds.

The SEC assumed institutional investors would insist on better conduct once they were informed that they'd been had. In reality, not only did private equity investors fail to demand better, they accepted new fund agreements that described the sort of objectionable behavior they'd been engaging in. Remember, the big requirement in SEC land is disclosure. So if a fund manager says he might do Bad Things and then proceeds accordingly, the investor can't complain about not having been warned.

Moreover, the SEC's very long list of bad acts says the industry is continuing to misbehave even after it has defined deviancy down via more permissive limited partnership agreements!

Why This Risk Alert Now?

Keep in mind what a Risk Alert is and isn't. The best way to conceptualize it is as a press release from the SEC's Office of Compliance Inspections and Examinations. It does not have any legal or regulatory force. Risk Alerts are not even considered to be SEC official views. They are strictly the product of OCIE staff.

On the first page of this Risk Alert, the OCIE blandly states that:

This Risk Alert is intended to assist private fund advisers in reviewing and enhancing their compliance programs, and also to provide investors with information concerning private fund adviser deficiencies.

Cutely, footnotes point out that not everyone examined got a deficiency letter (!!!), that the SEC has taken enforcement actions on "many" of the abuses described in the Risk Alert, yet "OCIE continues to observe some of these practices during examinations."

Several of our contacts who met in person with the SEC to discuss private equity grifting back in 2014-2015 pressed the agency to issue a Risk Alert as a way of underscoring the seriousness of the issues it was unearthing. The staffers demurred then.

In fairness, the SEC may have regarded a Risk Alert as having the potential to undermine its not-completed enforcement actions. But why not publish one afterwards, particularly since the intent then had clearly been to single out prominent examples of particular types of misconduct, rather than tackle it systematically? 2

So why is the OCIE stepping out a bit now? The most likely reason is as an effort to compensate for the lack of enforcement actions. Recall that all the OCIE can do is refer a case to the Enforcement Division; it's their call as to whether or not to take it up.

The SEC looks to have institutionalized the practice of borrowing lawyers from prominent firms. Mary Jo White of Debevoise brought Andrew Ceresney with her from Debeviose to be her head of enforcement. Both returned to Debevoise.

Current SEC chairman Jay Clayton came from Sullivan & Cromwell, bringing with him Steven Peikin as co-head of enforcement. And the Clayton SEC looks to have accomplished the impressive task of being even weaker on enforcement than Mary Jo White. Clayton made clear his focus was on "mom and pop" investors, meaning he chose to overlook much more consequential abuses by private equity firms and hedgies. The New York Times determined that the average amount of SEC fines against corporate perps fell markedly in 2018 compared to the final 20 months of the Obama Administration. The SEC since then levied $1 billion fine against the Woodbridge Group of Companies and its one-time owner for running a Ponzi scheme that fleeced over 8,400, so that would bring the average penalty up a bit. But it still confirms that Clayton is concerned about small fry, and not deeper but just as pickable pockets.

David Sirota argues that the OCIE was out to embarrass Clayton and sabotage what Sirota depicted as an SEC initiative to let retail investors invest in private equity. Sirota appears to have missed that that horse has left the barn and is in the next county, and the SEC had squat to do with it.

The overwhelming majority of retail funds is not in discretionary accounts but in retirement accounts, overwhelmingly 401(k)s. And it is the Department of Labor, which regulates ERISA plans, and not the SEC, that decides what those go and no go zones are. The DoL has already green-lighted allowing large swathes of 401(k) funds to include private equity holdings. From a post earlier this month :

Until now, regulations have kept private equity out of the retail market by prohibiting managers from accepting capital from individuals who lack significant net worth.

Private equity firms have succeeded in storming that barricade. The Department of Labor published a June 3 information letter that allows private equity funds, or more accurately funds of funds, to be included in certain 401(k) plan offerings, namely, target date funds and balanced funds. This is significant because despite the SEC regularly calling out bad practices with target date funds, they are the strategy used to manage the majority of 401(k) assets .

Moreover, even though Sirota pointed out that Clayton had spoken out in favor of allowing retail investors more access to private equity investments, the proposed regulation on the definition of accredited investors in fact not only does not lower income or net worth requirements (save for allowing spouses to combine their holdings) it in fact solicited comments on the idea of raising the limits. From a K&L Gates write up :

Previously, the Concept Release requested comment on whether the SEC should revise the current individual income ($200,000) and net worth ($1,000,000) thresholds. In the Proposing Release, the SEC further considered these thresholds, noting that the figures have not been adjusted since 1982. The SEC concluded that it does not believe modifications to the thresholds are necessary at this time, but it has requested comments on whether the final should instead make a one-time increase to the thresholds in the account for inflation, or whether the final rule should reflect a figure that is indexed to inflation on a going-forward basis.

It is not clear how many people would be picked up by the proposed change, which was being fleshed out, that of letting some presumed sophisticated but not rich individuals, like junior hedge fund professionals and holders of securities licenses, be treated as accredited investors. In other words, despite Clayton's talk about wanting ordinary investors to have more access to private equity funds, the agency's proposed rule change falls short of that.

Moreover, if the OCIE staff had wanted to undermine even the limited liberalization of the definition of accredited investor so as to stymie more private equity investment, the time to do so would have been immediately before or while the comments period was open. It ended March 16 .

The New York Times reported that Senate Republicans deemed Clayton's odds of confirmation as US Attorney for the Southern District of New York as remote even before the Trump fired Geoffrey Berman to clear a path for Clayton. So the idea that a technical release by the OCIE would derail Clayton's confirmation is a stretch.

So again, why now? One possibility is that the timing is purely a coincidence. For instance, the SEC staffers might have been waiting until Covid-19 news overload died down a bit so their work might get a hearing (and Covid-19 remote work complications may also have delayed its release).

The second possibility is that OCIE is indeed very frustrated with the enforcement chief Peikin's inaction on private equity. The fact that Peikin's boss and protector Clayton has made himself a lame duck meant a salvo against Peikin was now a much lower risk. If any readers have better insight into the internal workings of the SEC these days, please pipe up.

______

1 Formally, as you can see, this Risk Alert addresses both private equity and hedge fund misconduct, but on reading the details, the citing of both types of funds reflects the degree to which hedge funds have been engaging in the buying and selling of stakes in private companies. For instance, Chatham Asset Management, which has become notorious through its ownership of American Media, which in turn owns the National Enquirer, calls itself a hedge fund. Moreover, when the SEC started examining both private equity and hedge funds under new authority granted by Dodd Frank, it described the sort of misconduct described in this Risk Alert as coming out of exams of private equity firms, and its limited round of enforcement actions then were against brand name private equity firms like KKR, Blackstone, Apollo, and TPG. Thus for convenience as well as historical reasons, we refer only to private equity firms as perps.

2 Media stories at the time, including some of our posts, provided substantial evidence that particular abuses, such as undisclosed termination of monitoring fees and failure to disclose that "senior advisers" presented as general partner "team members" were in fact consultants being separately billed to fund investments, were common practices. Yet the SEC chose to lodge only marquee enforcement actions against one prominent firm for each abuse, as if token enforcement would serve as an adequate deterrent. The message was the reverse, that the overwhelming majority of the abuses were able to keep their ill-gotten gains and not even face public embarrassment.


skippy , June 26, 2020 at 4:27 am

Peter Sellers I'll say now – ????

https://www.youtube.com/watch?v=1TtZgs8k8dU

vlade , June 26, 2020 at 4:35 am

TBH, in the view of Calpers ignoring its advisors, I do have a little understanding of the SEC's point "you're grown ups" (the worse problem is that the advisors who leach themselves to the various accredited investors are often not worth the money.

On the same side though, fraud is a criminal offence, and it's SEC's duty to prosecute. And I believe that a lot of what PE engage in would happily fall under fraud, if SEC really wanted.

Susan the other , June 26, 2020 at 11:43 am

Yes, the SEC conveniently claims a conflicted authority – 1. to regulate compliance but without an "enforcement authority", and 2. report egregious behavior to their "enforcement authority". So the SEC is less than a permissive nanny. Sort of like "access" to enforcement authority. Sounds like health care to me.

Yves Smith Post author , June 26, 2020 at 4:06 pm

No, this is false. The SEC has an examination division and an enforcement division. The SEC can and does take enforcement actions that result in fines and disgorgements, see the $1 billion fine mentioned in the post. So the exam division can recommend enforcement to the enforcement division. That does not mean it will get done. Some enforcement actions originate from within the enforcement division, like insider trading cases, and the SEC long has had a tendency to prioritize insider trading cases.

The SEC cannot prosecute. It has to refer cases that it thinks are criminal to the DoJ and try to get them to saddle up.

Maritimer , June 26, 2020 at 5:04 am

Crimogenic: Producing or tending to produce crime or criminality. An additional factor is that, in the main, the criminals do not take their money and leave the gaming tables but pour it back in and the crime metastasizes. AKA, Kleptocracy.

Thus in 2008 and thereafter the criminal damage required 2-3 trillion, now 7-10 trillion.

Any economic expert who does not recognize crime as the number one problem in the criminogenic US economy I disregard. Why read all that analysis when, at the end of the run, it all just boils down to bailing out the criminals and trying to reset the criminogenic system?

(Can I get my economics degree now?)

Adam Eran , June 26, 2020 at 1:33 pm

You might add that the threat of consequences for these crimes makes the criminals extremely motivated to elect officials who will not prosecute them (e.g. Obama). They're not running for office, they're avoiding incarceration.

The Rev Kev , June 26, 2020 at 5:17 am

The SEC has been captured for years now. It was not that long ago that SEC Examination chief Andrew Bowden made a grovelling speech to these players and even asked them to give his son a job which was so wrong-

https://www.rollingstone.com/politics/politics-news/regulatory-capture-captured-on-video-190033/

But there is no point in reforming the SEC as it was the politicians, at the beck and call of these players, that de-fanged the SEC – and it was a bipartisan effort! So it becomes a chicken-or-the-egg problem in the matter of reform. Who do you reform first?

Can't leave this comment without mentioning something about a private equity company. One of the two major internal airlines in Oz went broke due to the virus and a private equity buyer has been found to buy it. A union rep said that they will be good for jobs and that they are a good company. Their name? Bain Capital!

Yves Smith Post author , June 26, 2020 at 5:44 am

We broke the story about Andrew Bowden! Give credit where credit is due!!!! Even though Taibbi points to us in his first line, linking to Rolling Stone says to those who don't bother clicking through that it was their story.

Plus we transcribed his fawning remarks.

https://www.nakedcapitalism.com/2015/03/secs-andrew-bowden-regulator-sale.html

And he resigned three weeks later.

The Rev Kev , June 26, 2020 at 5:56 am

Of course I remember that story. I was going to mention it but thought to let people see it in virtually the opening line of that story where he gives you credit. More of a jolt of recognition seeing it rather than being told about it first.

Jesper , June 26, 2020 at 6:36 am

Of the three branches of government which ones are not captured by big business? If two out of three were to captured then does it matter what the third does?

In my opinion too much power has been centralised, too much of the productivity gains of the past 40 years have been monetised and therefore made possible to hoard and centralise. SEC should (in my opinion) try to enforce more but without more support then I do not believe (it is my opinion, nothing more and nothing less) that they can accomplish much.

Susan the other , June 26, 2020 at 11:57 am

The SEC is a mysterious agency which (?) must fall under the jurisdiction of the Treasury because it is a monetary regulatory agency in the business of regulating securities and exchanges. But it has no authority to do much of anything. The Treasury itself falls under the executive administration but as we have recently seen, Mnuchin himself managed to get a nice skim for his banking pals from the money Congress legislated.

That's because Congress doesn't know how to effectuate a damn thing – they legislate stuff that morphs before our very eyes and goes to the grifters without a hitch. So why don't we demand that consumer protection be made into hard law with no wiggle room; that since investing is complex in this world of embedded funds and glossy prospectuses, we the consumer should not have to wade through all the nonsense to make decisions – that everything be on the table. And if PE can't manage to do that and still steal its billions then PE should be declared to be flat-out illegal.

Yves Smith Post author , June 26, 2020 at 4:08 pm

Please stop spreading disinformation. This is the second time on this post. The SEC has nada to do with the Treasury. It is an independent regulatory agency. It however is the only financial regulator that does not keep what it kills (its own fees and fines) but is instead subject to Congressional appropriations.

Andrew Levitt, for instance, complained bitterly that Joe Lieberman would regularly threaten to cut the SEC's budget for allegedly being too aggressive about enforcement. Lieberman was the Senator from Hedgistan.

Edward , June 26, 2020 at 7:16 am

More banana republic level grift. What happens when investors figure out they can't believe anything they are told?

RJMc, MD , June 26, 2020 at 8:43 am

It should be noted that out here in the countryside of northern Michigan that embezzlement (a winter sport here while the men are out ice fishing), theft and fraud are still considered punishable felonies. Perhaps that is simply a quaint holdover from a bygone time. Dudley set the tone for the C of C with his Green Book on bank deregulation. One of the subsequent heads of C of C was reported as seeing his position as "being the spiritual resource for banks". If bank regulation is treated in a farcical fashion why should be the SEC be any different?

Susan the other , June 26, 2020 at 12:08 pm

I was shocked to just now learn that ERISA/the Dept of Labor is in regulatory control of allowing pension funds to buy PE fund of funds and "balanced PE funds". What VERBIAGE. Are "PE Fund of Balanced Funds" an actual category? And what distinguishes them from good old straightforward Index Funds? And also too – what is happening before our very glazed-over eyes is that PE is high grading not just the stock market but the US Treasury itself. Ordinary investors should be buying US Treasuries directly and retirement funds should too. It will be a big bite but if it knocks PE out of business it would be worth it. PE is in the business of cooking its books, ravaging struggling corporations, and boldly privatizing the goddamned Treasury. WTF?

Kouros , June 26, 2020 at 12:27 pm

I want to bring this to Yves' attention: the recent SCOTUS decision on Thole v. U.S. Bank that opens the doors wide for corporate America to steal with impunity from the pension plans: https://www.unz.com/estriker/corrupt-supreme-court-gives-green-light-to-corporations-to-steal-from-pensioners/

Glen , June 26, 2020 at 12:51 pm

Can we come up with a better descriptor for "private equity"? I suggest "billionaire looters".

Olivier , June 26, 2020 at 2:00 pm

What about the wanton destruction of the purchased companies? If this solely about the harm done to the poor investors? If so, that is seriously wrong.

flora , June 26, 2020 at 3:27 pm

If, you know, the neoliberal "because markets" is the ruling paradigm then of course there is no harm done. The questions then become: is "because markets" a sensible paradigm? What is it a sensible paradigm of? Is "because markets" even sensible for the long term?

flora , June 26, 2020 at 3:19 pm

an aside: farewell, Olympus camera. A sad day. Farewell, OM-1 and OM-2. Film photography is really not replicated by digital photography but the larger market has gone to digital. Speed and cost vs quality. Because markets. Now the vulture swoop.

Stan Sexton , June 26, 2020 at 8:17 pm

Where is the SEC when Bain Capital (Romney) wipes out Toys-R-Us and Dianne Feinstein's husband Richard Blum wipes out Payless Shoes. They gain control of the companies, pile on massive debt and take the proceeds of the loan, and they know the company cannot service the loan and a BK is around the corner.

Thousands lose their jobs. And this is legal? And we also lost Glass-Steagal and legalized stock buy-backs. The Elite are screwing the people. It's Socialism for the Rich, the Politicians and Govt Employees and Feudalism for the rest of us.

[Mar 07, 2021] Bank Regulation Can not Be Heads Banks Win, Tails Taxpayers Lose

Notable quotes:
"... Kane, who coined the term "zombie bank" and who famously raised early alarms about American savings and loans, analyzed European banks and how regulators, including the U.S. Federal Reserve, backstop them. ..."
"... We are only interested observers of the arm wrestling between the various EU countries over the costs of bank rescues, state expenditures, and such. But we do think there is a clear lesson from the long history of how governments have dealt with bank failures . [If] the European Union needs to step in to save banks, there is no reason why they have to do it for free best practice in banking rescues is to save banks, but not bankers. That is, prevent the system from melting down with all the many years of broad economic losses that would bring, but force out those responsible and make sure the public gets paid back for rescuing the financial system. ..."
"... In 2019, another question, alas, is also piercing. In country after country, Social Democratic center-left parties have shrunk, in many instances almost to nothingness. In Germany the SPD gives every sign of following the French Socialist Party into oblivion. Would a government coalition in which the SPD holds the Finance Ministry even consider anything but guaranteeing the public a huge piece of any upside if they rescue two failing institutions? ..."
Mar 31, 2019 | www.nakedcapitalism.com
... ... ...

Running in the background, though, was a new, darker theme: That the post-2008 reforms had gone too far in restricting policymakers' discretion in crises. The trio most responsible for making the post-Lehman bailout revolution -- Ben Bernanke, Timothy Geithner, and Henry Paulson -- expressed their misgivings in a joint op-ed :

But in its post-crisis reforms, Congress also took away some of the most powerful tools used by the FDIC, the Fed and the Treasury the FDIC can no longer issue blanket guarantees of bank debt as it did in the crisis, the Fed's emergency lending powers have been constrained, and the Treasury would not be able to repeat its guarantee of the money market funds.

These powers were critical in stopping the 2008 panic The paradox of any financial crisis is that the policies necessary to stop it are always politically unpopular. But if that unpopularity delays or prevents a strong response, the costs to the economy become greater.

We need to make sure that future generations of financial firefighters have the emergency powers they need to prevent the next fire from becoming a conflagration.

Sotto voce fears of this sort go back to the earliest reform discussions. But the question surfaced dramatically in Timothy Geithner's 2016 Per Jacobsson Lecture, " Are We Safer? The Case for Strengthening the Bagehot Arsenal ." More recently, the Group of Thirty has advanced similar suggestions -- not too surprisingly, since Geithner was co-project manager of the report, along with Guillermo Ortiz, the former Governor of the Mexican Central Bank, who introduced the former Treasury Secretary at the Per Jacobson lecture.

Aside from the financial collapse itself, probably nothing has so shaken public confidence in democratic institutions as the wave of bailouts in the aftermath of the collapse. The redistribution of wealth and opportunity that the bailouts wrought surely helped fuel the populist surges that have swept over Europe and the United States in the last decade. The spectacle of policymakers rubber stamping literally unlimited sums for financial institutions while preaching the importance of austerity for everyone else has been unbearable to millions of people.

Especially in money-driven political systems, affording policymakers unlimited discretion also plainly courts serious risks. Put simply, too big to fail banks enjoy a uniquely splendid situation of "heads I win, tails you lose" when they take risks. Scholars whose research INET has supported, notably Edward Kane , have shown how the certainty of government bailouts advantages large financial institutions, directly affecting prices of their bonds and stocks.

For these reasons INET convened a panel at a G20 preparatory meeting in Berlin on " Moral Hazard Issues in Extended Financial Safety Nets ." The Power Point presentations of the three panelists are presented in the order in which they gave them, since the latter ones sometimes comment on Edward Kane 's analysis of the European banks. Kane, who coined the term "zombie bank" and who famously raised early alarms about American savings and loans, analyzed European banks and how regulators, including the U.S. Federal Reserve, backstop them.

Peter Bofinger , Professor of International and Monetary Economics at the University of Würzburg and an outgoing member of the German Economic Council, followed with a discussion of how the system has changed since 2008. Helene Schuberth , Head of the Foreign Research Division of the Austrian National Bank, analyzed changes in the global financial governance system since the collapse.

The panel took place as public discussion of a proposed merger between two giant German banks, the Deutsche Bank and Commerzbank, reached fever pitch. The panelists explored issues directly relevant to such fusions, without necessarily agreeing among themselves or with anyone at INET.

But the point Robert Johnson, INET's President, and I made some years back , amid an earlier wave of talk about using public money to bail out European banks, remains on target:

We are only interested observers of the arm wrestling between the various EU countries over the costs of bank rescues, state expenditures, and such. But we do think there is a clear lesson from the long history of how governments have dealt with bank failures . [If] the European Union needs to step in to save banks, there is no reason why they have to do it for free best practice in banking rescues is to save banks, but not bankers. That is, prevent the system from melting down with all the many years of broad economic losses that would bring, but force out those responsible and make sure the public gets paid back for rescuing the financial system.

The simplest way to do that is to have the state take equity in the banks it rescues and write down the equity of bank shareholders in proportion. This can be done in several ways -- direct equity as a condition for bailout, requiring warrants that can be exercised later, etc. The key points are for the state to take over the banks, get the bad loans rapidly out of those and into a "bad bank," and hold the junk for a decent interval so the rest of the market does not crater. When the banks come back to profitability, you can cash in the warrants and sell the stock if you don't like state ownership. That way the public gets its money back .at times states have even made a profit.

In 2019, another question, alas, is also piercing. In country after country, Social Democratic center-left parties have shrunk, in many instances almost to nothingness. In Germany the SPD gives every sign of following the French Socialist Party into oblivion. Would a government coalition in which the SPD holds the Finance Ministry even consider anything but guaranteeing the public a huge piece of any upside if they rescue two failing institutions?

The full article of Edward Kane

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WheresOurTeddy , March 29, 2019 at 11:49 am

Enforcement of financial laws is not our thing. Just ask Chuck Schumer of the #Non-Resistance:

https://theintercept.com/2019/03/28/sec-democratic-commissioner-chuck-schumer/

Louis Fyne , March 29, 2019 at 12:17 pm

There needs to be an asset tax on/break up of the megas. End the hyper-agglomeration of deposits at the tail end. Not holding my breath though. (see NY state congressional delegation)

To be generous, tax starts at $300 billion. Even then it affects only a dozen or so US banks. But would be enough to clamp down on the hyper-scale of the largest US/world banks. The world would be better off with lot more mid-sized regional players.

thesaucymugwump , March 29, 2019 at 12:17 pm

Anyone who mentions Timmy Geithner without spitting did not pay attention during the Obama reign of terror. He and Obama crowed about the Making Home Affordable Act, implying that it would save all homeowners in mortgage trouble, but conveniently neglected to mention that less than 100 banks had signed up. The thousands of non-signatories simply continued to foreclose.

Not to mention Eric Holder's intentional non-prosecution of banksters. For these and many other reasons, especially his "Islamic State is only the JV team" crack, Obama was one of our worst presidents.

chuck roast , March 29, 2019 at 12:21 pm

Thank you Yves and Tom Ferguson.

Fergusons graph on DBK's default probabilities coincides with the ECB's ending its asset purchase programme and entering the "reinvestment phase of the asset purchase programme".
https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html
The worst of the euro zombie banks appear to be getting tense and nervous.
https://www.youtube.com/watch?v=dKpzCCuHDVY
Maybe that is why Jerome Powell did his volte-face last month on gradually raising interest rates. Note that the Fed also reduced its automatic asset roll-off. I'm curious if the other euro-zombies in the "peers" return on equity chart are are experiencing volatility also.

Craig H. , March 29, 2019 at 1:04 pm

Apparently the worst fate you can suffer as long as you don't go Madoff is Fuld. According to Wikipedia his company manages a hundred million which must be humiliating. It's not as humiliating as locking the guy up in prison would be by a very long stretch.

Greenspan famously lamented that there isn't anything the regulators can really do except make empty threats. This is dishonest. The regulations are not carved in stone like the ten commandments. In China they execute incorrigible financiers all the time.

John Wright , March 30, 2019 at 10:31 am

Greenspan was never willing to counter any problem that might irritate powerful financial constituencies. For example, during the internet stock bubble of the late 1990's, Greenspan decried the "irrational exuberance" of the stock market. The Greenspan Fed could have raised the margin requirement for stocks to buttress this view, but did not. As I remembered reading, Greenspan was in poor financial shape when he got his Fed job.

His subsequent performance at the Fed apparently left him a wealthy man. Real regulation by Greenspan may have adversely affected his wealth. It may explain why Alan Greenspan would much rather let a financial bubble grow until it pops and then "fix it".

Procopius , March 31, 2019 at 12:30 am

Everybody forgets (or at least does not mention) that Greenspan was a member of the Class of '43, the (mostly Canadian) earliest members of the Objectivist Cult with guru Ayn Rand. Expecting him to act rationally is foolish. It may happen accidentally (we do not know why he chose to let the economy expand unhindered in 1999), but you cannot count on it. In a world with information asymmetry expecting markets to be concerned about reputation is ridiculous. To expect them to police themselves for long term benefit is even more ridiculous.

rd , March 29, 2019 at 3:06 pm

I think Finance is currently about 13% of the S&P 500, down from the peak of about 18% or so in 2007. I think we will have a healthy economy and improved political climate when Finance is about 8-10% of the S&P 500 which is about where I think finance plays a healthy, but not overwhelming rentier role in the economy.

Inode_buddha , March 29, 2019 at 4:51 pm

I think things will be much better when finance is about ~3% of the S&P 500, but no more than that.

[Mar 07, 2021] Regulatory Capture: The Banks and the System That They Have Corrupted

Notable quotes:
"... She soldiered through her painful stomach ailments and secretly tape-recorded 46 hours of conversations between New York Fed officials and Goldman Sachs. After being fired for refusing to soften her examination opinion on Goldman Sachs, Segarra released the tapes to ProPublica and the radio program This American Life and the story went viral from there... ..."
"... In a nutshell, the whoring works like this. There are huge financial incentives to go along, get along, and keep your mouth shut about fraud. The financial incentives encompass both the salary, pension and benefits at the New York Fed as well as the high-paying job waiting for you at a Wall Street bank or Wall Street law firm if you show you are a team player . ..."
Mar 14, 2019 | jessescrossroadscafe.blogspot.com

"But the impotence one feels today -- an impotence we should never consider permanent -- does not excuse one from remaining true to oneself, nor does it excuse capitulation to the enemy, what ever mask he may wear. Not the one facing us across the frontier or the battle lines, which is not so much our enemy as our brothers' enemy, but the one that calls itself our protector and makes us its slaves. The worst betrayal will always be to subordinate ourselves to this Apparatus, and to trample underfoot, in its service, all human values in ourselves and in others."

Simone Weil

"And in some ways, it creates this false illusion that there are people out there looking out for the interest of taxpayers, the checks and balances that are built into the system are operational, when in fact they're not. And what you're going to see and what we are seeing is it'll be a breakdown of those governmental institutions. And you'll see governments that continue to have policies that feed the interests of -- and I don't want to get clichéd, but the one percent or the .1 percent -- to the detriment of everyone else...

If TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car... I think it's inevitable. I mean, I don't think how you can look at all the incentives that were in place going up to 2008 and see that in many ways they've only gotten worse and come to any other conclusion."

Neil Barofsky

"Written by Carmen Segarra, the petite lawyer turned bank examiner turned whistleblower turned one-woman swat team, the 340-page tome takes the reader along on her gut-wrenching workdays for an entire seven months inside one of the most powerful and corrupted watchdogs of the powerful and corrupted players on Wall Street – the Federal Reserve Bank of New York.

The days were literally gut-wrenching. Segarra reports that after months of being alternately gas-lighted and bullied at the New York Fed to whip her into the ranks of the corrupted, she had to go to a gastroenterologist and learned her stomach lining was gone.

She soldiered through her painful stomach ailments and secretly tape-recorded 46 hours of conversations between New York Fed officials and Goldman Sachs. After being fired for refusing to soften her examination opinion on Goldman Sachs, Segarra released the tapes to ProPublica and the radio program This American Life and the story went viral from there...

In a nutshell, the whoring works like this. There are huge financial incentives to go along, get along, and keep your mouth shut about fraud. The financial incentives encompass both the salary, pension and benefits at the New York Fed as well as the high-paying job waiting for you at a Wall Street bank or Wall Street law firm if you show you are a team player .

If the Democratic leadership of the House Financial Services Committee is smart, it will reopen the Senate's aborted inquiry into the New York Fed's labyrinthine conflicts of interest in supervising Wall Street and make removing that supervisory role a core component of the Democrat's 2020 platform. Senator Bernie Sanders' platform can certainly be expected to continue the accurate battle cry that 'the business model of Wall Street is fraud.'"

Pam Martens, Wall Street on Parade

[Feb 27, 2021] The book tells the story about a slow coup d'etat that happened in Japan during the 70's and late 80's and how Japan was transformed from a centralized command economy where credit creation was "window-dressed" by the powerful Finance Ministry by means of an artificially created housing bubble into one that is dominated by a neoliberalized Central Bank with all the monetary, financial and social ramifications we can see today

Feb 27, 2021 | www.moonofalabama.org

vato , Feb 27 2021 11:19 utc | 41

Regarding the Renegade Inc. link @Karlof has provided and the interview with Richard A. Werner, the research paper he talks about in the midsection can be read here: Can banks create money out of nothing? .
Strangeley enough, it's probably the first empirical reasarch attempt on how a bank "loan" is indicated on a bank balance sheet. He does it by taking a fictitious loan from one of these small local community banks he talks about in the interview.

The paper is easily accessible and also contains a brief history of the perception on how money is created and how banks operate.

And since the documentary The Spider's Web has been mentioned, there are two complementary films to banking and finance which are worth watching: 97% Owned and Princes of Yen , the latter based on Richard Werner's same-titled book. The book tells the story about a slow coup d'etat that happened in Japan during the 70's and late 80's and how Japan was transformed from a centralized command economy where credit creation was "window-dressed" by the powerful Finance Ministry by means of an artificially created housing bubble into one that is dominated by a neoliberalized Central Bank with all the monetary, financial and social ramifications we can see today, not just in Japan but around the globe.

[Feb 20, 2021] Why China, with same size of power grid, won't suffer outage like in the US

Feb 20, 2021 | www.moonofalabama.org

vk , Feb 18 2021 18:40 utc | 142

Why China, with same size of power grid, won't suffer outage like in the US

"Why does the US use the winter storm as the excuse every time?" Shu Bin, director of the State Grid Beijing Economics Research Institute, told the Global Times on Thursday, noting that the power grid system is very vulnerable and requires constant maintenance and upgrade.

A report from the US Department of Energy (DOE) in 2015 said that 70 percent of power transformers in the country were 25 years or older, 60 percent of circuit breakers were 30 years or older, and 70 percent of transmission lines are 25 years or older. And the age of these components "degrades their ability to withstand physical stresses and can result in higher failure rates," the report noted.

[...]

"The US has no nationwide power grid network allocation plan like China. When it encounters extreme weather, a state won't help another state like some Chinese provinces and regions do with flexible allocation plans," Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, told the Global Times on Thursday.

[...]

"China uses 50Hz across the country, like the country has the same heartbeat," he said, adding that China has never experienced such a scale of blackouts as the US.

[...]

China has mastered the top technologies such as "UHV transmission" and "flexible DC transmission" and started the strategic "west-east electricity transmission" and "north-south electricity transmission" projects, which in turn offer an opportunity for the development of the country's western region.


[Feb 19, 2021] The infrastructure failed - the people paid to manage this failed - everybody is angry, 10 people died so far last I heard.

Feb 19, 2021 | www.moonofalabama.org

Grieved , Feb 18 2021 0:45 utc | 52

@36 oldhippie

Not as apocalyptic as it may seem. I wrote a comment on the situation in the earlier thread here .

Temps are starting to move up and tomorrow (Thursday) should begin the thaw. Friday is sunny and 47 deg F for a high, then sunny weekend and following. So we're over the worst of it. The lowest it ever got was around 0 deg F.

The infrastructure failed - the people paid to manage this failed - everybody is angry, 10 people died so far last I heard.

Rolling blackouts, some people very much suffering, townships opening warming shelters - probably not millions of pipes bursting. Not totally iced in, just nowhere to go. People stayed home. Businesses stayed closed. Not totally without food, people stocked up staples in 2020.

Not that dire. Absolutely fucking disgusting, and a hardship that touched everyone - some people got really screwed and I don't know why the treatment was uneven like that - not demographics, something with the grid. Dire, yes, and life-threatening to some or perhaps many (numbers not clear to me yet), but not so dire as your picture suggests. Nothing like Katrina, except the same ineptness.

But heads will roll. The governor has mandated an investigation into the regulator, ERCOT. What follows next is of great interest. Facts will appear. I'll post anything useful.

I heard a rumor it was getting better. Could be less blackouts. Will post now in case power goes off ;)


vk , Feb 18 2021 2:24 utc | 63

Texas Could Have Kept the Lights On

This Texas debacle may light a heated debate in the USA for the next weeks, for two reasons:

1) Texas is the big alt-right/Trumpist Festung for the foreseeable future. Their nation-building process involve catapulting Texas as the anti-California , the conservative version of the Shining City on the Hill, around which the USA will be rebuilt;

2) What is happening in Texas right now goes directly to the heart of neoliberalism, which is the political doctrine that vertebrates the alt-right. That's why conservative ideologues such as Tucker Carlson et al are desperately scrambling on TV and social media to blame the outage on the so-called Green New Deal.

What is happening right now in Texas, therefore, may be another episode on the battle for the soul of the American Empire.

vetinLA , Feb 18 2021 2:27 utc | 64

Thom Hartmann podcast on the Texas SNAFU;

http://dl.thomhartmann.com/private/podcasts/2021_0217_thp-021721-hour1.mp3

[Feb 14, 2021] Financial oligarchy and Jewish factor

Feb 14, 2021 | www.unz.com

Anon [256] Disclaimer , says: February 14, 2021 at 8:50 am GMT • 6.5 hours ago

@ForeverGone

Most to these so-called "jews" are NOT ACTUAL JEWS although they claim to be. Rather, they superficially converted to Judaism about 1200 years ago, for political and financial advantages. Think of them more like a criminal organization (Rothschild Khazarian Mafia) which uses the terms "jew" and "anti-semitism" as Liability Shields: designed to Deflect-Accountability and Evoke False-Trust and Sympathy with which to deceive the victims of their Banking-Financial-$cams, War-Profiteering, Cultural-$ubversion, and other Massive Cons.

This is why it's Important not to fall for their Primary Trap THEY RELY ON BEING PERSECUTED so they can continue using their main go-to (anti-semitism) get out of jail free card.

[Feb 10, 2021] the holding of mortgages by financial entities as de facto landlordism

Feb 10, 2021 | www.nakedcapitalism.com

Jonny Appleseed , February 6, 2021 at 9:10 am

I am curious as to why Prof. Hudson does not describe the holding of mortgages by financial entities as de facto landlordism, even if it is decentralized and theoretically time-limited (tho' not so with infinite re-fi and heloc).If the mortgage lenders are granted the monopoly of literally creating a debt on a ledger, rather than it being a public utility, and the benefits (read as: interest payments) accrue solely to those private entities, how is that substantially different than hereditary land title and rent? I concede that at the end of the lengthy mortgage term, the aristos cede the deed, but the parasitism is considerable, often over the entire working life of a person or couple.

michael hudson , February 6, 2021 at 11:09 am

My whole point, which I hope I've stated repeatedly clearly enough, is that "Rent is for paying interest." The financial class today has replaced the 19th-century's post-feudal landlord class.

Mikel , February 6, 2021 at 3:59 pm

Loans are also taken out against financial assets such as stocks/bonds. Is that another reason for propping up the stock market to the bizarre levels now seen?

Carolinian , February 6, 2021 at 10:05 am

Great stuff. While some of us are resistant to using money and debt to explain everything , who can deny that this country has always been about money above all with a not altogether insincere love of freedom on the side. Perhaps that latter is the source of the "you're not the boss of me" approach to the rest of the world that Hudson talks about.

ex-PFC Chuck , February 6, 2021 at 10:22 am

Although I'm more text than video oriented, this time I watched the latter first instead of reading the transcript. It was like sitting in a master class about the ongoing pernicious influence of the American financial sector on our country's foreign policy since early in the 20th century. Even if you've already read the transcript you should watch the video as well.

[Feb 06, 2021] Everything Makes Sense, But Nothing Is Logical by Bill Blain

Feb 06, 2021 | www.zerohedge.com

Authored by Bill Blain via MorningPorridge.com,

The thing to really wonder about is how society is changing and what that means for financial markets. After all, it's the madness of crowds, sentiment and human behaviours that drive market prices. Modern communications via immediate 24/7 news, social media, the ease and gamification of trading, and the influences of inputs such as Reddit and Fake News are changing the way markets function. It was revealing how quickly a loose internet shock-flock of aligned retail investors swiped the market this week.

Their anger at the financial machine was palpable. They demonstrate a fundamental change at the heart of market capitalism.

The basis of " shareholder capitalism " was best summed up by Gordon Gecko: "Greed is Good" . It was utterly corrupting. Anything to improve returns to the owners, the shareholders, was apparently justified. It was justified by the belief free markets would achieve an equilibrium where shareholders would make optimal profits by providing maximum utility to their customers.

Just like communism, it didn't quite work out the way the economists and sociologists predicted. Everyone talks a good talk about fair shares of the cake, but try a simple experiment and ask you kids to divide it. Everyone wants a bigger slice. (My father's solution was simple: whoever cuts the cake chooses last.)

In reality nothing is really fair. Inequality is a driver of the human condition. Companies cut corners to improve their share of the cake - often the management sneak in and take the rewards, cutting out shareholders and customers. To make profits big corporates will compromise what they can: safety, the environment, law and justice – everything from poisoning the planet, unsafe aircraft, or bursting dams. Costs were seen as externalities addressed through insurance, or hiring the best lawyers.

Its no wonder we now have kickback against it, and a new mantra of "stakeholder" capitalism trying to ensure we all get that fairer slice of the pie.

Every single big investor now swears by their strict adoption of the principals and importance of Corporate Social Responsibility (CSR), Environment, Social and Governance (ESG) investment, and Sustainability. (I have serious concerns these valid and laudable goals have been diminished into mere tickbox investing by corporate bureaucracy.)

Yet for all the noise and stakeholders sharing the pie, we are still seeing the steepest ever transfer of wealth from the poor to the rich. Income inequality is rising. Across the Occidental Western economies the poor have become desperately poor. Witness the growth in Foodbanks in Europe and the US and the success of Marcus Rashford in addressing the appalling reality of kids arriving in school unfed, penalising their life chances from the get-go.

And it's not just the poorest in society. The middle classes have also been hollowed out by the difficulties of stretching static incomes to cover every rising living costs, and TAXES.

Oh yes these two great certainties in life; death and taxes. Except . If you are rich enough ..

As we've seen the concept of Shareholder capitalism stopped delivering anything much to any but the wealthiest. Since 2008, and particularly since the outbreak of the Covid Pandemic, we've seen the bulk of QE money creation and government stimulus work its way into financial assets, with the effect of driving up the price of stocks. As I wrote a few weeks ago a rough number is that $3 trillion out of $5 trillion subsidy money in the US has gone into the pockets of the richest in society through the inflation of their financial assets.

Try and explain how that has worked – will immediately get you branded a communist. But it's really simple. Stocks go up because bond yields are so low – and bond yields are so low because its policy. How to correct it?

This is why Taxes are really interesting.

If you look at the new generation of the uber-wealthy Tech barons, and the last US President, they all share a common theme – the belief that minimising tax payments is a signal of entrepreneurial genius. However, the reality, at the end of the day, is tax optimisation through complex tax structures is pretty much the same as tax evasion.

Ask any right of centre American what raising taxes would do to the economy – and they will immediately counter it's the success of tax cuts that's driven growth and markets. Tax cuts/handouts to the rich are credited as the singular success of the last White House administration – creating thousands of low-paid jobs across the states. If you were to tax the rich they wouldn't invest their money in job creation, and there would be no trickle down to the poor. Even questioning the efficacy of tax burdens on the rich could apparently shake the edifice of US shareholder capitalism to the ground.

The thing is.. we might not actually need taxes at all. If central banks can create limitless money with zero consequences, then why does anyone have to pay taxes? Let the rich keep it all and we can print more money to keep the poor happy.

But Taxes have an important role in society. They are a fee members of society pay to be part of it – you work in order to pay the taxes that allow you membership of society. The more you pay, the greater your contribution – the more society should value you. You want the benefits of society, then be willing to pay for it.

In an ideal world we would laud billionaires for their hard work, effort, and paying the bulk of their earnings in taxes to raise the up rest of us. Instead, they impress their equals by avoiding taxes, while the rest of us increasingly resent their conspicuous wealth – earned off our backs which is very much how anyone under 30 working hard to save a deposit for a rabbit-hutch flat they can never afford increasingly feels about the world.

We are only now beginning to questioning tax equality and tax evasion. The papers will make some righteous noise about the dislikeable high-street retailer who has emptied the company pension fund to finance his yachts in a tax-haven, or it might expose a singer who has not paid a penny in tax. We almost feel sympathy for the entertainer whose stellar career ends up on the skids because they can't meet a tax-demand.

We regard the Inland Revenue as the ultimate baddie for harassing us to pay our modest amounts of tax – it's easy for them to go after little people. If they try to catch the big tax-avoiders they face a battery of lawyers and accountants and deliberately complex webs to be unravelled.

In short, the rich get away with not paying Tax while poor get harassed and get poorer. Inequality rises.

And this where we return to Norges Bank and why their decision to act on bad tax players is so critical.

NBIM own 1.5% of the global stock market, with stakes in over 9ooo companies. They've not named the seven stocks they dumped – there is no blacklist, it says – but clearly it should set every CFO thinking about their tax transparency – including paying tax where value creation takes place. That's a clear shot across the bows for any of the big tech firms currently selling stuff over the internet, delivering it your front door and booking all the revenues somewhere low tax, and repatriating profits via somewhere that's agreed a zero-taxes deal in exchange for opening a HQ office.

Some of the most valuable firms on the planet have the least transparent tax policies. Just saying but there is a fascinating article in the Garuniad y'day: "Inside the mind of Jeff Bezos". It reports Jeff (till recently the richest guy on the planet) saying: " the only way I can see to deploy this much financial resource is by converting my Amazon winnings into space travel ."

Personally, I would love to mine asteroids, but Bezos could probably ensure every child on the planet has access to clean water, or cure cancer and have statues to himself erected across the planet proclaiming what a wonderful philanthropic champion.

Or he and every single other billionaire could just pay taxes, thankful for the opportunities they had to realise their dreams building their companies, while making society better. I'm not saying take every penny – but let's be realistic who can spend a couple of billion dollars? Even the first Mrs Blain would have struggled with that one (although I suspect young Ms Blain could make a significant dent )

I know exactly what posts will be made on this website and Zerohedge on this article. I will be screamed at for being a socialist. Some libertarian idiot will call himself "John Galt" and declare a belief that helping others is weakness. Not interested. The only way we make the world better as politicians keep reminding us – is to remember we are in this together, on a very small planet. [ZH: 'fair and balanced' - everyone deserves to speak their mind and be heard.]

High taxation economies – like the Scandinavians – tend to be fairly happy places. Entrepreneurs live well and are held in high regard. Their taxes fund social provision, health and education that are the envy of the rest of us.

In low tax countries the wealth creators live in bunker complexes protected by guards while the masses eke out their miserable crusts .

... ... ...

[Feb 05, 2021] The Old Mantra Of -Too Big To Fail- Is Exposed As A Lie... - ZeroHedge

Feb 05, 2021 | www.zerohedge.com

Authored by Brandon Smith via Alt-Market.us,

It is a general rule that corrupt economies tend to operate on faith and not on fundamentals. And to be clear, it's not so much about naive faith that the system is stable or functional. No, it's more about the masses having faith that the corruption and instability will never be derailed. Most people are not as stupid as the establishment and central bankers think they are – Almost everyone knows the system is broken, they just refuse to consider the possibility that the fraud will be disrupted, or that it will be allowed to fail.

The old mantra "too big to fail" is a lie. NOTHING is too big to fail, and that includes the US economy, the dollar and the elaborate Kabuki theater that keeps them both afloat. All it takes is a single moment, an epiphany that the Ponzi scheme is unsustainable rather than unstoppable.

I'm reminded specifically of the inflationary crisis of Argentina in 2001 – 2002.

Argentina's economy was highly dependent on foreign capital inflows, and its currency peg to the US dollar, not to mention they were precariously reliant on support from the IMF. The IMF openly validated the government of Argentina and their currency peg model, but foreign capital began to decline and the peg became unsustainable. Without tangible growth in manufacturing and a strong middle class, an economy cannot survive for long. A top down system based on illusory "financial products" and creative accounting is doomed to crash eventually.

All it took was for the IMF to criticize the policies they initially endorsed and announced that they were removing financial aid, and all hell broke loose in Argentina.

Almost overnight the Argentina peso plunged in value, interest rates spiked and inflation struck hard. People poured into the streets and civil unrest erupted. The IMF would later admit it made "errors" in its handling of the Argentina situation, but this was simply spin control designed to protect them from further scrutiny. The IMF avoided most of the blame and has been growing into a monstrous global centralization machine ever since.

I think we are witnessing the beginning of a similar end of mass faith in fraud in the US. The recent Robinhood short squeeze event as well as the current decoupling of physical silver prices from the paper ETF market have accelerated the timetable. Not surprisingly, these moves have forced the establishment to intervene to some extent to essentially stop renegade traders from freely investing. Accusations are flying and deplatforming has ensued. The idea that the system is a functional fraud is gone; The world now knows it is a dysfunctional fraud, and collapse cannot be very far behind.

Furthermore the collusion between banks, hedge funds and Big Tech is blatantly revealed. These relationships are supposed to remain hidden in the ether. They are obvious to anyone with any financial knowledge and sense, but they aren't supposed to be wielded in the open. Conspirators aren't supposed to admit to the conspiracy? Right?

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Some people might say the establishment has been forced to unmask by activists. Maybe. But, as I have been warning for many years, when criminals start openly admitting to their crimes it is probably because they think that it's too late for anyone to do anything about it.

The point is, bankers and globalists have ways of avoiding responsibility for the disasters they engineer. When the con-game breaks, they always have patsies to take the fall.

This sets up a bizarre dynamic in which the money elites that constructed the economy like a time-bomb are treated like victims (or heroes) and the people telling the truth about the fraud are treated like villains and criminals. Are activist stock market traders and silver market guerrillas to blame for any crisis that erupts in the near future? No, of course not, but they will be blamed anyway.

That said, propaganda narratives and scapegoats may not be enough to save the bankers this time. They will never allow a major fiscal crash to develop in a vacuum. They need more cover, and they need to have the means to lock down the public to prevent civil unrest or rebellion from spilling over into their backyards. I have long suspected that the covid pandemic is a useful tool in this regard. As I noted in my article 'How Viral Pandemic Benefits The Globalist Agenda' , published in January of 2020:

" Even if a pandemic does not kill a large number of people, it still disrupts international travel, it disrupts exports and imports, it disrupts consumer behavior and retail sales, and it disrupts domestic trade. If it does kill a large number of people, and if the Chinese government's response is any indication, it could result in global martial law. With many economies including the US economy already in a precarious balancing act of historic debt vs. crashing demand and useless central bank repo market intervention, there is little chance that the system can withstand such a tsunami "

As we all know, medical martial law in the name of "public health" is being established in most countries regardless of the actual death rate. The insane globalist rantings of the World Economic Forum and Klaus Schwab have been very revealing; Schwab and other elites have even called the pandemic a "perfect opportunity" to execute there agenda for the "Great Reset".

However, the globalists are highly fallible, and mistakes in judgment have been made. During the Event 201 pandemic wargame on a coronavirus outbreak (conveniently held two months before the real thing happened), the elites forecast at least 65 million initial deaths globally from such a virus. We are a year into the pandemic and nowhere near that kind of death rate. In fact, the death rate is so minuscule (0.26%) , that the public is beginning to realize the lockdown mandates are pointless.

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In the US, conservative states are moving on and keeping their economies wide open. Half the population is refusing to take the vaccines, and many members of law enforcement are refusing to implement lockdown policies. I don't think this is what the globalists expected at all. They needed mass fear and they are getting mass defiance.

They're going to need a bigger threat, or a bigger virus.

This is why I have been repeatedly warning that the talk of reopenings by Biden and other democrats is going to be very short lived. I have predicted that Biden will attempt a federal lockdown similar to the Level 4 lockdowns used in Europe and Australia after a couple of months of relative calm. I based this prediction on the covid "mutation" narrative being spread right now by the mainstream media and establishment cronies like Anthony Fauci. It is not hard to see where this is headed.

The globalists must have the "legal" option of restricting public movement as well as large gatherings, and they must have the option of surveillance on individuals 24/7 through contact tracing. This is the only way to prevent rebellion against the Reset and rising anger due to economic turmoil. The veil has been lifted, the conspiracy is being widely broadcast. Martial law alone would only inspire more dissent, medical tyranny in the name of "saving lives" is the ONLY play the globalists have. They have to have help from a large portion of the citizenry, so they must maintain the appearance that they are operating from the moral high ground.

The covid mutation story is clearly the next play, and Bank of America economists appear to agree with me . They recently stated that they see little optimism in terms of a reopening of the economy, and that hard lockdowns will return, possibly in March or April.

Another factor to consider is that the economic crash will have to reach a peak soon because Joe Biden now resides in the White House. If the crash happens in the near term, activist investors can be blamed, Trump can be blamed, and conservatives and liberty activists can be blamed. If the crash happens a year or two from now, only Biden and the globalists will get the blame.

Without lockdowns and scapegoats the scenario will end very badly for the globalists. It might end badly for them anyway. Be ready for more chaos by Spring; I suspect the elites are getting desperate, and if they allow America to go back to normal and for the pandemic to end with a whimper they will never get another chance at their precious Reset.

[Feb 04, 2021] The GameStop Rebels Vs. -Too Big To Fail- - ZeroHedge

Feb 04, 2021 | www.zerohedge.com

The GameStop Rebels Vs. "Too Big To Fail" BY TYLER DURDEN WEDNESDAY, FEB 03, 2021 - 6:10

Authored by Ryan McMaken via The Mises Institute,

Last week, a large number of small-time investors drove up the price of GameStop's (GME) stock a historic 1,784 percent . But this was no mere spike in some obscure stock. The stock's price spiked in part as a result of efforts by "an army of smaller investors who have been rallying on Reddit and elsewhere online to support GameStop's stock and beat back the professionals." These professionals were hedge fund managers who had shorted GameStop's stock. In other words, hedge funders were betting billions that GameStop's stock would go down. But the price went up instead, meaning hedge funds like Melvin Capital (and Citron Research) took "a significant loss," possibly totaling $70 billion.

There surely were plenty of insiders on both sides of this deal. Given the complexity of various schemes employed by seasoned investors, it seems it is very unlikely that this is just a simple matter of little Davids taking on Wall Street Goliaths.

But it also looks like that's not all that was going on. Had this only been just another scheme by some Wall Street insiders against some other Wall Street insiders the story would probably have ended there.

But that's not what happened. Rather, it appears that, for many of the smaller investors who were involved, much of this "short squeeze" was conducted for the purposes of throwing a monkey wrench in the plans of Wall Street hedge funds which exist within the rarified world of billionaires and their friends.

Pro–Wall Street Fearmongering

The reactions to the event from media pundits and other commentators were telling in that there was clearly fear and outrage over the fact that business as usual on Wall Street wasn't being enforced. Predictably, much of the reaction to the Reddit rebellion was to label it a "fiasco," " insanity ," and something sure to leave a " trail of destruction ." The important thing was to use words designed to make it all look like the threat to hedge funds represents some sort of grave threat to the overall economy. Jim Lebenthal at CNBC, for example, declared the "short-squeeze fiasco is a threat to the proper functioning of financial markets."

The fearmongering went beyond even the usual places we hear about financial news. On The View , for example, Meghan McCain delivered the sort of status quo –defending bromides we've come to expect from her. She insisted the GameStop affair could spiral into an economy-killing disaster because

If the stock ends up plunging because of this, because of GameStop and Wall Street loses billions, at a certain point, it will impact stocks like Apple and Disney and stocks that a lot of average Americans do invest in, and if that happens, average Americans will end up losing even more money.

Her comment doesn't rally make any sense, and she doesn't seem to have even a rudimentary understanding of what happened. But her comment delivered the important point: namely, that anything that causes volatility in the market could be a disaster for every American household. Translation: and we should all be very, very afraid if something isn't done to keep these Reddit people -- whom she compared to the Capitol "insurrectionists" -- under control.

Of course, in a functioning and relatively unhampered market, unusual, unexpected things happen all the time. Entrepreneurial actors do things the incumbent firms and "experts" hadn't counted on. This leads to "instability" and big swings in prices. This is actual capitalism, and it doesn't mean the marketplace isn't functioning properly. In fact, it probably means the marketplace is dynamic and responsive to consumers and other market participants.

But that's not something Wall Street insiders or their pals in Washington like in the modern era. Although Wall Streeters love to portray themselves as capitalist captains of industry, the fact is they have very little interest in real, competitive capitalism.

Rather, we live in the era of "too big to fail" (TBTF), when market freedom means nothing and preserving the portfolios of powerful Wall Street institutions is what really matters.

Decades of "Too Big to Fail"

It's based on the idea that Wall Street is just too important to the whole economy, and Washington must intervene to make sure rich guys on Wall Street stay rich. David Stockman explains this philosophy:

[It is] the notion that the "threat of systemic risk" and a cascading contagion of losses form the failure of any big Wall Street institution would be so calamitous that it warranted an exemption from free market discipline.

This goes back at least to the 1994 Mexican bailout -- which was really a bailout of investors, not of Mexico -- which solidified the process of normalizing huge transfers of wealth from taxpayers and dollar holders to the Wall Street elite. By then, the "Greenspan put" was already in place, with the central bank forever poised to embrace more easy money in pursuit of propping up stock prices. Then came the bailouts of 2008 and the covd-19 avalanche of easy money -- all of which lopsidedly benefited Wall Street over the rest of the economy.

This "exemption from free market discipline" is what Wall Street is all about these days. The financial sector has become accustomed to enjoying bailouts, easy money, and the resulting financialization which puts ever greater amounts of the US economy into the hands of Wall Street money managers. The sector is now built on corporate welfare, not "free markets." No matter what happens, Wall Street expects the deck to be stacked in its favor.

This is why "volatility" has become a bad word, and "stability" is now the name of the game. It's why Lebenthal thinks anything out of the ordinary is a threat to the "proper functioning of financial markets." If some free market innovation and inventiveness actually takes place in some small corner of the marketplace, well, then we're all expected to get very upset.

That's the way Wall Street likes it. ay_arrow 1


Kayman 8 hours ago

The marketing slogan "Too Big Too Fail" conveniently presumed Wall Street was more important than the Real Economy. A fatal presumption.

Wall Street is a Parasite, backstopped by the Fed, who, in turn, are backstopped by the Nation. A crumbling nation, where the Fed strangles lending/savings intermediation, and saves the blood suckers by bleeding the dying core of America.

wmbz 8 hours ago

"The sector is now built on corporate welfare, not "free markets."

This is NOT a new thing. Corporate welfare has been in play for a long, long time. I am amazed how long it has taken otherwise "smart" people to grasp this fact.

The only difference is, it is out in the glaring sunlight for all to see. TPTB are damn proud of it!

junction 7 hours ago (Edited)

Except for the involvement of WallStreetBets in temporarily blocking the hedge fund bear raid on GameStop using "naked" shorts, it is still business as usual on Wall Street. No one at the SEC does anything but collect a salary, issue press releases and go to lunch as the Mafia crime families. . . oops, hedge funds run "bust out" operations on businesses. The lapdog financial press cheered on the hedge funds as they demolished American businesses. The same gutter journalists who are not yet linking micro-manager Bezos giving up total control of Amazon right after his cloud service illegally de-platformed Parler for violation of bogus. made-up community standards. But then, bigger things are afoot. Bolshevik president Biden just approved deploying B-1 bomber to Norway for the first time. Nuclear bomb carrying B-1 bombers. Anything to distract people from how rotten things are.

Cognitive rationalist 7 hours ago

Banking financial sector: private profits for me, public losses for thee

gladitsover 8 hours ago remove link

"..the table is tilted folks. The game is rigged.."

George Carlin

Lokiban 8 hours ago

I think it was all about showing to those unawares how corrupt and rigged Wall street truly is and they have gotten the message out bigtime.
The only question to be asked is who became the proverbial bagholder when average people saw their 'Bitcoin-Tulipmania' chance to get out with amazing profits and with that breaking the promise to continue pumping gme till it hits $1500.
One has always to be carefull if these kind of actions are true populism going against the controllers or is it controllers playing their hideous games again for a reason, like the great reset.
Greed has never been a good advisor in these times, easy sheoplemoney. It works all the time..

dustinthewind 9 hours ago

" Curiosity v Manipulation"

https://www.armstrongeconomics.com/armstrongeconomics101/understanding-cycles/curiosity-v-manipulation/

COMMENT: Message: Re Reddit "WallStreetBets"
Hi Marty,
Thanks for this blog post but I think they are not trying to make money out of short squeezing GME really, they are trying to make a point. If you follow some of the posts you see many stories about how badly people and their families were hurt in 2008 when not a single banker went to prison. Stories of Fathers losing jobs and houses and descending into alcoholism in front of their children who now are part of WallStreetBets, others who had to live off of beans and rice or what Mama could grow in the garden and went hungry etc.

So they are not buying GME to see it rise, though that is fine, they are spending money "they can afford to lose" to punish the hedge funds that have along with bankers hurt the little guy repeatedly. These same people IMO have bought off our politicians, removed regulations like Glass Steagal etc all to reap profits to the top while crushing everyone else.

Listen in June 2008 I got laid off from Palm, in July I broke my arm ( badly ), in August some tenants left so I tried to put that property up for sale but in September Lehman fell and the real estate agent told me the market was OFF that I could not sell and needed to rent it with no one renting for 5 more months. At the same time in September I had a 100K home equity line I took out just for emergencies and since I was having one I wanted to use it – but then Wells Fargo pulled the whole thing.

So there I was Marty, sitting on the couch with a cast from fingers to shoulder watching the world meltdown on a tiny TV set while on lots of pain killers
I was forced to use my small 401K, and ended up using the whole thing through 9 months of disability, two surgeries and a job search that did not yield a job until the fall of 2011.
So IMO these arrogant SOB cheating hedge fund guys should pound sand on GME for once because the casino is rigged, heads they win, tails they win, and the taxpayers lose their jobs, homes, and pay for their bailouts.
I say give it to 'em.
Off my soapbox

REPLY: I fully understand that. I have fought against these people my whole life. I was more interested in learning HOW the economy functioned where they were only interested in guaranteed trades. I guess I was the Leonardo da Vinci of finance. Instead of digging up bodies to figure out how the anatomy functioned, I searched history and developed a computer model to try to ascertain what made the world economy tick.

A professor from Princeton where Einstein taught said to me that I reminded him of Einstein. I was surprised, for I did not see myself as comparable to Einstein in any way. He then explained that what he meant was my curiosity which moved me to try to figure out what made it all function. I came to understand what he meant. If you are not CURIOUS and seek out knowledge, then you will NEVER discover anything new! I was not dealing with the physics of the world, but the finance. People are attracted by this blog and Socrates for that same reason. They have that spark of curiosity and seek to also understand what makes it all tick! We need to teach students to be curious. That is the key to all progress we desperately need to survive this never-ending battle of authoritarianism v independence and freedom.

I have stated many times that I had discovered the 8.6-year frequency in my research I conducted at Princeton, University in the Firestone Library. Those were fond memories for it was an amazing resource back then as was the Royal British Newspaper Library, which I gathered my FOREX database by sifting through the largest newspaper collection in the world.

This was the difference between me and the "club" where I tried to understand the movement of the ages that caused the rise and fall of civilization and therein the economy/markets, and the "club" which seeks to manipulate everything by sheer force armed with bribes. They own the Southern District of New York courts, the Second Circuit, and the Department of Justice along with the SEC and CFTC. Goldman Sachs has even stacked the SEC and CFTC with their former people. Nobody was prosecuted despite the fact that they were involved in the looting of capital in Malaysia and Greece. And people have the audacity to claim there was absolutely no election fraud? There is nothing we can trust that goes on in government anymore and it will only get far worse as we head into 2032.

I am well aware of the sentiment behind this Reddit trend. My concern is simple. Don't put it past the "club" to be in there making this seem like a sure bet and then set everyone up for the big crash. Be careful here going into Feb/March 2021.

[Feb 03, 2021] The GameStop Rebels Vs. -Too Big To Fail- - ZeroHedge

Feb 03, 2021 | www.zerohedge.com

The GameStop Rebels Vs. "Too Big To Fail" BY TYLER DURDEN WEDNESDAY, FEB 03, 2021 - 6:10

Authored by Ryan McMaken via The Mises Institute,

Last week, a large number of small-time investors drove up the price of GameStop's (GME) stock a historic 1,784 percent . But this was no mere spike in some obscure stock. The stock's price spiked in part as a result of efforts by "an army of smaller investors who have been rallying on Reddit and elsewhere online to support GameStop's stock and beat back the professionals." These professionals were hedge fund managers who had shorted GameStop's stock. In other words, hedge funders were betting billions that GameStop's stock would go down. But the price went up instead, meaning hedge funds like Melvin Capital (and Citron Research) took "a significant loss," possibly totaling $70 billion.

There surely were plenty of insiders on both sides of this deal. Given the complexity of various schemes employed by seasoned investors, it seems it is very unlikely that this is just a simple matter of little Davids taking on Wall Street Goliaths.

But it also looks like that's not all that was going on. Had this only been just another scheme by some Wall Street insiders against some other Wall Street insiders the story would probably have ended there.

But that's not what happened. Rather, it appears that, for many of the smaller investors who were involved, much of this "short squeeze" was conducted for the purposes of throwing a monkey wrench in the plans of Wall Street hedge funds which exist within the rarified world of billionaires and their friends.

Pro–Wall Street Fearmongering

The reactions to the event from media pundits and other commentators were telling in that there was clearly fear and outrage over the fact that business as usual on Wall Street wasn't being enforced. Predictably, much of the reaction to the Reddit rebellion was to label it a "fiasco," " insanity ," and something sure to leave a " trail of destruction ." The important thing was to use words designed to make it all look like the threat to hedge funds represents some sort of grave threat to the overall economy. Jim Lebenthal at CNBC, for example, declared the "short-squeeze fiasco is a threat to the proper functioning of financial markets."

The fearmongering went beyond even the usual places we hear about financial news. On The View , for example, Meghan McCain delivered the sort of status quo –defending bromides we've come to expect from her. She insisted the GameStop affair could spiral into an economy-killing disaster because

If the stock ends up plunging because of this, because of GameStop and Wall Street loses billions, at a certain point, it will impact stocks like Apple and Disney and stocks that a lot of average Americans do invest in, and if that happens, average Americans will end up losing even more money.

Her comment doesn't rally make any sense, and she doesn't seem to have even a rudimentary understanding of what happened. But her comment delivered the important point: namely, that anything that causes volatility in the market could be a disaster for every American household. Translation: and we should all be very, very afraid if something isn't done to keep these Reddit people -- whom she compared to the Capitol "insurrectionists" -- under control.

Of course, in a functioning and relatively unhampered market, unusual, unexpected things happen all the time. Entrepreneurial actors do things the incumbent firms and "experts" hadn't counted on. This leads to "instability" and big swings in prices. This is actual capitalism, and it doesn't mean the marketplace isn't functioning properly. In fact, it probably means the marketplace is dynamic and responsive to consumers and other market participants.

But that's not something Wall Street insiders or their pals in Washington like in the modern era. Although Wall Streeters love to portray themselves as capitalist captains of industry, the fact is they have very little interest in real, competitive capitalism.

Rather, we live in the era of "too big to fail" (TBTF), when market freedom means nothing and preserving the portfolios of powerful Wall Street institutions is what really matters.

Decades of "Too Big to Fail"

It's based on the idea that Wall Street is just too important to the whole economy, and Washington must intervene to make sure rich guys on Wall Street stay rich. David Stockman explains this philosophy:

[It is] the notion that the "threat of systemic risk" and a cascading contagion of losses form the failure of any big Wall Street institution would be so calamitous that it warranted an exemption from free market discipline.

This goes back at least to the 1994 Mexican bailout -- which was really a bailout of investors, not of Mexico -- which solidified the process of normalizing huge transfers of wealth from taxpayers and dollar holders to the Wall Street elite. By then, the "Greenspan put" was already in place, with the central bank forever poised to embrace more easy money in pursuit of propping up stock prices. Then came the bailouts of 2008 and the covd-19 avalanche of easy money -- all of which lopsidedly benefited Wall Street over the rest of the economy.

This "exemption from free market discipline" is what Wall Street is all about these days. The financial sector has become accustomed to enjoying bailouts, easy money, and the resulting financialization which puts ever greater amounts of the US economy into the hands of Wall Street money managers. The sector is now built on corporate welfare, not "free markets." No matter what happens, Wall Street expects the deck to be stacked in its favor.

This is why "volatility" has become a bad word, and "stability" is now the name of the game. It's why Lebenthal thinks anything out of the ordinary is a threat to the "proper functioning of financial markets." If some free market innovation and inventiveness actually takes place in some small corner of the marketplace, well, then we're all expected to get very upset.

That's the way Wall Street likes it. ay_arrow 1


Kayman 8 hours ago

The marketing slogan "Too Big Too Fail" conveniently presumed Wall Street was more important than the Real Economy. A fatal presumption.

Wall Street is a Parasite, backstopped by the Fed, who, in turn, are backstopped by the Nation. A crumbling nation, where the Fed strangles lending/savings intermediation, and saves the blood suckers by bleeding the dying core of America.

wmbz 8 hours ago

"The sector is now built on corporate welfare, not "free markets."

This is NOT a new thing. Corporate welfare has been in play for a long, long time. I am amazed how long it has taken otherwise "smart" people to grasp this fact.

The only difference is, it is out in the glaring sunlight for all to see. TPTB are damn proud of it!

junction 7 hours ago (Edited)

Except for the involvement of WallStreetBets in temporarily blocking the hedge fund bear raid on GameStop using "naked" shorts, it is still business as usual on Wall Street. No one at the SEC does anything but collect a salary, issue press releases and go to lunch as the Mafia crime families. . . oops, hedge funds run "bust out" operations on businesses. The lapdog financial press cheered on the hedge funds as they demolished American businesses. The same gutter journalists who are not yet linking micro-manager Bezos giving up total control of Amazon right after his cloud service illegally de-platformed Parler for violation of bogus. made-up community standards. But then, bigger things are afoot. Bolshevik president Biden just approved deploying B-1 bomber to Norway for the first time. Nuclear bomb carrying B-1 bombers. Anything to distract people from how rotten things are.

Cognitive rationalist 7 hours ago

Banking financial sector: private profits for me, public losses for thee

gladitsover 8 hours ago remove link

"..the table is tilted folks. The game is rigged.."

George Carlin

Lokiban 8 hours ago

I think it was all about showing to those unawares how corrupt and rigged Wall street truly is and they have gotten the message out bigtime.
The only question to be asked is who became the proverbial bagholder when average people saw their 'Bitcoin-Tulipmania' chance to get out with amazing profits and with that breaking the promise to continue pumping gme till it hits $1500.
One has always to be carefull if these kind of actions are true populism going against the controllers or is it controllers playing their hideous games again for a reason, like the great reset.
Greed has never been a good advisor in these times, easy sheoplemoney. It works all the time..

[Feb 03, 2021] Naked Short Selling- The Truth Is Much Worse Than You Have Been Told

Feb 03, 2021 | oilprice.com

There is a massive threat to our capital markets, the free market in general, and fair dealings overall. And no, it's not China. It's a homegrown threat that everyone has been afraid to talk about.

Until now.

That fear has now turned into rage.

Hordes of new retail investors are banding together to take on Wall Street. They are not willing to sit back and watch naked short sellers, funded by big banks, manipulate stocks, harm companies, and fleece shareholders.

The battle that launched this week over GameStop between retail investors and Wall Street-backed naked short sellers is the beginning of a war that could change everything.

It's a global problem, but it poses the greatest threat to Canadian capital markets, where naked short selling -- the process of selling shares you don't own, thereby creating counterfeit or 'phantom' shares -- survives and remains under the regulatory radar because Broker-Dealers do not have to report failing trades until they exceed 10 days.

This is an egregious act against capital markets, and it's caused billions of dollars in damage.

Make no mistake about the enormity of this threat: Both foreign and domestic schemers have attacked Canada in an effort to bring down the stock prices of its publicly listed companies.

In Canada alone, hundreds of billions of dollars have been vaporized from pension funds and regular, everyday Canadians because of this, according to Texas-based lawyer James W. Christian. Christian and his firm Christian Smith & Jewell LLP are heavy hitters in litigation related to stock manipulation and have prosecuted over 20 cases involving naked short selling and spoofing in the last 20 years.

"Hundreds of billions have been stolen from everyday Canadians and Americans and pension funds alike, and this has jeopardized the integrity of Canada's capital markets and the integral process of capital creation for entrepreneurs and job creation for the economy," Christian told Oilprice.com.

The Dangerous Naked Short-Selling MO

In order to [legally] sell a stock short, traders must first locate and secure a borrow against the shares they intend to sell. A broker who enters such a trade must have assurance that his client will make settlement.

While "long" sales mean the seller owns the stock, short sales can be either "covered" or "naked" . A covered short means that the short seller has already "borrowed" or has located or arranged to borrow the shares when the short sale is made. Whereas, a naked short means the short seller is selling shares it doesn't own and has made no arrangements to buy. The seller cannot cover or "settle" in this instance, which means they are selling "ghost" or "phantom" shares that simply do not exist without their action.

When you have the ability to sell an unlimited number of non-existent phantom shares in a publicly-traded company, you then have the power to destroy and manipulate the share price at your own will.

And big banks and financial institutions are turning a blind eye to some of the accounts that routinely participate in these illegal transactions because of the large fees they collect from them. These institutions are actively facilitating the destruction of shareholder value in return for short term windfalls in the form of trading fees. They are a major part of the problem and are complicit in aiding these accounts to create counterfeit shares.

The funds behind this are hyper sophisticated and know all the rules and tricks needed to exploit the regulators to buy themselves time to cover their short positions. According to multiple accounts from traders, lawyers, and businesses who have become victims of the worst of the worst in this game, short-sellers sometimes manage to stay naked for months on end, in clear violation of even the most relaxed securities laws.

The short-sellers and funds who participate in this manipulation almost always finance undisclosed "short reports" which they research & prepare in advance, before paying well-known short-selling groups to publish and market their reports (often without any form of disclosure) to broad audiences in order to further push the stock down artificially. There's no doubt that these reports are intended to create maximum fear amongst retail investors and to push them to sell their shares as quickly as possible.

That is market manipulation. Plain and simple.

Their MO is to short weak, vulnerable companies by putting out negative reports that drive down their share price as much as possible. This ensures that the shorted company in question no longer has the ability to obtain financing, putting them at the mercy of the same funds that were just shorting them. After cratering the shorted company's share price, the funds then start offering these companies financing usually through convertibles with a warrant attachment as a hedge (or potential future cover) against their short; and the companies take the offers because they have no choice left. Rinse and Repeat.

In addition to the foregoing madness, brokers are often complicit in these sorts of crimes through their booking of client shares as "long" when they are in fact "short". This is where the practice moves from a regulatory gray area to conduct worthy of prison time.

Naked short selling was officially labeled illegal in the U.S. and Europe after the 2008/2009 financial crisis.

Making it illegal didn't stop it from happening, however, because some of the more creative traders have discovered convenient gaps between paper and electronic trading systems, and they have taken advantage of those gaps to short stocks.

Still, it gets even more sinister.

According to Christian, "global working groups" coordinate their attacks on specifically targeted companies in a "Mafia-like" strategy.

Journalists are paid off, along with social media influencers and third-party research houses that are funded by what amounts to a conspiracy. Together, they collaborate to spread lies and negative narratives to destroy a stock.

At its most illegal, there is an insider-trading element that should enrage regulators. The MO is to infiltrate a company through disgruntled insiders or lawyers close to the company. These sources are used to obtain insider information that is then leaked to damage the company.

Often, these illegal transactions involve paying off "informants", journalists, influencers, and "researchers" are difficult to trace because they are made from offshore accounts that are shut down once the deed is done.

Likewise, the "shorts" disguised as longs can be difficult to trace when the perpetrators have direct market access to trading systems. These trades are usually undetected until the trades fail or miss settlement. At that point, the account will move the position to another broker-dealer and start the process all over again.

The collusion widens when brokers and financial institutions become complicit in purposefully mislabeling "shorts" as "longs", sweeping the illegal transactions under the rug and off of regulatory radar.

"Spoofing" and "layering" have also become pervasive techniques to avoid regulator attention. Spoofing, as the name suggests, involves short sellers creating fake selling pressure on their targeted stocks to drive prices lower. They accomplish this by submitting fake offerings in "layers" at different prices to create a mirage.

Finally, these bad actors manage to skirt the settlement system, which is supposed to "clear" on what is called a T+2 basis . That means that any failed trades must be bought or dealt with within 3 days. In other words, if you buy on Monday (your "T" or transaction day), it has to be settled by Wednesday.

Unfortunately, Canadian regulators have a hard time keeping up with this system, and failed trades are often left outstanding for much longer periods than T+2. These failing trades are constantly being traded to reset the settlement clock and move the failing trade to the back of the line. The failures of a centralized system

According to Christian, it can be T+12 days before a failed trade is even brought to the attention of the IIROC (the Investment Industry Regulatory Organization of Canada)

Prime Brokers and Banks are Complicit

This is one of Wall Street's biggest profit center and fines levied against them are merely a minor cost of doing business.

Some banks are getting rich off of these naked short sellers. The profits off this kind of lending are tantalizing, indeed. Brokers are lending stocks they don't own for massive profit and sizable bonuses.

This layer of what many have now called a "criminal organization" is the toughest for regulators to deal with, regardless of the illegal nature of these activities.

Prime brokers lend cash account shares that are absolutely not allowed to be lent. They lend them to short-sellers in order to facilitate them in settling their naked shorts.

It's not that the regulators are in the dark on this. They are, in fact, handing out fines, left and right -- both for illegal lending and for mismarking "shorts" and "longs" to evade regulatory scrutiny. The problem is that these fines pale in comparison to the profits earned through these activities.

And banks in Canada in particular are basically writing the rules themselves, recently making it easier (and legal) to lend out cash account shares.

Nor do law firms have clean hands. They help short sellers bankrupt targeted companies through court proceedings, a process that eventually leads to the disappearance of evidence of naked shorts on the bank books.

"How much has been stolen through this fraudulent system globally is anyone's guess," says Christian, "but the number begins with a 'T' (trillions)."

The list of fines for enabling and engaging in manipulative activity that destroys companies' stock prices may seem to carry big numbers from the retail investor's perspective, but they are not even close to being significant enough to deter such actions:

- The SEC charged Citigroup's principal U.S. broker-deal subsidiary in 2011 with misleading investors about a $1 billion collateralized debt obligation (CDO) tied to the U.S. housing market. Citigroup had bet against investors as the housing market showed signs of distress. The CDO defaulted only months later, causing severe losses for investors and a profit of $160 million (just in fees and trading profits). Citigroup paid $285 million to settle these SEC charges.

- In 2016, Goldman, Sachs & Co. agreed to pay $15 million to settle SEC charges that its securities lending practices violated federal regulations. To wit: The SEC found that Goldman Sachs was mismarking logs and allowed customers to engage in short selling without determining whether the securities could reasonably be borrowed at settlement.

- In 2013, a Charles Schwab subsidiary was found liable by the SEC for a naked short-selling scheme and fined $8.2 million .

- The SEC charged two Merrill Lynch entities in 2015 with using "inaccurate data in the course of executing short sale orders", fining them $11 million.

- And most recently, Canadian Cormark Securities Inc and two others came under the SEC's radar. On December 21, SEC instituted cease-and-desist orders against Cormark. It also settled charges against Cormark and two other Canada-based broker deals for "providing incorrect order-making information that caused an executing broker's repeated violations of Regulation SHO". According to the SEC, Cormark and ITG Canada caused more than 200 sale orders from a single hedge fund, to the tune of more than $660 million between August 2016 and October 2017, to be mismarked as "long" when they were, in fact, "short" -- a clear violation of Regulation SHO. Cormark agreed to pay a penalty of $800,000 , while ITG Canada -- one of the other broker-dealers charged -- agreed to pay a penalty of $200,000. Charging and fining Cormark is only the tip of the iceberg. The real question is on whose behalf was Cormark making the naked short sells?

- In August 2020, Bank of Nova Scotia (Scotiabank) was fined $127 million over civil and criminal allegations in connection with its role in a massive price-manipulation scheme.

According to one Toronto-based Canadian trader who spoke to Oilprice.com on condition of anonymity, "traders are the gatekeeper for the capital markets and they're not doing a very good job because it's lucrative to turn a blind eye." This game is set to end in the near future, and it is only a matter of time.

"These traders are breaking a variety of regulations, and they are taking this risk on because of the size of the account," he said. "They have a responsibility to turn these trades down. Whoever is doing this is breaking regulations [for the short seller] and they know he is not going to be able to make a settlement. As a gatekeeper, it is their regulatory responsibility to turn these trades away. Instead, they are breaking the law willfully and with full knowledge of what they are doing."

"If you control the settlement system, you can do whatever you want," the source said. "The compliance officers have no teeth because the banks are making big money. They over-lend the stocks; they lend from cash account shares to cover some of these fails for instance, if there are 20 million shares they sold 'long', they can cover by borrowing from cash account shares."

The Naked Truth

In what he calls our "ominous financial reality", Tom C.W. Lin, attorney at law, details how "millions of dollars can vanish in seconds, rogue actors can halt trading of billion-dollar companies, and trillion-dollar financial markets can be distorted with a simple click or a few lines of code".

Every investor and every institution is at risk, writes Lin.

The naked truth is this: Investors stand no chance in the face of naked short sellers. It's a game rigged in the favor of a sophisticated short cartel and Wall Street giants.

Now, with online trading making it easier to democratize trading, there are calls for regulators to make moves against these bad actors to ensure that North America's capital markets remain protected, and retail investors are treated fairly.

The recent GameStop saga is retail fighting back against the shorting powers, and it's a wonderful thing to see - but is it a futile punch or the start of something bigger? The positive take away from the events the past week is that the term "short selling" has been introduced to the public and will surely gather more scrutiny.

Washington is gearing up to get involved. That means that we can expect the full power of Washington, not just the regulators, to be thrown behind protecting the retail investors from insidious short sellers and the bankers and prime brokers who are profiting beyond belief from these manipulative schemes.

The pressure is mounting in Canada, too, where laxer rules have been a huge boon for manipulators. The US short cartel has preyed upon the Canadian markets for decades as they know the regulators rarely take action. It is truly the wild west.

Just over a year ago, McMillan published a lengthy report on the issue from the Canadian perspective, concluding that there are significant weaknesses in the regulatory regime.

While covered short-selling itself has undeniable benefits in providing liquidity and facilitating price discovery, and while the Canadian regulators' hands-off approach has attracted many people to its capital markets, there are significant weaknesses that threaten to bring the whole house of cards down.

McMillan also noted that "the number of short campaigns in Canada is utterly disproportionate to the size of our capital markets when compared to the United States, the European Union, and Australia".

Taking Wall Street's side in this battle, Bloomberg notes that Wall Street has survived "numerous other attacks" over the centuries, "but the GameStop uprising could mark the end of an era for the public short", suggesting that these actors are "long-vilified folks who try to root out corporate wrongdoing".

Bloomberg even attempts to victimize Andrew Left's Citron Research, which -- amid all the chaos -- has just announced that it has exited the short-selling game after two decades.

Nothing could be further from the truth. Short sellers, particularly the naked variety, are not helping police the markets and route out bad companies, as Bloomberg suggests. Naked short sellers are not motivated by moral and ethical reasons, but by profit alone. They attack good, but weak and vulnerable companies. They are not the saviors of capital markets, but the destroyers. Andrew Left may be a "casualty", but he is not a victim. Nor likely are the hedge funds with whom he has been working.

In a petition initiated by Change.org, the petitioners urge the SEC and FINRA to investigate Left and Citron Research, noting: "While information Citron Research publishes are carefully selected and distributed in ways that do not break the law at first sight, the SEC and FINRA have overlooked the fact that Left and Citron gains are a result of distributing catalysts in an anticipation of substantial price changes due to public response in either panic, encouragement, or simply a catalyst action wave ride. Their job as a company is to create the most amount of panic shortly after taking a trading position so they and their clients can make the most amount of financial gains at the expense of regular investors."

On January 25 th , the Capital Markets Modernization Taskforce published its final report for Ontario's Minister of Finance, noting that while naked short selling has been illegal in the United States since 2008, it remains a legal loophole in Canada. The task force is recommending that the Ministry ban this practice that allows for the short-selling of tradable assets without first borrowing the security.

The National Coalition Against Naked Short Selling - Failing to Deliver Securities (NCANS), which takes pains to emphasize that is not in any way against short-selling, notes: "Naked short-selling transfers the risk exposure and the hedging expense of the derivatives market makers onto the backs of equity investors, without any corresponding benefit to them. This is fundamentally unfair, and must stop."

Across North America, the issue is about to reach a fever pitch over GameStop. For once, regular retail investors have a voice to use against Wall Street. And for once, Washington appears to be listening. The House and Senate both have hearings scheduled over the GameStop saga.

Paradoxically, the same company that basically started the retail investor coup -- zero-fee trading app Robinhood -- is now under fire for pulling the rug out from under the same democratic movement.

After retail investors joined forces against Wall Street short-sellers to push GameStop stock from $20 to a high of over $480 in less than a week, Robinhood made the very unpopular move of instituting a ban on buying for retail investors. Under the rules, Wall Street could still buy and sell, but retail investors could only sell. This new band of investors -- which includes pretty much all of Robinhood's clientele -- are up in arms, with customers now suing. They won't go away, and they have Washington's ear and Twitter and Reddit's social media power. This is shaping up to be an uprising.

What happens with GameStop next could end up dictating a new form of capital markets democracy that levels the playing field and punishes the Mafia-like elements of Wall Street that have been fleecing investors and destroying companies for years.

Retail investors want to clean up capital markets, and they just might be powerful enough to do it now. That's a serious wake-up call for both naked short sellers and the investing public.

Viva la Revolucion.

James Stafford

Publisher Oilprice.com

More Top Reads From Oilprice.com:

[Feb 02, 2021] The Importance of Usury Laws

Notable quotes:
"... Today's cultural dominance in much of the South and chunks of the Midwest by boobtoob preachers, Dominationists and the highly heretical oxymoronical "Christian" Zioni$ts can be seen as the afterbirth of cultural Calvinism. Calvinism is Talmudic in its essence and squats at the nexus of what they like to call "Judeo-Christian Civilization". ..."
Jan 22, 2021 | www.unz.com

Mefobills , says: January 22, 2021 at 2:34 pm GMT • 9.3 hours ago

The author Jafee is confused on Bentham, because Bentham was confused himself, or was a Jewish agent of mammon.

The highlighted terms accord with Benthamian Utilitarianism -- the greatest human happiness of the greatest human number.[1]
Much (but surely not all) pertinent history suggests that Bentham's thinking influenced the construction of the Preamble

The English philosopher Jeremey Bentham (1748-1832) was a defender of usury, which is the opposite of happiness for the greatest human number.

In 1787 Jeremey Bentham wrote "In Defence of Usury." Bentham was the son of a rich lawyer, and a lawyer himself, not an economist, which is why he was confused. Bentham created the present mis-definition of usury which prevails to today, so he was very damaging. "The taking of grater interest than the law allows, or the taking of greater interest than is usual."

Bentham ignored hundreds of years of the Catholic Scholastics work on usury, and also ignored Aristotle. Actually Bentham attacked Aristotle in order to spread his B.S. Bentham's father was Jewish, and Bentham also ignored the fairly strong Old Testament admonitions against usury.

Bentham spread the same erroneous B.S. that Calvin did, and both men did enormous damage, and whether by design or confusion are NOT for the common good. Their connections to our (((friends))) is suspicious.

A Persian Daric is a gold coin. Bentham said this: Though all money in nature is barren, though a Daric would not beget another Daric yet for a Daric which a man borrowed he might get a ram and couple of ewes and the ewes would probably not be barren (pages 98 to 101 of his screed)

Aristotle and the Catholic Schoolmen clearly showed that it was the Ewes that were fertile, not the coins.

Bentham or Calvin could not read with comprehension and twisted words into new meanings. This twisted language persists in the brains of modern humans as confusion.

As if every Daric is going to buy an Ewe in order to reproduce.

By 1850 John Whipple wrote "The Importance of Usury Laws – An answer to Jeremey Bentham."

"The purpose of money is to facilitate exchange. It was never intended as an article of trade, as an article possessing an inherent value in itself, and further than as representative or test of the value of all other articles."

It undoubtedly admits of private ownership, but of an ownership that is not absolute, like the product of individual industry, but qualified and limited by the special use for which it was designed.

And

The power of money over every other article, arises out of the artificial character given to it by the STATE , AND NOT OUT OF THE QUALITIES OF THE MATERIAL WHICH IT IS COMPOSED.

Bentham also argued that anti-usury laws were due to prejudice against Jews. Whipple was not frightened by the Jew trick of anti-semitism claims. Whipple said this in reply, "The real truth is this feeling which he calls prejudice is the result of the moral instinct of mankind."

Whipple wasn't afraid of calling out the Jew.

In other words, Bentham did not have the moral instinct of mankind, but instead was a usurer, hiding behind his utilitarianism doctrine.

My view is that the preamble general welfare clause is direct lineage that comes through Benjamin Franklin and his experiences in the Philadelphia Colony. Franklin was definitely NOT a usurer, and was not confused on money.

Abdul Alhazred , says: January 22, 2021 at 3:01 pm GMT • 8.9 hours ago

The Preamble of the constitution reflects a Liebnizian metaphysic reflected in the notion of the pursuit of happiness, were are not talking utilitarianism, but a recognition that man is made in the image of the creator, Imago Dei where happiness reflects an acknowledgement that we are actually creative beings where happiness is a reflection of such creativity, above mere acquisition of 'property' as the Confederacy devolved the phrase to "Life, Liberty and Property"

Majority of One , says: January 22, 2021 at 7:45 pm GMT • 4.2 hours ago
@Mefobills eply distorted by Calvinistic Puritanism and its "Chosen People" mythos.

Much of the religious fervor which dominated the American frontier in the latter decades of the 18th Century and early 19th–they called it "The Great Awakening" -- was infused with the patriarchal form of religiosity as ignited by Calvinistic tropes and memes.

Today's cultural dominance in much of the South and chunks of the Midwest by boobtoob preachers, Dominationists and the highly heretical oxymoronical "Christian" Zioni$ts can be seen as the afterbirth of cultural Calvinism. Calvinism is Talmudic in its essence and squats at the nexus of what they like to call "Judeo-Christian Civilization".

My preference is to employ the more objectively truthful description: the "JudieChristie MagickMindfuck.

Mefobills , says: January 22, 2021 at 11:20 pm GMT • 35 minutes ago
@Leonard R. Jaffee Anti-semitism card. Bentham even attacked Aristotle for corrupting Christianity.

In Bentham's book, Bentham associates some of the positive attributes of thrift with money lending. Money lending becomes on the same plane as thrift in his worldview. An here is the coup-de-gras: Compound interest was forbidden in Bentham's day, and Bentham urged its legalization.

A compound curve for interest is outside of nature, as the claims on nature grow exponentially. Nature does not grow exponentially. Nature and labor cannot pay the claims, and society polarizes. Jesus started his mission on the Jubilee year, as Jubilees are coded in the Bible to prevent polarization.

If Bentham wasn't a Jew, he certainly had the Jewish spirit. Bentham was not for the common good.

[Jan 29, 2021] The System Is Rigged - Episode 4537- Game Stop Corp

Notable quotes:
"... "I am also reading the the next focus of the little people investors is the highly manipulated precious metals markets.....I love the smell of burning Wall Street in the morning." ..."
"... Back in the Oughts when the fraudulent mortgages were grossly inflating Real Estate Investment Trusts (REITs), there were many instances of naked short selling to keep honest REITs down, activities I learned firsthand. We formed a shareholders organization that lobbied the SEC to enforce its laws but to no avail--the regulators were well captured and did zip. ..."
"... There's short selling, and then there's naked short selling. Why do the markets require naked short selling? If those hedge funds already owned the stocks that they are selling short, they would not be in such trouble now. ..."
Jan 29, 2021 | www.moonofalabama.org

psychohistorian , Jan 28 2021 18:47 utc | 6

Early this week a few amateur stock trading nerds decided to promote a stock that was heavily shortened by certain hedge funds. The idea was to raise the stock price of Game Stop Corp., a vendor for computer games, by having lots of small stock traders to buy into it. The hedge fund that shortened the stock, and thereby bet on a dropping stock price, would then make huge losses while the many small buyers would potentially profit.

These people, who had joined up in the sub-reddit /r/WallStreetBets, were not driven by greed but by rage against the financial machine :

Instead of greed, this latest bout of speculation, and especially the extraordinary excitement at GameStop, has a different emotional driver: anger. The people investing today are driven by righteous anger, about generational injustice, about what they see as the corruption and unfairness of the way banks were bailed out in 2008 without having to pay legal penalties later, and about lacerating poverty and inequality. This makes it unlike any of the speculative rallies and crashes that have preceded it.

The movement was successful. The stock price of Game Stop Corp. rose from some $10 to over $400 within just a few days. The short seller had to take cover under a larger firm:

Hedge fund Melvin Capital closed out its short position in GameStop on Tuesday after taking huge losses as a target of the army of retail investors. Citadel and Point72 have infused close to $3 billion into Gabe Plotkin's hedge fund to shore up its finances.

I'm shocked! Absolutely shocked to see that the game of finance is rigged!!!!/snark

There have not been market fundamentals since the beginning of financialization in 1971 when money became fiat instead of gold backed. I find it interesting that it has taken 50 years for the cancer of financialization to fully compromise the host. It will be interesting to see where this goes from here.

I think the speed of decline of empire is speeding up as noted by the increase in international investment in China.

I am also reading the the next focus of the little people investors is the highly manipulated precious metals markets.....I love the smell of burning Wall Street in the morning.


Rutherford82 , Jan 28 2021 18:50 utc | 7

@6 psychohistorian

"I am also reading the the next focus of the little people investors is the highly manipulated precious metals markets.....I love the smell of burning Wall Street in the morning."

Is Max Keiser going after the silver market again? I bet he was posting on r/Wallstreetbets to stir things up!

karlof1 , Jan 28 2021 18:50 utc | 8

Back in the Oughts when the fraudulent mortgages were grossly inflating Real Estate Investment Trusts (REITs), there were many instances of naked short selling to keep honest REITs down, activities I learned firsthand. We formed a shareholders organization that lobbied the SEC to enforce its laws but to no avail--the regulators were well captured and did zip.

We even ran full pages ads in the NY Times and WaPost to add visibility to our justifiable outrage, which was well proven when the bubble burst.

But Obama didn't do his job and enforce the law, and the entire mess is far worse now. This episode epitomizes the amazing amounts of corruption masquerading as well regulated markets and an equitable financial system.

I support Hudson's debt forgiveness for the main reason it will bankrupt the debt holders--the Financial Parasites--who are also the beneficiaries of the corrupt system; and with their destruction, will allow for the rise of the Public Financial Utility that will restore law and order to that realm of the economy. Yes, this must be seen as yet another episode of the longstanding Class War, one of the most brazen ever.

lysias , Jan 28 2021 19:41 utc | 18

There's short selling, and then there's naked short selling. Why do the markets require naked short selling? If those hedge funds already owned the stocks that they are selling short, they would not be in such trouble now.

Bemildred , Jan 28 2021 20:20 utc | 24

It's not over yet:

Triden , Jan 28 2021 20:55 utc | 29

Citadel and Point72 have infused close to $3 billion into Gabe Plotkin's hedge fund to shore up its finances.

-b

How Robinhood was rigged:

Robinhood sells its orderflow to Citadel for execution. Citadel then chiselled the retail investor for pennies per trade by frontrunning (think high freq trading) before execution of retail order, inflating the price and cheating the customer. Citadel bailed out Citron, essentially inheriting the short position. Citadel then threatened Robinhood with refusing payment for orderflow

[Jan 28, 2021] Michael Hudson- Finance Capitalism vs. Industrial Capitalism The Rentier Resurgence and Takeover

Jan 26, 2021 | www.nakedcapitalism.com

Yves here. This is another tour de force from Michael Hudson, derived from a paper he presented in early January at the UPRE session during the annual ASSA meeting. This time he turns from his recent focus on the economically destructive but oligarchy-advancing practice of sanctifying debt to another favorite topic, the evolution of capitalism. Hudson looks from the early Industrial Revolution onward and demonstrates that the dominance of financial capital over industrial capital was neither the likely course of events nor desirable. A major feature of this development is the increasing weight of rentier activities and how they drain income from workers and more productive sectors.

One of his key conclusions:

The result is a "deep state" supporting a cosmopolitan financial oligarchy. That is the definition of fascism, reversing democratic government to restore control to the rentier financial and monopoly classes. The beneficiary is the corporate sector, not labor, whose resentment is turned against foreigners and against designated enemies within.

For Hudson, the deep state enforcers are the IMF and the World Bank (which pressed emerging economies to develop capital markets, making them more vulnerable to destabilizing hot money flows). He did not mention them in this article but I imagine Hudson would add domestic law neutering "investor-state dispute settlement" provisions in trade agreements.

Even with its length (get a cup of coffee!), an article that covers so much terrain is bound to simplify a bit. One small quibble: While Hudson correctly depicts China as hewing strictly and successfully to an industrial capital model, and keeping finance in check, Hudson overeggs the pudding a bit in saying, "China has kept banking in the public domain." China's regional governments have supported real-estate development projects, including a non-trivial proportion of ghost cities. often funded by private "wealth management products". China's "shadow banking sector" which officials have just estimated at nearly $13 trillion , or 86% of GDP and nearly 30% of banking assets.

Chinese officials say they are about to crack down on them, after many years of looking the other way, plus the occasional bailout of particular wealth management product issuances gone sour. Similarly, the dominant mobile payment platform player, Alibaba, is private.

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is "and forgive them their debts": Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year

Marx and many of his less radical contemporary reformers saw the historical role of industrial capitalism as being to clear away the legacy of feudalism – the landlords, bankers and monopolists extracting economic rent without producing real value. But that reform movement failed. Today, the Finance, Insurance and Real Estate (FIRE) sector has regained control of government, creating neo-rentier economies.

The aim of this post-industrial finance capitalism is the oppositeof that of industrial capitalism as known to 19 th -century economists: It seeks wealth primarily through the extraction of economic rent, not industrial capital formation. Tax favoritism for real estate, privatization of oil and mineral extraction, banking and infrastructure monopolies add to the cost of living and doing business. Labor is being exploited increasingly by bank debt, student debt, credit-card debt, while housing and other prices are inflated on credit, leaving less income to spend on goods and services as economies suffer debt deflation.

Today's New Cold War is a fight to internationalize this rentier capitalism by globally privatizing and financializing transportation, education, health care, prisons and policing, the post office and communications, and other sectors that formerly were kept in the public domain of European and American economies so as to keep their costs low and minimize their cost structure.

In the Western economies such privatizations have reversed the drive of industrial capitalism to minimize socially unnecessary costs of production and distribution. In addition to monopoly prices for privatized services, financial managers are cannibalizing industry by debt leveraging and high dividend payouts to increase stock prices.

* * *

Today's neo- rentier economies obtain wealth mainly by rent seeking, while financialization capitalizes real estate and monopoly rent into bank loans, stocks and bonds. Debt leveraging to bid up prices and create capital gains on credit for this "virtual wealth" has been fueled by central bank Quantitative Easing since 2009.

Financial engineering is replacing industrial engineering. Over 90 percent of recent U.S. corporate income has been earmarked to raise the companies' stock prices by being paid out as dividends to stockholders or spent on stock buyback programs. Many companies even borrow to buy up their own shares, raising their debt/equity ratios.

Households and industry are becoming debt-strapped, owing rent and debt service to the Finance, Insurance and Real Estate (FIRE) sector. This rentier overhead leaves less wage and profit income available to spend on goods and services, bringing to a close the 75-year U.S. and European expansion since World War II ended in 1945.

These rentier dynamics are the opposite of what Marx described as industrial capitalism's laws of motion. German banking was indeed financing heavy industry under Bismarck, in association with the Reichsbank and military. But elsewhere, bank lending rarely has financed new tangible means of production. What promised to be a democratic and ultimately socialist dynamic has relapsed back toward feudalism and debt peonage, with the financial class today playing the role that the landlord class did in post-medieval times.

Marx's View of the Historical Destiny of Capitalism: to Free Economies from Feudalism

The industrial capitalism that Marx described in Volume I of Capital is being dismantled. He saw the historical destiny of capitalism to be to free economies from the legacy of feudalism: a hereditary warlord class imposing tributary land rent, and usurious banking. He thought that as industrial capitalism evolved toward more enlightened management, and indeed toward socialism, it would replace predatory "usurious" finance, cutting away the economically and socially unnecessary rentier income, land rent and financial interest and related fees for unproductive credit. Adam Smith, David Ricardo, John Stuart Mill, Joseph Proudhon and their fellow classical economists had analyzed these phenomena, and Marx summarized their discussion in Volumes II and III of Capital and his parallel Theories of Surplus Value dealing with economic rent and the mathematics of compound interest, which causes debt to grow exponentially at a higher rate than the rest of the economy.

However, Marx devoted Volume I of Capital to industrial capitalism's most obvious characteristic: the drive to make profits by investing in means of production to employ wage labor to produce goods and services to sell at a markup over what labor was paid. Analyzing surplus value by adjusting profit rates to take account of outlays for plant, equipment and materials (the "organic composition of capital"), Marx described a circular flow in which capitalist employers pay wages to their workers and invest their profits in plant and equipment with the surplus not paid to employees.

Finance capitalism has eroded this core circulation between labor and industrial capital. Much of the midwestern United States has been turning into a rust belt. Instead of the financial sector evolving to fund capital investment in manufacturing, industry is being financialized. Making economic gains financially, primarily by debt leverage, far outstrips making profits by hiring employees to produce goods and services.

Capitalism's Alliance of Banks with Industry to Promote Democratic Political Reform

The capitalism of Marx's day still contained many survivals from feudalism, most notably a hereditary landlord class living off the land rents, most of which were spent unproductively on servants and luxuries, not to make a profit. These rents had originated in a tax. Twenty years after the Norman Conquest, William the Conquer had ordered compilation of the Domesday Book in 1086 to calculate the yield that could be extracted as taxes from the English land that he and his companions had seized. As a result of King John's overbearing fiscal demands, the Revolt of the Barons (1215-17) and their Magna Carta enabled the leading warlords to obtain much of this rent for themselves. Marx explained that industrial capitalism was politically radical in seeking to free itself from the burden of having to support this privileged landlord class, receiving income with no basis in cost value or enterprise of its own.

Industrialists sought to win markets by cutting costs below those of their competitors. That aim required freeing the entire economy from the "faux frais" of production, socially unnecessary charges built into the cost of living and doing business. Classical economic rent was defined as the excess of price above intrinsic cost-value, the latter being ultimately reducible to labor costs. Productive labor was defined as that employed to create a profit, in contrast to the servants and retainers (coachmen, butlers, cooks, et al .) on whom landlords spent much of their rent.

The paradigmatic form of economic rent was the ground rent paid to Europe's hereditary aristocracy. As John Stuart Mill explained, landlords reaped rents (and rising land prices) "in their sleep." Ricardo had pointed out (in Chapter 2 of his 1817 Principles of Political Economy and Taxation ) a kindred form of differential rent in natural-resource rent stemming from the ability of mines with high-quality orebodies to sell their lower-cost mineral output at prices set by high-cost mines. Finally, there was monopoly rent paid to owners at choke points in the economy where they could extract rents without a basis in any cost outlay. Such rents logically included financial interest, fees and penalties.

Marx saw the capitalist ideal as freeing economies from the landlord class that controlled the House of Lords in Britain, and similar upper houses of government in other countries. That aim required political reform of Parliament in Britain, ultimately to replace the House of Lords with the Commons, so as to prevent the landlords from protecting their special interests at the expense of Britain's industrial economy. The first great battle in this fight against the landed interest was won in 1846 with repeal of the Corn Laws. The fight to limit landlord power over government culminated in the constitutional crisis of 1909-10, when the Lords rejected the land tax imposed by the Commons. The crisis was resolved by a ruling that the Lords never again could reject a revenue bill passed by the House of Commons.

The Banking Sector Lobbies Against the Real Estate Sector, 1815-1846

It may seem ironic today that Britain's banking sector was whole-heartedly behind the first great fight to minimize land-rent. That alliance occurred after the Napoleonic Wars ended in 1815, which ended the French blockage against British seaborne trade and re-opened the British market to lower-priced grain imports. British landlords demanded tariff protection under the Corn Laws – to raise the price of food, so as to increase the revenue and hence the capitalized rental value of their landholdings – but that has rendered the economy high-cost. A successful capitalist economy would have to minimize these costs in order to win foreign markets and indeed, to defend its own home market. The classical idea of a free market was one free from economic rent – from rentier income in the form of land rent.

This rent – a quasi-tax paid to the heirs of the warlord bands that had conquered Britain in 1066, and the similar Viking bands that had conquered other European realms – threatened to minimize foreign trade. That was a threat to Europe's banking classes, whose major market was the funding of commerce by bills of exchange. The banking class arose as Europe's economy was revived by the vast looting of monetary bullion from Constantinople by the Crusaders. Bankers were permitted a loophole to avoid Christianity's banning of the charging of interest, by taking their return in the form of agio , a fee for transferring money from one currency to another, including from one country to another.

Even domestic credit could use the loophole of "dry exchange," charging agio on domestic transactions cloaked as a foreign-currency transfer, much as modern corporations use "offshore banking centers" today to pretend that they earn their income in tax-avoidance countries that do not charge an income tax.

If Britain was to become the industrial workshop of the world, it would prove highly beneficial to Ricardo's banking class. (He was its Parliamentary spokesman; today we would say lobbyist.) Britain would enjoy an international division of labor in which it exported manufactures and imported food and raw materials from other countries specializing in primary commodities and depending on Britain for their industrial products. But for this to happen, Britain needed a low price of labor. That meant low food costs, which at that time were the largest items in the family budgets of wage labor. And that in turn required ending the power of the landlord class to protect its "free lunch" of land rent, and all recipients of such "unearned income."

It is hard today to imagine industrialists and bankers hand in hand promoting democratic reform against the aristocracy. But that alliance was needed in the early 19 th century. Of course, democratic reform at that time extended only to the extent of unseating the landlord class, not protecting the interest of labor. The hollowness of the industrial and banking class's democratic rhetoric became apparent in Europe's 1848 revolutions, where the vested interests ganged up against extending democracy to the population at large, once the latter had helped end landlord protection of its rents.

Of course, it was socialists who picked up the political fight after 1848. Marx later reminded a correspondent that the first plank of the Communist Manifesto was to socialize land rent, but poked fun at the "free market" rent critics who refused to recognize that rentier-like exploitation existed in the industrial employment of wage labor. Just as landlords obtained land rent in excess of the cost of producing their crops (or renting out housing), so employers obtained profits by selling the products of wage-labor at a markup. To Marx, that made industrialists part of the rentier class in principle, although the overall economic system of industrial capitalism was much different from that of post-feudal rentiers, landlords and bankers.

The Alliance of Banking with Real Estate and Other Rent-Seeking Sectors

With this background of how industrial capitalism was evolving in Marx's day, we can see how overly optimistic he was regarding the drive by industrialists to strip away all unnecessary costs of production – all charges that added to price without adding to value. In that sense he was fully in tune with the classical concept of free markets, as markets free from land rent and other forms of rentier income.

Today's mainstream economics has reversed this concept. In an Orwellian doublethink twist, the vested interests today define a free market as one "free" for the proliferation of various forms of land rent, even to the point of giving special tax advantages to absentee real estate investment, the oil and mining industries (natural-resource rent), and most of all to high finance (the accounting fiction of "carried interest," an obscure term for short-term arbitrage speculation).

Today's world has indeed freed economies from the burden of hereditary ground rent. Almost two-thirds of American families own their own homes (although the rate of homeownership has been falling steadily since the Great Obama Evictions that were a byproduct of the junk-mortgage crisis and Obama Bank Bailouts of 2009-16, which lowered homeowner rates from over 68% to 62%). In Europe, home ownership rates have reached 80% in Scandinavia, and high rates characterize the entire continent. Home ownership – and also the opportunity to purchase commercial real estate – has indeed become democratized.

But it has been democratized on credit. That is the only way for wage-earners to obtain housing, because otherwise they would have to spend their entire working life saving enough to buy a home. After World War II ended in 1945, banks provided the credit to purchase homes (and for speculators to buy commercial properties), by providing mortgage credit to be paid off over the course of 30 years, the likely working life of the young home buyer.

Real estate is by far the banking sector's largest market. Mortgage lending accounts for about 80 percent of U.S. and British bank credit. It played only a minor role back in 1815, when banks focused on financing commerce and international trade. Today we can speak of the Finance, Insurance and Real Estate (FIRE) sector as the economy's dominant rentier sector. This alliance of banking with real estate has led banks to become the major lobbyists protecting real estate owners by opposing the land tax that seemed to be the wave of the future in 1848 in the face of rising advocacy to tax away the land's entire price gains and rent, to make land the tax base as Adam Smith had urged, instead of taxing labor and consumers or profits. Indeed, when the U.S. income tax began to be levied in 1914, it fell only on the wealthiest One Percent of Americans, whose taxable income consisted almost entirely of property and financial claims.

The past century has reversed that tax philosophy. On a national level, real estate has paid almost zero income tax since World War II, thanks to two giveaways. The first is "fictitious depreciation," sometimes called over-depreciation. Landlords can pretend that their buildings are losing value by claiming that they are wearing out at fictitiously high rates. (That is why Donald Trump has said that he loves depreciation.) But by far the largest giveaway is that interest payments are tax deductible. Real estate is taxed locally, to be sure, but typically at only 1% of assessed valuation, which is less than 7 to 10 percent of the actual land rent.[1]

The basic reason why banks support tax favoritism for landlords is that whatever the tax collector relinquishes is available to be paid as interest. Mortgage bankers end up with the vast majority of land rent in the United States. When a property is put up for sale and homeowners bid against each other to buy it, the equilibrium point is where the winner is willing to pay the full rental value to the banker to obtain a mortgage. Commercial investors also are willing to pay the entire rental income to obtain a mortgage, because they are after the "capital" gain – that is, the rise in the land's price.

The policy position of the so-called Ricardian socialists in Britain and their counterparts in France (Proudhon, et al .) was for the state to collect the land's economic rent as its major source of revenue. But today's "capital" gains occur primarily in real estate and finance, and are virtually tax-free for landlords. Owners pay no capital-gains tax as real estate prices rise, or even upon sale if they use their gains to buy another property. And when landlords die, all tax liability is wiped out.

The oil and mining industries likewise are notoriously exempt from income taxation on their natural-resource rents. For a long time the depletion allowance allowed them tax credit for the oil that was sold off, enabling them to buy new oil-producing properties (or whatever they wanted) with their supposed asset loss, defined as the value to recover whatever they had emptied out. There was no real loss, of course. Oil and minerals are provided by nature.

These sectors also make themselves tax exempt on their foreign profits and rents by using "flags of convenience" registered in offshore banking centers. This ploy enables them to claim to make all their profits in Panama, Liberia or other countries that do not charge an income tax or even have a currency of their own, but use the U.S. dollar so as to save American companies from any foreign-exchange risk.

In oil and mining, as with real estate, the banking system has become symbiotic with rent recipients, including companies extracting monopoly rent. Already in the late 19 th century the banking and insurance sector was recognized as "the mother of trusts," financing their creation to extract monopoly rents over and above normal profit rates.

These changes have made rent extraction much more remunerative than industrial profit-seeking – just the opposite of what classical economists urged and expected to be the most likely trajectory of capitalism. Marx expected the logic of industrial capitalism to free society from its rentier legacy and to create public infrastructure investment to lower the economy-wide cost of production. By minimizing labor's expenses that employers had to cover, this public investment would put in place the organizational network that in due course (sometimes needing a revolution, to be sure) would become a socialist economy.

Although banking developed ostensibly to serve foreign trade by the industrial nations, it became a force-in-itself undermining industrial capitalism. In Marxist terms, instead of financing the M-C-M' circulation (money invested in capital to produce a profit and hence yet more money), high finance has abbreviated the process to M-M', making money purely from money and credit, without tangible capital investment.

The Rentier Squeeze on Budgets: Debt Deflation as a Byproduct of Asset-Price Inflation

Democratization of home ownership meant that housing no longer was owned primarily by absentee owners extracting rent, but by owner-occupants. As home ownership spread, new buyers came to support the rentier drives to block land taxation – not realizing that rent that was not taxed would be paid to the banks as interest to absorb the rent-of-location hitherto paid to absentee landlords.

Real estate has risen in price as a result of debt leveraging. The process makes investors, speculators and their bankers wealthy, but raises the cost of housing (and commercial property) for new buyers, who are obliged to take on more debt in order to obtain secure housing. That cost is also passed on to renters. And employers ultimately are obliged to pay their labor force enough to pay these financialized housing costs.

Debt deflation has become the distinguishing feature of today's economies from North America to Europe, imposing austerity as debt service absorbs a rising share of personal and corporate income, leaving less to spend on goods and services. The economy's indebted 90 percent find themselves obliged to pay more and more interest and financial fees. The corporate sector, and now also the state and local government sector, likewise are obliged to pay a rising share of their revenue to creditors.

Investors are willing to pay most of their rental income as interest to the banking sector because they hope to sell their property at some point for a "capital" gain. Modern finance capitalism focuses on "total returns," defined as current income plus asset-price gains, above all for land and real estate. Inasmuch as a home or other property is worth however much banks will lend against it, wealth is created primarily by financial means, by banks lending a rising proportion of the value of assets pledged as collateral.

Chart 10.4: annual changes in GDP and the major components of asset price gains

(nominal, $bn)

The fact that asset-price gains are largely debt-financed explains why economic growth is slowing in the United States and Europe, even as stock market and real estate prices are inflated on credit. The result is a debt-leveraged economy.

Changes in the value of the economy's land from year to year far exceeds the change in GDP. Wealth is obtained primarily by asset-price ("capital") gains in the valuation of land and real estate, stocks, bonds and creditor loans ("virtual wealth"), not so much by saving income (wages, profits and rents).The magnitude of these asset-price gains tends to dwarf profits, rental income and wages.

The tendency has been to imagine that rising prices for real estate, stocks and bonds has been making homeowners richer. But this price rise is fueled by bank credit. A home or other property is worth however much a bank will lend against it – and banks have lent a larger and larger proportion of the home's value since 1945. For U.S. real estate as a whole, debt has come to exceed equity for more than a decade now. Rising real estate prices have made banks and speculators rich, but have left homeowners and commercial real estate debt strapped.

The economy as a whole has suffered. Debt-fueled housing costs in the United States are so high that if all Americans were given their physical consumer goods for free – their food, clothing and so forth – they still could not compete with workers in China or most other countries. That is a major reason why the U.S. economy is de-industrializing. So this policy of "creating wealth" by financialization undercuts the logic of industrial capitalism.

Finance Capital's Fight to Privatize and Monopolize Public Infrastructure

Another reason for deindustrialization is the rising cost of living stemming from conversion of public infrastructure into privatized monopolies. As the United States and Germany overtook British industrial capitalism, a major key to industrial advantage was recognized to be public investment in roads, railroads and other transportation, education, public health, communications and other basic infrastructure. Simon Patten, the first professor of economics at America's first business school, the Wharton School at the University of Pennsylvania, defined public infrastructure as a "fourth factor of production," in addition to labor, capital and land. But unlike capital, Patten explained, its aim was not to make a profit. It was to minimize the cost of living and doing business by providing low-price basic services to make the private sector more competitive.

Unlike the military levies that burdened taxpayers in pre-modern economies, "in an industrial society the object of taxation is to increase industrial prosperity"by creating infrastructure in the form of canals and railroads, a postal service and public education. This infrastructure was a "fourth" factor of production.Taxes would be "burdenless," Patten explained, to the extent that they were invested in public internal improvements, headed by transportation such as the Erie Canal.[2]

The advantage of this public investment is tolower costs instead of letting privatizers impose monopoly rents in the form of access charges to basic infrastructure. Governments can price the services of these natural monopolies (including credit creation, as we are seeing today) at cost or offer them freely, helping labor and its employers undersell industrialists in countries lacking such public enterprise.

In the cities, Patten explained, public transport raises property prices (and hence economic rent) in the outlying periphery, as the Erie Canal had benefited western farms competing with upstate New York farmers.That principle is evident in today's suburban neighborhoods relative to city centers.London's Tube extension along the Jubilee Line, and New York City's Second Avenue Subway, showed that underground and bus transport can be financed publicly by taxing the higher rental value created for sites along such routes. Paying for capital investment out of such tax levies can provide transportation at subsidized prices, minimizing the economy's cost structure accordingly. What Joseph Stiglitz popularized as the "Henry George Law" thus more correctly should be known as "Patten's Law" of burdenless taxation.[3]

Under a regime of "burdenless taxation" the return on public investment does not take the form of profit but aims at lowering the economy's overall price structure to "promote general prosperity." This means that governments should operate natural monopolies directly, or at least regulate them. "Parks, sewers and schools improve the health and intelligence of all classes of producers, and thus enable them to produce more cheaply, and to compete more successfully in other markets."Patten concluded: "If the courts, post office, parks, gas and water works, street, river and harbor improvements, and other public works do not increase the prosperity of society they should not be conducted by the State." But this prosperity for the overall economy was not obtained by treating public enterprises as what today is called a profit center.[4]

In one sense, this can be called "privatizing the profits and socializing the losses." Advocating a mixed economy along these lines is part of the logic of industrial capitalism seeking to minimize private-sector production and employment costs in order to maximize profits. Basic social infrastructure is a subsidy to be supplied by the state.

Britain's Conservative Prime Minister Benjamin Disraeli (1874-80) reflected this principle: "The health of the people is really the foundation upon which all their happiness and all their powers as a state depend."[5]He sponsored the Public Health Act of 1875, followed by the Sale of Food and Drugs Act and, the next year, the Education Act. The government would provide these services, not private employers or private monopoly-seekers.

For a century, public investment helped the United States pursue an Economy of High Wages policy, providing education, food and health standards to make its labor more productive and thus able to undersell low-wage "pauper" labor. The aim wasto create a positive feedback between rising wages and increasing labor productivity.

That is in sharp contrast to today's business plan of finance capitalism – to cut wages, and also cut back long-term capital investment, research and development while privatizing public infrastructure. The neoliberal onslaught by Ronald Reagan in the United States and Margaret Thatcher in Britain in the 1980s was backed by IMF demands that debtor economies balance their budgets by selling off such public enterprises and cutting back social spending. Infrastructure services were privatized as natural monopolies, sharply raising the cost structure of such economies, but creating enormous financial underwriting commissions and stock-market gains for Wall Street and London.

Privatizing hitherto public monopolies has become one of the most lucrative ways to gain wealth financially. But privatized health care and medical insurance is paid for by labor and its employers, not by the government as in industrial capitalism. And in the face of the privatized educational system's rising cost, access to middle-class employment has been financed by student debt. These privatizations have not helped economies become more affluent or competitive. On an economy-wide level this business plan is a race to the bottom, but one that benefits financial wealth at the top.

Finance Capitalism Impoverishes Economies While Increasing Their Cost Structure

Classical economic rent is defined as the excess of price over intrinsic cost-value. Capitalizing this rent – whether land rent or monopoly rent from the privatization described above – into bonds, stocks and bank loans creates "virtual wealth." Finance capitalism's exponential credit creation increases "virtual" wealth – financial securities and property claims – by managing these securities and claims in a way that has made them worth more than tangible real wealth.

The major way to gain fortunes is to get asset-price gains ("capital gains") on stocks, bonds and real estate.However, this exponentially growing debt-leveraged financial overhead polarizes the economy in ways that concentrates ownership of wealth in the hands of creditors, and owners of rental real estate, stocks and bonds, draining the "real" economy to pay the FIRE sector.

Post-classical economics depicts privatized infrastructure, natural resource development and banking as being part of the industrial economy, not superimposed on it by a rent-seeking class. But the dynamic of finance-capitalist economies is not for wealth to be gained mainly by investing in industrial means of production and saving up profits or wages, but by capital gains made primarily from rent-seeking. These gains are not "capital" as classically understood. They are "finance-capital gains," because they result from asset-price inflation fueled by debt leveraging.

By inflating its housing prices and a stock market bubble on credit, America's debt leveraging, along with its financializing and privatizing basic infrastructure, has priced it out of world markets. China and other non-financialized countries have avoided high health insurance costs, education costs and other services freely or at a low cost as a public utility. Public health and medical care costs much less abroad, but is attacked in the United States by neoliberals as "socialized medicine," as if financialized health care would make the U.S. economy more efficient and competitive. Transportation likewise has been financialized and run for profit, not to lower the cost of living and doing business.

One must conclude that America has chosen to no longer industrialize, but to finance its economy by economic rent – monopoly rent, from information technology, banking and speculation, and leave industry, research and development to other countries. Even if China and other Asian countries didn't exist, there is no way that America can regain its export markets or even its internal market with its current debt overhead and its privatized and financialized education, health care, transportation and other basic infrastructure.

The underlying problem is not competition from China, but neoliberal financialization. Finance-capitalism is not industrial capitalism. It is a lapse back into debt peonage and a rentier neo-feudalism. Bankers play the role today that landlords played up through the 19 th century, making fortunes without corresponding value, by capital gains for real estate, stocks and bonds on credit, by debt leveraging whose carrying charges increase the economy's cost of living and doing business.

Today's New Cold War is a Fight by Finance Capitalism Against Industrial Capitalism

Today's world is being fractured by an economic warfare over what kind of economic system it will have. Industrial capitalism is losing the fight to finance capitalism, which is turning to be its antithesis just as industrial capitalism was the antithesis to post-feudal landlordship and predatory banking houses.

In this respect today's New Cold War is a conflict of economic systems. As such, it is being fought against the dynamic of U.S. industrial capitalism as well as that of China and other economies. Hence, the struggle also is domestic within the United States and Europe, as well as confrontational against China and Russia, Iran, Cuba, Venezuela and their moves to de-dollarize their economies and reject the Washington Consensus and its Dollar Diplomacy. It is a fight by U.S.-centered finance capital to promote neoliberal doctrine giving special tax privileges to rentier income, untaxing land rent, natural resource rent, monopoly rent and the financial sector. This aim includes privatizing and financializing basic infrastructure, maximizing its extraction of economic rent instead of minimizing the cost of living and doing business.

The result is a war to change the character of capitalism as well as that of social democracy. The British Labour Party, European Social Democrats and the U.S. Democratic Party all have jumped on the neoliberal bandwagon. They are all complicit in the austerity that has spread from the Mediterranean to America's Midwestern rust belt.

Finance capitalism exploits labor, but via a rentier sector, which also ends up cannibalizing industrial capital. This drive has become internationalized into a fight against nations that restrict the predatory dynamics of finance capital seeking to privatize and dismantle government regulatory power. The New Cold War is not merely a war being waged by finance capitalism against socialism and public ownership of the means of production. In view of the inherent dynamics of industrial capitalism requiring strong state regulatory and taxing power to check the intrusiveness of finance capital, this post-industrial global conflict is between socialism evolving out of industrial capitalism, and fascism, defined as a rentier reaction to mobilize government to roll back social democracy and restore control to the rentier financial and monopoly classes.

The old Cold War was a fight against "Communism." In addition to freeing itself from land rent, interest charges and privately appropriated industrial profits, socialism favors labor's fight for better wages and working conditions, better public investment in schools, health care and other social welfare support, better job security, and unemployment insurance. All these reforms would cut into the profits of employers. Lower profits mean lower stock-market prices, and hence fewer finance-capital gains.

The aim of finance capitalism is not to become a more productive economy by producing goods and selling them at a lower cost than competitors. What might appear at first sight to be international economic rivalry and jealousy between the United States and China is thus best seen as a fight between economic systems: that of finance capitalism and that of civilization trying to free itself from rentier privileges and submission to creditors, with a more social philosophy of government empowered to check private interests when they act selfishly and injure society at large.

The enemy in this New Cold War is not merely socialist government but government itself, except to the extent that it can be brought under the control of high finance to promote the neoliberal rentier agenda. This reverses the democratic political revolution of the 19 th century that replaced the House of Lords and other upper houses controlled by the hereditary aristocracy with more representative legislators. The aim is to create a corporate state, replacing elected houses of government by central banks – the U.S. Federal Reserve and the European Central Bank, along with external pressure from the International Monetary Fund and World Bank.

The result is a "deep state" supporting a cosmopolitan financial oligarchy. That is the definition of fascism, reversing democratic government to restore control to the rentier financial and monopoly classes. The beneficiary is the corporate sector, not labor, whose resentment is turned against foreigners and against designated enemies within.

Lacking foreign affluence, the U.S. corporate state promotes employment by a military buildup and public infrastructure spending, most of which is turned over to insiders to privatize into rent-seeking monopolies and sinecures. In the United States, the military is being privatized for fighting abroad ( e.g ., Blackwater USA/Academi), and jails are being turned into profit centers using inexpensive convict labor.

What is ironic is that although China is seeking to decouple from Western finance capitalism, it actually has been doing what the United States did in its industrial takeoff in the late 19 th and early 20 th century. As a socialist economy, China has aimed at what industrial capitalism was expected to achieve: freeing its economy from rentier income (landlordship and usurious banking), largely by a progressive income tax policy falling mainly on rentier income.

Above all, China has kept banking in the public domain. Keeping money and credit creation public instead of privatizing it is the most important step to keep down the cost of living and business. China has been able to avoid a debt crisis by forgiving debts instead of closing down indebted enterprises deemed to be in the public interest. In these respects it is socialist China that is achieving the fate that industrial capitalism initially was expected to achieve in the West.

Summary: Finance Capital as Rent-Seeking

The transformation of academic economic theory under today's finance capitalism has reversed the progressive and indeed radical thrust of the classical political economy that evolved into Marxism. Post-classical theory depicts the financial and other rentier sectors as an intrinsic part of the industrial economy. Today's national income and GDP accounting formats are compiled in keeping with this anti-classical reaction depicting the FIRE sector and its allied rent-seeking sectors as an addition to national income, not a subtrahend. Interest, rents and monopoly prices all are counted as "earnings" – as if all income is earned as intrinsic parts of industrial capitalism, not predatory extraction as overhead property and financial claims.

This is the opposite of classical economics. Finance capitalism is a drive to avoid what Marx and indeed the majority of his contemporaries expected: that industrial capitalism would evolve toward socialism, peacefully or otherwise.

Some Final Observations: Financial Takeover of Industry, Government and Ideology

Almost every economy is a mixed economy – public and private, financial, industrial and rent-seeking. Within these mixed economies the financial dynamics – debt growing by compound interest, attaching itself primarily to rent-extracting privileges, and therefore protecting them ideologically, politically and academically. These dynamics are different from those of industrial capitalism, and indeed undercut the industrial economy by diverting income from it to pay the financial sector and its rentier clients.

One expression of this inherent antagonism is the time frame. Industrial capitalism requires long-term planning to develop a product, make a marketing plan, and undertake research and development to keep undercutting competitors. The basic dynamic is M-C-M': capital (money, M) is invested in building factories and other means of production, and employing labor to sell its products (commodities, C) at a profit (M').

Finance capitalism abbreviates this to a M-M', making money purely financially, by charging interest and making capital gains. The financial mode of "wealth creation" is measured by the valuations of real estate, stocks and bonds. This valuation was long based on capitalizing their flow of revenue (rents or profits) at the going rate of interest, but is now based almost entirely on capital gains as the major source of "total returns."

In taking over industrial companies, financial managers focus on the short run, because their salary and bonuses are based on current year's performance. The "performance" in question is stock market performance. Stock prices have largely become independent from sales volume and profits, now that they are enhanced by corporations typically paying out some 92 percent of their revenue in dividends and stock buybacks.[6]

Even more destructively, private capital has created a new process: M-debt-M'. One recent paper calculates that: "Over 40% of firms that make payouts also raise capital during the same year, resulting in 31% of aggregate share repurchases and dividends being externally financed, primarily with debt."[7]This has made the corporate sector financially fragile, above all the airline industry in the wake of the COVID-19 crises.

Private equity has played a big role in increasing corporate leverage, both through their own actions and by disinhibiting large public companies in the use of debt. As Eileen Appelbaum and Rosemary Batt explained, the large buyout firms, following the playbook developed in the 1980s, produce their returns from financial engineering and cost cutting (smaller size deals target "growthier" companies, but while those private equity firms assert that they add value, it may just be that they are skilled at identifying promising companies and riding a performance wave). Contrary to their marketing, private equity fee structures mean they make money even when they bankrupt firms. And they have become so powerful that it's hard to get political support to stop them when they hurt large numbers of citizens though exploitative practices like balance ("surprise")billing. [8]

The classic description of this looting-for-profit practice process is the 1993 paper by George Akerloff and Paul Romer describing how "firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations."[9]

The fact that "paper gains" from stock prices can be wiped out when financial storms occur, makes financial capitalism less resilient than the industrial base of tangible capital investment that remains in place. The United States has painted its economy into a corner by de-industrializing, replacing tangible capital formation with "virtual wealth," that is, financial claims on income and tangible assets. Since 2009, and especially since the Covid crisis of 2020, its economy has been suffering through what is called a K-shaped "recovery." The stock and bond markets have reached all-time highs to benefit the wealthiest families, but the "real" economy of production and consumption, GDP and employment, has declined for the non- rentier sector, that is, the economy at large.

How do we explain this disparity, if not by recognizing that different dynamics and laws of motion are at work? Gains in wealth increasingly take the form of a rising valuation of rentier financial and property claims on the real economy's assets and income, headed by rent-extraction rights, not means of production.

Finance capitalism of this sort can survive only by drawing in exponentially increasing gains from outside the system., either by central bank money creation (Quantitative Easing) or by financializing foreign economies, privatizing them to replace low-priced public infrastructure services with rent-seeking monopolies issuing bonds and stocks, largely financed by dollar-based credit seeking capital gains. The problem with this financial imperialism is that it makes client host economies as high-cost as their U.S. and other sponsors in the world's financial centers.

All economic systems seek to internationalize themselves and extend their rule throughout the world. Today's revived Cold War should be understood as a fight between what kind of economic system the world will have. Finance capitalism is fighting against nations that restrict its intrusive dynamics and sponsorship of privatization and dismantling of public regulatory power. Unlike industrial capitalism, the rentier aim is not to become a more productive economy by producing goods and selling them at a lower cost than competitors. Finance capitalism's dynamics are globalist, seeking to use international organizations (the IMF, NATO, the World Bank and U.S.-designed trade and investment sanctions.) to overrule national governments that are not controlled by the rentier classes. The aim is to make all economies into finance-capitalist layers of hereditary privilege, imposing austerity anti-labor policies to squeeze a dollarized surplus.

Industrial capitalism's resistance to this international pressure is necessarily nationalist, because it needs state subsidy and laws to tax and regulate the FIRE sector. But it is losing the fight to finance capitalism, which is turning to be its nemesis just as industrial capitalism was the nemesis of post-feudal landlordship and predatory banking. Industrial capitalism requires state subsidy and infrastructure investment, along with regulatory and taxing power to check the incursion of finance capital. The resulting global conflict is between socialism (the natural evolution of industrial capitalism) and a pro- rentier fascism, a state-finance-capitalist reaction against socialism's mobilization of state power to roll back the post-feudal rentier interests.

Underlying today's rivalry felt by the United States against China is thus a clash of economic systems. The real conflict is not so much "America vs. China," but finance capitalism vs. industrial "state" capitalism/socialism. At stake is whether "the state" will support financialization benefiting the rentier class or build up the industrial economy and overall prosperity.

Apart from their time frame, the other major contrast between finance capitalism and industrial capitalism is the role of government. Industrial capitalism wants government to help "socialize the costs" by subsidizing infrastructure services. By lowering the cost of living (and hence the minimum wage), this leaves more profits to be privatized. Finance capitalism wants to pry these public utilities away from the public domain and make them privatized rent-yielding assets. That raises the economy's cost structure – and thus is self-defeating from the vantage point of international competition among industrialists.

That is why the lowest-cost and least financialized economies have overtaken the United States, headed by China. The way that Asia, Europe and the United States have reacted to the covid-19 crisis highlights the contrast. The pandemic has forced an estimated 70 percent of local neighborhood restaurants to close in the face of major rent and debt arrears. Renters, unemployed homeowners and commercial real estate investors, as well as numerous consumer sectors are also facing evictions and homelessness, insolvency and foreclosure or distress sales as economic activity plunges.

Less widely noted is how the pandemic has led the Federal Reserve to subsidize the polarization and monopolization of the U.S. economy by making credit available at only a fraction of 1 percent to banks, private equity funds and the nation's largest corporations, helping them gobble up small and medium-sized businesses in distress.

For a decade after the Obama bank-fraud bailout in 2009, the Fed described its purpose as being to keep the banking system liquid and avoid damage to its bondholders, stockholders and large depositors. The Fed infused the commercial banking system with enough lending power to support stock and bond prices. Liquidity was injected into the banking system by buying government securities, as was normal. But after the covid virus hit in March 2020, the Fed began to buy corporate debt for the first time, including junk bonds. Former FDIC head Sheila Bair and Treasury economist Lawrence Goodman note, the Federal Reserve bought the bonds "of 'fallen angels' who sank to junk status during the pandemic" as a result of having indulged in over-leveraged borrowing to pay out dividends and buy their own shares.[10]

Congress considered limiting companies from using the proceeds of the bonds being bought "for outsize executive compensation or shareholder distributions" at the time it approved the facilities. but made no attempt to deter companies from doing this. Noting that "Sysco used the money to pay dividends to its shareholders while laying off a third of its workforce a House committee report found that companies benefiting from the facilities laid off more than one million workers from March to September." Bair and Goodman conclude that "there's little evidence that the Fed's corporate debt buy-up benefited society." Just the opposite: The Fed's actions "created a further unfair opportunity for large corporations to get even bigger by purchasing competitors with government-subsidized credit."

The result, they accuse, is transforming the economy's political shape. "The serial market bailouts by monetary authorities – first the banking system in 2008, and now the entire business world amid the pandemic" has been "a greater threat [to destroy capitalism] than Bernie Sanders." The Fed's "super-low interest rates have favored the equity of large companies over their smaller counterparts," concentrating control of the economy in the hands of firms with the largest access to such credit.

Smaller companies are "the primary source of job creation and innovation," but do not have access to the almost free credit enjoyed by banks and their largest customers. As a result, the financial sector remains the mother of trusts, concentrating financial and corporate wealth by financing a gobbling-up of smaller companies as giant companies to monopolize the debt and bailout market.

The result of this financialized "big fish eat little fish" concentration is a modern-day version of fascism's Corporate State. Radhika Desai calls it "creditocracy," rule by the institutions in control of credit.[11]It is an economic system in which central banks take over economic policy from elected political bodies and the Treasury, thereby completing the process of privatizing economy-wide control.

Industrial Capitalism's aims Finance Capitalism's aims

Make profits by producing products Extract economic rent and interest
Minimize the cost of living and prices Add land and monopoly rent to prices
Favor industry and labor. Give special tax favoritism to the finance, insurance and real estate (FIRE) sectors.
Minimize land rent and housing costs by taxing land rent and other rent-yielding assets, not capital or wages Shift taxes off land-rent taxation to leave it available to pay as interest to mortgage bankers
Provide public infrastructure at low cost Privatize infrastructure into monopolies to extract monopoly rent
Reform parliaments to block rent-seeking

Avoid military spending and wars that require running into foreign debt

Block democratic reform, by shifting control to non-elected officials

Use international organization (such as the IMF or NATO) to force neoliberal policy

Concentrate economic and social planning in the political capital. Shift planning and resource allocation to the financial centers.
Concentrate monetary policy in the national treasury Shift monetary policy to central banks, representing private commercial banking interests.
Bring prices in line with cost-value Maximize opportunities for rent seeking via land ownership, credit and monopoly privileges
Banking should be industrialized to finance tangible capital investment Banks lend against collateral, bidding up asset prices, especially for rent-yielding assets
Recycle corporate revenue is into capital investment in new means of production Pay out revenue as dividends or use it for stock buybacks to increase stock price gains
The time frame is long-term to develop products and marketing plans: M-C-M' The time frame is short-term, hit-and-run by financial speculation, M-M'.
Industrial engineering to raise productivity by research and development and new capital investment. Financial engineering to raise asset prices – by stock buybacks and higher dividend payouts.
Focuses on long-term development of industrial capitalism as a broad economic system. Short-term hit-and-run objectives, mainly by buying and selling assets.
Economy of High Wages, recognizing that well fed, well-educated labor with leisure is more productive than low-priced "pauper" labor, and long-term employment A race to the bottom, burning out employees and replacing them with new hires.

Mechanization of labor treats workers as easily replaceable and hence disposable.

M-C-M' Profits are made by investing in means of production and hiring labor to produce commodities to sell at a higher price than what it costs to employ labor. M-M' "Capital" gains made directly by asset-price inflation
Banking is industrialized, to provide credit mainly to invest in new capital formation. This increased credit tends to bid up commodity prices and hence the living wage. Increased bank credit to finance the bidding up of housing, stocks and bonds raises the cost of housing and of buying pension income, leaving less to spend on goods and services.
Supports democracy to the extent that the lower house will back industrial capital in its fight against the landlord class and other rentiers, whose revenue adds to prices without adding value. Finance capital joins with "late" industrial capitalism to oppose pro-labor policies. It seeks to take over government, and especially central banks, to support prices for stocks, bonds, real estate and packaged bank loans gone bad and threatening banks with insolvency.
Industrial capitalism is inherently nationalistic, requiring government protection and subsidy of industry. Finance capital is cosmopolitan, seeking to prevent capital controls and impose free trade and libertarian anti-government policy.
Supports a mixed economy, with government paying for infrastructure to subsidize private industry. Government works with industry and banking to create a long-term growth plan for prosperity. Seeks to abolish government authority in all areas, so as to shift the center of planning to Wall Street and other financial centers.

The aim is to dismantle protection of labor and industry together.

Banking and credit are industrialized. Industry is financialized, with profits used mainly to increase stock prices via stock buyback programs and dividend payouts, not new R&D or tangible investment.
Favor industry and labor. Give special tax favoritism to the finance, insurance and real estate (FIRE) sectors.

__________

[1]I provide the charts in The Bubble and Beyond (Dresden: 2012), Chapters 7 and 8, and Killing the Host (Dresden: 2015).

[2]"The Theory of Dynamic Economics," Essays in Economic Theory ed. Rexford Guy Tugwell (New York: 1924), pp. 96 and 98, originally in The Publications of the University of Pennsylvania , Political Economy and Public Law Series 3:2 (whole No. 11), 1892, p. 96. Europe's aristocratic governments developed their tax policy "at a time when the state was a mere military organization for the defense of society from foreign foes, or to gratify national feelings by aggressive wars." Such states had a "passive" economic development policy, and their tax philosophy was not based on economic efficiency. I provide the details in "Simon Patten on Public Infrastructure and Economic Rent Capture," American Journal of Economics and Sociology 70 (October 2011), pp. 873-903.

[3]George advocated a land tax, but his opposition to socialism led him to reject the value and price concepts necessary to define economic rent quantitatively. His defense of bankers and interest rendered his policy recommendations ineffective as he moved to the libertarian right wing of the political spectrum, opposing government investment but merely taxing the rent taken by privatizers – the reverse of what Patten and his pro-industrial school of economists were advocating, based on classical value and price theory.

[4]"The Theory of Dynamic Economics," p. 98.

[5]Speech of June 24, 1877. He used Latin and said " Sanitas, Sanitatum " and translated it as "Sanitation, all is sanitation." It was a pun on a more famous aphorism, " Vanitas, vanitatum ," "Vanity, all is vanity."

[6]William Lazonick, "Profits Without Prosperity:Stock Buybacks Manipulate the Market and Leave Most Americans Worse Off," Harvard Business Review , September 2014. And more recently, Lazonick and Jang-Sup Shin, Predatory Value Extraction: How the Looting of the Business Corporation Became the U.S. Norm and How Sustainable Prosperity Can Be Restored (Oxford: 2020).

[7]Joan Farre-Mensa, Roni Michaely, Martin Schmalz, "Financing Payouts," Ross School of Business Paper No. 1263 (December 1, 2020), quoted by Matt Stoller,"How to Get Rich Sabotaging Nuclear Weapons Facilities," BIG, January 3, 2021.

[8] Eileen Appelbaum and Rosemary Batt, Private Equity at Work: When Wall Street Manages Main Street (Russell Sage: 2014). See also Eileen Appelbaum, Written Testimony before the U.S. House of RepresentativesCommittee on Financial Services , November 19, 2020.

[9]George Akerloff and Paul Romer, "Looting: The Economic Underworld of Bankruptcy for Profit,"https://www.brookings.edu/wp-content/uploads/1993/06/1993b_bpea_akerlof_romer_hall_mankiw.pdf

[10]Sheila Bair and Lawrence Goodman, "Corporate Debt 'Relief' Is an Economic Dud," Wall Street Journal , January 7, 2021.

[11]Desai, Radhika. 2020.'The Fate of Capitalism Hangs in the Balance of International Power'. Canadian Dimension, 12 October. https://canadiandimension.com/articles/view/the-fate-of-capitalism-hangs-in-the-balance-of-international-power . See also Geoffrey Gardiner, Towards True Monetarism (Dulwich: 1993) and The Evolution of Creditary Structure and Controls (London: Palgrave, 2006) and the post-Keynesian group Gang of 8 popularized the term "creditary economics" in the 1990s.


Roquentin , January 26, 2021 at 8:21 am

I don't think I'm really on board with this strict separation between finance capital and industrial capital. Marx got a lot right, but one of many things he got wrong was actually buying into the emancipatory potential of capitalism.

He mistakenly saw the market and its logic as some sort of quasi-autonomous, internally functioning thing with scientific laws which governed its motion (this is literal, hence he and Engels talking about "scientific socialism"). He missed that the capitalist marketplace and money itself were always already political, neither of which have any independent existence from the institutions which create them.

I believe we have seen a rise in "rentier" capitalism less because it is fundamentally different than industrial capital and more because the rich and powerful long ago realized that there is no "free market" and that they could construct the market legally and politically in precisely the way which allows them to maintain and expand their wealth and power.

Marx, for all his polemics against capitalism was actually too wrapped up in its logic to see this part of it. He didn't really grasp that the supposed laws of the marketplace could be bent or broken at will be the people with the means to do so (hence, "too big to fail"), thought the laws of capitalism were something like laws of nature instead of pure fiat made by people.

That's the mistake. At some point the elite just realized that the "free market," far from threatening them was the most effective way to maintain their control of society.

Darthbobber , January 26, 2021 at 11:06 am

At least in Capital, I don't see this as Marx's mistake. It is not the dominance of Capital itself that he sees as potentially emancipatory, but the actual increase in the ability to generate surplus that it creates, which could be deployed to other ends if the system were surpassed. (And for Marx, it's "progressive" function was already firmly in the past.)

The absolute Hellscape created for the working class, the degradation of the environment, and other disasters he saw as baked into the system. And this did not depend on whether industrial or finance capital predominated. He certainly would never have deluded himself with the belief that "the euthanasia of the rentiers" would fix things. That was left to a later economist.

I think that Marx regarded the "laws" of capitalism as different from what you seem to be calling laws.

He was of course in no position to observe the ever-accelerating tinkering with the supposed laws of the system that we've been witness to for many decades, but what he did see, and what he analyzed in the form of various proposals to eliminate the "bad" effects of the system while retaining it's essential characteristics he saw as perhaps capable of altering the ways in which crises manifested but not of avoiding the crises.

This isn't really adequately expressed, but I'm working from my little Lenovo touchscreen and am disinclined to do longer exposition until I have a keyboard available.

Susan the other , January 27, 2021 at 1:56 pm

At the end of the 19th C. with capitalism exploiting the environment like never before the reaction in the art world was to romanticize nature. Dream-scapes of mystical nature. Followed soon by goofball tourism in model-Ts. The industrial revolution was the economic singularity at the beginning of automation. It gave us the ability to accumulate wealth in a whirlwind. But it lasted barely a century. At which point nature was no longer beautiful and mystical – it was completely trashed. So this went hand in glove with a population explosion and capitalism because it required both. Which is now totally counterproductive. In fact self-destructive. And instead of letting the whole thing implode, bringing essential resources and services to a screeching halt, we are (apparently) financializing the economy.

M-C-M has become M-debt-M. At least this eliminates the ravaging of the environment at ever accelerated consumption. What we need, I submit, is M – environment – M. We need to increase our national and state legislatures by adding a new branch of lawmakers – scientists, now especially environmental scientists, but science in all its branches. And give science full political authority, along with vested financial interests. Balance sheets can be manipulated; money can be digitized; but the environment is the only thing that counts.

James Simpson , January 26, 2021 at 9:23 am

All this and not a word about the consequences for the world of 'productive' industrial capitalism. The need to produce so-called goods endlessly and in increasing quantities is destroying the planet yet the author seems to regard it as something to which a society should aspire. Capitalism itself, with its inherent drive for endless economic growth, is incompatible with a finite planet. Even some capitalists realise this and suggest, hopelessly, that we must immediately and seriously look for ways to expand beyond this planet. A piece elsewhere on this site today about Jeffrey Epstein labels him a 'child rapist' in a way that suggests his activities promoting capitalism were more respectable. 'Capitalist' should carry the same stigma. Or is the extinction of all complex life – as esteemed climate scientists are telling us we are headed for if we don't stop this growth obsession – a less wicked end than a sex crime?

Ian Ollmann , January 26, 2021 at 9:57 am

We could use more production of solar panels, wind turbines and electric transportation.
We could use an enriched working class with the wherewithal to replace their carbon sourced living standard with a green one.

Roquentin , January 26, 2021 at 10:17 am

This is a really good point. Just producing something doesn't produce a net gain for society. I once had this idea that someone with a better background in economics than I have should write a long essay or a book about how the rise of advertising in the 1950s coincided with the need of industrial capitalists to create demand out of thin air for the products they were producing. When the actual need for your products doesn't exist, we figured out how to manufacture demand as well. Up to that point, capitalism had mostly been concerned with the supply side of production but the advent of marketing, advertising, and PR was all about managing the demand/consumption side as well.

This is another way the rentier/industrial capitalist distinction breaks down. Both are beholden to the same interests.

rob , January 26, 2021 at 10:45 am

There was a book called "from the wonderful folks who brought you pearl harbor", which (in a light hearted way) dealt with madison ave (the series mad men was supposedly taken from this story line) and the creation of "consumers" . in the fifties The real time version would be george seldes' works multiple books.. and he had a publication called "in fact" which dealt with the "association of national manufacturers" and how they were controlling the media of the day though advertising.

He was doing stories about the dangers of tobacco and the industry killing of all stories dealing with negative facts about tobacco, back in the forties and fifties.. A great book was "witness to a century"

It blows my mind that just about everything going on today, has been cooking for about a century and we act like us "figuring it out" is a big deal . we must be one smart species.

Darthbobber , January 26, 2021 at 12:59 pm

This theme gets a significant amount of space in Baran and Sweezy's "Monopoly Capital (1966), in the chapter on the Sales Effort in particular, but also scattered elsewhere throughout the book.

tegnost , January 26, 2021 at 12:15 pm

au contraire. I say it's described as part and parcel of finance capitalism. The extractive industries create a surplus of material that must then be sold (analogous is the need to have a war in order to create the need for more bullets), and the extractors get a massive land rent bonus as the resource is given to them free of charge, and they also benefit from tax advantages and land appreciation facilitated by the aforementioned finance capitalism . How much of the bezos fortune has been acquired through selling counterfeit goods touted by fake reviews on the product quality? More junk, sold faster. delivered by an army of gig workers driving individual polluting cars and the notion that an electric or hybrid bus should be replaced by an army of uber drivers, until they don;)t need them anymore

From the above "The oil and mining industries likewise are notoriously exempt from income taxation on their natural-resource rents. For a long time the depletion allowance allowed them tax credit for the oil that was sold off, enabling them to buy new oil-producing properties (or whatever they wanted) with their supposed asset loss, defined as the value to recover whatever they had emptied out. There was no real loss, of course. Oil and minerals are provided by nature."

Kirk Seidenbecker , January 27, 2021 at 3:33 am

From Buckminster Fuller's last book 'Critical Path' –

" approximately 60 percent of the employed in U.S. America are working at tasks that are not producing any life support .Which would cost society the least: to carry on as at present, trying politically to create more no-wealth producing jobs, or paying everybody handsome fellowships to stay at home and save all those million-dollar-each gallons of petroleum?"

Maybe it's time to give the environment a breather from human 'production'. Ecosystems have been loving COVID-19.

Ian Ollmann , January 26, 2021 at 9:54 am

Excellent article!
Thank you.

It is time we boycott the FIRE sector.

TomDority , January 26, 2021 at 10:25 am

I think their exists a confusion as to what constitutes- or is not included in the term – Productive industrial capitalism.

I think the term 'Industrial' evokes images of smoke stacks, endless pollution, misery and environmental degradation and excludes a positive side that includes polution elimination, contained systems, environmental resoration and blooming, happiness and mission, higher and more meaningfull fullfillment.

I think the term 'Productive' evokes images of so-called goods as being created endlessly while destroying the planet – whereas restoration of soils and environment on an industrial scale and the resultant beneficiary of goods produced for the enablement of biodiversity.

Further, a large component of the term 'productive' having negative connotations is a direct result of Financial capitalism's take over and, deceptive use of terms and language – they were led by the computer revolutions use of terms and language taken from long used context and applied to their own narrow doings – See Michael Hudson's -J is for Junk Economics.

This same de-focusing and sly re-working of definitions has left a majority of folks believing that banks use peoples savings to lend out to people trying to start a business, buy a home, or to business to increase production – and not the reality of most of it being to boost asset prices and de-regulate any type financial gambling and shicanery – . And what does it say about economics as science? where economics pretends that itself is self correcting and not entropic like about everything else, will take bad actors out of the equation of the free market, will produce good corporate citizens, and claims creative destruction without realizing that destruction applies to only those things previously created.

When has the production of good corporate citizens outweighed the destructive capacity of those produced bad corporate citizens.

There seems to be no distinction between the predatory, destructive and harmful capitalist corporation that only contributes to overhead, misery and deductive as opposed to productive – that and, those that are productive, useful and positive for all species and the planet.

Mother nature and this planet does not hold humans in as high esteem as we humans do – if you are religious – I don't think god does either.
Sorry

Paul Boisvert , January 26, 2021 at 11:40 am

For a critique of Hudson's argument by a fellow marxist economist, JW Mason, to whom NC occasionally has linked, see:

http://jwmason.org/slackwire/has-finance-capitalism-destroyed-industrial-capitalism/

Mason is a careful and thoughtful economist, so his take is well worth reading. He points out that interest payments as a percent of GDP fluctuate with time and Fed-interest rate setting, and in fact are currently back down to roughly the same level as in 1975. I checked some FRED graphs, and this is true for both business interest payments and household interest payments.

He also points out that increases in relative financialization vs. industrialization have generally varied globally, with one area's increase in one aspect balanced by another area's increase in the other. And while US primary manufacturing has decreased, companies like Amazon, Walmart, and Google are still "industry", as they produce usable consumer services (mainly logistical and distributional) that are not "financial". Mason points out that most top fortunes in the US are still made in such "industrial" realms, not financial.

As Hudson agrees that Marx understood, Mason points out that industrial capitalists still extract "exploitative rent", in the form of profit extracted from the labor power of workers, via the capitalists' collective monopoly on the means of production. He feels that both industrial and financial capitalism are largely inseparable and essential (to the extractors) to the extraction of surplus value from workers.

Kilgore Trout , January 26, 2021 at 1:38 pm

Impressive article. Thanks for posting it, Yves.

I'm not sure I fully buy Mason's argument in PB's comment that Amazon, Walmart, et al are "industry". Clearly, they've superseded Main St as agents to abet consumer culture, and may do so more efficiently (thus adding to GDP), but can this part of the service industry truly be labelled as "industrial"? It seems to me they're old wine in new bottles, so isn't it a zero sum, at least in the long run? They've really only made it easier for consumers to increase their indebtedness–it's just a click away instead of a drive away–so are a more efficient way to abet the FIRE sector more than the industrial sector, especially since so much of what is on offer is now made offshore.

Further, as JS points out, we need to know how to get to some sort of sustainable economy before the whole thing collapses. Somehow the financial capitalism vs industrial capitalism conflict has to be replaced, which will require strong government and far-sighted leaders–both in short supply thanks to Neoliberalism. As many at NC have pointed out, we are now in a race between nuclear armageddon and climate armageddon. But it's good to know where we are, and how we got here, if we are to find our way out of our present predicament.

Paul Boisvert , January 26, 2021 at 3:20 pm

Kilgore,
Good points. Re Walmart, etc., and the label "industrial", Mason's point is simply that those firms aren't "financial", i.e., not in the FIRE sector, and hence aren't what Hudson says he's upset with. Yet (claims Mason, I haven't checked), they are the sort of firms, rather than FIRE, that comprise the dominant chunk of the wealthiest US firms, and of wealth generation in general.

Mason would agree that the problem isn't about one type of capitalism vs. another, but about the whole inhuman, exploitative, unsustainable capitalist shebang.

One point re FIRE that neither Hudson nor Mason address is Dean Baker's take: that much of what should rightfully be "labor's" share of GDP doesn't actually instead go to "capitalists" as "profit" OR to rentiers as interest or rent. It simply goes as wages/salaries to the very highest-paid (and increasingly so) laborers, as opposed to the bottom 90% of laborers. Most top professionals and managers of firms are not "owners", hence they "work" for a living–but they get paid these days predominatly via wages and salaryies that have skyrocketed. And FIRE is indeed in this case a major offender, as Dean points out.

While one could argue that these are simply "profits by a different name", the point is that such employees actually have no "owners" right to the salaries, unlike true owners' rights to (all) profit. They do have a lot of cronyistic, informal power, however. Baker suggests several ways to regulate and lower their salaries, both for finance (a financial transactions tax), and for all corporations in general. This would free up money to go to the lower-paid workers and/or customers of these extractive firms.

Grebo , January 26, 2021 at 8:24 pm

Shareholders of public companies do not actually own the company [David Ciepley] and very few have a controlling stake either. Given the supine boards of most companies the CEOs have effectively complete control and should be considered functionally equivalent to the "capitalists" of lore. What with their options and so forth they are adept at joining the ranks of "owners" even if they started as "laborers".

Baker has some good ideas, incremental style, but I don't get a sense he has a big picture like Hudson. Mason quibbles over details just for the sake of it, it seems to me.

Yves Smith , January 26, 2021 at 10:06 pm

We've regularly referred to the landmark article by Amar Bhide, Efficient Markets, Deficient Governance, which lays out longer form how US regulations by preferring liquid markets, have created anonymous, transient, arms-length shareholders who do not exercise control over companies, and due to the need to keep strategically sensitive information confidential, are incapable of supervising them properly even if they had the power to do so.

https://hbr.org/1994/11/efficient-markets-deficient-governance

Jeremy Grimm , January 26, 2021 at 5:17 pm

The very first sentence of Michael Hudson's post targets: "the landlords, bankers and monopolists extracting economic rent without producing real value." I believe Amazon, Walmart, et al. fit the category of monopolists extracting economic rent without producing value. The FIRE sector was prominent but not the only target of Hudson's post. I think Mason works hard to mince Hudson's words -- to no useful end. "He[Mason] feels that both industrial and financial capitalism are largely inseparable and essential (to the extractors) to the extraction of surplus value from workers." I believe firms that make physical products, like automobiles or light bulbs, and select top management from their engineering and production staff have proved very different in their operations than the same firms run by top management selected from their financial staff.

KMD , January 26, 2021 at 6:22 pm

Boeing being a prime example of the latter.

McWatt , January 26, 2021 at 12:33 pm

Michael Hudson is a God That Walks the Planet!!!!!!!!!!

Jonathan Holland Becnel , January 27, 2021 at 10:43 am

"WE'RE NOT WORTHY!!!" – Wayne's World

icancho , January 26, 2021 at 5:06 pm

Regarding "Deep States" and such, their enforcers, IMF, WB etc:

A fascinating history of shifts in the structure and functioning of the Japanese economy -- essentially from serving the population to serving the speculators -- promoted by a subverted Japanese Central Bank, facilitated and encouraged by the IMF is to be found in this documentary based on Richard Werner's " Princes of the Yen ": https://www.youtube.com/watch?v=p5Ac7ap_MAY

Sound of the Suburbs , January 27, 2021 at 4:05 am

Don't get confused between making money and creating wealth.

When you equate making money with creating wealth, people try and make money in the easiest way possible, which doesn't actually create any wealth.
In 1984, for the first time in American history, "unearned" income exceeded "earned" income. The American have lost sight of what real wealth creation is, and are just focussed on making money. You might as well do that in the easiest way possible. It looks like a parasitic rentier capitalism because that is what it is.

Bankers make the most money when they are driving your economy into a financial crisis. They will load your economy up with their debt products until you get a financial crisis. On a BBC documentary, comparing 1929 to 2008, it said the last time US bankers made as much money as they did before 2008 was in the 1920s. https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6

At 18 mins. The bankers loaded the US economy up with their debt products until they got financial crises in 1929 and 2008. As you head towards the financial crisis, the economy booms due to the money creation of bank loans.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

The financial crisis appears to come out of a clear blue sky when you use an economics that doesn't consider debt, like neoclassical economics.

Once you have a firm grip on what wealth creation and money really are; it all becomes clear.

Banks – What is the idea? The idea is that banks lend into business and industry to increase the productive capacity of the economy. Business and industry don't have to wait until they have the money to expand. They can borrow the money and use it to expand today, and then pay that money back in the future.
The economy can then grow more rapidly than it would without banks.

Debt grows with GDP and there are no problems. The banks create money and use it to create real wealth.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

Sound of the Suburbs , January 27, 2021 at 4:11 am

Who are these mugs?
https://www.housepricecrash.co.uk/forum/uploads/monthly_2018_02/Screen-Shot-2017-04-21-at-13_53_09.png.e32e8fee4ffd68b566ed5235dc1266c2.png
That's us in the UK. We let the bankers load our economy up with their debt products until we got a financial crisis.

Can you see when we started using an economics that doesn't consider private debt? It's not hard, don't over think it.

Ludus57 , January 27, 2021 at 9:21 am

The interesting point about China would seem to be that, having seen the results that Financialisation has produced in the West, they are determined to avoid it.

Of course it might be worth adding that it required overturning the lessons of the '30s and comprehensive deregulation for us to end up where we are, and I cannot see the People's Bank of China ignoring their own analysis of (Western) capitalism to allow a similar fate to befall their own system. Debt has place and role to play, but ruling the system, as today, is certainly not it.

In economics they have obviously heeded their lessons well. It's the social side that needs more attention.

Jonathan Holland Becnel , January 27, 2021 at 10:40 am

As someone whos relatively new to Marxist Literature, I find Michael Hudson's writing to be very readable. Thanks for posting :)

#HUDSONHAWK
#HUDSON2024

[Jan 27, 2021] The 1932 Glass-Steagall legislation and the act based on it did service in that respect up until the late 1990s when it was repealed by the Clinton government

Notable quotes:
"... In reforming the US financial industry, you would need to separate savings and trading banks from investment banks. The 1932 Glass-Steagall legislation and the act based on it did service in that respect up until the late 1990s when it was repealed by the Clinton government. In some countries (Japan being a notable example), the postal service performs savings bank functions. ..."
Jan 27, 2021 | www.moonofalabama.org

karlof1 , Jan 26 2021 23:04 utc | 73

dan of steele @44--

What in your opinion would be the proper approach [for the Outlaw US Empire to engage China]? I ask that seriously.

Assuming my reengineering your query is correct, I provided an answer well prior to the 2016 election--Give up on Neoliberalism, the pursuit of Empire and Zero-sumism; go back to obeying the UN Charter and US Constitution while following the latter's instructions located in the Preamble; and join with normal nations to help others develop via a global BRI as a partner with China. Given current political realities, that's just not going to happen. Instead, I propose the following:

Throw the "vested interests" overboard and work in a Win-Win manner for humanity like China, its Eurasian Bloc partners, and other like-minded nations. Fundamentally, the pursuit of Empire and the #1 policy goal of attaining Full Spectrum Domination must be renounced forever with corresponding adjustments made to the federal government--one of those being an intense auditing of the entire national defense structure and arrest of those who've defrauded it for decades. Second, Repeal the Federal Reserve Act and make banking a public utility, and at the same time arrest the fraudulent banks's and Wall Street firms's people, seize their assets, and reincorporate the mess into the Treasury Department. Third, repeal the 1947 National Security Act and all subsequent acts that are incompatible with the ideal of freedom--Yes, that includes the Patriot Act and such. Fourth, eliminate the Electoral College via a Constitutional amendment that also makes all elections publicly financed, mandates a finite amount of free media coverage, removes restrictions on requirements for appearing on a ballot, and makes "Democracy's Gold Standard" the law of the land. Eliminate the FBI, the Department of Homeland Security and all other armed agencies not directly concerned with safeguarding the public welfare against the designs of Corporations, which was the original regulatory rationale adopted in the late 1890s and 1900s. Use existing Anti-Trust legislation to break up corporations with oligopolistic power. Legislate Social Media and all other natural monopolies to be public utilities, that would also include public health. Eliminate the Death Penalty except for Treason and committing an act of corruption while holding public office at any level of government. Seriously consider removing all regulatory agencies from the Executive and placing them within a Fourth Branch, The Regulatory Branch, which would be non-partisan and electoral for 8 years while eliminating the "Revolving Door." Alter the system of taxation to eliminate any possibility of attaining a "Free Lunch" while paying particular attention to Capital Gains instead of payroll income.

It's very likely I omitted a few items, but IMO the above are the most important. Clearly, the current political paradigm would need drastic alteration for the above, although I doubt any of the above would be objectionable to a majority of the public once reasons were provided--which is to say, none of it's really radical since most of what's being rejected was reactionary to begin with. Doing all that would turn the clock back 120+ years in many cases prior to the time when nascent Neoliberals captured the federal government and began their alterations in 1913. It's very interesting to note the biggest political force against Wilsonian Democracy as it was euphemized was Teddy Roosevelt and his Square Deal for the American Proletariat. Yet ironically, he made it possible for Wilson to win the election, and WW1 would have altered his program in some never to be known manner.

Thanks for asking your question dan of steele as I haven't put any of that together for quite awhile. Until the "vested interests" are removed, however, nothing's going to change for the better, including relations with China, making their removal the required first step.


Jen , Jan 26 2021 23:47 utc | 76

karlof1 @ 73:

In reforming the US financial industry, you would need to separate savings and trading banks from investment banks. The 1932 Glass-Steagall legislation and the act based on it did service in that respect up until the late 1990s when it was repealed by the Clinton government. In some countries (Japan being a notable example), the postal service performs savings bank functions.

The system of taxation to be based on land taxation over income taxation.

Stock market transactions to be subject to a transaction fee charged to sellers that is a percentage of the profit they make on selling stocks. For that matter, stock exchanges should be public utilities subject to regulation.

Investopedia: Who Owns The Stock Exchanges?

... Tokyo Stock Exchange
The third-largest stock exchange in the world is also the largest to not be publicly-traded. Though the Tokyo Stock Exchange is organized as a joint stock corporation, those shares are closely held by member firms like banks and brokerages. By contrast, the smaller Osaka Stock Exchange is publicly-traded, which perhaps befits long-held Japanese stereotypes about Osaka being more entrepreneurial and less hidebound than Tokyo ...

...Shanghai Stock Exchange
This is the largest stock exchange in the world still owned and controlled by a government. [My emphasis - Jen.] The Shanghai exchange is operated as a non-profit entity by the China Securities Regulatory Commission and is arguably one of the most restrictive of the major exchanges in terms of listing and trading criteria ...

...The Bottom Line
Running an exchange is a great business; it is effectively a monopoly. Those who own exchanges can require companies to pay listing fees, traders to pay for market access and investors to pay transaction fees. It is not altogether surprising, then, that there is so much activity in this space. In addition to the aforementioned major mergers, the Singapore Exchange is trying to acquire the Australian Stock Exchange, while Brazil's BM&F Bovespa (once state-owned and now publicly-traded) is looking to expand through acquisition as well.

While these transactions are interesting to a point, they do not generally help the individual investor. Unfortunately, trading stocks listed on foreign exchanges is still difficult (and expensive) for U.S. investors and none of these mergers will change that. Of course, it is up to the brokerages to offer these services and for investors to demand them. (Find out how the third-largest stock exchange in North America came to be. Check out History Of The Toronto Stock Exchange.)

In the meantime, it looks like there is an unmistakable trend in the market of stock markets towards greater global integration and fewer small independent operators...

Needless to say Beijing must be in no hurry not to relinquish control and regulation of the Shanghai Stock Exchange.

uncle tungsten , Jan 27 2021 0:32 utc | 88

Jen #76

In reforming the US financial industry, you would need to separate savings and trading banks from investment banks. The 1932 Glass-Steagall legislation and the act based on it did service in that respect up until the late 1990s when it was repealed by the Clinton government. In some countries (Japan being a notable example), the postal service performs savings bank functions.

My proposition is that cash is the ownership of the common wealth - that the state creates and manages it. Others use it for a transaction tax on each use. Keep it simple and non negotiable.

Glaring inequities can be remediated with a close monitored reimbursement system that is transparent and under continuous audit.

Every account transfer for whatever reason is taxed . If you withdraw cash you pay tax similar to an ATM fee. etc.

Complicated concession systems are avoided as they immediately invite scammers to skate around the rigmarole. Yes there will be minor unfairness issues but that sure beats the major unfairness issues we have in place now. Illegal money laundering requires multiple moves across accounts and diverse banks to obfuscate the nature of the transactors etc. That would generate further taxation on those tricks and perhaps reveal the trail.

Yes there will be double tax. But if transaction tax is set at a low rate to not screw the low income people then it will get their support as they will see that the higher cash users will be paying more for the privilege. Sliding scales can be configured in such systems but avoidance is made incredibly difficult.

As psychohistorian often says : its the global private finance banks that we must seize control of.

[Jan 20, 2021] The Consequences of Moving from Industrial to Financial Capitalism by Michael Hudson and Pepe Escobar

Jan 20, 2021 | www.unz.com

Michael Hudson and Pepe Escobar last month took a hard look at rent and rent-seeking at the Henry George School of Social Science.

Michael Hudson: Well, I'm honored to be here on the same show with Pepe and discuss our mutual concern. And I think you have to frame the whole issue that China is thriving, and the West has reached the end of the whole 75-year expansion it had since 1945.

So, there was an illusion that America is de-industrializing because of competition from China. And the reality is there is no way that America can re-industrialize and regain its export markets with the way that it's organized today, financialized and privatized and if China didn't exist. You'd still have the Rust Belt rusting out. You'd still have American industry not being able to compete abroad simply because the cost structure is so high in the United States.

Michael Hudson. (Wikimedia Commons)

The wealth is no longer made here by industrializing. It's made financially, mainly by making capital gains. Rising prices for real estate or for stocks and for bonds. In the last nine months, since the coronavirus came here, the top 1 percent of the U.S. economy grew by $1 trillion. It's been a windfall for the 1 percent. The stock market is way up, the bond market is up, the real estate market is up while the rest of the economy is going down. Despite the tariffs that Trump put on, Chinese imports, trade with China is going up because we're just not producing materials.

America doesn't make its own shoes. It doesn't make some nuts and bolts or fasteners, it doesn't make industrial things anymore because if money is to be made off an industrial company it's to buy and sell the company, not to make loans to increase the company's production. New York City, where I live, used to be an industrial city and, the industrial buildings, the mercantile buildings have all been gentrified into high-priced real estate and the result is that Americans have to pay so much money on education, rent, medical care that if they got all of their physical needs, their food, their clothing, all the goods and services for nothing, they still couldn't compete with foreign labor because of all of the costs that they have to pay that are essentially called rent-seeking.

Housing in the United States now absorbs about 40 percent of the average worker's paycheck. There's 15 percent taken off the top of paychecks for pensions, Social Security and for Medicare. Further medical insurance adds more to the paycheck, income taxes and sales taxes add about another 10 percent. Then you have student loans and bank debt. So basically, the American worker can only spend about one third of his or her income on buying the goods and services they produce. All the rest goes into the FIRE sector -- the finance, insurance and real estate sector -- and other monopolies.

https://www.youtube.com/embed/IquO_TcMZIQ?feature=oembed

And essentially, we became what's called a rent-seeking economy, not a productive economy. So, when people in Washington talk about American capitalism versus Chinese socialism this is confusing the issue. What kind of capitalism are we talking about?

America used to have industrial capitalism in the 19th century. That's how it got richer originally but now it's moved away from industrial capitalism towards finance capitalism. And what that means is that essentially the mixed economy that made America rich -- where the government would invest in education and infrastructure and transportation and provide these at low costs so that the employers didn't have to pay labor to afford high costs -- all of this has been transformed over the last hundred years.

And we've moved away from the whole ethic of what was industrial capitalism. Before, the idea of capitalism in the 19th century from Adam Smith to Ricardo, to John Stuart Mill to Marx was very clear and Marx stated it quite clearly; capitalism was revolutionary. It was to get rid of the landlord class. It was to get rid of the rentier class. It was to get rid of the banking class essentially, and just bear all the costs that were unnecessary for production, because how did England and America and Germany gain their markets?

"We've moved away from the whole ethic of what was industrial capitalism."

They gained their markets basically by the government picking up a lot of the costs of the economy. The government in America provided low-cost education, not student debt. It provided transportation at subsidized prices. It provided basic infrastructure at low cost. And so, government infrastructure was considered a fourth factor of production.

And if you read what the business schools in the late 19th century taught like Simon Patten at the Wharton School, it's very much like socialism. In fact, it's very much like what China is doing. And in fact, China is following in the last 30 or 40 years pretty much the same way of getting rich that America followed.

It had its government fund basic infrastructure. It provides low-cost education. It invests in high-speed railroads and airports, in the building of cities. So, the government bears most of the costs and, that means that employers don't have to pay workers enough to pay a student loan debt. They don't have to pay workers enough to pay enormous rent such as you have in the United States. They don't have to pay workers to save for a pension fund, to pay the pension later on. And most of all the Chinese economy doesn't really have to pay a banking class because banking is the most important public utility of all. Banking is what China has kept in the hands of government and Chinese banks don't lend for the same reasons that American banks lend.

Shanghai's Pudong district from The Bund. (CC0, Wikimedia Commons)

(When I said that China can pay lower wages than the U.S., what I meant was that China provides as public services many things that American workers have to pay out of their own pockets – such as health care, free education, subsidized education, and above all, much lower debt service.

When workers have to go into debt in order to live, they need much higher wages to keep solvent. When they have to pay for their own health insurance, they have to earn more. The same is true of education and student debt. So much of what Americans seem to be earning -- more than workers in other countries -- goes right through their hands to the FIRE sector. So, what seems to be "low wages" in China go a lot further than higher wages in the United States.)

Eighty percent of American bank loans are mortgage loans to real estate and the effect of loosening loan standards and increasing the market for real estate is to push up the cost of living, push up the cost of housing. So, Americans have to pay more and more money for their housing whether they're renters or they're buyers, in which case the rent is for paying mortgage interest.

So, all of this cost structure has been built into the economy. China's been able pretty much, to avoid all of this, because its objective in banking is not to make a profit and interest, not to make capital gains and speculation. It creates money to fund actual means of production to build factories, to build research and development, to build transportation facilities, to build infrastructure. Banks in America don't lend for that kind of thing.

"So, you have a diametric opposite philosophy of how to develop between the United States and China."

They only lend against collateral that's already in place because they won't make a loan if it's not backed by collateral. Well, China creates money through its public banks to create capital, to create the means of production. So, you have a diametric opposite philosophy of how to develop between the United States and China.

The United States has decided not to gain wealth by actually investing in means of production and producing goods and services, but in financial ways. China is gaining wealth the old-fashioned way, by producing it. And whether you call this, industrial capitalism or a state capitalism or a state socialism or Marxism, it basically follows the same logic of real economics, the real economy, not the financial overhead. So, you have China operating as a real economy, increasing its production, becoming the workshop of the world as England used to be called and America trying to draw in foreign resources, live off of foreign resources, live by trying to make money by investing in the Chinese stock market or now, moving investment banks into China and making loans to China not actual industrial capitalism ways.

"China is gaining wealth the old-fashioned way, by producing it."

So, you could say that America has gone beyond industrial capitalism, and they call it the post-industrial society, but you could call it the neo-feudal society. You could call it the neo-rentier society, or you could call it debt peonage but it's not industrial capitalism.

And in that sense, there's no rivalry between China and America. These are different systems going their own way and I better let Pepe pick it up from there.

Pepe Escobar : Okay. Thank you, Michael, this is brilliant. And you did it in less than 15 minutes. You told the whole story in 15 minutes. Well, my journalistic instinct is immediately to start questions to Michael. So, this is exactly what I'm gonna do now. I think it is much better to basically illustrate some points of what Michael just said, comparing the American system, which is finance capitalism essentially, with industrial capitalism that is in effect in China. Let me try to start with a very concrete and straight to the point question, Michael.

Okay. let's says that more or less, if we want to summarize it, basically they try to tax the nonproductive rentier class. So, this would be the Chinese way to distribute wealth, right? Sifting through the Chinese economic literature, there is a very interesting concept, which is relatively new (correct me if I am wrong, Michael) in China, which they call stable investment. So stable investment, according to the Chinese would be to issue special bonds as extra capital in fact, to be invested in infrastructure building all across China, and they choose these projects in what they call weak areas and weak links. So probably in some of the inner provinces, or probably in some parts of Tibet or Xinjiang for instance. So, this is a way to invest in the real economy and in real government investment projects.

Right? So, my question in fact, is does this system create extra local debt, coming directly from this financing from Beijing? Is this a good recipe for sustainable development, the Chinese way and the recipe that they could expand to other parts of the Global South?

Michael: Well, this is a big problem that they're discussing right now. The localities, especially rural China, (and China is still largely rural) only cover about half of their working budget from taxation. So, they have a problem. How are they going to get the balance of the money? Well, there is no official revenue sharing between the federal government and its state banks and the localities.

So, the localities can't simply go to central government and say, give us more money. The government lets the localities be very independent. And it is sort of the "let a hundred flowers bloom" concept. And so, they've let each locality just go the long way, but the localities have run a big deficit.

What do they do? Well in the United States they would issue bonds on which New York is about to default. But in China, the easiest way for the localities to make money, is unfortunately they will do something like Chicago did. They will sell their tax rights for the next 75 years for current money now.

So, a real estate developer will come in and say; look we will give you the next 75 years of tax on this land, because we want to build projects on this (a set of buildings). So, what this means is that now the cities have given away all their source of rent.

Chicago's Water Tower and Water Tower Place. (CC BY-SA 3.0, Wikimedia Commons)

Let me show you the problem by what Indiana and Chicago did. Chicago also was very much like China's countryside cities. So, it sold parking meters and its sidewalks to a whole series of Wall Street investors, including the Abu Dhabi Investment Fund for seventy-five years. And that meant that for 75 years, this Wall Street consortium got to control the parking meters.

So, they put up the parking meters all over Chicago, raised the price of parking, raised the cost of driving to Chicago. And if Chicago would have a parade and interrupt parking, then Chicago has to pay the Abu Dhabi fund and Wall Street company what it would have made anyway. And this became such an awful disaster that finally Wall Street had to reverse the deal and undo it because it was giving privatization a bad name here. The same thing happened in Indiana.

High School marching band in Chicago's 2008 Bud Billiken Parade. (Curtis Morrow, CC BY 2.0, Wikimedia Commons)

Indiana was running a deficit and it decided to sell its roads to a Wall Street investment firm to make a toll road. The toll on the Indiana turnpike was so high that drivers began to take over the side roads. That's the problem if you sell future tax revenues in advance.

Now what China and the localities there are discussing is that we've already given the real estate tax at very low estimates to the commercial developers, so what do we do? Well, I've given them my advice. I'm a professor of economics at the Peking University, School of Marxist studies and I've had discussions with the Central Committee. I also have an official position at Wuhan University. There, we're discussing how China can put an added tax for all of the valuable land, that's gone up. How can it be done to let the cities collect this tax? Our claim is that the cities, in selling these tax rights for 75 years, have sold what in Britain would be called ground rent (i.e. what's paid to the landed aristocracy).

Over and above that there's the market rent. So, China should pass a market-rent tax over and above the ground rent tax to reflect the current value. And there they're thinking of, well, do we say that this is a capital gain on the land? Well, it's not really a capital gain until you sell the land, but it's value. It's the valuation of the capital. And they're looking at whether they should just say this is the market rent tax over and above the flat tax that has been paid in advance, or it's a land tax on the capital gain for land.

Now, all of this requires that there be a land map of the whole country. And they are just beginning to create such a land map as a basis for how you calculate how much the rent there is.

What I found in China is something very strange. A few years ago, in Beijing, they had the first, International Marxist conference where I was the main speaker and I was talking about Marx's discussion of the history of rent theory in Volume II and Volume III of Capital where Marx discusses all of the classical economics that led up to his view; Adam Smith, Ricardo, Malthus, John Stuart Mill, and Marx's theory of surplus value was really the first history of economic thought that was written, although it wasn't published until after he died. Well, you could see that there was a little bit of discomfort with some of the Marxists at the conference. And so, they invited for the next time my colleague David Harvey to come and talk about Marxism in the West.

Well, David gave both the leading and the closing speech of the conference and said, you've got to go beyond volume I of Capital . Volume I was what Marx wrote as his addition to classical economics, saying that there was exploitation in industrial employment of labor as well as rent seeking and then he said, now that I've done my introduction here, let me talk about how capitalism works in Volumes II and III. Volumes II and III are all about rent and finance and David Harvey has published a book on Volume III of Capital and his message to Peking University and the second Marxist conference was – you've got to read Volume II, and III.

Well, you can see that, there's a discussion now over what is Marxism and a friend and colleague at PKU said Marxism is a Chinese word; It's the Chinese word for politics. That made everything clear to me. Now I get it! I've been asked by the Academy of Social Sciences in China to create a syllabus of the history of rent theory and value theory. And essentially in order to have an idea of how you calculate rent, how do you make a national income analysis where you show rent, you have to have a theory of value and price and rent is the excess of price over the actual cost value. Well, for that you need a concept of cost of production and that's what classical economics is all about. Post-classical economics denied all of this. The whole idea of classical economics is that not all income is earned.

Landlords don't earn their income for making rent in their sleep as John Stuart Mill said. Banks don't earn their income by just sitting there and letting debts accrue and interest compounding and doubling. The classical economists separated actual unearned income from the production and consumption economy.

Well, around the late 19th century in America, you had economists fighting against not only Marx, but also even against Henry George, who at that time, was urging a land tax in New York. And so, at Columbia University, John Bates Clark developed a whole theory that everybody earns whatever they can get. That there was no such thing as unearned income and that has become the basis for American national income statistics and thought ever since. So, if you look at today's GDP figures for the United States, they have a figure for 8 percent of the GDP for the homeowners' rent. But homeowners wouldn't pay themselves if they had to rent the apartment to themselves, then you'll have interest at about 12 percent of GDP.

And I thought, well how can interest be so steady? What happens to all of the late fees; that 29 percent that credit card companies charge? I called up the national income people in Washington, when I was there. And they said well, late fees and penalties are considered financial services.

And so, this is what you call a service economy. Well, there's no service in charging a late fee, but they add all of the late fees. When people can't pay their debts and they owe more and more, all of that is considered an addition to GDP. When housing becomes more expensive and prices American labor out of the market, that's called an increase in GDP.

This is not how a country that wants to develop is going to create a national income account. So, there's a long discussion in China about, just to answer your question, how do you create an account to distinguish between what's the necessary cost to production and what's an unnecessary production cost and how do we avoid doing what the United States did. So again, no rivalry. The United States is an object lesson for China on what to avoid, not only in industrializing the economy, but in creating a picture of the economy as if everybody earns everything and there's no exploitation, no earned income, nobody makes money in their sleep and there's no 1 percent. Well, that's what's really at issue and why the whole world is splitting apart as you and I are discussing in what we're writing.

"When people can't pay their debts and they owe more and more, all of that is considered an addition to GDP."

Pepe: Thank you, Michael. Thank you very much. So just to sum it all up, can we say that Beijing's strategy is to save especially provincial areas from leasing their land, their infrastructure for 60 years or 75 years? As you just mentioned, can we say that the fulcrum of their national strategy is what you define as the market rent tax? Is this the No. 1 mechanism that they are developing?

Michael: Ideally, they want to keep rents as low as possible because rent is a cost of living and a cost of doing business. They don't have banks that are lending to inflate the real estate market.

However, in almost every Western country -- the U.S., Germany England -- the value of stocks and bonds and the value of real estate is just about exactly the same. But for China, the value of real estate is way, way larger than the value of stocks.

And the reason is not because the Chinese Central bank, the Bank of China lends for real estate; it's because they lend to intermediaries and the intermediaries have financed a lot of housing purchases in China. And, this is really the problem for if they levy a land tax, then you're going to make a lot of these financial intermediaries go bust.

That's what I'm advocating, and I don't think that's a bad thing. These financial intermediaries shouldn't exist, and this same issue came up in 2009 in the United States. You had the leading American bank being the most crooked and internally corrupt bank in the country, Citibank making junk mortgage, and it was broke.

Sheila Bair in 2016. (Matt Spangler for Washington College, CC BY-SA 4.0, Wikimedia Commons)

Its entire net worth was wiped out as a result of its fraudulent junk mortgages. Well, Sheila Bair, the head of the Federal Deposit Insurance Corporation (FDIC) wanted to close it down and take it over. Essentially that would have made it into a public bank and that would be a wonderful thing. She said, look Citibank shouldn't be doing what it's doing. And she wrote all this up in an autobiography. And, she was overruled by President Obama and Tim Geithner saying, but wait a minute, those are our campaign contributors. So, they were loyal to the campaign contributors, but not the voters; and they didn't close Citibank down.

And the result is that the Federal Reserve ended up creating about $7 trillion of quantitative easing to bail out the banks. The homeowners weren't bailed out. Ten million American families lost their homes as a result of junk mortgages in excess of what the property was actually worth.

All of this was left on the books, foreclosed and sold to a private capital companies like Blackstone. And the result is that home ownership in America declined from 68 percent of the population down to about 61 percent. Well, right where the Obama administration left off, you're about to have the Biden administration begin in January with an estimated 5 million Americans losing their homes. They're going to be evicted because they've been unemployed during the pandemic. They've been working in restaurants or gyms or other industries that have been shut down because of the pandemic. They're going to be evicted and many homeowners and, low-income homeowners have been unable to pay their mortgages.

There's going to be a wave of foreclosures. The question is, who's going to bear the cost? Should it be 15 million American families who lose their homes just so the banks won't lose money? Or should we let the banks that have made all of the growth since 2008? Ninety five percent of American GDP of the population has seen its wealth go down. All the wealth has been accumulating for the 5 percent in statistics. Now the question is should this 5 percent that's got all the wealth lose or should the 95 percent lose?

Worker installs security panels over windows after police evict woman from her foreclosed home in South Minneapolis, 2009. (Tony Webster, CC BY 2.0, Wikimedia Commons)

The Biden administration says the 95 percent should lose basically. And you're going to see a wave of closures so that the question in China should be that, these intermediate banks (they're not really banks they are sort of like payday loan lenders), should they come in and, bear the loss or should Chinese localities and the people bear the loss? Somebody has to lose when you're charging, you're collecting the land's rent that was paid to the creditors, and either the creditors have to lose or, the tax collector loses and that's the conflict that exists in every society of the world today. And, in the West, the idea is the tax collectors should lose and whatever the tax collector relinquishes should be free for the banks to collect. In China obviously, they don't want that to happen and they don't want to see a financial class developing along US lines.

Pepe: Michael, there's a quick question in all this, which is the official position by Beijing in terms of helping the localities. Their official position is that there won't be any bailouts of local debt. How do they plan to do that?

Michael: What they're discussing, how are you not going to do it? They think they sort of let localities go their own way. And they think, well you know which ones are going to succeed, and which ones aren't, they didn't want to have a one-size-fits all central planning. They wanted to have flexibility. Well, now they have flexibility. And when you have many different "let a hundred flowers bloom," not all the flowers are going to bloom at the same rate.

And the question is, if they don't bail out the cities, how are the cities going to operate? Certainly, China has never let markets steer the economy, the government steers the markets. That's what socialism is as opposed to finance capitalism. So, the question is, you can let localities go broke and yet you're not going to destroy any of the physical assets of the localities, and all of this is going to be in place. The question is how are you going to arrange the flow of income to all of these roads and buildings and land that's in place? How do you create a system? Essentially, they're saying well, if we're industrial engineers, how do we just plan things? Forget credit, forget property claims, forget the rentier claims. How are we just going to design an economy that operates most efficiently? And that's what they're working on now to resolve this situation because it's gotten fairly critical.

Pepe: Yes, especially in the countryside. Well, I think, a very good metaphor in terms of comparing both systems are investment in infrastructure. You travel to China a lot so, you've seen. You'll travel through high-speed rail. You'll see those fantastic airports, in Pudong or the new airport in Beijing. And then you'll take the Acela to go from Washington to New York City, which is something that I used to do years ago. And the comparison is striking. Isn't it?

Or if you go to France, for instance, when France started development of the TGV, which in terms of a national infrastructure network, is one of the best networks on the planet. And the French started doing this 30 years ago, even more. Is there , it's not in terms of way out, but if we analyze the minutia, it's obvious that following the American finance utilization system, we could never have something remotely similar happening in United States in terms of building infrastructure.

So, do you see any realistic bypass mechanism in terms of improving American infrastructure, especially in the big cities?

TGV 2N2 Lyria train at Paris' Gare de Lyon station. (CC BY-SA 4.0, Wikimedia Commons)

Michael: No, and there are two reasons for that. No. 1, let's take a look at the long-term railroads. The railroads go through the center of town or even in the countryside, all along the railroads, the railroads brought business and all the businesses had been located as close to the railroad tracks as they could. Factories with sightings off the railroad, hotels and especially right through the middle of town where you have the railway gates going up and down. In order to make a high-speed rail as in China, you need a dedicated roadway without trucks and cars, imagine a car going through a railway gate at 350 miles an hour.

So, when I would go from Beijing to Tianjin, here's the high-speed rail, there's one highway on one side, one highway on the other side. There'll be underpasses. But there it goes straight now. How can you suppose you would have a straight Acela line from Washington up to Boston when all along the line, there's all this real estate right along the line that has been built up? There's no way you can get a dedicated roadway without having to tear down all of this real estate that's on either side and the cost of making the current owners whole would be prohibitive. And anywhere you would go, that's not in the center of the city, you would also have to have the problem that there's already private property there.

And there's no legal, constitutional way for such a physical investment to be made. China was able to make this investment because it was still largely rural. It wasn't as built up along the railways. It didn't have any particular area that was built up right where the railroad already was.

President Donald Trump visiting China in 2017. (PAS China via Wikimedia Commons)

So certainly, any high-speed rail could not go where the current railways would be, and they'd have to go on somebody's land. And, there's also, what do you do if you want to get to New York and Long Island from New Jersey?

Sixty years ago, when I went into Wall Street, the cost of getting and transporting goods from California to Newark, New Jersey, was as large as from Newark right across the Hudson River to New York, not only because of the mafia and control of the local labor unions, but because of the tunnels. Right now, the tunnels from New Jersey to New York are broke, they are leaking, the subways in New York City, which continually break down because there was a hurricane a few years ago and the switches were made in the 1940s. The switches are 80 years old. They had water damage and the trains have to go at a crawl. But the city and state, because it is not collecting the real estate tax and other taxes and because ridership fell on the subways to about 20 percent, the city's broke. They're talking about 70 percent of city services being cut back. They're talking about cutting back the subways to 40 percent capacity, meaning everybody will have to get in -- when there's still a virus and not many people are wearing masks, and there was no means of enforcing masks here.

Blue Xs mark social distancing on the platform of a New York City subway station, May 2020. (Marc A. Hermann, MTA, Wikimedia Commons)

So, there's no way that you can rebuild the infrastructure because, for one thing the banking system here has subsidized for a hundred years junk economics saying you have to balance the budget. If the government creates credit it's inflationary as if when banks create credit, it's not inflationary. Well, the monetary effect is the same, no matter who creates the money. And so, Biden has already said that President Trump ran a big deficit, we're going to run a bunch of surpluses or a budget balance. And he was advocating that all along. Essentially Biden is saying we have to increase unemployment by 20 percent, lower wages by 20 percent, shrink the economy by about 10 percent in order to, in order for the banks not to lose money.

"You're going to price the American economy even further out of business because they say that public investment is socialism."

And, we're going to privatize but we are going to do it by selling the hospitals, the schools, the parks, the transportation to finance, to Wall Street finance capital groups. And so, you can imagine what's going to happen if the Wall Street groups buy the infrastructure. They'll do what happened to Chicago when it sold all the parking meters, they'll say, OK, instead of 25 cents an hour, it's now charged $3 an hour. Instead of a $2 for the subway, let's make it $8.

You're going to price the American economy even further out of business because they say that public investment is socialism. Well, it's not socialism. It's industrial capitalism. It's industrialization, that's basic economics. The idea of what, and how an economy works is so twisted academically that it's the antithesis of what Adam Smith, John Stewart Mill and Marx all talked about. For them a free- market economy was an economy free of rentiers. Free of rent, it didn't have any rent seeking. But now for the Americans, a free-market economy is free for the rentiers, free for the landlord, free for the banks to make a killing. And that is basically the class war back in business with a vengeance. That blocks and is preventing any kind infrastructure recovery. I don't see how it can possibly take place.

Pepe: Well, based on what you just described, there is a process of turning the United States into a giant Brazil. In fact, this is what the Brazilian Finance Minister Paulo Guedes, a Pinochetista, as you know Michael, has been doing with the Brazilian economy for the past two years, privatizing everything and selling everything to big Brazilian interests and with lots of Wall Street interests involved as well. So, this is a recipe that goes all across the Global South as well. And it's fully copied all across the Global South with no way out now.

Michael: Yes, and this is promoted by the World Bank and the International Monetary Fund. And when I was brought down to Brazil to meet with the council of economic advisers under Lula, [Luiz Inácio Lula da Silva, former president of Brazil], they said, well the whole problem is that Lula's been obliged to let the banks do the planning.

So, basically free markets and libertarianism is adopting central planning, but with central planning by the banks. America is a much more centrally planned economy than China. China is letting a hundred flowers bloom; America has concentrated the planning and the resource allocation in Wall Street. And that's the central planning that is much more corrosive than any government planning, could be. Now the irony is that China's sending its students to America to study economics. And, most of the Chinese I had talked to say, well we went to America to take economics courses because that gives us a prestige here in China.

I'm working now, with Chinese groups trying to develop a "reality economics" to be taught in China as different from American economics.

"America has concentrated the planning and the resource allocation in Wall Street. And that's the central planning that is much more corrosive than any government planning, could be."

Pepe: Exactly, because of what they study at Beijing University, Renmin or Tsinghua

is not exactly what they would study in big American universities. Probably what they study in the U.S. is what not to do in China. When they go back to China, what they won't be doing. It's an object lesson for what to avoid.

Michael, I'd like to go back to what the BRICS [Brazil, Russia, India, China and South Africa] had been discussing in the 2000s when Lula was still president of Brazil and many of his ideas deeply impressed, especially Hu Jintao at the time, which is bypassing the U.S. dollar. Well, at the moment obviously we're still at 87 percent of international transactions still in U.S. dollars. So, we are very far away from it, but if you have a truly sovereign economy, which is the case of China, which we can say is the case of Russia to a certain extent and obviously in a completely different framework, Iran. Iran is a completely sovereign, independent economy from the West. The only way to try to develop different mechanisms to not fall into the rentier mind space would be to bypass the U.S. dollar.

Occupy Wall Street picket of HSBC, midtown Manhattan; Feb. 14, 2013. (Michael Fleshman Via Flickr)

Michael: Yes, for many reasons. For one thing the United States can simply print the dollars and lend to other countries and then say, now you have to pay us interest. Well, Russia doesn't need American dollars. It can print its own rubles to provide labor. There's no need for a foreign currency at all for domestic spending, the only reason you would have to borrow a foreign currency is to balance your exchange rate, or to finance a trade deficit. But China doesn't have a trade deficit. And in fact, if China were to work to accept more dollars, Americans would love to buy into the Chinese market and make a profit there, but that would push up China's exchange rate and that would make it more difficult for her to make its exports because the exchange rate would come up not because it's exporting more but because it's letting American dollars come in and push it up.

Well, fortunately, President Trump as if he works for the Chinese National Committee, said, look, we don't want to really hurt China by pushing up its currency and we want to keep it competitive. So, I'm going to prevent American companies from lending money to China, I'm going to isolate it and so he's helping them protect their economy. And in Russia he said, look Russia really needs to feed itself. And, there's a real danger that when the Democrats come in, there are a lot of anti-Russians in the Biden administration. They may go to war. They may do to Russia what they tried to do to China in the '50s. Stop exporting food and grain. And only Canada was able to break the embargo. So, we're going to impose sanctions on Russia. So immediately, what happened is Russia very quickly became the largest grain exporter in the world. And instead of importing cheese from the Baltics, it created its own cheese industry. So, Trump said look, I know that Russians followed the American idea of not having protective tariffs, they need protective tariffs. They're not doing it. We're going to help them out by just not importing from them and really helping them.

Pepe: Yeah. Michael, what do you think Black Rock wants from the Chinese? You know that they are making a few inroads at the highest levels? Of course, I'm sure you're aware of that. And also, JP Morgan, Citybank, etc. What do they really want?

Michael: They'd like to be able to create dollars to begin to buy and make loans to real estate; let companies grow, let the real estate market grow and make capital gains.

The way people get wealthy today isn't by making an income, it's been by making a capital gain. Total returns are current income plus the capital gains. As for capital gains each year; the land value gains alone are larger than the whole GDP growth from year to year. So that's where the money is, that's where the wealth is. So, they are after speculative capital gains, they would like to push money into the Chinese stock market and real estate market. See the prices go up and then inflate the prices by buying in and then sell out at the high price. Pull the money out, get a capital gain and let the economy crash, I mean that's the business plan.

Pepe: Exactly. But Beijing will never allow that.

Michael: Well, here's the problem right now, they know that Biden is pushing militarily aggressive people in his cabinet. There's one kind of overhead that China is really trying to avoid and that's the military overhead because if you spend money on the military, you can't spend it on the real economy. They're very worried about the military and they say, how do we deter the Biden administration from actually trying a military adventure in the South China Sea or elsewhere? They said well, fortunately America is multi-layered. They don't think of America as a group. They realize there's a layer and they say, who's going to represent our interests?

"There's one kind of overhead that China is really trying to avoid and that's the military overhead because if you spend money on the military, you can't spend it on the real economy."

Well, Blackstone and Wall Street are going to represent their interests. Then I think one of the, Chinese officials last week gave a big speech on this very thing, saying look, our best hope in stopping America's military adventurism in China is to have Wall Street acting as our support because after all, Wall Street is the main campaign contributor and the president works for the campaign contributors.

The politician works for the campaign contributors. They're in it for the money! So fortunately, we have Wall Street on our side, we've got control of the political system and they're not there to go to war so that helps explain why a month ago they let wholly-owned U.S. banks and bankers in. On the one hand, they don't like the idea of somebody outside the government creating credit for reasons that the economy doesn't need. If they needed it, the Bank of China would do it. They have no need for foreign currency to come in to make loans in domestic currency, out of China.

The only reason that they could do it is No. 1, it helps meet the World Trade Organization's principles and, No. 2, especially during this formative few months of the Biden administration, it helps to have Wall Street saying; we can make a fortune in China, go easy on them and that essentially counters the military hawks in Washington.

Pepe: So, do you foresee a scenario when Black Rock starts wreaking havoc in the Shanghai stock exchange for instance?

Wall Street, Nov. 21, 2009. (Dave Center, Flickr)

Michael: It would love to do that. It would love to move things up and down. The money's made by companies with the stock market going up and down; the zigzag. So of course, it wants to do a predatory zigzag. The question is whether China will impose a tax to stop this, all sorts of financial transactions. That's what's under discussion now. They know exactly what Black Rock wants to do because they have some very savvy billionaire Chinese advisers that are quite good. I can tell you stories, but I better not.

Pepe: Okay. If it's not okay to tell it all, tell us part of the story then.

Michael: The American banks have been cultivating leading Chinese people by providing them enough money to make money here, that they think that, okay they will now try to make money in the same way in China and we can join in. It's a conflict of systems again, between the finance capital system and industrial socialism. You don't get any of this discussion in the U.S. press, which is why I read what you write because in the U.S. press, the neocons talk about the fake idea of Greek history and fake idea of the Thucydides' problem of a country jealous of another country's development.

There's no jealousy between America and China. They're different, they have their own way. We are going to destroy them. And if you look at the analogy that the Americans draw -- and this is how the Pentagon thinks -- with the war between Athens and Sparta. It's hard to tell, which is which. Here you have Athens, a democracy backing other democracies and having the military support of the democracies and the military in these democracies all had to pay Athens protection money for the military support and that's the money that Athens got to ostensibly support its navy and protection that built up all of the Athenian public buildings and everything else. So, that's a democracy exploiting its allies, to enrich itself via the military. Then you have Sparta, which was funding all of the oligarchies, and it was helping the oligarchies overthrow democracies. Well, that was America too. So, America is both sides of the Thucydides war if the democracy is exploiting the fellow democracies and is the supporter of oligarchies in Brazil, Latin America, Africa and everyone else.

So, you could say the Thucydides problem was between two sides, two aspects of America and has nothing to do with China at all except, for the fact that the whole war was a war between economic systems. They're acting as if somehow if only China did not export to us, we could be re-industrialized and somehow export to Europe and the Third World.

And as you and I have described, it's over. We painted ourselves into such a debt corner that without writing down the debts, we're in the same position that the Eurozone is in. There's so much money that goes to the creditors to the top 1 percent or 5 percent that there is no money for capital investment, there is no money for growth. And, since 1980 as you know, real wages in America have been stable. All the growth has been in property owners and predators and the FIRE sector, the rest of the economy is in stagnation. And now the coronavirus has simply acted as a catalyst to make it very clear that the game is over; it's time to move away from the homeowner economy to rentier economy, time for Blackstone to be the landlord. America wants to recreate the British landlord class and essentially what we're seeing now is like the Norman invasion of England taking over the land and the infrastructure. That's what Blackstone would love to do in China.

"There's so much money that goes to the creditors to the top 1 percent or 5 percent that there is no money for capital investment, there is no money for growth."

Pepe: Wow. I'm afraid that they may have a lot of leeway by some members of the Beijing leadership now, because as you know very well, it's not a consensus in the political arena.

Michael: We're talking about Volume II and III of Capital .

Pepe: Exactly. But you know, you were talking about debt. Coming back to that, in fact I just checked this morning, apparently global debt as it stands today is $277 trillion, which is something like 365 percent of global GDP. What does that mean in practice?

Michael: Yeah, well fortunately this is discussed in the 19th century and there was a word for that -- fictitious capital -- it's a debt that can't be paid, but you'll keep it on the books anyway. And every country has this. You could say the question now, and The Financial Times just had an article a few days ago that China's claims on Third World countries on the Belt and Road Initiative is fictitious capital, because how can it collect?

Well, China's already thought of that. It doesn't want money. It wants the raw materials. It wants to be paid in real things. But a debt that can't be paid, can only be paid either by foreclosing on the debtors or by writing down the debts and obviously a debt that can't be paid won't be paid.

"Fictitious capital -- it's a debt that can't be paid, but you'll keep it on the books anyway. And every country has this."

And so, you have not only Marx using the word fictitious capital. At the other end of the spectrum, you had Henry George talking about fictive capital. In other words, these are property claims that have no real capital behind them. There's no capital that makes profit. That's just a property claim for payment or a rentier claim for payment.

So, the question is, can you make money somehow without having any production at all, without having wages, without having profits, without any capital? Can you just have asset grabbing and buying-and-selling assets? And as long as you have the Federal Reserve in America, come in, Trump's $10 trillion Covid program gave $2 trillion to the population at large with these $1,200 checks, that my wife and I got, and $8 trillion all just to buy stocks and bonds. None of this was to build infrastructure. None of this $8 trillion was to build a single factory. None of this 8 trillion was to employee a single worker. It was all just to support the prices of stocks and bonds, and to keep the illusion that the economy had not stopped growing. Well, it's growing for the 5 percent. So, it's all become fictitious. And if you look at the GDP as I said, it's fictitious.

Pepe: And the most extraordinary thing is none of that is discussed in American media. There's not a single word about what you would have been describing.

Michael: It's not even discussed in academia. Our graduates at the university of Missouri at Kansas City, we're all trained in Modern Monetary Theory. And as hired professors they have to be able to publish in the refereed journals and the refereed journals are all essentially controlled by the Chicago School. So, you have a censorship of the kind of ideas that we're talking about. You can't get it into the economic journals, so you can't get it into the economics curriculum. So, where on earth are you going to get it? If you didn't have the internet you wouldn't be discussing at all. Most of my books sell mainly in China, more than in all the other countries put together so I can discuss these things there. I stopped publishing in orthodox journals so many years ago because it's talking to the deaf.

"None of this $8 trillion was to build a single factory, employee, a single worker."

Pepe: Absolutely. Yeah. Can I ask you a question about Russia, Michael? There is a raging, debate in Russia for many years now between let's say the Eurasianists and the Atlanticists. It involves of course, economic policy under Putin, industrial capitalism Russian style. The Eurasianists basically say that the central problem with Russia is how the Russian central bank is basically affiliated with all the mechanisms that you know so well, that it is an Atlanticist Trojan Horse inside the Russian economy. How do you see it?

Michael: Russia was brainwashed by the West when the Soviet Union broke up in 1991 . First of all, the IMF announced in advance that there was a big meeting in Houston with the IMF and the World Bank. And the IMF published all of its report saying, first you don't want inflation in Russia so let's wipe out all of the Russian savings with hyperinflation, which they did. They then said, well now to cure the hyperinflation the Russian central bank needs a stable currency and you need a backup for the currency. You will need to back it with U.S. dollars.

"Russia was brainwashed by the West when the Soviet Union broke up in 1991."

So, from the early 1990s, as you know, labor was going unpaid. The Russian central bank could have created the rubles to pay the domestic labor and to keep the factories in place. But, the IMF advisers from Harvard said, no you'll have to borrow U.S. dollars. I met with people from the Hermitage Fund and the Renaissance Fund and others. We had meetings and I met with the investors. Russia was paying 100 percent interest for years to leading American financial institutions for money that it didn't need and could have created itself. Russia was so dispirited with Stalinism that, essentially, it thought the opposite of Stalinism must be what they have in America.

They thought that America was going to tell it how America got rich, but America didn't want to tell Russia how it got rich, but instead wanted to make money off Russia. They didn't get it. They trusted the Americans. They really didn't understand that, industrial capitalism that Marx described had metamorphosized into finance capitalism and was completely different.

And that's because Russia didn't charge rent, it didn't charge interest. I gave three speeches before the Duma, urging it to impose a land tax. Some of the people I noticed, Ed Dodson was there with us and we were all trying to convince Russia, don't let this land be privatized. If you let it be privatized, then you're going to have such high rents and housing costs in Russia that you're not going to be able to essentially compete for an industrial growth. Well, the politician who brought us there, Viatcheslav Zolensky was sort of maneuvered out of the election by the American advisers.

Russian Duma Building, Moscow, 2017. (Wikimedia Commons)

The Americans put billions of dollars in to essentially finance American propagandists to destroy Russia, mainly from the Harvard Institute of International Development. And essentially, they were a bunch of gangsters and the prosecutors in Boston were about to prosecute them.

The attorney general of Boston was going to bring a big case for Harvard against the looting of Russia and the corruption of Russia. And I was asked to organize and to bring a number of Russian politicians and industrialists over to say how this destroyed everything. Well, Harvard settled out of court and essentially that made the perpetrators the leading university people up there. (I'm associated with Harvard Anthropology Department, not the Economics Department.)

So, we never had a chance to bring my witnesses, and have our report on what happened, but I published for the Russian Academy of Sciences a long study of how all of this destruction of Russia was laid out in advance at the Houston meetings by the IMF. America went to the leading bureaucrats and said; look, we can make you rich why don't you register the factories in your own name, and if you're registered in your own name, you know, then you'll own it. And then you can cash out. You can essentially sell, but obviously you can't sell to the Russians because the IMF has just wiped out all of their savings.

You can only cash out by selling to the West. And so, the Russian stock market became the leading stock market in the world from 1994 with the Norilsk Nickel and the seven bankers in the bank loans for shares deal through 1997. And, I had worked for a firm Scutter Stevens and, the head adviser, a former student of mine didn't want to invest in Russia because she said, this is just a rip off, it's going to crash. She was fired for not investing. They said look, we know that's going to crash. That's the whole idea it's going to crash. We can make a mint off it before the crash. And then when it crashes, we can make another mint by selling short and then all over again . Well, the problem is that the system that was put in with the privatization that's occurred, how do you have Russia's wealth used to develop its own industry and its own economy like China was doing. Well, China has rules for all of this, but Russia doesn't have rules, it's really all centralized, it's President Putin that keeps it this way.

President Vladimir Putin meeting with German business executives, Nov. 1, 2018. (The Kremlin)

Well, this was the great fear of the West. When you had Mikhail Gorbachev beginning to plan to do pretty much what is done today, to restrain private capital, the IMF said hold off. We're not going to make any loans to stabilize the Russian currency until you remove Mr. Primakov.

The U.S. said we won't deal with Russia until you remove him. So, he was pushed out and he was probably the smartest guy at the time there. So, they thought [President Vladimir] Putin was going to be sort of the patsy. And he almost single-handedly, holding the oligarchs in and saying, look, you can keep your money as long as you do exactly what the government would do. You can keep the gains as long as you're serving the public interest.

But none of this resulted into a legal system, a tax system, and a system where the government actually does get most of the benefits. Russia could have emerged in 1990 as one the most competitive economies in Eurasia by giving all of the houses to its people instead of giving Norilsk Nickel and the oil companies to Yukos. It could have given everybody their own house and their own apartment, the same thing in the Baltics. And instead it didn't give the land out to the people. And Russians were paying 3 percent of their income for housing in 1990. And rent is the largest element in every household's budget.

"Russia could have emerged in 1990 as one the most competitive economies in Eurasia by giving all of the houses to its people."

So, Russia could have had low-price labor. It could have financed all of its capital investment for the government by taxing, collecting the rising rental value. Instead, Russian real estate was privatized on credit and it was even worse in the Baltics.

In Latvia, where I was research director for the Riga Graduate School of Law, Latvia borrowed primarily from Swedish banks. And so, in order to buy a house, you had to borrow from Swedish banks. And they said, well, we're not going to lend in the Latvian currency because it can go down. So, you have a choice; Swiss Francs or German Marks or U.S. Dollars. And so, all of this rent was paid in foreign currency. There came an outflow that essentially drained all the Baltic economies. Latvia lost 20 percent of its population. Estonia and Lithuania followed suit.

And of course, the worst hit by neo-liberalism was Russia. As you know, President Putin said that neo-liberalism cost Russia more of its population than World War II. And you know that to destroy a country, you don't need an army anymore. All you have to do is teach it American economics.

Pepe: Yes, I remember well, I arrived in Russia in the winter of 91 coming from China. So, I transited from the Chinese miracle. In fact, a few days after Deng Xiaoping's famous Southern tour when he went to Guangzhou and Shenzhen. And that was the kick for the 1990s boom, in fact a few years before the handover, and then I took the Trans-Siberian and I arrived in Moscow a few days after the end, in fact, a few weeks after the end of the Soviet Union.

But yeah, I remember the Americans arrived almost at the exact minute, wasn't it, Michael? I think they already were there in the spring of 1992. If I'm not mistaken.

Russian 1992 privatization voucher. (Wikimedia Commons)

Michael: The Houston meeting was in 1990. But all before that already in, 1988 and 1989, there was a huge outflow of embezzlement money via Latvia. The assistant dean of the university who ended up creating Nordex, essentially the money was all flying out because Ventspils in Latvia, was where Russian oil was exported and it was all fake invoicing. So, the Russian kleptocrats basically made their money off false export invoicing, ostensibly selling it for one price and having the rest paid abroad and, this was all organized through Latvia and the man who did it later moved to Israel and finally gave a billion dollars back to Russia so that he went on to live safely for the rest of his life in Israel.

Pepe: Well, the crash of the ruble in 1998 was what, roughly one year after the crash of the baht and the whole Asian financial crisis, no? It was interlinked of course, but let me see if I have a question for you, in fact, I'm just thinking out loud now. If the economies of Southeast Asia and Northeast Asia, the case of South Korea and Russia, were more integrated at the time as they are trying to integrate now, do you think that the Asian financial crisis would have been preventable in 1997?

Michael: Well, look at what happened in Malaysia with Mohammad Mahathir. Malaysia avoided it. So of course, it was preventable, and they had the capital controls. All you would have needed was to do what Malaysia did. But you needed an economic theory for that.

And essentially the current mode of warfare is to conquer the brains of a country to shape how people think and how they perceive the economy. And if you can twist their view into an unreality economics, where they think that you're there to help them not to take money out of them, then you've got them hooked. That was what happened in Asia. Asia thought it was getting rich off the dollars inflows and then the IMF and all the creditors pulled the plug, crash the industry. And now that all of a sudden you had a crash, they bought up Korean industry and other South Asian industries at giveaway prices.

That's what you do. You lend the money; you pull the plug. You then let them go under and you pick up the pieces . That's what Blackstone did after the Obama depression began, when Obama saved the banks, not the constituency, the mortgage borrowers. Essentially that's Blackstone's modus operandi to pick up distressed prices at a bankruptcy sale, but you need to lend money and then crash it in order to make that work.

Pepe: Michael, I think we have only five minutes left. So, I would expect you to go on a relatively long answer and I'm really dying for it. It's about debt, it about the debt trap. And it's about the New Silk Roads, the Belt and Road Initiative, because I think rounding up our discussion and coming back to the theme of debt and global debt.

The No. 1 criticism apart from the demonization of China that you hear from American media and a few American academics as well against the Belt and Road is that it's creating a debt trap for Southeast Asian nations, Central Asian nations and nations in Africa, etc . Obviously, I expect you to debunk that, but the framework is there is no other global development project as extensive and as complex as Belt and Road, which as you know very well was initially dreamed up by the Ministry of Commerce. Then they sold it more or less to Xi Jinping who got the geopolitical stamp on it, announcing it, simultaneously, (which was a stroke of genius) in Central Asia in Astana and then in Southeast Asia in Jakarta. So, he was announcing the overland corridors through the heartland and the Maritime Silk Road at the same time.

At the time people didn't see the reach and depth of all that. And now of course, finally the Trump administration woke up and saw what was in play, not only across Eurasia but reaching Africa and even selected parts of Latin America as well. And obviously the only sort of criticism, and it's not even a fact-based criticism, that I've seen about the Belt and Road is it's creating a debt trap because as you know Laos is indebted, Sri Lanka is indebted, Kyrgyzstan is indebted etc. So, how do you view Belt and Road within the large framework of the West and China, East Asia and Eurasia relations? And how would you debunk misconceptions created, especially in the U S that this is a debt trap.

Six proposed corridors of Belt and Road Initiative, showing Italy inside circle, on maritime blue route. (Lommes, CC BY-SA 4.0, Wikimedia Commons)

Michael: There are two points to answer there. The first is how the Belt and Road began. And as you pointed out, the Belt and Road began, when China said, what is it we need to grow and how do we grow within our neighboring countries so we don't have to depend upon the West, and we don't have to depend on sea trade that can be shut down? How do we get to roads instead of seas in a way that we can integrate our economy with the neighboring economies so that there can be mutual growth?

So, this was done pretty much on industrial engineering grounds. Here's where you need the roads and the railroads. And then how do we finance it? Well, The Financial Times article, last week, said didn't the Chinese know that [with past] railroad development, they've all gone broke? The Panama Canal went broke, you know, the first few times there were European railway investment in Latin America in the 19th century, that all went broke.

Well, what they don't get is China's aim was not to make a profit off the railroads. The railroads were built to be part of the economy. They don't want to make profit. It was to make the real economy grow, not to make profits for the owners of the railroad stocks. The Western press can't imagine that you're building a railroad without trying to make money out of it.

Then you get to the debt issue. Countries only have a debt crisis if their debt is in a foreign currency. The first way that the United States gained power was to fight against its allies. The great enemy of America was England and it made the British block their currency in the 1940s. And so, India and other countries, that had all these currencies holdings in sterling, were able to convert it all into dollars.

The whole move of the U.S. was to denominate world debt in dollars. So that No. 1, U.S. banks would end up with the interest in financing the debt. And No. 2, the United States could, by using the debt leverage, control domestic politics.

Well, as you're seeing right now in Argentina, for instance, Argentina is broke because it owes foreign-dollar debt. When I started the first Third World bond fund in 1990 at Scutter Stevens, Brazil and China and Argentina were paying 45 percent interest per year, 45 percent per year in dollars debt. Yet we tried to sell them in America. No American would buy. We went to Europe, no European buy this debt. And so, we worked with Merrill Lynch and Merrill Lynch was able to make an offshore fund in the Dutch West Indies and all of the debt was sold to the Brazilian ruling class in the central bank and the Argentinian bankers in the ruling class, we thought oh, that's wonderful.

We know that they're going to pay the foreign Yankee Dollars debt because the Yankee Dollars debt is owed to themselves. They're the Yankees! They're the client oligarchy. And you know, from Brazil client oligarchy is, you know, they're cosmopolitan, that's the word. So, the problem is that on the Belt and Road, how did these other countries pay the debt to China?

Well, the key there again is the de-dollarization, and one way to solve it is since we're trying to get finance out of the picture, we're doing something very much like, Japan did with Canada in the 1960s. It made loans to develop Canadian copper mines taking its payment, not in Canadian dollars, that would have pushed up the yen's exchange rate, but in copper.

So, China says, you know you don't have to pay currency for this debt. We didn't build a railroad to make a profit and you want, we can print all the currency we want. We don't need to make a profit. We made the Belt and Road because it's part of our geopolitical attempt to create what we need to be prosperous and have a prosperous region. So, these are self-reinforcing mutual gain. Well, so that's what the West doesn't get -- mutual gain? Are we talking anthropology? What do you mean mutual? This is capitalism! So, the West doesn't understand what the original aim of the Belt and Road was, and it wasn't to make a profitable railroad to enable people to buy and sell railway stocks. And it wasn't to make toll roads to sell off to Goldman Sachs, you know. We're dealing with two different economic systems, and it's very hard for one system to understand the other system because of the tunnel vision that you get when you get a degree in economics.

"We're dealing with two different economic systems, and it's very hard for one system to understand the other system because of the tunnel vision that you get when you get a degree in economics."

Pepe: Belt and Road loans are long-term and at very low interest and they are renegotiable. They are renegotiating with the Pakistanis all the time for instance.

Michael: China's intention is not to repeat an Asia crisis of 1997. It doesn't gain anything by forcing a crisis because it's not trying to come in and buying property at a discount at a distressed sale. It has no desire to create a distressed sale. So obviously, the idea is the capacity to pay. Now, this whole argument occurred in the 1920s, between [John Maynard] Keynes and his opponents that wanted to collect German reparations and, Keynes made it very clear. What is the capacity to pay? It's the ability to export and the ability to obtain foreign currency. Well, China's not looking for foreign currency. It is looking for economic returns but the return is to the whole society, the return isn't from a railroad. The return is for the entire economy because it's looking at the economy as a system.

The way that neoliberalism works, it divides the economy in parts, and it makes every part trying to make a gain, and if you do that, then you don't have any infrastructure that's lowering the cost for the other parts. You have every part fighting for itself. You don't look at in terms of a system the way China's looking at it. That's the great advantage of Marxism, you'll look at the system, not just the parts.

Pepe: Exactly and this is at the heart of the Chinese concept of a community with a shared future for mankind, which is the approximate translation from Mandarin. So, we compare community with a shared future for mankind, which is, let's say the driving force between the idea of Belt and Road, expanded across Eurasia, Africa and Latin America as well with our good old friends', "greed is good" concept from the eighties, which is still ruling America apparently.

Michael: And the corollary is that non-greed is bad.

Pepe: Exactly and non-greed is evil.

Michael: I see. I think we ran out of time. I do. I don't know if Alanna wants to step in to wrap it up.

Michael: There may be somebody who has a question.

Pepe: Somebody has a question? That'll be fantastic.

Alanna: There is a question from Ed Dodson. He wanted to know why there are these ghost cities in China? And who's financing all this real estate that's developed, but nobody's living there? We've all been hearing about that. So, what is happening with that?

Michael: Okay. China had most of its population living in the countryside and it made many deals with Chinese landholders who have land rights, and they said, if you will give up your land right to the community, we will give you free apartment in the city that you could rent out.

So, China has been building apartments in cities and trading these basically in exchange to support what used to be called a rural exodus. China doesn't need as many farmers on the land as it now has, and the question is how are you going to get them into cities? So, China began building these cities and many of these apartments are owned by people who've got them in exchange for trading their land rights. The deals are part of the rural reconstruction program.

Alanna: Do you think it was a good deal? Vacant apartments everywhere.

Pepe: You don't have ghost cities in Xinjiang for instance, Xinjiang is under-populated, it's mostly desert. And it's extremely sensitive to relocate people to Xinjiang. So basically, they concentrated on expanding Urumqi. When you arrive in Urumqi it is like almost like arriving in, Guangzhou. It's enormous. It's a huge generic city in the middle of the desert. And it's also a high-tech Mecca, which is something that very few people in the West know. And is the direct link between the eastern seaboard via Belt and Road to Central Asia.

Pepe Escobar at the Khunjerab pass, China-Pak border, on New Silk Road overdrive.

Last year I was on an amazing trip. I went to the three borders, the Tajik-Xinjiang border, Kyrgiz-Xinjiang border and the Kazakh-Xinjiang border, which is three borders in one. It's a fascinating area to explore and specially to talk to the local populations, the Kyrgiz, the Kazakhs and the Tajiks. How do they see the Belt and Road directly affecting their lives from now on? So, you don't see something spectacular for instance, in the Xinjiang – Kazakh boarder, there is one border for the trucks, lots of them like in Europe, crossing from all points, from Central Asia to China and bringing Chinese merchandise to Central Asia.

There's the train border, which is a very simple two tracks and the pedestrian border, which is very funny because you have people arriving in buses from all parts of Central Asia. They stop on the Kazakh border. They take a shuttle, they clear customs for one day, they go to a series of shopping malls on the Chinese side of the border. They buy like crazy, shop till it drops, I don't know for 12 hours? And then they cross back the same day because the visa is for one day. They step on their buses and they go back.

So, for the moment it's sort of a pedestrian form of Belt and Road, but in the future, we're going to have high-speed rail. We're going to have, well the pipelines are already there as Michael knows, but it's fascinating to see on the spot. You see the closer integration; you see for instance Uyghurs traveling back and forth. You know, Uyghurs that have families in Kyrgizstan for instance, I met some Uyghurs in Kyrgyzstan who do the back-and-forth all the time. And they said, there's no problem. They are seen as businessmen so there's no interference. There are no concentration camps involved, you know, but you have to go to these places to see how it works on the ground and with Covid, that's the problem for us journalists who travel, because for one year we cannot go anywhere and Xinjiang was on my travel list this year, Afghanistan as well, Mongolia.

These are all parts of Belt and Road or future parts of Belt and Road, like Afghanistan. The Chinese and the Russians as well; they want to bring Afghanistan in a peace process organized by Asians themselves without the United States, within the Shanghai Cooperation Organization, because they want Afghanistan to be part of the intersection of Belt and Road and Eurasian Economic Union. This is something Michael knows very well. You don't see this kind of discussions in the American media for instance, integration of Eurasia on the ground, how it's actually happening.

Michael : That's called cognitive dissonance.

Alanna: To try to understand it gets you cognitive dissonance.

Pepe: Oh yeah, of course. And obviously you are a Chinese agent, a Russian agent. And so, I hear that all the time. Well, in our jobs we hear that all the time. Especially, unfortunately from our American friends.

Alanna: Okay. I know you have other things to do. This has been fabulous. I want to thank you so much, both of you, uh, with so easy to get attendance for this webinar. There were 20 people in five minutes enrolled and in two days we were at capacity. So, I know there are many more people who would love to hear you talk another time, whenever you two are so willing. And I think you both got much out of your first conversation in person. Everybody listening knows these two wonderful gentlemen, they have written more than 10 books, and they have traveled all over the world. They are on the top of geopolitical and geoeconomic analysis, and they are caring, loving people. So, you can see that these are the people we need to be listening to and understanding all around the world.

So, thank you so much. Ibrahima Drame from the Henry George School is now going to say goodbye to you and will wrap this up. Thank you again.

Pepe: Michael it was a huge pleasure. Really, it was fantastic. Really nice, we're on the same website. So, let's have a second version of this.

Ibrahima: So, let's have a second version of this two months from now. Thank you very much for participating and I really hope you liked this event. And, we also want to ask for your support by making a tax-deductible donation to the Henry George School. I believe I shared the link on the chat. Thank you. And see you soon.

Pepe: Thank you very much. Thanks Michael. Bye!

Michael Hudson is an American economist professor of economics at the university of Missouri Kansas City and a researcher at the Levy Economics Institute at Bard College. He's a former Wall Street analyst political consultant commentator and journalist. He identifies himself as a classical economist. Michael is the author of J is for Junk Economics, Killing the Host, The Bubble and Beyond, Super Imperialism: The Economic Strategy of American Empire, Trade Development and Foreign Debt and The Myth of Aid , among others. His books have been published translated into Japanese, Chinese, German, Spanish and Russian.

Pepe Escobar, born in Brazil, is a correspondent and editor-at-large at Asia Times and columnist for Consortium News and Strategic Culture in Moscow. Since the mid-1980s he's lived and worked as a foreign correspondent in London, Paris, Milan, Los Angeles, Singapore, Bangkok. He has extensively covered Pakistan, Afghanistan and Central Asia to China, Iran, Iraq and the wider Middle East. Pepe is the author of Globalistan – How the Globalized World is Dissolving into Liquid War;Red Zone Blues: A Snapshot of Baghdad during the Surge . He was contributing editor to The Empire and The Crescent and Tutto in Vendita in Italy. His last two books are Empire of Chaos and 2030 . Pepe is also associated with the Paris-based European Academy of Geopolitics. When not on the road he lives between Paris and Bangkok.

[Jan 11, 2021] The Transnational Financiers, who control the Federal Reserve, Wall Street, the Federal Reserve, the military industrial complex, Silicon Valley, Academia, Education, think tanks, politicians plus political parties, don't care about the US

Jan 11, 2021 | thesaker.is

Brianborou on January 08, 2021 , · at 4:00 am EST/EDT

Unfortunately, the deeper point is being missed. The Transnational Financiers, who control the Federal Reserve, Wall Street, the Federal Reserve, the military industrial complex, Silicon Valley, Academia, Education, think tanks, politicians plus political parties, don't care about the US of the Western world. Their goal is a NWO as described by the insider Professor Carol Quigley's book, Tragedy and Hope. Rule by a small nucleus of central bankers ie The Bank of International Settlements and controlled via technocrats. They have no allegiance to countries, nations, ideology but themselves. Paul is spot on one point it's not democrat via republican or left via right but them against the rest of humanity!

Ken Leslie on January 08, 2021 , · at 4:48 am EST/EDT

What is noticeable here is a bit of a contrast between those who live in the US and those who don't. The former group is naturally very attached to the country and are getting very emotional over its fate. This is understandable but not defensible. The United States has no right to a divine appeal or special treatment. It is a witch's cauldron into which the poor and benighted of the world were thrown only to be turned into tormentors of others by means of some strange black alchemy. We are now witnessing the weakening of the spell and awakening of the enchanted masses.

The exhibition of high emotion doesn't seem appropriate here because simply, there is nothing to mourn. The golden 1950s? That was a fluke based entirely on the outcome of WWII – the world had been devastated, the US cocooned and protected – and it gave us the Dulles brothers. 1960s and 1970s? A conservative's nightmare – legions of long-haired parasites, jangly guitars, LSD, womens' lib and the ultimate humiliation of NAM!

So when was this golden age? Under Reagan? Well, this is when the dismantling of the inner core of the empire began. Would Dr Roberts still advocate Reaganomics and dark cold war threats combined with the destruction of the American working class?

In the end, a number of people have remarked that after decades of ballooning into a malignant quasi-empire, the US is painfully finding its true level. The "rebellion" being discussed here was a farce (as confirmed by the stock market) and these are just dummy moves orchestrated to placate the proles (look, this is just the beginning – since 2016).

Dr Roberts confirms something I said yesterday – what kind of rebellion is possible in a country with two dozen super-endowed and powerful spying organisations and a super well-armed internal suppression apparatus? The libertarians over at ZH ask these questions – but the curse of the CIA is completely self-inflicted and richly deserved. One does not create a modern unholy inquisition and expect to be able to escape its tentacles.

People talk about hope and optimism. This is the view of an outsider who has been affected by American global criminality. There cannot be any hope or optimism for the USA until it fully renounces its collective psychopathy which has cost the world millions of lives and billions of dollars (not for long) in value.

[Jan 10, 2021] The best critique of Hudson's financialization thesis is provided by Michael Roberts, a retired Marxist economist:

Jan 10, 2021 | www.moonofalabama.org

Tichard , Jan 10 2021 18:25 utc | 29

https://thenextrecession.wordpress.com/2021/01/08/assa-2021-part-two-the-radical-answers/


[Nov 07, 2020] November 6, 2020 at 11:59 am

Notable quotes:
"... Banking in the hands of private interests is more dangerous than a standing army ..."
Nov 07, 2020 | www.nakedcapitalism.com

Another entirely succesfull election for the FIRE sector – they must have enjoyued the theater of it all – after they got Biden on the ticket – they knew – no matter which way the country voted that they had the election in the bag. They had the Smurfes fighting over the small stuff – to plan

You had Trump – a lifelongh con-man and preditor – physically and figuratively a self admitted ++++y grabber, a coward, spoiled rich-boy narssisist who used bone spurs to duck service and probably has not read or understands the constitution.

Then You had Biden – always a FIRE sector champion who come to run like he was fresh fished and landed doing a slimy fish dock dance.

Well the real fight for the future of democracy and the planet is sided between the creditor class and the rest of us Smurfs
Its the same fight going back thousands of years in hundreds of countries

Banking in the hands of private interests is more dangerous than a standing army

In my view – the fight is not between the Dems and Repubs – it is the People, freedom and Democracy against the Speculators, vested interests and Finance – who have demonstrated its contemp of People, the Planet and Democracy

Rudolf , November 6, 2020 at 2:08 pm

Plus 1. Nailed it.
Anyone who thinks that the single party system with 2 factions will provide anything for the 99% is an idiot. The repugnants/democraps, employees of the FIRE sector oligarchs, have been playing "good cops/bad cops" with middle class/working class forever. It's a tactic that's been used since "civilization " began. There was a time when the western world's dominant language was Latin. We know what happened there.

[Nov 02, 2020] The banks and another excellent write up at Wall Street on Parade.

Nov 02, 2020 | www.moonofalabama.org

uncle tungsten , Nov 1 2020 21:59 utc | 42

The banks and another excellent write up at Wall Street on Parade .

Again Ferdinand Pecora harking back to the 1930's as discussed in the past weeks commentaries:-

Wilmarth's writing is so insightful and profound in its analysis of the similarities between the banks of the late 1920s and today that it feels like the ghost of Ferdinand Pecora might have been whispering in Wilmarth's ear. Pecora was a former prosecutor from New York who was chosen to preside over much of the early 1930s Senate Banking hearings and investigations of the corrupt Wall Street structure that led to the 1929 crash and Great Depression.

Three banking names that played significant roles in the crash of 1929 and the ensuing Great Depression were National City Bank, JP Morgan, and Chase National Bank. National City Bank was the precursor to today's Citigroup, the bank that would have collapsed in 2008 except for the largest taxpayer and Federal Reserve bailout in global banking history. JPMorgan and Chase combined in 2000 to create today's JPMorgan Chase.

[Oct 05, 2020] Financialization The Road To Zero, Part 2- From Capitalism To Financialization -

Oct 05, 2020 | www.zerohedge.com

Financialization & The Road To Zero, Part 2: From Capitalism To Financialization


by Tyler Durden Sun, 10/04/2020 - 22:55 Twitter Facebook Reddit Email Print

Authored by 'ICE-9' via The Burning Platform blog,

This is Part 2 of a 4-part series.

Read Part 1 here...

...but 4,500 years of mercantilism were not going down without a fight. Fractional reserve banking had been steadily growing since the 14th century but was exclusively a private business affair unrelated to the state. These early fractional reserve "banks" began as safe stores for gold and silver but it did not take long for their unscrupulous owners to start speculating with their customers' deposits, thus the nascent fractional reserve nature of these deposits where redemption coupons in circulation outnumbered physical gold and silver held in "trust". After many rounds of speculative losses with other people's gold and silver, "banks" crashed, losses accumulated, and the Renaissance city states ultimately stepped in to ban this fractional reserve practice and re-enforce the Catholic prohibitions against usury. As a result, the early 16th century mercantile "banking" industry evolved into a transparent and audited business based upon fees received for the facilitation of foreign coin exchange, notary services, and the provision of letters of account credibility. With usury removed, the business of transparent and audited mercantile banking spread from Northern Italy throughout Western Europe and control of the banking industry transferred to Catholic and later, Protestant businessmen. So from 1585 to 1650 the golden age of transparent and audited mercantile banking laid the groundwork for the rise and exploitation of the Dutch and English colonial empires, and the success of mercantile banking also sowed the seeds for its eventual corruption by unscrupulous players in usury friendly Protestant England.

With the resurrection of the European super-state after centuries of dormancy, the various crowns found it increasingly difficult to secure funding to fight their continental wars of ego, secure their growing colonial empires, and fund their increasing opulence at home, so sovereigns began to form nascent "central banks" within their court administrations. These nascent "central banks" served the crown and the crown alone and existed as polite shake-down operations as wealthy subjects placed themselves in peril if they refused to lend their gold and silver despite high probability the sovereign would default as was his divine right. So after depleting the royal treasury during the Second Anglo-Dutch War, the English crown initiated a shakedown of the goldsmith bankers when Parliament passed The Great Stop of the Exchequer in 1672 which repudiated all outstanding loans and all but destroyed the English mercantile banking system. What gold and silver was left to the Exchequer immediately went to use in prosecuting both the Third Anglo-Dutch War and the Franco-Dutch War, which by 1678 left the Exchequer in such dire financial circumstances that it put national security at serious risk. A funding void followed where loans to the crown in gold and silver were nearly impossible to secure, so a first attempt at pure fiat money promoted as "legal tender" followed without success. Then in 1685 Charles II died and the Catholic James II ascended the throne putting usury and national finances at risk of eliminating any recourse at replenishing the depleted Exchequer. So under cover of religion, the Catholic king's authority was nullified, his Protestant daughter ascended the throne, usury was preserved, and Parliament with its powers to raise funds acquired legal supremacy over the crown.

With a weakened monarchy, new relative strength in Parliament, and a depleted Exchequer, Parliament pulled itself together and got to work and, once lingering legal succession issues surrounding James II were resolved, it passed the Bank of England Act of 1694. The overt exigencies in this act were related to funding the new war with France and controlling rebellion in Ireland. But the act also replaced the old rarely used pure fiat money of Charles II with bills redeemable in gold which also paid interest to their holders. Thus usury was legally preserved by an act of Parliament which a weakened future potentially Catholic monarch could not overturn. These bills backed with gold gained in popularity and filled the Exchequer's immediate funding gap and allowed England to continue prosecuting its wars against the Dutch. For a brief eleven years, from 1696-1707, England had returned to sound mercantile banking practice and acceptance of these interest bearing bills spread, filling the Exchequer with physical gold and silver.

But then enter one Sir William Paterson. This same Sir William – chief organizer of the ill-fated Darien Scheme where investors lost everything and 1,200 Panamanian colonists perished – in 1694 was the primary promoter behind the joint stock incorporation and charter of the privately owned Bank of England. A major conflict of interest – not recognized by divine right – arose here whereby King William III was himself a major shareholder in this newly chartered bank. But this bank was merely one of many banks chartered at the time operating under the ruinous fractional reserve practice, and nearly all these banks eventually failed save one – the Bank of England. What made this bank charter special was its inside connection to the House of Stuart and its location inside the untouchable City of London Corporation – that one square mile of sovereign within a sovereign ceded in 1067 by William the Conqueror to the inhabitants of London. And, this special Bank of England had discovered the magic formula that transformed Parliament into a perpetual debtor, turned the bank's liabilities into assets, and as the money they created had zero cost, afforded the owners of this special Bank of England an infinite rate of return on fiat issuance. Not since the Pharaohs convinced the Egyptians they were Gods had such an elaborate fraud been perpetrated upon mankind.

To coincide with the Union of England and Scotland in 1707, this special Bank of England – one of many chartered banks at the time – was awarded responsibility for managing the issue and redemption of the popular interest bearing bills of what was now the Exchequer of Great Britain. Given the enticement of near infinite rates of return, it did not take the Bank of England long to begin issuing its own fiat money for use by Parliament and to retire the old interest bearing bills with redemptions. The magic formula was set – the Bank of England had figured out not how to receive interest from lending its own money, but how to receive interest by creating new money. And the opaque nature of the magic formula with its unknown gold and silver reserves held in "trust", together with pomp and trappings, gave the fiat money financial process the appearance of authority and legitimacy. Parliament got its means to fund a new round of wars of attrition with France, the people got taxed at a slower rate of increase, and the House of Stuart and their banker friends got wealthy beyond belief. And to the holders of accumulated fiat money, they discovered a way how to transfer the bulk of a society's real wealth – land, gold, labor, and raw materials – into their own possession for free, using this fiat money of no inherit value to purchase things having real intrinsic value. Therefore, at its most fundamental level, capitalism became the mechanism by which one trades the family cow for a bag of magic beans.

This special relationship between Parliament and its wars of attrition and the House of Stuart and its banker friends had solved the riddle of Exchequer funding so Great Britain could now focus on its primary 18th century endeavor – war with France. From 1701 to the final defeat of Napoleon in 1815, Great Britain prosecuted eighteen officially declared wars against France. The stakes were serious now as France and its livre had wrested control of the world's reserve currency from the mercantile banking Dutch after their late 17th century wars with both England and France had exhausted the Dutch treasury and the Dutch, with their mercantile banking model, could not print their way back from defeat. The House of Stuart and its banker friends now saw defeating France and appropriating the world reserve currency to their Bank of England as the overriding collective purpose of Great Britain, and Parliament was ready and eager to assist for the "Glory of Britannia". But neither France's nor Great Britain's empires contained large quantities of gold or silver, so privateers on both sides played a large role in wartime funding but this stolen loot was especially important to the French corsairs and their mercantile banking system. Thus the inherent empire self-destruct mechanism latent in all physical money based commercial models – depleting the crown treasury – would play a major strategy in the prosecution of Great Britain's prolonged wars of attrition with France. Thus 18th century Europe pitted infinite paper fiat money versus limited physical gold and silver to the death in winner-take-all stakes for control of the world reserve currency.

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The first Industrial Revolution from 1760–1820 did not create a large "virtuous cycle" for British fiat money, and given the fractured nature of the British chartered banking system, this early land empire was not yet conducive to establishing a fiat money empire. For an idea of the imbalance in economic scale versus land size existing within the 18th century British colonies, at the cusp of the 1755 tobacco price crash the tiny Caribbean island of Barbados brought in more customs and excise income to the crown than all American colonies combined. And, economic depressions in the colonies caused by events in and taxes imposed by the home country were common which prompted early colonialists to build up a high degree of productive diversification and self-sufficiency. However, after more than 100 years of war against France and the final defeat of Napoleon, the mantle of world reserve currency passed to the House of Hanover and its banker enablers, so Parliament's favorite charter bank began in earnest to churn out incredible amounts of bank notes that were now no longer needed to fund wars of attrition. Other charter banks knew well of this special relationship between Parliament and the Bank of England so these banks began accumulating the Bank of England fiat money to use as their "reserves" held in "trust". The inflation caused by this round of excessive money printing, combined with little to no increase in wages, reached the point of starvation in the London streets, and Parliament's disastrous Corn Act of 1815 drove grain prices even higher resulting in food riots and complete economic stagnation. Thus to this point first the House of Stuart and their banking friends, then the House of Hanover and its banker enablers, through the magic formula of fiat money, had brought the United Kingdom 121 years of near continuous war, recurring national bankruptcies, and now open starvation. Something had to be done.

So Parliament set about to save its favorite banking charter. Six years after the London food riots, it required the Bank of England to maintain a minimum reserve held in "trust" and to facilitate conversion of its fiat money into gold. So the House of Hanover and its banker enablers discovered the new magic trick of borrowing gold to fulfil this new inconvenience, and promptly went back to churning out more fiat money and by 1825 had precipitated a collapse of the United Kingdom banking system that effectively eliminated nearly all competing charter banks. For their disastrous actions, in 1833 the Bank of England was again rewarded by Parliament with the Bank of England Act granting its fiat money monopoly status as "legal tender" for a "limited period" under "certain conditions", which over time became unlimited and unconditional as no certain conditions were ever enumerated. Thus the act wiped out all competing charter banks and forced every person and entity in the British empire to either use or pay exchange fees to use the Bank of England's fiat money. And on top of all this, the House of Hanover and its banker enablers, ensconced within the untouchable City of London Corporation, from the safety of this "anachronism gifted by the Normans", found even more profitable ventures than fraudulent banking and war funding in the forms of the slave and opium trades. So by 1833 the same people behind slavery and opium were handed gratis sole control over the fiat money that would soon engulf 26% of the world's land surface. What could possibly go wrong?

The Bank of England itself, that's what went wrong. Another major financial crisis initiated by the House of Hanover and its banker enablers' boom-bust magic formula was "solved" by Parliament's Bank Act of 1844 that set a fictional amount of imaginary gold as a fabricated "reserve" held in opaque "trust" and thereby "limited" the amount of fake fiat money the Bank of England could issue out of thin air against its imaginary gold reserves, but excluded loans to the public whose losses bothered no one in the House of Lords. The Bank Act worked so well that by 1847 the Bank of England itself teetered on the brink of insolvency, so to retain their special relationship, Parliament repealed the Bank Act of 1844 and now the Bank of England was legally free again to print as much fiat money as it wanted. And so economic crises and near collapse followed again from 1857-8, 1867-9, and 1873-96, each time fixed by Parliament with a tweak here, and act there, and a new unenforced regulation or two. Thus following the 1833 grant of "legal tender" status, during their 67 years of 19th century money monopoly the House of Hanover and its banker enablers gave the United Kingdom 32 years of recession, depression, bankruptcy, and financial collapse. But despite its delivery record its special relationship with Parliament continued into the 20th century where it once again found its raison d'être – war funding.

One side benefit inadvertently derived from the never ending 19th century financial crises precipitated by Bank of England fiat money mis-managers was Parliament spent so much time dealing with economic problems at home and unrest in the colonies abroad that it had little time to prosecute new European wars of attrition. With the Crimean War excepted, a sort of Pax Decoctur gripped the United Kingdom's European aspirations as it focused on its Second Industrial Revolution at home and small scale conflicts abroad to secure far flung provinces against both people that mostly didn't use money and people that mostly did use opium. This "Peace through Insolvency" enabled the United Kingdom to continuously reduce its national debt without exception from a level of about 265% of GDP in 1820, down to around 40% of GDP at the start of the 20th century. As a result, the House of Hanover and its banker enablers were able to finally develop the "virtuous cycle" necessary for the proper function of a true fiat money empire – the colonies ship raw materials to the home country and receive fiat money in payment, the home country took those raw materials and produces value added manufactured goods, then exported those manufactured goods back to the colonies that paid for these value added goods with fiat money received from the sale of raw materials. All value added activities remained in the home country, and with European populations increasing across the colonies, this "virtuous cycle" generated economic "growth" and "profit" across the United Kingdom's industrialized areas. However, these cheap raw materials from abroad also sealed the demise of domestic producers, promoting urbanization at home that stagnated factory wages and led to large scale emigration to the colonies abroad, both phenomena adding to the "virtuous cycle" and increasing "value add" to those with access to capital and ownership of the means of production.

A key component to this British "virtuous cycle" was the House of Hanover and its banker enablers were able to capture the bulk of world raw material sales and thus expand its fiat money empire outside the colonies by the process of commoditization. Large brokerage houses, often controlled by subsidiaries of the Bank of England, bought and sold such huge quantities of these raw materials on forward contracts that they were able to manipulate their prices. These hedge purchases and sales not only provided trading income, but also ensured all contracts were settled in Bank of England fiat money regardless of point of sale or purchase. To squeeze even more profit from this "value chain", other Bank of England subsidiaries expanded into corporate plantation holdings throughout the colonies, especially in India following the 1862 Cotton Famine. This practice then spread to mining tenements following the discovery of huge gold deposits throughout Australia and the annexation of the Transvaal. Thus the vast majority of the "virtuous cycle" was captured and maximum "value" squeezed out the entire "value chain" and into the hands of the House of Hanover and its banker enablers. And so began a new line of exploitation for capitalism – the manipulation of commodity prices via the coordinated bulk purchase and sale of these commodities in concert with the manipulation of the "value" of fiat currency. Entire sectors of commodity production around the world were sent into financial ruin by a coordinated attack from both the brokerages and Bank of England monetary policy, these sectors bought nearly en toto for a shilling on the pound, then pumped and dumped using the same coordinated mechanism but in the opposite directions. Large swaths of entire industries like cotton, land, oil, wheat, coal, iron ore, et cetera regularly passed into and out of the hands of the House of Hanover and its banker enablers generating tremendous profits for them and debilitating losses for others.

At the dawn of the 20th century, capitalism had fully matured, sound money mercantile banking no longer existed, and the magic formula had made the United Kingdom the most powerful financial, economic, and political empire ever assembled. The covert secret formula however was it had fought only one major European war – The Crimean War – since the defeat of Napoleon, and since then the Exchequer had reduced its outstanding budget deficit relative to GDP a full 85%. And for the first time in the fiat empire's history, it began delivering large amounts of gold into the City of London Corporation. The sun never set on Britannia, it ruled the waves, it had commoditized every basic raw material important to the Second Industrial Revolution, and it had subjugated nearly every primary producer on the planet to its service through price manipulated contracts denominated in Bank of England fiat money. The United Kingdom was in a commanding position but had not yet proven itself as undisputed world military power, and the German Empire was beginning to accumulate victories and influence on the Continent. So it was inevitable that the egos in Parliament would go back to their old bad habits of 100 years ago and start looking for a major fight to revive the "Glory of Britannia". And thus began a 50 year effort to destroy the rising European star of Germany, with its formidable military, efficient and technologically advanced industry, growing colonial empire, and Hegelian guiding principles of "objectivity, truth, and ethical life" which now threatened to not only swallow up and assimilate all the Germanic peoples of Europe, but to swallow up and eliminate their privately owned central banks as well. The City of London Corporation would tolerate no fiat money rival and Germany could not continue to grow unchecked in influence – nigh, could not continue to exist – and put at risk ownership of the Bank of England's magic money formula.

This is where the banking story of the United States merges with that of the House of Hanover and its banker enablers. To its great credit, the United States had three times in its early history repelled the external imposition of a privately owned central bank. After Andrew Jackson allowed the Federal charter for the den of vipers – aka Second Bank of the United States – to expire in 1837, the existing network of disunited state chartered banks grew across the young country with the addition of every new state, each charter issuing its own semi-fiat money backed by reserve requirements dictated by each state. Fiat money from the states varied in exchange value and bank failures were common, but the distributed and discretized nature of this Free Banking Era localized the crises and generally did not lead to national economic disasters as did the regular and recurring management failures of the Bank of England. It was during this laisse-faire period that the United States experienced incredible growth of territory, population, political clout, and economic output, and the Federal Treasury had financially strengthened to the point where the country had the temerity to negotiate for territory, wage its own wars of conquest, and purchase new territories without serious economic repercussion. With regards to banking it seemed the United States had found the magic money formula by not finding the magic money formula and had instead wandered into a kind of balanced budget quasi-capitalism where state charter banks issued local fiat money that few wanted as it had to compete with the gold and silver specie put in circulation by the Federal Treasury. But then every balanced budget just begs for a good war of attrition and that's exactly what came next.

At the cusp of the American Civil War, the Bank of England had coopted the South into its commoditized fiat empire as most of their raw cotton exports went to British textile mills. Thus the Bank of England's fiat empire had crept quietly into America when the London financiers gave full support to Confederate war funding by purchasing its heavily subscribed and sterling denominated Cotton Bonds. To facilitate war funding at home, both the Union and Confederacy resorted to fiat money issue, with the Confederacy printing greybacks and the Union printing greenbacks. To enforce these new greenbacks as Union fiat money, Congress passed the National Banking Act of 1863 establishing a system and network of national banks using a uniform fiat money with a stipulated uniform fractional reserve requirement mandating these banks purchase and hold US Treasury bills as "reserves". Both sides struggled with inflation, but the Confederacy, if not defeated in battle, would likely have succumbed eventually to inflation that by war's end ran at 9,000% of prewar levels rendering the greybacks effectively worthless. But the old magic money formula of turning liabilities into assets worked just well enough for the Union and with this National Banking Act their greenbacks replaced the former hocus pocus uncoordinated sideshows from state charter bank fiat issue antics commonly backed with no more than borrowed gold. Ironically, counterfeiting during the Civil War was a persistent problem, so the National Banking Act not only removed gold convertibility and gold and silver reserve requirements, but also established the United States Secret Service to ensure the Union's new fake paper money was not fake fake paper money. And just like the creation of its progenitor the Bank of England, greenbacks were only to be in circulation for a limited time, which in 1878 became legally unlimited time but with the re-imposition of convertibility into gold. America had officially entered into the world of capitalism, and for the first time had a uniform national banking system under the control of the US Treasury using a single fiat currency convertible into gold with a fractional reserve requirement. But the greenback was finding itself more and more controlled by Wall Street proxies of the City of London Corporation, Wall Street's influence was growing immensely within the US Congress, and the bankers of the City of London Corporation had set their sights on gaining control of the levers of America's new magic formula.

But full control of that magic formula would take some time to acquire as the American people proved more intractable than the pliant Dickensian subjects of the City of London Corporation. The weakened post bellum United States with its new national bank network, huge Federal budget deficit, new fiat money empire throughout the defeated Confederate States, and fast expanding Northern modern industrial base presented the City of London Corporation bankers with proverbial low hanging fruit. After both sides weathered the depression caused by the Panic of 1873, the City of London Corporation bankers' first salvo at usurping the American money creation mechanism was the financially engineered Panic of 1893 where a coordinated commodity price crash was timed with a run on the US Treasury gold holdings that nearly drew down the country's entire gold reserve and sent the United States into prolonged depression. But there's no depression a good war can't fix, so the politically popular 1898 Spanish-American War was prosecuted and with a quick victory the US spirits and economy sprang back to life. The City of London Corporation bankers' initial crude efforts was thwarted, so a second better organized salvo was launched in 1907, this time at the undertaking of Wall Street proxies, complete with a ready-made plan to fix everything and paid agents ready in Congress to promote the benevolence and virtue of the Money Trust. And to show the American people their selfless good intentions, both J. P. Morgan and John D. Rockefeller magnanimously gifted their own money to acquire and "save" insolvent banks after the US Secretary of the Treasury secretly pledged taxpayer bailout money should Morgan's and Rockefeller's bank investments fail. Wall Street began its marketing campaign through Congress for the privatization of both the national currency issue and monetary policy, promising America that once control of these powers passed into secret hands all these recurring depressions caused by these very same secret hands would immediately cease. But not all members of Congress were yet paid agents of Wall Street, and in 1913 the Pujo Committee released the results of its scathing Money Trust investigations. The American public was in no mood to submit their sovereignty to the Wall Street Money Trust on behalf of the City of London Corporation bankers, and time was running out for the bankers to get America ensnared into their plans to deal with the new, powerful Continental upstart that threatened the Bank of England's fiat empire gravy train – Germany.

The second half of the European 20th century following the brutal wars of unification saw the Prussian state and its German coalition fiefdoms start to grind out military victories over first Denmark and next Austria, but it wasn't until the German Empire coalesced after its decisive and highly efficient defeat of world power France in 1871 that alarms began ringing in the City of London Corporation. The German people, united under one state and the Hegelian principles of "objectivity, truth, and ethical life", was one thing, but this Hegelian destiny to unite all Germanic peoples under that state – including Germanic peoples living in states with privately owned central banks – was another thing entirely. But the German Empire with its sound monetary policy, advanced high tech ground based military capability, and expanding colonial empire presented a formidable adversary, one that guaranteed mutually assured destruction if challenged alone. Initial efforts to destabilize the German Empire from within using communist agitators all fell flat as the German government enacted liberal labor and social reforms blunting each new call for a general strike. Against this rising German Empire stood a United Kingdom that had won just one major war in 85 years, was crawling out of the 20 years Long Depression, and whose banks and investment houses were clear culprits in ever recurring financial panic, one after the other, that had disastrously rippled throughout the global economy. The limits of growth had been reached with the industrial-colonial model of the British Empire, the system was devolving into stasis, and the Exchequer's budget deficit had been reduced to the point where a new major war of attrition could now be prosecuted.

On the American home front the Jekyll Island conspiracy between the Wall Street proxies for the City of London Corporation bankers and the US Congress had been in play since 1910. Its success was a crucial step for the Exchequer to gain a reliable overseas source of credit and for the Ministry of Defense to establish a supply chain prior to prosecuting its coming war of attrition against the German Empire. It is likely these conspirators knew full well their plans would commit the United States to not only massive war funding to Great Britain, but also pit the Americans as enemy against whatever countries Parliament might declare war upon for the "Glory of Britannia". So in practice, when Congress passed the Federal Reserve Act in August 1913 despite the Pujo Committee findings, it not only robbed the American people of control over its monetary policy, but to a large extent robbed it of control over much of its foreign policy as well. Thus this fateful act of betrayal to both American citizens and British subjects joined the eventual downfall of the British fiat empire with an American commitment to Endless Wars in defense of its coming fiat empire. This was a master stroke for the City of London Corporation bankers that brought the Federal Reserve System into its cross ownership nexus that now facilitated trans-continental coordination of both monetary and foreign policies that assured aggregate coordinated outcomes always resulted in a net gain to the City of London Corporation bankers, regardless of which side of the Atlantic experienced victory or defeat. And this new Federal Reserve System was isolated from all direct European land based military threats and had the ability to create huge quantities of fiat money adsorbed by a brand new tax base within the expanding American industrial economy which was now inescapably locked into ever growing Federal debt by the XVI Amendment. Thus not since the fall of Troy had a free and independent people willingly invited such unseen dangers into their midst, and by subterfuge the Federal Reserve Act ended 137 years of fierce American independence with a single unconscionable law and just 30 words contained in a new constitutional amendment.

Within four years of the Federal Reserve Act's passage, the City of London Corporation bankers were victorious, the German Empire crushed absolutely, and the flame of "objectivity, truth, and ethical life" extinguished. There would be no consolidation of the Germanic peoples under a single state controlled central bank, and no challenge to the Bank of England's control over its fiat empire. The costs were staggering – 20 million dead, 21 million injured, 1.2 million Queen's subjects killed, USD $3.2 trillion. Despite these losses, the combined ownership nexus of the Bank of England and the Federal Reserve System saw the City of London Corporation bankers in an even more powerful position that before the war, and for the first time since wresting control of the world reserve currency from France in 1815, the Bank of England began to share this status with the United States dollars it also controlled. And to ensure the permanent dominance of the Federal Reserve System and avoid any resurrection of populist economic policy threats like the Free Silver Movement, or for that matter, to forever eliminate serious economic policy discussion from public debate, in 1920 Congress ratified the XIX Amendment. Accumulated post-WWI budget deficits on both sides of the Atlantic ballooned – the Exchequer's climbed from a prewar 20% of GDP to 180%, and the Treasury's increased from 10% to 40% of GDP, with both countries finding themselves in the usual post-war recessions. Time to fire up the post-war printing presses – but this time, only on the other side of the Atlantic as the City of London Corporation had grand plans for its new American vassal.

And for all that post-war M2 fiat money now flooding into America – from a total of $18 billion circulating in 1915 to $47 billion in 1929 – the United States got things like flappers, guys going over waterfalls in barrels, jazz clubs, ultra-rich organized crime families, a mass entertainment industry, and through that cultural miasma somehow managed to build thousands of factories, make millions of cars, pave thousands of miles of roads, erect skyscrapers, and electrify cities. But the average Queen's subject didn't even get so much as an extra helping of pudding. What were the Roaring 20s in America, where industrial and service jobs abounded with the flood of fiat money created out of thin air, were more like the Boring 20s in the United Kingdom, where the printing presses remained idle and recession and mass unemployment were the order of the decade. But then under orders from the City of London Corporation bankers the Federal Reserve System raised interest rates from 4% to 6%, and suddenly the jazz music stopped, the flappers quit flapping, and the bills for all that art deco came due in October 1929. We all know the story of what happened next.

One side benefit of the Great Depression in the United States was so many people were unemployed that few paid income taxes, so Congress could not immediately start a new war of attrition to right the ship of finance at Wall Street's behest. Learned advisors first had to resort to their old bag of tricks with a tweak here, a Congressional rider there, a new regulation or two, and even introduced the new academic driven massive Keynesian make-work stimulus programs. Nothing worked no matter how rarefied or how many respected monetary scientists offered lofty solutions, so with the Federal Reserve insolvent and out of gold, President Roosevelt resorted to the old goldsmith shakedown tactic and issued Executive Order 6102 in April 1933, followed by Congress and its Gold Reserve Act of January 1934. The EO effectively confiscated all gold in the United States, gave it to the privately owned Federal Reserve System at $20.67 per troy ounce, removed the gold standard again, then raised the gold price to $35 a troy ounce and began printing massive amounts of pure fiat money. That gave the appearance of working, and industrial output slowly rose to greater than 1929 pre-crash gold standard levels entirely on the back of the inflation unleashed by pure fiat issuance until everything collapsed again in 1937. It began to look more and more like the fog of war was the only solution to pull America out of this depression and unbeknownst to most, the country had been rearming itself since early 1940, nearly two years before the bombing of Pearl Harbor.

The United Kingdom was in serious economic trouble too, having spent the entirety of the 1920s in deep recession and now hopelessly mired in a depression it could not shake. The old 18th century playbook would have to be dusted off, but at a great cost – financial destruction of the British Empire and sacrifice of the Bank of England for the greater good of the City of London Corporation's central bank cross ownership nexus. Starting in the early 1920s, the City of London Corporation bankers had recalled their communists to kick in the teeth and pick whatever flesh was remaining from the bones of the Weimar Republic, and the now worthless Reichsbank was put to work printing up never before seen hyper-inflation. These actions not only plunged Germany into the economic stone ages, but deprived nexus owned Bank of France of war reparations desperately needed to modernize its industrial base. Such was the threat posed by even the remains of a German Empire that such actions were deemed acceptable losses so long as "objectivity, truth, and ethical life" were sent to the unequivocal dustbin of history. Now, on its knees before the world's creditors and on the brink of devolving into a failed state, Germany was needed once again by these same creditors – and needed fast by Great Britain. Despite having few natural resources within its borders, Germany's military machine would be resurrected from the dead and come roaring back with a vengeance on a mission to once again unite all Germanic peoples under the banner of a revisionist version of "objectivity, truth, and ethical life", and it could only do that through the magic formula of central banking foreign credit.

Within six years of Hitler's ascension to the German Chancellery, Wall Street and the City of London Corporation bankers had financed the greatest mechanized military ever assembled – the Wehrmacht. The Dawes plan of 1924 had initiated the linkage between German industry and Wall Street finance for which the American banker Charles G. Dawes shared the 1925 Nobel Peace Prize. Under the Dawes Plan, prior to the 1929 crash, the Weimar Republic had paid its war reparations not to France or England, but to a consortium of Wall Street investment banks. This Dawes Plan gave Germany a life-sustaining infusion of US dollar credit that would in theory produce trade that would hypothetically generate customs and excise taxes that were surmised to eventually go towards war reparations to England and France. But then Hitler repudiated the Versailles Treaty, and the Gold Reserve Act allowed millions more pure fiat US dollars to flow out of Wall Street to their agents in "neutral" Stockholm and into the Nazi controlled Deutsche Reichsbank. Wall Street and the City of London Corporation loved Hitler and the House of Windsor openly saluted him. Nazism was to be a great boon to the trans-Atlantic financiers as Hitler would devoured the expendable and unprofitable Slavic peoples and ensured a never ending stream of new revenue with every eastern conquest. It was a foolproof plan – the Atlantic Ocean was wide, the Kriegsmarine small, the Luftwaffe would run out of gas before it arrived over New York City, and the communist martyrs installed in Russia would put up a fierce and expensive fight until Lebensraum ran out of room. But what Wall Street had not figured into its equations was that Hitler would sign an Anti-Comintern Pact, a Phony War would transform into a hot war, and another go at uniting all the Germanic peoples of Europe would commence under the new banner of Blut und Boden. The City of London Corporation bankers would have to fix this Wall Street mess themselves and call up the blue blooded true believers, those who existed for one purpose and one purpose only – the "Glory of Britannia".

We all know the story of what happened next and how WWII dragged in the entire central bank cross ownership nexus to secure victory for the "Glory of Churchill". But for all the tens of thousands of pages published in the learned journal tomes, there is not one observation made how the Federal Reserve System failed to deliver the expectations sold to America that it would end the boom-bust cycles inherent under post bellum 19th century quasi-capitalism. There was not one erudite call to re-examine the "special relationship" now cemented between Congress and the Federal Reserve System, and not one monetary scientist noticed the Federal Reserve System cross ownership nexus came out of the Great Depression – the depression it created – more powerful than when it entered. Instead, the world got lofty excuses like The General Theory of Employment, Interest, and Money proclaiming that more of the same failures would make everything indubitably jolly good. Not one political scientist noticed the Great Depression was used to eliminate banks not in favor with the elite ownership hierarchy within the trans-Atlantic central bank cross ownership nexus. And, not one scholarly paragraph examined how depressions are, and have always been, financially engineered mechanisms to destroy competitor banks and consolidate increasing power into a handful of fewer banks owned by a shrinking secret ownership pool.

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With the conclusion of WWII, the Exchequer was broke as it had issued such an immense quantity of debt to finance the war that it could never be repaid without resorting to harsh austerity measures at home that would threaten social unrest during a period of national weakness. But with the Bank of England in control of monetary policy, any semblance of economic recovery would be impossible, so after 252 years of their "special relationship", Parliament made the only logical choice available to it and in 1946 the Bank of England was nationalized and played no further dominant role in world capitalism. But the central bank cross ownership nexus made out just fine as the Bank of England wiggled out of holding the bag on all those unpayable war debts as the nationalization dumped them onto the backs of the Queen's subjects in another miraculous "heads they win, tails you lose" event. Thus 1946 begins the British period of state controlled capitalism that was in effect a transition period into de-industrialization where large segments of its economy were nationalized to ensure they were not revived through modernization and thus would never be placed into competition with industry in the United States or other European countries that were using their post-WWII rebuilding programs to modernize their industries.

After both the Bank of England and Bank of France were lost to nationalizations, Wall Street tool the pre-eminent role within the central bank cross ownership nexus and got straight to work on elevating the US dollar to the status of undisputed world reserve currency, thus ending the 130 year run of the pound sterling.

And a modern world reserve currency needed a colonial fiat empire, so the United States started with Western Europe via the Anglo-American Loan Agreement of 1946 and later the Marshall Plan of 1948 to kick off its "virtuous cycle". The Russian financial system remained unchanged, and it absorbed Eastern Europe into its new expanded fiat empire. Thus, the true winners at the cessation of hostilities from a purely financial perspective were the United States and the Soviet Union.

In 1951 during the fog of the Korean War and with the Secretary of the Treasury in the hospital, the Assistant Secretary of the US Treasury – not Congress – handed the power to set interest rates independently of government economic policy entirely to the Federal Reserve System. Like the original Federal Reserve Act, this additional power grab was sold to the American people on the premise the privately owned Federal Reserve System would "tame inflation" and "foster economic stability without responding to short-term political pressure". This single act by an adjutant set the stage for the Federal Reserve System to wield incredible power over government policy and essentially hold Congress to ransom, where although the US Treasury was responsible for raising government money, the privately owned Federal Reserve System was now responsible for setting that money's price paid to it for creating it out of thin air. So the Federal Reserve System now had the power to create or destroy national wealth by reducing or raising interest rates and there was no legal stipulation for whom their policies should benefit. Thus unbeknownst to the American people, this unnecessary power relinquishment was, in effect, the crucial piece that would set the stage for enabling the financialization of the America economy.

Post-WWII capitalism under the American fiat leadership functioned much like it did prior to the war except where the fiat empire was concerned. Instead of conquest and physical occupation of resource rich lands and filling these lands up with colonists, the United States resorted to a proxy conquest model where it initiated coup d'états, assassinations, foreign espionage, fraudulent elections, and foreign propaganda campaigns to install pliable dictators and friendly juntas. These leaders were amicable to pursuing "growth" policies, allowed American military bases on their soil, and had no qualms about crushing dissent at home or piling billions of US dollar denominated debt onto the heads of their citizenry. In exchange for their compliance, these dictators and juntas were kept in power with generous foreign aid packages, and they in turn doled out lucrative resource development concessions, purchased US made military hardware, and awarded contracts to US corporations for industrial, civil, and defense projects. In a new twist on colonization, many of these American proxy conquests created large numbers of emigres into the United States and provided a mechanism to ensure the consumer base at home continued to grow and devour excess production capacity as American living standards rose and native born birth rates declined. A new "virtuous cycle" evolved whereby industry in the conquered fiat empire eventually began to generate export income sold into the US dollar denominated commodity markets, and those US dollars returned to the United States to purchase US value added exports and services. And to secure this new "virtuous cycle", in 1947 the Central Intelligence Agency was born out of the National Security Act, and it quickly evolved into its main directive of waging clandestine foreign hybrid wars to consolidate and grow the American fiat empire, install and keep friendly governments investing in US exports – especially military equipment – and defeat the competing Soviet fiat money empire. Thus with its responsibility of maintaining its new global fiat empire, the United States entered into its historical phase of Endless War.

The United Kingdom on the other hand could no longer afford control over its fiat empire as it had no viable value added export capability at war's end and thus its "virtuous cycle" stopped functioning. It instead resorted to de-colonialization, but only in terms of physical land holdings. The City of London Corporation bankers either kept effective control over these former colonies' new central banking systems or was its primary beneficiary, and in either case it retained the majority of financial profits derived from these newly created banking systems. This "de-colonized" banking model was similar to the false "independence" of the Federal Reserve System, but here the City of London Corporation bankers retained control through majority stock ownership of the member banks that comprised the new banking systems. In the English speaking constitutional monarchies where the serious financial profits were generated, an additional failsafe was guaranteed by the Queen's appointment of Governor Generals who could – and once did in Australia – sack recalcitrant duly elected governments that did not put the City of London Corporation's interests above those of their own people.

One post-WWII change with huge repercussions to American capitalism was the US dollar denomination takeover of global commodities trade from the pound sterling. As world population and industrialization increased and Western Europe crept back into consumer manufacturing, the volume of forward contracts traded in dollars grew in step. However, all that American ingenuity put into its fiat empire's "virtuous cycle" began to work too well in the Middle East and North African oil sectors. By 1965 the combined dollar revenues received from new oil exports, taken together with all Western European dollar revenue streams, were greater than what the US domestic export capacity could absorb through its "virtuous cycle". Instead of buying US value added exports, these surplus overseas dollars went searching for investments and with limited low risk opportunities available, they eventually found the US Treasury Gold Window. The 1934 Gold Reserve Act had ended domestic dollar convertibility into physical gold but not international convertibility, which was retained as per the Bretton Woods agreement, and during the second half of the 1960s these foreign dollars began to drain the US Treasury of its gold reserves. Despite the gold rush, the US Treasury held its official exchange price constant at $35 an ounce – the same price set after the depression era Gold Reserve Act. When the House of Rothschild finally raised the gold price in 1968, it signaled US gold reserves were in decline and prompted frenzied buying from Western Europe up until the day that American capitalism ended.

RKKA , 2 hours ago

Western society is extremely destructive and self-destructive. At a time when humanity abandoned matriarchy even before the new era, feminism is flourishing in the West. Homosexuality was the cause of the fall of Ancient Greece and Ancient Rome, but in the West it is believed that after 2 thousand years it is still supposedly fashionable. Back at the beginning of the 6th century BC. e.

Solon decreed to punish any adult male found in the premises of a school where young boys and girls studied. However, in the West, pedophilia still flourishes and the Lolita Express runs.

Western decrepit pedophile elites deserve a replacement and a kick in the ***! The West will fall just like the depraved, pedophilic, homosexual Ancient Rome fell. No huge amount of money and no huge army will save the West. Why do you need to save yourself? What would be the next generation of soulless and godless pedophiles, homosexuals and money-gamblers? Why do you need money if you sold your soul?

HoodRatKing , 1 hour ago

I believe the 3rd world doesn't need a constitution to shoot weapons at the bankers... Some are quite good at it too!

https://www.youtube.com/watch?v=rUfMkIx7Ypg

Ben A Drill , 2 hours ago

Everyone was born naked and broke.

HoodRatKing , 1 hour ago

No, we were born covered and full of life... The broke are those who have no life & are swimming naked in a tank full of gangster sharks.

https://www.youtube.com/watch?v=rUfMkIx7Ypg

sir lozalot , 2 hours ago

lol

https://duckduckgo.com/?t=ffnt&q=carnival+****+racist+&iax=images&ia=images&iai=http%3A%2F%2Fwww.renegadetribune.com%2Fwp-content%2Fuploads%2F2019%2F03%2F428606458.jpg

Dying-Of-The-Light , 1 hour ago

Talk about a cut and paste Job. This article has so many inaccuracies that I would need to write a book to refute them. Unlike CHS I don't write endlessy to flog eBooks on line while begging for donations to constantly advertise myself. I don't want to bore anyone with an endless monologue to counter some of the huge errors in this article. I am just stunned he can chuck this out when it is truly shoddy.

The guy is very bright and he usually writes very well, but this article from him is an utter mess.

Krinkle Sach , 3 hours ago

This generation
Rules the nation
With version

Music happen to be the food of love
Sounds to really make you rub and scrub
I say

Pass the dutchie 'pon the left hand side (I say)
Pass the dutchie 'pon the left hand side
It a go bun, give me music, make me jump and prance
It a go dung, give me the music, make me rockin' at the dance (Jah know!)

It was a cool and lonely breezy afternoon
(How does it feel when you got no food?)
You could feel it 'cause it was the month of June
(How does it feel when you got no food?)
So I left my gate and went out for a walk
(How does it feel when you got no food?)
As I pass the dreadlocks' camp I heard them say
(How does it feel when you got no food?)

Pass the dutchie 'pon the left hand side (I say)
Pass the dutchie 'pon the left hand side
It a go bun, give me music, make me jump and prance
It a go dung, give me the music, make me rockin' at the dance (Jah know!)

So I stopped to find out what was going on
(How does it feel when you got no food?)
'Cause the spirit of Jah, you know he leads you on
(How does it feel when you got no food?)
There was a ring of dreads and a session was there in swing
(How does it feel when you got no food?)
You could feel the chill as I seen and heard them say
(How does it feel when you got no food?)

Pass the dutchie 'pon the left hand side (I say)
Pass the dutchie 'pon the left hand side
It a go bun, give me music, make me jump and prance
It a go dung, give me the music, make me rockin' at the dance (Jah know!)

'Cause me say listen to the drummer, me say listen to the bass
Give me little music make me wind up me waist
Me say listen to the drummer, me say listen to the bass
Give me little music make me wind up me waist, I say

Pass the dutchie 'pon the left hand side (I say)
Pass the dutchie 'pon the left hand side
It a go bun, give me music, make me jump and prance
It a go dung, give me the music, make me rockin' at the dance (Jah know!)

You play it on the radio
And so me say, we a go hear it on the stereo
And so me know you a go play it on the disco
And so me say we a go hear it on the stereo (bow!)

Pass the dutchie 'pon the left hand side (I say)
Pass the dutchie 'pon the left hand side
It a go bun, give me music, make me jump and prance
It a go dung, give me the music, make me rockin' at the dance (Jah know!)

On the left hand side (I say)
On the left hand side (I say)
On the left hand side
(We meet) On the left hand side (say man)
On the left hand side

Me say east, say west, say north and south (on the left hand side)
This is gonna really make us jump and shout (on the left hand side)
Me say east, say west, say north and south (on the left hand side)

Buster Cherry , 2 hours ago

Know your limits:

https://www.google.com/url?sa=t&source=web&rct=j&url=https://m.youtube.com/watch%3Fv%3DLS37SNYjg8w&ved=2ahUKEwjzkt2tv5zsAhVPPK0KHdyGAQoQwqsBMAB6BAgLEAQ&usg=AOvVaw2dHXS0w7SijIQSkS_jI0xE

Zhaupka , 12 minutes ago

Not sure if this passes ZH / United States Censors:

Those who studied recent-Ancient History - Plato or Socrates - shall understand Athens.

Athens ( Greece ) domination over 200 plus city states. Athens was the center where the Wealthiest Families of Planet Earth resided at the time. Athens is where the 200 plus city states paid their tribute (taxes) for Military Protection and maintenance of basic civil human-to-human peaceful exchanges. Athens Wealthy fed and protected the 200 plus city states.

The elites in Italy, the Medici's provided food, clothing, housing and other to the general populations - all this easily understood including the Medici Parties for the entire town for free!

Those of yester years did not: take the wealth they dug from Planet Earth, put it in their pockets, then later put the wealth back into Planet Earth, that wealth is here today.

Plus new wealth is created.

FIRST LIST - UPPER CLASS

Here is a brief Modern List of "The Elites" "The Globalists" "The Powers That Be (TPTB)" that feed, clothe, house, and entertain the populations encased this larger Western World Superstructure:

* Rothschild Family of Paris
* Warburg Family of Hamburg
* Lazard Family of Paris
* Israel Moses Seif Family of Rome
* Goldman / Sachs Family
* Rockefeller Family
* Lehman Family
* Kuhn Loeb Family of New York

These families similar to the ultra-wealthy families in Athens give everyone food, clothing, shelter, cities, education, and everything one has or knows others have.

These are the New Athens Families of the Western World on Planet Earth.

The reader has a very difficult time enjoying the fact the reader is a Common Ordinary Pedestrian Modern Peasant whose existence is sustained by the Super Ultra Wealthy as in the days of Athens where nameless faceless common folk depended on similar Super Ultra Wealthy to merely survive day-to-day.

Without these Super Ultra Wealthy Families - "The Elites" or "The Globalists" or "The Powers That Be (TPTB)" - on the afore list, dominating other Human Populations on Planet Earth, most reading would be starving To Death existing during a pitiless life in less than abject poverty.

2020: 178 Nation-States use the New Families of the Western World on Planet Earth "Reserve" Currency to pay Tribute for Military Protection and Trade and Simple Sustenance - fed and protected. Whole cities would cease to exist, the electricity, gas, and tap water would stop flowing immediately.

The mass illusions provided by the Athens-like Super Ultra Wealthy Western World Families' Personal Servants are imaginative and entertaining.

Common ZH Readers would have a very, very difficult time conceiving through the Haze the reader is nothing more than a Dependent Common Ordinary Pedestrian Modern Peasant because of the Haze.

Lessee - remove the Haze of the Super Ultra Wealthy Western World Families and see their Servants:

SECOND LIST - MIDDLE CLASS

United States Government(s) / Economy is Infected and Infested with Middle Eastern Arabs:

Finance. Military. Law. Medical. Political. Business.

United States Federal Reserve Branch: BERNANKE, YELEN, ROSENGREN, GREENSPAN, et al.

United States Military Branch: WOLFOWITZ, WILLIAM "BILL" KRISTOL, ROBERT KAGAN, RICHARD "****" N. PERLE, VICTORIA NULAND, ELLIOTT ABRAMS, ELIOT A. COHEN, AARON FRIEDBERG, I. LEWIS SCOOTER LIBBY, NORMAN PODHORETZ, PETER W. RODMAN, STEPHEN P. ROSEN, MARK GERSON, RANDY SCHEUNEMANN, et al.

United States Judicial Branch: MUELLER, ROSENSTEIN, WASSERMAN, HOROWITZ, BADER, GOLDMAN, WEISMAN et al.

United States National Medical:
Deputy Attorney General ROD ROSENSTEIN's SISTER: The United States Center For Disease Control (CDC), Atlanta, Georgia, United States, Dr. Nancy Messonnier (Nanc married a white) et al.

United States Political (in ur face):
BLOOMBERG, SANDERS, STEYER, et al.

Add Commercial Real Estate: SAM ZELL, COOPERMAN, SILVERSTEIN Properties, and Middle-Men.

The afore are all from the Middle East.

Middle Eastern Arabs are J's by a different name - same.

Now there is clearer focus for the Dependent Common Ordinary Pedestrian Modern Peasant ZH Reader. Less Haze.

THIRD LIST - LOWER CLASS

The Second List afore controls these Democrats and Republican Party Gang Member Servants.

Party Member Servants: "vote" to appear to control the United States Federal, State, County, City, Town, Village Governments. For example:

United States House of Representatives,
United States Senate,
United States Judicial,
United States Executive,
- Democrats and Republicans -
all signed the papers to transfer
United States Intellectual Property,
United States Agriculture,
United States Financial Services,
United States Technology Transfer (Patents, Software Code, Aero/Astro -nautical, et al.),
United States Currency and Foreign Exchange, and Other
to China.

FOURTH LIST - PEASANT CLASS

* Lifetime Debt - give me house, gimme car, gimme food, gimme water, gimme clothes.

Wherefore art thou u?

Thomas Paine you rascal!

conraddobler , 1 hour ago

What's going on is painfully obvious. It has been for decades, nothing is done except to continue taking it up another notch. When it all collapses those who set the fire will show up to sell fire insurance.

Nothing will ever change.

People will breathlessly bow down before those who caused the mess, anything to get some access to more debt at low rates.

You can buy an entire world this way.

HoodRatKing , 1 hour ago

Great article, I've included a link in my latest blog post!

[Sep 26, 2020] Criminalization of large banks and participation of money laundering as a new normal

Sep 26, 2020 | www.zerohedge.com

The original title is Taibbi- Revenge Of The Money Launderers

Authored by Matt Taibbi via taibbi.substack.com,

On December 11, 2012, U.S. Justice Department officials called a press conference in Brooklyn. The key players were once and future bank lawyer Lanny Breuer (disguised at the time as Barack Obama's Assistant Attorney General in charge of the DOJ's Criminal Division), and Loretta Lynch, the U.S. Attorney for the Eastern District of New York, and future Attorney General.

The duo revealed that HSBC, the largest bank in Europe, had agreed to a $ 1.9 billion settlement for years of money-laundering offenses.

An alphabet soup of regulatory agencies was represented that day, from the Justice Department, to Immigration and Customs Enforcement (ICE), the U.S. Treasury, the New York County District Attorney, and the Office of the Comptroller of the Currency, among others.

The regulators outlined a slew of admissions, with HSBC's headline offense being the laundering of $881 million for Central and South American drug outfits, including the infamous Sinaloa cartel.

https://www.youtube.com/embed/ln3zY62kHi4

The laundering was so brazen, regulators said, the bank's Mexican subsidiary had developed "specially shaped boxes" for cartels to pack with cash and slide through teller windows. The seemingly massive fine reflected serious offenses, including violations of the Bank Secrecy Act (BSA), the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA).

The next years would follow up with a flurry of similar settlements extracting sizable-sounding fees from other transnational banks for laundering money on behalf of terrorists, sanctioned businesses, mobsters, drug dealers, and other malefactors. Firms like JP Morgan Chase ($1.7 billion), Standard Chartered ($300 million), and Deutsche Bank ($258 million) were soon announcing settlements either for laundering, sanctions violations, or both.

Even seasoned financial reporters accustomed to seeing soft-touch settlements scratched their heads at some of the deals. In the case of HSBC, the stiffest penalty doled out to any individual for the biggest drug-money-laundering case in history -- during which time HSBC had become the " preferred financial institution " of drug traffickers, according to the Justice Department -- involved an agreement to "partially defer bonus compensation for its most senior executives." If bankers can't get time for washing money for people who put torture videos on the internet , what can they get time for?

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[Sep 22, 2020] Why does neoclassical economics produce ponzi schemes of inflated asset prices?

Sep 22, 2020 | www.zerohedge.com

Sound of the Suburbs , 54 minutes ago

Why does neoclassical economics produce ponzi schemes of inflated asset prices?

  1. It makes you think you are creating wealth by inflating asset prices
  2. Bank credit flows into inflating asset prices, debt rises faster than GDP and you eventually get a financial crisis.
  3. No one notices the private debt building up in the economy as neoclassical economics doesn't consider debt.

This economics still has its 1920s problems. What is the fundamental flaw in the free market theory of neoclassical economics? The University of Chicago worked that out in the 1930s after last time. Banks can inflate asset prices with the money they create from bank loans.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability to create money.

"Simons envisioned banks that would have a choice of two types of holdings: long-term bonds and cash. Simultaneously, they would hold increased reserves, up to 100%. Simons saw this as beneficial in that its ultimate consequences would be the prevention of "bank-financed inflation of securities and real estate" through the leveraged creation of secondary forms of money."

https://www.newworldencyclopedia.org/entry/Henry_Calvert_Simons

The IMF re-visited the Chicago plan after 2008.

https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

It looks like they did have some idea what the problem was.At the end of the 1920s, the US was a ponzi scheme of inflated asset prices. The use of neoclassical economics and the belief in free markets, made them think that inflated asset prices represented real wealth accumulation.

1929 – Wakey, wakey time. Why did it cause the US financial system to collapse in 1929? Bankers get to create money out of nothing, through bank loans, and get to charge interest on it.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

What could possibly go wrong?

Bankers do need to ensure the vast majority of that money gets paid back, and this is where they get into serious trouble.

Banking requires prudent lending.

If someone can't repay a loan, they need to repossess that asset and sell it to recoup that money. If they use bank loans to inflate asset prices they get into a world of trouble when those asset prices collapse.

As the real estate and stock market collapsed the banks became insolvent as their assets didn't cover their liabilities.

They could no longer repossess and sell those assets to cover the outstanding loans and they do need to get most of the money they lend out back again to balance their books.

The banks become insolvent and collapsed, along with the US economy.

When banks have been lending to inflate asset prices the financial system is in a precarious state and can easily collapse.

What was the ponzi scheme of inflated asset prices that collapsed in Japan in 1991?

Japanese real estate.

They avoided a Great Depression by saving the banks.

They killed growth for the next 30 years by leaving the debt in place.

https://www.youtube.com/watch?v=8YTyJzmiHGk

Debt repayments to banks destroy money, this is the problem.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

What was the ponzi scheme of inflated asset prices that collapsed in 2008?

"It's nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world" All the Presidents Bankers, Nomi Prins.

They avoided a Great Depression by saving the banks.

They left Western economies struggling by leaving the debt in place, just like Japan.

It's not as bad as Japan as we didn't let asset prices crash in the West, but it is this problem has made our economies so sluggish since 2008.

In 2020, the world is a ponzi scheme of inflated asset prices.

The use of neoclassical economics and the belief in free markets, made them think that inflated asset prices represented real wealth accumulation.

The central banks have to keep pumping in liquidity to stop all the ponzi schemes collapsing.

If the ponzi schemes collapse, this feeds back into the financial system when bankers have been lending to inflate asset prices.


play_arrow
Sound of the Suburbs , 1 hour ago

Bankers make the most money when they are driving your economy towards a financial crisis.

You don't want to leave them to their own devices.

On a BBC documentary, comparing 1929 to 2008, it said the last time US bankers made as much money as they did before 2008 was in the 1920s.

Bankers make the most money when they are driving your economy into a financial crisis.

https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6

At 18 mins.

The bankers loaded the US economy up with their debt products until they got financial crises in 1929 and 2008.

As you head towards the financial crisis, the economy booms due to the money creation of bank loans.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

The financial crisis appears to come out of a clear blue sky when you use an economics that doesn't consider debt.

The economics of globalisation has always had an Achilles' heel.

The 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression. No one realised the problems that were building up in the economy as they used an economics that doesn't look at debt, neoclassical economics.

Not considering private debt is the Achilles' heel of neoclassical economics.

Sound of the Suburbs , 1 hour ago

Come on.

Wakey, wakey.

You are just repeating 1920s mistakes.

The Americans wrapped a new ideology, neoliberalism, around 1920s economics and repeated the economic mistakes of the 1920s.

Policymakers couldn't see what Glass-Steagall did, as they thought banks were financial intermediaries.

It separates the money creation side of banking from the investment side of banking, and stops bankers producing securities; they buy themselves with money they create out of nothing.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

(There are intermediaries involved so it's not obvious, but this is effectively what is happening)

The whole thing turns into a ponzi scheme and you get a 1929 or 2008 type event.

1929 and 2008 look so similar because they are.

https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6

At 18 mins.

1929 and 2008 -- Minsky Moments, the financial crises where debt has over whelmed the economy.

They did save the banks this time, which avoided another Great Depression.

They left the debt in place, which caused a balance sheet recession.

As a CEO, I can use the company's money to do share buybacks, to boost the share price; get my bonus and top dollar for my shares.

Share buybacks were found to be a cause of the 1929 crash and made illegal in the 1930s.

What lifted US stocks to 1929 levels in 1929?

Margin lending and share buybacks.

What lifted US stocks to 1929 levels in 2019?

Margin lending and share buybacks.

A former US congressman has been looking at the data.

https://www.youtube.com/watch?v=7zu3SgXx3q4

"The Great Crash 1929" John Kenneth Galbraith

"By early 1929, loans from these non-banking sources were approximately equal to those from the banks. Later they became much greater. The Federal Reserve Authorities took it for granted that they had no influence over these funds"

He's talking about "shadow banking".

They thought leverage was great before 1929; they saw what happened when it worked in reverse after 1929.

Leverage acts like a multiplier.

It multiplies profits on the way up.

It multiplies losses on the way down.

Today's bankers seem to have learnt something from past mistakes.

They took the multiplied profits on the way up.

Taxpayers picked up the multiplied losses on the way down.

Mariner Eccles, FED chair 1934 -- 48, observed what the capital accumulation of neoclassical economics did to the US economy in the 1920s.

"a giant suction pump had by 1929 to 1930 drawn into a few hands an increasing proportion of currently produced wealth. This served then as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied themselves the kind of effective demand for their products which would justify reinvestment of the capital accumulation in new plants. In consequence as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped"

The problem; wealth concentrates until the system collapses.

"The other fellows could stay in the game only by borrowing." Mariner Eccles, FED chair 1934 -- 48

Your wages aren't high enough, have a Payday loan.

You need a house, have a sub-prime mortgage.

You need a car, have a sub-prime auto loan.

You need a good education, have a student loan.

Still not getting by?

Load up on credit cards.

"When the credit ran out, the game stopped" Mariner Eccles, FED chair 1934 -- 48

...... etc .....

x_Maurizio , 1 hour ago

DISAGREE ON EVERY SINGLE WORD, in particular with this:

rules/regulations/capital requirements have infected the global banking system and rendered it a harvesting operation for retail and a derivatives rule/regulation/capital requirment evasion device for the pursuit of profit

absolutely false.

Banking system is in the 4th part of a cycle that they have created !

  1. The first part has been capital harvesting (1970-1980)
  2. The second part has been deregulation and hunt for stellar return on investment
  3. The third part is financialisation and plunder of real economy
  4. The fourth part is the destruction of real economy through debt, deflation, extreme financial activity seeking for Yields. The banks have been the fortresses of globalisation. Commercial banking has been absorbed by investment banking. In this deflationary environment Commercial Banking has practice NO ROI.

You want to see the Banks working again? Reintroduce the Glass Steagall and separate again investment and commercial banking. Repeal all what has been done between 1987 and 1999. THAT will stop globalisation, that will stop the slow bleeding-to-death of westerne economies, that will save commercial banking and our capitalistic societies.

Pumpkin , 1 hour ago

Fake money, fake banks. All lies die in the end.

[Sep 20, 2020] The Criminal Prosecution Of Boeing Executives Should Begin by Mike Shedlock

Sep 20, 2020 | www.zerohedge.com

Authored by Mike Shedlock via MishTalk,

Damning details of purposeful malfeasance by Boeing executives emerged in a Congressional investigation.

FAA, Boeing Blasted Over 737 MAX Failures

On Wednesday, the Transportation Committee Blasted FAA, Boeing Over 737 MAX Failures

The 238-page document, written by the majority staff of the House Transportation Committee, calls into question whether the plane maker or the Federal Aviation Administration has fully incorporated essential safety lessons, despite a global grounding of the MAX fleet since March 2019.

After an 18-month investigation, the report, released Wednesday, concludes that Boeing's travails stemmed partly from a reluctance to admit mistakes and "point to a company culture that is in serious need of a safety reset."

The report provides more specifics, in sometimes-blistering language, backing up preliminary findings the panel's Democrats released six months ago , which laid out a pattern of mistakes and missed opportunities to correct them.

In one section, the Democrats' report faults Boeing for what it calls "inconceivable and inexcusable" actions to withhold crucial information from airlines about one cockpit-warning system, related to but not part of MCAS, that didn't operate as required on 80% of MAX jets.

Other portions highlight instances when Boeing officials, acting in their capacity as designated FAA representatives, part of a widely used system of delegating oversight authority to company employees, failed to alert agency managers about various safety matters .

Boeing Purposely Hid Design Flaws

The Financial Times has an even more damning take in its report Boeing Hid Design Flaws in Max Jets from Pilots and Regulators .

Boeing concealed from regulators internal test data showing that if a pilot took longer than 10 seconds to recognise that the system had kicked in erroneously, the consequences would be "catastrophic" .

The report also detailed how an alert, which would have warned pilots of a potential problem with one of their anti-stall sensors, was not working on the vast majority of the Max fleet . It found that the company deliberately concealed this fact from both pilots and regulators as it continued to roll out the new aircraft around the world.

In Bed With the Regulators

Boeing's defense is the FAA signed off on the reviews. Lovely. Boeing coerced or bribed the FAA to sign off on the reviews now tries to hide behind the FAA.

There is only one way to stop executive criminals like those at Boeing. Charge them with manslaughter, convict them, send them to prison for life, then take all of their stock and options and hand the money out for restitution.

adr , 1 hour ago

Remember, Boeing spent enough on stock buybacks in the past ten years to fund the development of at least seven new airframes.

Instead of developing a new and better plane, they strapped engines that didn't belong on the 737 and called it safe.

SDShack , 21 minutes ago

What is really sad is they already had a perfectly functional and safe 737Max. It was the 757. Look at the specs between the 2 planes. Almost same size, capacity, range, etc. Only difference was the 757 requires longer runways, but I would think they could have adjusted the design to improve that and make it very similar to the 737Max without starting from scratch. Instead Boeing bean counters killed the 757 and gave the world this flying coffin. Now the world bean counters will kill Boeing.

Tristan Ludlow , 1 hour ago

Boeing is a critical defense contractor. They will not be held accountable and they will be rewarded with additional bailouts and contract awards.

MFL5591 , 1 hour ago

Can you imagine a congress of Criminals Like Schiff, Pelosi and Schumer prosecuting someone else for fraud? What a joke. Next up will be Bill Clinton testifying against a person on trial for Pedophilia!

RagaMuffin , 1 hour ago

Mish is half right. The FAA should join Boeing in jail. If they are not held responsible for their role, why have an FAA?

Manthong , 1 hour ago

"There is only one way to stop executive criminals like those at Boeing.

Charge them with manslaughter, convict them, send them to prison for life, then take all of their stock and options and hand the money out for restitution."

Correction:

There is only one way to stop regulator criminals like those in government.

Charge them with manslaughter, convict them, send them to prison for life, then take all of their pensions and ill gotten wealth a nd hand the money out for restitution.

Elliott Eldrich , 43 minutes ago

"There is only one way to stop executive criminals like those at Boeing.

Charge them with manslaughter, convict them, send them to prison for life, then take all of their stock and options and hand the money out for restitution."

Ha ha ha HA HA HA HA HA! Silly rabbit, jail is for poors...

Birdbob , 1 hour ago

Accountability of Elite Perps ended under Oblaba's reign of "Wall Street and Technocracy Architects" .White collar criminals were granted immunity from prosecution. This was put into play by Attorney Genital Eric Holder. This was the beginning of having an orificial Attorney Genital that facilitated the District of Criminals organized crime empire ending the 3 letter agencies' interference. https://www.blogger.com/blog/post/edit/8310187817727287761/1843903631072834621

Dash8 , 1 hour ago

You don't seem to understand the basic principle of aircraft design...it must not require an extraordinary response for a KNOWN problem.

Think of it this way; Ford builds a car that works great most of the time, but occasionally a wheel will fall off at highway speeds...no problem, right? ....you just guide the car to the shoulder on the 3 remaining wheels and all good.

Now, put your wife and kids in that car, after a day at work and the kids screaming in the back.

Still feel good about your opinion?

canaanav , 1 hour ago

I wrote software on the 787. You are right. This was not a known problem and the Trim Runaway procedure was already established. The issue was that the MAX needed a larger horizontal stab and MCAS would have never been needed. The FAA doesnt have the knowledge to regulate things like this. Boeing lost talent too, and gets bailouts and tax breaks to the extent that they dont care.

Dash8 , 1 hour ago

But it was a known problem, Boeing admits this.

Argon1 , 41 minutes ago

LGBT & Ethnicity was a more important hiring criteria than Engineering talant.

gutta percha , 1 hour ago

Why is it so difficult to design and maintain reliable Angle Of Attack sensors? The engineers put in layers and layers of complicated tech to sense and react to AOA sensor failures. Why not make the sensors _themselves_ more reliable? They aren't nearly as complex as all the layers of tech BS on top of them.

Dash8 , 1 hour ago

It's not, but it costs $$....and there you have it.

Argon1 , 37 minutes ago

Its the Shuttle Rocketdyne problem, the upper management phones down to the safety committee and complains about the cost of the delay, take off your engineer hat and put on your management hat. All of a sudden your project launches on schedule and the board claps and cheers at their ability to defy physics and save $ millions by just shouting at someone for about 60 seconds..

canaanav , 1 hour ago

Each AOA sensor is already redundant internally. They have multiple channels. I believe they were hit with a maintenance stand and jammed. That said, AOA has never been a control system component. It just runs the low-speed cue on the EFIS and the stick shaker. It's an advisory-level system. Boeing tied it to Flight Controls thru MCAS. The FAA likely dictated to Boeing how they wanted the System Safety Analysis (SSA) to look, Boeing wrote it that way, the FAA bought off on it.

Winston Churchill , 43 minutes ago

More fundamental is why an aerodynamically stable aircraft wasn't designed in the first place,love of money.

HardlyZero , 13 minutes ago

Yes. In reality the changed CG (Center of Gravity) due to the larger fan engine really did setup as a "new" design, so the MAX should have been treated as "new" and completely evaluated and completely tested as a completly new design. As a new design it would probably double the development and test cost and schedule...so be it.

DisorderlyConduct , 1 hour ago

"Lovely. Boeing coerced or bribed the FAA to sign off on the reviews now tries to hide behind the FAA."

No - what a shoddy analysis.

The FAA conceded many of their oversight responsibilities to Boeing - who was basically given the green light to self-monitor. The FAA is the one that is in the wrong here.

Well, how the **** else was that supposed to end up? This is like the IRS letting people self-audit...

Astroboy , 1 hour ago

Just as the Boeing saga is unfolding, we should expect by the end of the year other similar situations, related to drug companies, pandemia and the rest.

https://thenewroads.com/2019/12/09/forecast-for-2020/

https://thenewroads.com/2020/07/21/great-conjunction-jupiter-and-saturn-next-to-the-solstice-of-december-2020/
play_arrow

highwaytoserfdom , 1 hour ago

It is political economy...

8. The internet was invented by the US government, not Silicon Valley

Many people think that the US is ahead in the frontier technology sectors as a result of private sector entrepreneurship. It's not. The US federal government created all these sectors.

The Pentagon financed the development of the computer in the early days and the Internet came out of a Pentagon research project. The semiconductor - the foundation of the information economy - was initially developed with the funding of the US Navy. The US aircraft industry would not have become what it is today had the US Air Force not massively subsidized it indirectly by paying huge prices for its military aircraft, the profit of which was channeled into developing civilian aircraft.

https://www.zerohedge.com/news/2014-06-20/what-piketty-didnt-say-13-facts-they-dont-tell-you-about-economics

LoneStarHog , 1 hour ago

People believe that corporate executives are immune from prosecution and protected by the fact that they are within the corporation. This is false security. If true purposeful and intended criminal activities are conducted by any corporate executive, the courts can do what is called "Piercing The Corporate Veil" . It is looking beyond the corporation as a virtual person and looking at the actual individuals making and conducting the criminal activities.

Jamie Dimon should be first on this list.

[Sep 11, 2020] Some Corporate Fear Is Needed, Blain Urges -- A Little Bit Of Good Old Creative Capitalist Destruction

Sep 11, 2020 | www.zerohedge.com

Authored by Bill Blain via MorningPorridge.com,

"One believes things because one has been conditioned to believe them."

Today is the anniversary of 9/11. Please find some time to trade with my former colleagues at BGC/Aurel-Mint who hold their charity day today in memory of the firm's losses in NY that shocking day in 2001.

This morning we wake to the news the UK has staged something of an economic recovery – but as predicted it's proving remarkably sticky reopening the economy. All eyes are still on the tech market – where the bounce proved the ailing cat isn't in particularly good health. I shall stick my neck out and say the correction still has a way to go. Next week – beware.

Yesterday I wrote about complexity and how the pandemic, bubbles, repressed returns, years of monetary distortion and the evolving political economy have changed the dynamics of markets. One of the factors causing confusion is the increasing speed of change – it's happening too quickly for us to fully comprehend.

Apparently my comments on MMT have upset a well-known city economist who told a contact at major investment firm: "Blain knows nothing about economics, he's just a market hack wanting to be heard.." Excellent. And I would agree – I know nothing about economics, but neither does anyone else .. ( Touche!) That's why it's called the dismal science.

Today, let me continue the New Reality analysis about dynamics and the speed of change. Rather than focusing on the past and present, let's focus on the future and the other side of the equation – the outlook for business, industry and government, and how they will influence these changing dynamics.

There are three themes to this morning's story:

What's the upside?

The prospects for the global economy are fantastic! We can look forward to new generation micro-processing which will literally be a quantum revolution. The potential for a clean energy, new battery technologies, environmental improvement, and abundant power from fusion and hydrogen could be enormous. If you think the way we work has changed by "working from home", the future of AI, Robotics, 3D and nano-tech will revolutionise everything we do and how we spend our increased leisure time. A new agricultural revolution in plants, food and soil will allow us to feed the world, alleviate poverty, raise educational standards and allow population growth to stablise, enabling us all to lead less anxious lives. Ah! Bliss.

Marvellous stuff! The future is going to be flying cars, rocket-packs and holidays on the beaches of Mars ?

Perhaps. Why not? If try hard enough .

What's the downside?

All these things can only happen if the global economy moves forward, develops and evolves. There are massive inertia problems to be resolved. Much of our current economy isn't fit for purpose. Political leadership seems mired in quicksand. Bureaucracy is perhaps the greatest scourge of the modern age. The blockages, rigidities and hurdles holding back the business of business aren't getting simpler. They are multiplying.

Not so good is the future going to be like the Vogons currently running financial regulation?

And, most importantly

How will it happen?

The role of government will be critical. The future of the global economy will depend on the delivery of functional physical and social infrastructure to enable change and evolution. That means breaking out of our current gridlocks, including inequality, and completely rethinking and remaking public goods like health, welfare and education and an acknowledgement that social justice and wealth-equality aren't optional.

I don't think I need to say too much about the possibility of a bright Tech-led future – what matters is getting there, or as close to it as possible. As a Porridge reader recently reminded me: 15 years ago there were no smartphones, no social media, no Uber or Airbnb, Apple and Amazon were struggling and GE was AAA rated. The world changes. Get over it.

Let's start with the third issue – The role of government. That's an immediate problem for my generation. We've been brainwashed since infancy to believe government is bad, less government is good. Big G is inefficient and leads to bureaucracy. Any Government spending will be riddled with featherbedding, inefficiency and outright corruption. Far better to let private enterprise lead the way – so we've always been told.

Really? Private Enterprise isn't much better. Let's be honest – big firms have their brief periods of innovation, stratospheric growth and market leadership before they stumble into middle age, become sclerotic and die from obsolescence, competition, null-entropy and bureaucracy – that's the Darwinian process of capitalism. The last thirty years spent worshiping at the Friedman Temple of corporate shareholder capitalism has seen some pretty shady behaviours – massive executive rewards, stock buy-backs and the overleveraging of failing companies to pay out private equity owners . I could go on.

There is a middle ground.

What if Maggie Thatcher was utterly wrong about Government having to be as frugal as a housewife? What if fiat money and monetary sovereignty works? What if Milton Friedman was wrong and Keynes, Smith et al are all right?

Yesterday I raised the issue of stakeholder capitalism – and predictably got a number of emails telling me anything except the continued wealth creation by successful entrepreneurial billionaires will lead to disaster and communism. That's not what a stakeholder economy needs to lead to.

Shock Time. For the first time ever, I am going to say something positive about ESG – Environmental, Social and Governance Investment parameters.

For too many investors ESG is simply an easy tick-box approach to avoid difficult compliance or investment committee questions. But ESG is still at an early stage as we evolve towards Stakeholder Economies. Investments that aim to do good are laudable, but ones that are properly managed, do good and socialise the benefits are even better, especially when they also make profit! (Sharing the money around is the issue for unreformed capitalists..) Few big banks or investors would publically admit ESG is bad - so how can Stakeholder be bad?

The big issue is can Government be trusted to deliver the public goods we will need to deliver our Bright New World? Can they be trusted to use the magical money tree of MMT to deliver the necessary reforms of health, education and welfare provision, solve inequality and rebuild ailing national infrastructure. That's a question for functional democracy.

One of the comments I got yesterday – from a leading academic – sums up the risks: "It's as simple as this – unless you are the EU, which has zero monetary sovereignty, nations can solve all the issues you identify, including social and income equality, through focused MMT spending. Unless you are in the US, where the government has created some $670 bln and given it straight to the richest 1500, while 47 million and one in three kids still go hungry."

It's a warning – MMT is a potential solution. But a dangerous one if misapplied. If the resources of a state, and its control of fiat currency, are directed to support only the rich and powerful – explain to me what's different from what they complain Communist China is guilty of?

Let's be more optimistic. the future looks bright and perhaps we can better resolve issues by adopting Stakeholder Capitalism. We can fund it all by selective government MMT programmes to finance public goods enabling us to do these things. Sounds easy – but perhaps it is? We need Decent politicians – note the capital D. Decent as in decent, honest, brave and true.

Which leads us to the Big Problem , the second issue the trend towards stultifying Bureaucracy.

One of my favourite economic concepts is "Niskannen's Theory of Bureaucracy". Bureaucrats are driven by economic goals – which include making their lives easier, and controlling more and more makes it easy. It's not just a government problem. Its rife across the private sector. Let me start by asking have you spoken to your bank recently?

Probably not. I bet you spent hours in a telephone queue, being told that "due to the Pandemic we are experiencing a high volume of calls" . I read the high street banks are sacking more staff and closing more branches.

Let's face it.. our banks don't work.

Because it makes sense to borrow money at negative real interest rates I recently applied for a mortgage – to finance rebuilding our house. We have money in the bank, and they are aware of our investment portfolio, pensions and other savings. However, they turned me down for a loan – on the basis I had a black credit mark.

It turns out that black score is because a mobile telephone company made a mistake and reported I hadn't paid them the horrendous sum of £66.30. EE have now acknowledged the mistake and apologised for not cancelling a direct debit. I have a cheque on my desk from them repaying the direct debits they claimed before I cancelled it. However, they say that "legally" they can't undo the damage done to my credit score. They say the law demands it stays on my report for 2 years – despite it being patently incorrect.

I asked the bank to be reasonable and look at the information. "Computer says No." The Bank doesn't want to lend to me, or anyone else, full stop. The telecoms company can't be bothered to correct their mistake and raise potentially difficult questions about their systems.

Let's focus on why banking bureaucracies fail. If a high-street bank lends money that causes all kinds of problems – if has to fill in sheaves of client reports, update their KYC, determine why someone with money in the bank wants to borrow more. They then will have to discuss the loan at half and dozen different compliance, diligence, diversity and capital committees. Then they have to weigh the risk of default, and put aside the correct capital charges to apply. Being "Pale, Male and Stale" doesn't help – I might retire at some point in the 10-year life of the loan. Banks definitely don't want to be lending to white-folk in their 60s.

Effectively the big banks no longer function. They have become bureaucracies where the treacle that flows through their operational arteries has made them ineffective and useless. They are still using multiple legacy systems, but don't have the energy and won't allocate the cash to replace them. Yet these same banks are considered critical to the economy and will be bailed out repeatedly, confirming their criticality to the economy. Their executives are paid in millions.

Let the Big Banks go bust – that's what should happen to failing companies!

Actually, go further – close them down. The financial system will not collapse if we put HSBC up against the wall. I would argue it would be a great "pour le encourage les autres " moment.. ( "The English like to shoot an Admiral or two to encourage the rest ", as Voltaire said.) While we are it, lets put EE up against the wall as well, and blindfold a couple of credit agencies as well

A bit of corporate fear would be no bad thing.

There is no shortage of bright young FINTECH challenger banks out there that understand the opportunity to replace banking behemoths, and provide the missing aspects of customer service. The understand the need, the social service concept of banking for all, and they understand the opportunity to automate payments, digitise delivery and actually serve a useful social purpose

I think you get the drift . Extend the same thinking across the whole economy and every government department. A little bit of good old creative capitalist destruction wouldn't do us any harm.

notfeelinthebern , 2 hours ago

Term limits would fix much of it. You go to the donor page for any swamp rat US Senator and it is mind boggling.

WedgeMan , 2 hours ago

Let a big bank fail and then try to buy something at a store with credit card. No dice. A failed bank will leave you with no money. Why do you think our great grandparents stored cash in jars, not in the bank vaults? the strategy is to eliminate all cash and use bank accounts only. This way the grand surveillance State is complete and can control you very easily.

GunnerySgtHartman , 1 hour ago

This is exactly why people should utilize locally-owned banks ... or even better, credit unions. And keep not more than six weeks' worth of funds in your bank/credit union account.

Clint Liquor , 2 hours ago

"I am going to suspend my free market principles, to save the free market". G.W. Bush, before announcing the 2008 Bank Bailouts.

107cicero , 2 hours ago

Blaine has the Voltarie quote wrong; it was from Candide' a novel of his and put into the mouth of a character: "in this country, it is good to kill an admiral from time to time, in order to encourage the others"

bshirley1968 , 2 hours ago

"The prospects for the global economy are fantastic! We can look forward to new generation micro-processing which will literally be a quantum revolution. The potential for a clean energy, new battery technologies, environmental improvement, and abundant power from fusion and hydrogen could be enormous.

If you think the way we work has changed by "working from home", the future of AI, Robotics, 3D and nano-tech will revolutionise everything we do and how we spend our increased leisure time. A new agricultural revolution in plants, food and soil will allow us to feed the world, alleviate poverty, raise educational standards and allow population growth to stablise, enabling us all to lead less anxious lives. Ah! Bliss."

Spoken like a true dystopian cheering, Kool-aid drinking, head-up-his-matrix, idiot. Not one thing listed there will ge beneficial to humanity's freedom and independence........but it might generate a lot more debt......in jue-bucks.......so party on dude.

earleflorida , 1 hour ago

Question??? ::: Doth any person remember ' compound interest' on savings & checking accounts?

Doth man hath to venture unto risk{?!?}, be it a Riggs Bank Heist 2020 ((( The CIA and Riggs Bank. - Slate Magazine ))) stock market manipulation to open ones piehole and speak of a 'modern-unspeakable-usury' syndicated crime FRB System criminal enterprise...

earleflorida , 1 hour ago

Question??? ::: Doth any person remember ' compound interest' on savings & checking accounts?

Doth man hath to venture unto risk{?!?}, be it a Riggs Bank Heist 2020 ((( The CIA and Riggs Bank. - Slate Magazine ))) stock market manipulation to open ones piehole and speak of a 'modern-unspeakable-usury' syndicated crime FRB System criminal enterprise...

[Aug 19, 2020] Some Shocking Facts on the Concentration of Ownership of the US Economy

Highly recommended!
Notable quotes:
"... Since the collapse of the Soviet Union, the world has not seen these levels of concentration of ownership. The Soviet Union did not die because of apparent ideological reasons but due to economic bankruptcy caused by its uncompetitive monopolistic economy. Our verdict is that the US is heading in the same direction. ..."
"... In a future instalment of this report, we will show that the oligarchization of America – the placing it under the rule of the One Percent (or perhaps more accurately the 0.1%, if not 0.01%) - has been a deliberate ideologically driven long-term project to establish absolute economic power over the US and its political system and further extend that to involve an absolute global hegemony (the latter project thankfully thwarted by China and Russia). ..."
"... In present-day United States a few major investors – equity funds or private capital - are as a rule cross-owned by each other, forming investor oligopolies, which in turn own the business oligopolies. ..."
"... A study has shown that among a sample of the 1,500 largest US firms (S&P 1500), the probability of one major shareholder holding significant shares in two competing firms had jumped to 90% in 2014, while having been just 16% in 1999. (*2). ..."
"... Institutional investors like BlackRock, Vanguard, State Street, Fidelity, and JP Morgan, now own 80% of all stock in S&P 500 listed companies. The Big Three investors - BlackRock, Vanguard and State Street – alone constitute the largest shareholder in 88% of S&P 500 firms, which roughly correspond to America's 500 largest corporations. (*3). Both BlackRock and Vanguard are among the top five shareholders of almost 70% of America's largest 2,000 publicly traded corporations. (*4). ..."
May 19, 2019 | russia-insider.com

A close-knit oligarchy controls all major corporations. Monopolization of ownership in US economy fast approaching Soviet levels

Starting with Ronald Reagan's presidency, the US government willingly decided to ignore the anti-trust laws so that corporations would have free rein to set up monopolies. With each successive president the monopolistic concentration of business and shareholding in America has grown precipitously eventually to reach the monstrous levels of the present day.

Today's level of monopolistic concentration is of such unprecedented levels that we may without hesitation designate the US economy as a giant oligopoly. From economic power follows political power, therefore the economic oligopoly translates into a political oligarchy. (It seems, though, that the transformation has rather gone the other way around, a ferocious set of oligarchs have consolidated their economic and political power beginning from the turn of the twentieth century). The conclusion that the US is an oligarchy finds support in a 2014 by a Princeton University study.

Since the collapse of the Soviet Union, the world has not seen these levels of concentration of ownership. The Soviet Union did not die because of apparent ideological reasons but due to economic bankruptcy caused by its uncompetitive monopolistic economy. Our verdict is that the US is heading in the same direction.

In a later report, we will demonstrate how all sectors of the US economy have fallen prey to monopolization and how the corporate oligopoly has been set up across the country. This post essentially serves as an appendix to that future report by providing the shocking details of the concentration of corporate ownership.

Apart from illustrating the monopolization at the level of shareholding of the major investors and corporations, we will in a follow-up post take a somewhat closer look at one particularly fatal aspect of this phenomenon, namely the consolidation of media (posted simultaneously with the present one) in the hands of absurdly few oligarch corporations. In there, we will discuss the monopolies of the tech giants and their ownership concentration together with the traditional media because they rightfully belong to the same category directly restricting speech and the distribution of opinions in society.

In a future instalment of this report, we will show that the oligarchization of America – the placing it under the rule of the One Percent (or perhaps more accurately the 0.1%, if not 0.01%) - has been a deliberate ideologically driven long-term project to establish absolute economic power over the US and its political system and further extend that to involve an absolute global hegemony (the latter project thankfully thwarted by China and Russia). To achieve these goals, it has been crucial for the oligarchs to control and direct the narrative on economy and war, on all public discourse on social affairs. By seizing the media, the oligarchs have created a monstrous propaganda machine, which controls the opinions of the majority of the US population.

We use the words 'monopoly,' 'monopolies,' and 'monopolization' in a broad sense and subsume under these concepts all kinds of market dominance be it by one company or two or a small number of companies, that is, oligopolies. At the end of the analysis, it is not of great importance how many corporations share in the market dominance, rather what counts is the death of competition and the position enabling market abuse, either through absolute dominance, collusion, or by a de facto extinction of normal market competition. Therefore we use the term 'monopolization' to describe the process of reaching a critical level of non-competition on a market. Correspondingly, we may denote 'monopoly companies' two corporations of a duopoly or several of an oligopoly.

Horizontal shareholding – the cementation of the oligarchy

One especially perfidious aspect of this concentration of ownership is that the same few institutional investors have acquired undisputable control of the leading corporations in practically all the most important sectors of industry. The situation when one or several investors own controlling or significant shares of the top corporations in a given industry (business sector) is referred to as horizontal shareholding . (*1). In present-day United States a few major investors – equity funds or private capital - are as a rule cross-owned by each other, forming investor oligopolies, which in turn own the business oligopolies.

A study has shown that among a sample of the 1,500 largest US firms (S&P 1500), the probability of one major shareholder holding significant shares in two competing firms had jumped to 90% in 2014, while having been just 16% in 1999. (*2).

Institutional investors like BlackRock, Vanguard, State Street, Fidelity, and JP Morgan, now own 80% of all stock in S&P 500 listed companies. The Big Three investors - BlackRock, Vanguard and State Street – alone constitute the largest shareholder in 88% of S&P 500 firms, which roughly correspond to America's 500 largest corporations. (*3). Both BlackRock and Vanguard are among the top five shareholders of almost 70% of America's largest 2,000 publicly traded corporations. (*4).

Blackrock had as of 2016 $6.2 trillion worth of assets under management, Vanguard $5.1 trillion, whereas State Street has dropped to a distant third with only $1 trillion in assets. This compares with a total market capitalization of US stocks according to Russell 3000 of $30 trillion at end of 2017 (From 2016 to 2017, the Big Three has of course also put on assets).Blackrock and Vanguard would then alone own more than one-third of all US publicly listed shares.

From an expanded sample that includes the 3,000 largest publicly listed corporations (Russell 3000 index), institutions owned (2016) about 78% of the equity .

The speed of concentration the US economy in the hands of institutions has been incredible. Still back in 1950s, their share of the equity was 10%, by 1980 it was 30% after which the concentration has rapidly grown to the present day approximately 80%. (*5). Another study puts the present (2016) stock market capitalization held by institutional investors at 70%. (*6). (The slight difference can possibly be explained by variations in the samples of companies included).

As a result of taking into account the common ownership at investor level, it emerges that the US economy is yet much more monopolized than it was previously thought when the focus had been on the operational business corporation alone detached from their owners. (*7).

The Oligarch owners assert their control

Apologists for monopolies have argued that the institutional investors who manage passive capital are passive in their own conduct as shareholders as well. (*8). Even if that would be true it would come with vastly detrimental consequences for the economy as that would mean that in effect there would be no shareholder control at all and the corporate executives would manage the companies exclusively with their own short-term benefits in mind, inevitably leading to corruption and the loss of the common benefits businesses on a normally functioning competitive market would bring.

In fact, there seems to have been a period in the US economy – before the rapid monopolization of the last decade -when such passive investors had relinquished control to the executives. (*9). But with the emergence of the Big Three investors and the astonishing concentration of ownership that does not seem to hold water any longer. (*10). In fact, there need not be any speculation about the matter as the monopolist owners are quite candid about their ways. For example, BlackRock's CEO Larry Fink sends out an annual guiding letter to his subject, practically to all the largest firms of the US and increasingly also Europe and the rest of the West. In his pastoral, the CEO shares his view of the global conditions affecting business prospects and calls for companies to adjust their strategies accordingly.

The investor will eventually review the management's strategic plans for compliance with the guidelines. Effectively, the BlackRock CEO has in this way assumed the role of a giant central planner, rather like the Gosplan, the central planning agency of the Soviet command economy.

The 2019 letter (referenced above) contains this striking passage, which should quell all doubts about the extent to which BlackRock exercises its powers:

"As we seek to build long-term value for our clients through engagement, our aim is not to micromanage a company's operations. Instead, our primary focus is to ensure board accountability for creating long-term value. However, a long-term approach should not be confused with an infinitely patient one. When BlackRock does not see progress despite ongoing engagement, or companies are insufficiently responsive to our efforts to protect our clients' long-term economic interests, we do not hesitate to exercise our right to vote against incumbent directors or misaligned executive compensation."

Considering the striking facts rendered above, we should bear in mind that the establishment of this virtually absolute oligarch ownership over all the largest corporations of the United States is a relatively new phenomenon. We should therefore expect that the centralized control and centralized planning will rapidly grow in extent as the power is asserted and methods are refined.

Most of the capital of those institutional investors consists of so-called passive capital, that is, such cases of investments where the investor has no intention of trying to achieve any kind of control of the companies it invests in, the only motivation being to achieve as high as possible a yield. In the overwhelming majority of the cases the funds flow into the major institutional investors, which invest the money at their will in any corporations. The original investors do not retain any control of the institutional investors, and do not expect it either. Technically the institutional investors like BlackRock and Vanguard act as fiduciary asset managers. But here's the rub, while the people who commit their assets to the funds may be considered as passive investors, the institutional investors who employ those funds are most certainly not.

Cross-ownership of oligarch corporations

To make matters yet worse, it must be kept in mind that the oligopolistic investors in turn are frequently cross-owned by each other. (*11). In fact, there is no transparent way of discovering who in fact controls the major institutional investors.

One of the major institutional investors, Vanguard is ghost owned insofar as it does not have any owners at all in the traditional sense of the concept. The company claims that it is owned by the multiple funds that it has itself set up and which it manages. This is how the company puts it on their home page : "At Vanguard, there are no outside owners, and therefore, no conflicting loyalties. The company is owned by its funds, which in turn are owned by their shareholders -- including you, if you're a Vanguard fund investor." At the end of the analysis, it would then seem that Vanguard is owned by Vanguard itself, certainly nobody should swallow the charade that those funds stuffed with passive investor money would exercise any ownership control over the superstructure Vanguard. We therefore assume that there is some group of people (other than the company directors) that have retained the actual control of Vanguard behind the scenes (perhaps through one or a few of the funds). In fact, we believe that all three (BlackRock, State Street and Vanguard) are tightly controlled by a group of US oligarchs (or more widely transatlantic oligarchs), who prefer not to brandish their power. It is beyond the scope of this study and our means to investigate this hypothesis, but whatever, it is bad enough that as a proven fact these three investor corporations wield this control over most of the American economy. We also know that the three act in concert wherever they hold shares. (*12).

Now, let's see who are the formal owners of these institutional investors

In considering these ownership charts, please, bear in mind that we have not consistently examined to what degree the real control of one or another company has been arranged through a scheme of issuing different classes of shares, where a special class of shares give vastly more voting rights than the ordinary shares. One source asserts that 355 of the companies in the Russell index consisting of the 3000 largest corporations employ such a dual voting-class structure, or 11.8% of all major corporations.

We have mostly relied on www.stockzoa.com for the shareholder data. However, this and other sources tend to list only the so-called institutional investors while omitting corporate insiders and other individuals. (We have no idea why such strange practice is employed

[Jun 04, 2020] The case of the USA is that its financialization process has been running for so long that its already existing infrastructure is crumbling

Jun 04, 2020 | www.moonofalabama.org

vk , Jun 3 2020 18:17 utc | 6

You cannot print money into infrastructure. That's money fetishism.

The Marshall Plan would be only USD 100 billion in today's values. It wasn't about the money: the Marshall Plan worked because, in 1946, the USA was the financial center of the world and had an excess industrial capacity large enough to rebuild a much smaller place (Western Europe). USDs flowed into Western Europe, which could only buy American goods and equipment - which the Americans had to sell. American resources then flowed to Western Europe, which in turn flowed back to the USA in USDs. That the USD was backed by gold at the time had nothing to do with this process, but it may have accelerated the universalization of the USD.

The USA (I'm here including all of its provinces: European Peninsula, Latin America, SE-Asia, India, Japan, South Korea, Taiwan, Hong Kong and Australia) is a capitalist society, which means it plans its economy according to the social profit rate. The social profit rate is determined by the national average of profit rates among all the individual capitals in said country. That means economy is always planned by the private, not the public, sector. The White House is impotent here.

Profit rate self-regulates based on the different degrees of organic composition of capital (OCC) of each country/region. To simplify, the tendency is this: value flows from the countries with lesser OCCs to countries with higher OCCs. Taking the European Union as an example, we have that Germany (the country with the higher OCC) will have large and chronic trade surpluses with the rest.

However, the higher the OCC, the lower is the profit rate. As OCC gets to a certain critical level, profit rates begin to plummet, and structural crisis of capitalism occur. In order to stop this process, "financialization" begins.

The case of the USA is that its financialization process has been running for so long that its already existing infrastructure is crumbling. However, the fact that it is crumbling is just the symptom, not the cause. The real cause is that the USA begun to financialize first because it reached an extremely high OCC first.

At first, the USA didn't rebuild its infrastructure simply because it is not profitable. Now, it doesn't do it for the simple fact it can't: with much pain, it managed to bring astronauts beck to the ISS; the infrastructural abyss is now at more than USD 1.1 trn and widening. By now it would have to import a lot of material and expertise from other countries if it really wanted to rebuild and update its infrastructure. Industry lost so much importance in the US economy that, last year, American industry fell to a record level (due to the trade war against China) and the US GDP actually rose - due to the financial sector and services sector compensating for the loss.

The most extreme case of a First World country turning into a mere financial hub is the UK: its trade deficit already is at a gargantuan -14%, and its budget only doesn't collapse because its huge financial hub in London covers that up to more than 7% (i.e. halves).


450.org , Jun 3 2020 18:41 utc | 10

Financial hub? Call it what it is. A laundromat for dirty money and ill-gotten gains. Problem is, or problem for those who aren't the extractive wealthy elite which is most of us, more and more money is dirty money and ill-gotten gains even if it is "made" legally. The most recent multi-trillion dollar handout, looting and pillaging actually, to the wealthy extractive elite as part of the so-called "stimulus package" was perfectly legal but dirty money and ill-gotten gains nonetheless.

The stock market is not only a depravity indicator and an indicator of wealth disparity, it's also a massive laundromat for legal and illegal ill-gotten gains. I would venture that at least 30% of the stock market is comprised of black market illegal money being laundered at any given time.

https://i.pinimg.com/originals/41/4d/c4/414dc453fd61072db52fe5064b1484ab.jpg

karlof1 , Jun 3 2020 19:09 utc | 13
Erelis @5--

FIRE is a term used my Michael Hudson and other likeminded political-economists. He uses it so often it's hard to provide the initial instance. However, Hudson did write two books about how the FIRE sector gained its dominance, Killing the Host & J is for Junk Economics . It this video interview from 2017 , Hudson explains to Max Keiser about the latter book and how it relates to the just completed election, which begins at the 12:45 mark. That website also links to all previous Keiser Reports where I hope to find the specific interview that discusses the FIRE sector. This one does too, but it's not the specific topic discussed. I guarantee you'll learn a lot from the 10.5 minute interview!

Red Ryder , Jun 3 2020 19:14 utc | 15

Petri Krohn wants redistribution of wealth. Let's look at the idea.

The opposing viewpoint says wealth is not a pie. Wealth comes from growth, innovation, creativity. It is many pies.

Of course, you can't bake your own pie without capital. So, how do we redistribute capital?

You can get it from the government via the banks, if they are 'ordered' to grant loans. They aren't. So, you can't get it from government or banks.

You can take it from the already wealthy. Taxes is the historic way to take wealth from the wealthy. But the tax schedule no longer takes significant amounts from the wealthy. And Congress is corrupted by the wealthy so that route is closed also. There will be no major new taxes on the wealthy.

How can we redistribute wealth, then?

Simplest way is Development Zones with no taxes for a 5-10 years. Investors will pour money in from around the world. New businesses can be started, innovation can be nourished and people can prosper.

Use the system to expand the base of participation and do it in the zones of poverty and redevelopment where the poor and disadvantaged are.

China does this. It works. Other nations do it. They call them FTZ (free trade zones). Russia has some.

Trump was going to do this with his original Infrastructure program. The Dems stopped it. Won't allow any progress.

But, this is the way to go. You raise people out of poverty, your increase their options and income, you grow their region, and lots of new pies are baked.

/div> @Red Ryder , Jun 3 2020 19:14 utc | 15
@Red Ryder | Jun 3 2020 19:14 utc | 15
Trisha , Jun 3 2020 19:56 utc | 30

And who, exactly, is going to do the hard labor required of these infrastructure projects?

Certainly none of the horribly obese Americans I see waddling around, nor many of the young folks stuck with their snouts into soma social media. Most of the youngsters I know have zero clue about working with tools, doing a job right, working hard for not much pay, etc. Males of color living in ghettos while their baby-mommas live off welfare? Hardly.

And where are people going to get the training needed? The Polytechnic Science trade school in the city I grew up in - San Francisco - was torn down long ago. Few in the trades can afford to live in San Francisco any more, even if they could get a job.

Maybe folks like my father who wielded a shovel building roads during the WPA and hated it so much he joined the Army. In other words, hardworking immigrants, or first generation born of immigrants with little education (my dad).

dh-mtl , Jun 3 2020 22:10 utc | 51
Posted by: Red Ryder | Jun 3 2020 19:14 utc | 15 says: 'How can we redistribute wealth, then?'

An economy's wealth is what it produces. The U.S. produces a lot less then it consumes, so it is in debt, and half of its population is poor.

The financial elites, who run the U.S. have gotten wealthy, not by producing something of value, but by strip mining the financial assets of the rest of the population.

If you want to produce wealth, and distribute it properly:

1. Get rid of the U.S.$ as the world's reserve currency. This will allow U.S.$ to be radically devalued.

2. With a devalued dollar, the U.S. will be forced into domestic production (i.e. real wealth creation). Good paying jobs, producing real things, is a very effective way of properly distributing wealth.

3. Carry out a massive infrastructure program to rebuild the U.S.' worn-out infrastructure. The infrastructure itselr, as well as the good paying jobs associated with creating it, is an effective way to distribute wealth.

4. Provide basic health-care and education (including university) to all. This is again a very effective way of distributing wealth, while at the same time supplying a work force capable of carrying out high value added jobs necessary for a goods producing economy.

5. Break-up or regulate the cartels. Profit margins and executive salaries have radically expanded in recent years. This is a sign of lack of competition. Wherever there is inadequate competition the economic actors need to be regulated or broken up. Lower prices, resulting from a normalization of profits and exagerated salary disparities, is another excellent way to distribute wealth.

6. Reduce military expenditures. Most of the military expenditures, beyond what is really needed for defense, are nothing but waste, and at the same time a transfer of wealth from the masses to the military industrial complex.

7. Pay for government sponsored health-care, education and infrastructure with a significant increase in taxes on the wealthy.

8. The massive devaluation of the dollar, combined with infrastructure spending and re-industrialization will no doubt cause significant inflation, at least in the short term. Inflation will reduce both the value of financial assets and debt, again representing a redistribution of wealth from the elites to the indebted masses.


Using the GINI index as a gauge ( https://www.census.gov/library/visualizations/2015/demo/gini-index-of-money-income-and-equivalence-adjusted-income--1967.html), Income inequality increased substantially over the past 40 years, from a GINI coefficient of 0.36, moderate, to 0.46, extreme. This change happened as a result of deliberate economic policies designed to enable the transfer of wealth from the masses to the elites. To reverse this mal-distribution of wealth, the policies that led to this need to be reversed as well.

And don't expect the Democrats to do it. They are fully in the pocket of the 'Globalists' who have been the principle beneficiaries of this massive transfer of wealth since 1980.

vk , Jun 3 2020 22:17 utc | 53
@ Posted by: Winni Puu | Jun 3 2020 21:33 utc | 47

The problem with large infrastructure projects is that they do not only get old through physical degeneration, but also through moral degeneration (i.e. they get outdated).

The USA had USD 1.1 trn in old infrastructure (mainly from the 50s-60s) which need repair. However, if the USG spends those USD 1.1 trn, the American people will just be getting what existed before - there's no technological advantage here. So, while the USA spends USD 1.1 trn on 50s technology, China will be spending the same on state-of-the-art, therefore getting a military advantage (because better infrastructure attracts more wealth, both in the form of foreign investment and in the form of rising productivity of labor).

Also, when you do this large-scale technological leap, it just can't be any kind of innovation: it has to be a revolutionary technology, which both greatly increases labor productivity and is future proof (i.e. can last at least 50 years, ideally at least 100 years).

So, this is not just your average bean-counting. When a given national government is so far behind in infrastructure, it has a though decision to make: fix what already exists (with minor and gradual improvements) or do you go all-in with a revolutionary technology to try to do a "great leap"? And that's just the technocratic side of the problem - in capitalism you have the factor that it is the social profit rate that decides what's built and what isn't, by how much and when.

Baron , Jun 3 2020 22:31 utc | 54
The boss of Amazon Jeff Bezos is 65 this year, is worth over a trillion dollars, assuming he lives up the age of 90, converts the assets into cash, does absolutely nothing except spending the money, he has $3 655 347 to run through each hour 24/7 for the rest of his life. If one assumes he has to sleep, eat, go to the bathroom which cuts the number of spending hours (say) by half, he must go through over seven million dollars each and every hour until he drops dead.

This is obscene, it exceeds his needs by such a margin that one cannot but wonder at the sanity of a society that cannot be bothered to address it. This is not to call for income to be distributed equitably, that would destroy the only mechanism that past evidence shows is the driving force for improving living standards for all, but for such distribution to be sane, nothing more nothing else, sanity should inform the creation of laws governing income distribution on every society, including the Republic's. Any such sane arrangements should include the distribution of both income and accumulated wealth, the major disparity in today's society isn't only in income distribution, but even more so in wealth ownership.


[May 05, 2020] Finance Capitalism vs Industrial Capitalism, by Michael Hudson

Notable quotes:
"... history's main engine of economic exploitation – the banking, creditor and financial systems' ever-increasing extraction of value through interest payments. The rentier class and FIRE sector – Finance, Insurance and Real Estate – have long succeeded in depicting themselves as part of a productive economy. Yet for centuries, these sectors were recognized as being parasitic. ..."
"... The pandemic has given this parasitic sector yet another, even more vicious opportunity to exploit and devour humanity. ..."
"... The essence of a parasite is not only to drain the host's nourishment, but to dull the host's brain so that it does not recognize that the parasite is there. ..."
"... Well, it's sort of like Obama's bailout in 2009 and '10 on steroids. It's funny when you read people like Paul Krugman and others Democrats denouncing it all as if it's a Republican bill, but it's identical with Obama's bill and Obama's philosophy. And it was unanimously passed. Chuck Schumer likened it to Roosevelt's New Deal. So I think you should think of it as the Trump-Pelosi bill. Trump simply lifted it wholesale from his campaign backers, who basically are the same as the Democratic National Committee. ..."
"... The bill asks landlords to stop evicting people for three months but let the rent accrue, and personal debts also. Let's look at what's going to happen when the three months are over. ..."
"... You're going to have restaurants and small businesses – whose major expense is rent and credit – not having done much business during these three months. They will end up owing this major cost of doing business for three months without having their usual income. What's going to happen by the end of the summer? ..."
"... The financial bailout aims to enable the financial sector to extract so much money from the economy and drive so many small businesses under that the big venture capital firms and private equity can pick them up at low all prices. You could call it the "Monopolization of the US economy" bill or the "Contributors to Washington politicians" bill. ..."
"... you can look at Hyman Minsky as one who really inspired it in the 19980s and '90s. Its logic is that deficit spending is not bad if it is spent in the real economy to increase employment and spending. ..."
"... Asset prices, capital gains and the wealth of the 1% are going up but real wages and disposable income has been going down. We've seen real estate, stocks and bond prices going up and up since the Obama bailout of 2009, but the economy has not benefited the 95 percent. ..."
"... As long as you leave the 1% with the lion's share of wealth (creditor claims) and property ownership, the economy cannot recover. Without realizing that, there cannot be a class consciousness regarding today's world. ..."
"... The state has become a functionary of the financial sector. It hasn't withered away in the sense as Marx would have thought. ..."
"... the financial sector is much more brutal than the industrial sector that Marx envisioned as evolving toward socialism. Finance conquers the entire economy, industry along with labor ..."
"... the problem is, how do you get rid of a parasitic blister on society? That can only be done by cutting off the blister. ..."
May 05, 2020 | www.unz.com

Jim Vrettos : Welcome once again to the Radical Imagination. I'm your host, Jim Vrettos. I'm a sociologist whose taught at John Jay College of Criminal Justice and Yeshiva University here in New York.

Our guest today on the Radical Imagination is Michael Hudson. He was on our March 8th show. We had such an overwhelmingly positive response to that show that we've asked him to return today, and he's been gracious enough to accept.

Unlike most economists, he's been a fierce champion and advocate for the economic rights of the poor, workers, disenfranchised and the vulnerable around the world through his scholarship and lifelong activism. His unique economic analysis has explored history's main engine of economic exploitation – the banking, creditor and financial systems' ever-increasing extraction of value through interest payments. The rentier class and FIRE sector – Finance, Insurance and Real Estate – have long succeeded in depicting themselves as part of a productive economy. Yet for centuries, these sectors were recognized as being parasitic.

Now with the United States losing some 10 million jobs in just the past two weeks and the world awash in debt, the total world gross domestic product is $90 trillion. The public and private debt is a mind-boggling $260 trillion. The pandemic has given this parasitic sector yet another, even more vicious opportunity to exploit and devour humanity.

As our guest puts it, the recently passed Trump "Bank and Landlord Relief" bill, mistakenly named the Coronavirus bill, starts by providing banks with an even larger giveaway of wealth than they received from Obama in 2008. Helping the banks, financial and real estate sectors in a so-called free market system is conflated with helping the industrial economy and general living standards for most Americans. The essence of a parasite is not only to drain the host's nourishment, but to dull the host's brain so that it does not recognize that the parasite is there.

These debt-bondage economies of Western countries are heading us down a spiral of poverty, decline, injustice and human despair.

Michael Hudson is a distinguished research professor of economics at the University of Missouri, Kansas City, a researcher at the Levy Economics Institute of Bard College, former Wall Street analyst, a political consultant of governments on finance and tax policy, and a popular sought-after commentator and journalist. He's devoted his entire scientific and historical work to the study of domestic and foreign debt, loans, mortgages and interest payments. His analysis and warnings are even more profoundly necessary in these pandemic days and nights. This is just the first in a series of cascading crises.

Welcome so much. Thank you for being back again here on the Radical Imagination. Michael, it's great to see you again. How are you doing? I know we're all trying to keep safe and well and strong. How are things going?

Michael Hudson : I just got back from a walk in Forest Park here in Queens. There was hardly anybody on the streets, but there were a good number of people in the park. I finally was given a face mask by the building's super, and my Chinese friends say that they've mailed me some masks to keep me safe. They're sending foreign aid to New York like we're a third world country.

Jim Vrettos : Well, in a sense, we are, aren't we? We're turning into it for more and more people. Tell us about this so-called bill that's just been passed. What is wrong with it in your estimation? How does it perpetuate and exacerbate the problem in your analysis?

Michael Hudson : Well, it's sort of like Obama's bailout in 2009 and '10 on steroids. It's funny when you read people like Paul Krugman and others Democrats denouncing it all as if it's a Republican bill, but it's identical with Obama's bill and Obama's philosophy. And it was unanimously passed. Chuck Schumer likened it to Roosevelt's New Deal. So I think you should think of it as the Trump-Pelosi bill. Trump simply lifted it wholesale from his campaign backers, who basically are the same as the Democratic National Committee.

The problem is that the bill pretends that by giving money to the banks to lend more money to get the country moving again that's going to rescue the economy. It's not going to rescue the economy. The bill injures the economy, because the money ends up with the banks. Part of its $10 trillion – $2 trillion – goes to citizens to spend, but ends up largely being paid to the banks and landlords. Specifically, there is an enormous giveaway that makes real estate tax exempt for the next 30 years.

Jim Vrettos : What about small businesses? Are you including them in this analysis?

Michael Hudson : Most small businesses they're rescuing are the landlords. They have received the most Small Business Administration loans, usually by going through the local political party machine. When the Republicans or Democrats talk about small business, they mean the landlords, who are the proxies for the big real estate interests and the banks behind them.

So let's look at this: The bill asks landlords to stop evicting people for three months but let the rent accrue, and personal debts also. Let's look at what's going to happen when the three months are over.

You're going to have restaurants and small businesses – whose major expense is rent and credit – not having done much business during these three months. They will end up owing this major cost of doing business for three months without having their usual income. What's going to happen by the end of the summer?

A lot of restaurants here in Queens only have takeout service. So how are these small businesses going to pay the debts that have mounted up in the last three months? Many will have to go out of business, declare bankruptcy and start all over again, because otherwise all their earnings for this year and next year – and probably the year after that – would have to go to make up the arrears to their landlords, their creditors and the banks.

So what pretends to be a coronavirus bill is going to say, "You think the virus hit you? Wait till we hit you with the financial bill." The financial bailout aims to enable the financial sector to extract so much money from the economy and drive so many small businesses under that the big venture capital firms and private equity can pick them up at low all prices. You could call it the "Monopolization of the US economy" bill or the "Contributors to Washington politicians" bill.

There was a wish list that the banks had, the real estate interests and corporate lobbyists, that they'd been saving up for just such a crisis opportunity. The coronavirus is equivalent of 9/11. As in 9/11 when President Bush and Cheney pulled out the Patriot Act that they had in their drawer just looking for an excuse. Right now the coronavirus, the Trump-Pelosi bill gives the banks and the real estate sector an excuse to not only be bailed out as if they're losing money, but to evict their tenants.

Jim Vrettos : To profit even more?

Michael Hudson : Not necessarily profit. Profit you have to pay income tax on. Rich people don't make profits. They make capital gains. Only the little people make profits.

Jim Vrettos : You said this was conscious on their part, right? This is a rational way in which they think about these things. There's no moral dilemma to all of this by the large venture capitalists and so on, Wall Street, is that correct?

Michael Hudson : Yes. Obviously the lobbyists have written these laws. Trump is a real estate investor and certainly knows that when it gives the biggest single giveaway to the real estate sector. Real estate will not make a profit for the next 30 or 50 years. But it'll make enormous cash flow. They'll call it depreciation. The depreciation schedule pretends that buildings are losing their value even when they're going way up. It's an accounting system, including the national income accounts that have little to do with the real economy. So there is no more way to empirically describe what's happening using official statistics. We're entering a just-pretend statistical world with a just-pretend rationale and Orwellian euphemisms.

Jim Vrettos : Okay. So moral suasion, what are the limits? You worked with and talked about Rev. William Barber's Poor People's Campaign, for example. You talk about Bernie and his movement and so on. Are these designed to fail? Are there possible strategies that can be used to limit the vicious profits and money that's being made?

Michael Hudson : What's the connection between moral suasion, Reverend Barber and Bernie?

Jim Vrettos : I guess I'm asking here is who speaks for the poor? Who speaks for the workers? Who is standing up for the disadvantaged here?

Michael Hudson : Mainly their employers and creditors claim to be speaking for the workers. Their trickle-down economics says that "What's good for us is good for the workers. We want to help the workers by lending them more money to afford nicer housing, and lend them enough money to afford to pay their rising debt charges."

Jim Vrettos : Yet in fact that's not in their interest.

Michael Hudson : Of course it's not. But they can dominate media and drown out alternatives. The media don't care very much what Reverend Barber says or what Bernie says. The media say, "What's good for the workers is what's good for the banks." In fact, Trump and Biden came up last week and said there's going to have to be a second coronavirus bill, and we've got to really focus this time on the banks. We didn't give them enough in the first bill, o we have to give them more so that they can lend more.

Now, when you say we have to give the banks more money to lend more to get the economy moving, it means we have to have families and businesses take on more debt. This means that more and more of their income must be paid as interest and amortization, financial fees, late fees and penalties, and service charges. The double-talk is about as explicit as can be, with the Democrats being more adept at euphemism than the Republicans.

Jim Vrettos : As you probably know, we're taping this same day that Bernie has dropped out of the campaign. So who do you look to? What movement, what organizations are left to represent the interests of the vast majority of us?

Michael Hudson : I don't see anyone. Certainly in my profession, the economics profession, the major respectable economic journals are all censored by the Chicago School of monetarists and the neoliberals. So it's very hard to look to the economics profession for much help, at least from professors who want to get promoted and get tenure. I don't see much help at all.

As for voters and the two political parties, if you look at what economists call "revealed preference" and who the main voters for Biden are, what are they supporting? They threw the election to Biden, away from Bernie. What did they want? Well, it's as if they want lower wages, less education, more debt and more police power. They want more credit (that is, debt) and they would like to see social programs scaled back. That's what the voters have selected, "because it can beat Trump." That's their revealed preference, if you look at what their voting reflects. It's as if they've chosen lower living standards, and believe that the rich should have enough more money so that maybe some of it will trickle down.

MMT, left- and right-wing

Jim Vrettos : Trickle down. Right. You also work with Modern Monetary Theorists, correct?

Michael Hudson : That's right. I'm on leave from the University of Missouri at Kansas City, which has been the center of that. I'm also, as you pointed out, a research fellow at the Levy Institute, and I've worked closely with Stephanie Kelton, Randy Wray and the others.

Jim Vrettos : So tell us a little about that approach that you still have some confidence in. Tell us about what they are telling us to do, what you're telling us to do as a group.

Michael Hudson : It's not a homogeneous school. The idea of Modern Monetary Theory has roots going back to the functional finance of Abba Lerner in the 1960s, but you can look at Hyman Minsky as one who really inspired it in the 19980s and '90s. Its logic is that deficit spending is not bad if it is spent in the real economy to increase employment and spending.

The Chicago School says any government spending is the road to the gas chambers. I've heard that said literally. They say that with government spending, you're going to end up like Germany in the Weimar area with hyperinflation or like Zimbabwe. They think that running a government deficit actually increases consumer prices and that erodes the purchasing power of financial wealth. Well, Modern Monetary Theory says, first of all, that there's a disconnect between financial asset prices and where the real economy is going. Asset prices, capital gains and the wealth of the 1% are going up but real wages and disposable income has been going down. We've seen real estate, stocks and bond prices going up and up since the Obama bailout of 2009, but the economy has not benefited the 95 percent.

There's a sort of crude MMT solution, to simply run a budget deficit. And one extreme, there are some MMTers – not me and not my colleagues, but some MMTers – who say that all you have to do is run a budget deficit and you'll pump money into the economy. The tacit assumption is that this money is going to be spent in a Keynesian-style way, on hiring labor, especially if the government will build infrastructure. The government would buy goods and services, whose production involves paying labor and you'll reflate the economy, you'll increase the circular flow of income within the production and consumption sector.

On the other hand, Wall Street and England have discovered bad MMT. It's Donald Trump's or the Democratic Party's Obama-style MMT version known as Quantitative Easing. This approach says that deficits are indeed wonderful, as long as the government is running a deficit to spend on Wall Street, not into the "real" economy.

The leading MMT advocates of government spending, like Stephanie Kelton, Randy Wray and a whole group of MMTers who are critics of Wall Street, emphasize just what kind of government deficit spending we're talking about. What actually is spent on public investment, employment and income support. It has to be spent on labor and tangible capital. The fake MMTers are saying government deficits are great if given to the banks. Banks will provide the credit and save the rest of the economy. But that's the opposite of what we're saying. So just like every good religion early on, every good idea from Jesus to Marxism can be turned upside down and into the opposite. You're seeing an attempt today to turn the MMT that we all developed in the last three decades into a travesty of bailouts for Wall Street. It is as if bailing out Wall Street, Barack-Obama or Joe-Biden style, is going to bail out the economy by enabling it to run deeper into debt.

Bernie Sanders' six-point program

Jim Vrettos : So that's the choice we have then – the Trump version or the Obama-Biden version. I just got a group email from Bernie. Stephanie Kelton is one of his economic advisors. I'm going to read it briefly here. It's about the six core provisions that must be included in the next legislation. The first need, he says, is to address the employment crisis and provide immediate financial relief. To do this, we must begin monthly payments of $2,000 for every man, woman and child in our country – guaranteed paid family relief throughout the crisis, so that people who are sick do not need to choose between infecting others or losing their job. Is that what you're talking about?

Michael Hudson : This is similar to the MMT proposal for guaranteed income. What Bernie says is that the best way to introduce this proposal is to begin it during the coronavirus when people most obviously need it. I think Bernie added that it should be given to self-employed, to retirees, and to aliens living here. You have also to give it to everybody, or else they are going to be out in the street. It has to be general. I think a number of our people have been recommending that over the years. Pavlina Tcherneva usually explains this program as an extension of MMT policy.

Jim Vrettos : Absolutely. The second point he makes, along with what you've just said, is that we must guarantee healthcare to all. Medicare must be empowered to pay all of the deductibles, co-payments and out-of-pocket healthcare expenses for the insured, uninsured and under-insured. No one in America who is sick, regardless of immigration status, should be afraid to seek the medical treatment they need.

Michael Hudson : Here is the perfect catalyst opportunity for general healthcare for all. The reason you have to give healthcare for everybody right now, without cost, is that if you don't, they're going to be sick. And without health care, they're going to spread the disease to the rest of the economy. My friends in Hong Kong are telling me that there has been a second wave of virus there, and I'm told that in China there's a second wave. If you don't give the healthcare to everybody who needs it and you don't begin testing everybody and giving them whatever they need to get well. That includes guaranteeing their housing, as you just talked about, enough to pay their rent, buy food and get by when they're not earning an income. The alternative is for them to infect the whole rest of society repeatedly. Here's a perfect scale of model and a dress rehearsal for Medicare For All.

Jim Vrettos : Third point, to use the defense production act to produce the equipment and testing we need.

Michael Hudson : That's nice thought in principle, but the problem is that America has spent three decades since the 1980s disinvesting and outsourcing its industrial sector. I'm told that there are no screws or fasteners made here. How are you going to produce the medical equipment, masks and other things you need?

Masks, I'm told, cost about 20 cents to make. But here in New York they're being sold for $10. I think that the plan to produce them in America is to give U.S. monopolies the power of life over death, your money or your life. Why not $50 a mask – and let buyers pay on credit. Send them a new box of masks each week and sign them up on an easy-payment plan, billed every month like a public utility.

If it costs ten or even a hundred times as much to produce protection in America because they're producing for profit, do you really want to leave this to private industry? You really want the health sector to be public, because if it's privatized, it's going to be run with the objective of charging monopoly rent and lowering the quality. Basically it will be rife with the kind of fraud that we've seen whenever there is a kind of crisis.

I think that Bernie wanted to say that we should revive manufacturing in this country, but this is not something that can be done quick enough to cope with the coronavirus. The government has been grabbing sales of masks and other equipment to European countries and giving them to the Republican States. I think FEMA grabbed masks and ventilators for Massachusetts, a Democratic state. We're going to give it to Western states that vote Republican. The system already is so deeply corrupted that I don't see a short term solution.

Jim Vrettos : Fourth point: Make sure that no one goes hungry. As states record levels of food insecurity, we must increase benefits, expand the WIC program, double the funding for emergency food programs, expand Meals on Wheels, school meals programs, and deliver food to vulnerable populations. So it sounds like an extension of Great Society anti-poverty programs.

Michael Hudson : Again, who will benefit financially from this? Will this be a public program or a privatized program? I'm sure Donald Trump and Wall Street would like to charge the government $20 for every lunch that cost them $2. So at what price and on what terms? Who's going to be the main beneficiary? If Bernie is a good sport and let's Biden decide, he's a goner.

Jim Vrettos : Exactly. Two more: Provide emergency aid to states and cities, $600 billion direct physical aid to ensure that they have the personnel and funding necessary to cope with the crisis. In addition, they must establish programs to provide fiscal support and budgetary relief to States and municipalities.

Michael Hudson : That could be an awful program if it is debt-financed. States and municipalities are so deeply in debt that this crisis is going to push them even deeper. What Bernie seems to be opening himself up to is the Mitch McConnell solution: "Let's abolish the public pensions that they owe, and let's cut back public services. We have to let the banks be paid. Let the Federal Reserve load down the states even more in debt and make sure that they pay their bondholders who are mainly in the wealthiest 5% of the population." This could be a bailout for the 5%. The State and local debt must be written off. It's become a bad debt in the fact of the corona virus.

Unfortunately, American law has no procedure for state and local bankruptcy. They can't wipe out their debt. Even worse, many states have written into their constitution a balanced-budget requirement. If the Federal Reserve gives them support by more credit that has to be repaid, they're going to have to cut back social services. Betsy de Vos would like them to sell off the schools to be privatized. In any case, they're going to have to change the character of local spending. You cannot save the states and localities after this crisis if the current debt and financial overhead remains on the books. There has to be federal funding in one form or another acknowledging that the crisis has prevented the states, New York state, New York City and others from paying their debts. So we need to write them down.

That is going to cost bondholders. They belong to the higher income brackets, because state and local bonds are tax-exempt. Somebody has to bear the costs, and the Republican and Democratic suggestion is the same: to make the 99% pay the the 1%. That is a terrible solution. It doesn't address the debt problem. Without addressing that, you are part of the problem, not part of the solution.

Jim Vrettos : He may be trying to redeem himself a bit here with the six recommendation. Suspend monthly payments. We must suspend monthly expenses like rent, mortgages, medical debt and consumer debt collection for four months. We must cancel all student loan payments for the duration of this crisis, place an immediate moratorium on evictions, foreclosures and utility shut-offs. It doesn't go far enough. Correct?

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Michael Hudson : What does "suspending" mean? Does it mean not having to pay rent this month, next month and maybe in August and September? That's fine. But what happens when October comes? If your rent is $1500 a month, do you have to pay the $7500 that has mounted up in arrears – or be kicked out? The landlord or mortgage banker will have a lien on whatever you're supposed to get from Social Security and other income. They will get a lien on your property and wages. So suspending payments isn't enough. They have to be annulled.

The bailout has given an enormous giveaway to the real estate industry, and is backing its right to collect all the rents, or else to evict the tenants and grab their property and paychecks. This is a pro-landlord bill. What's needed is nonpayment. You have to follow the money and come right out and say what the underlying problem is.

Jim Vrettos : Understood. The political resistance to what's going down is so feeble. Certainly during the sixties we had a welfare rights movement that Richard Cloward and Frances Piven helped organize to put pressure from the bottom up and get some sort of guaranteed annual income.

Michael Hudson : For the bottom up, but led by the top down.

Jim Vrettos : Yeah.

Michael Hudson : They were not very effective. There was an egotism saying "We're for the people."

Jim Vrettos : I'm searching for some of your ideas as to what we might support as alternatives. Do you see any out there, and how people can mobilize to resist and organize?

Michael Hudson : I think Reverend Barber is doing good work. I think the Justice Democrats are doing good work. I think the people around AOC also are.

Jim Vrettos : BrandNew Congress we heard are doing some good work.

Michael Hudson : But that's not enough. There's still not much discussion of the economic problem that really is at the root of this. People complain about the symptoms of inequality, even rich people do that. Everybody has books documenting inequality. But what they don't want is a discussion of what's creating it. Does the world have to be this way? What policies are needed to reverse it?

If you discuss that, and find that the root of inequality is the financial system indebting the economy and financializing real estate instead of making it the tax base, then you realize that you have to change the system. Today's wealth is mainly financial and rent-extracting, taking the form of indebtedness for 90% of the population.

The only way to recover is to wipe out this debt. You can't recover the real economy of production and consumption without wiping out the debt overhead, without rolling it back. That is what people are unwilling to see. They're unwilling to look at the solutions, because that's beyond the Overton window. It's cognitive dissonance. Actually curing the problem is no simply rubbing your hands and saying, "Oh, isn't that too bad?" If you criticize the debt system, however, you lose the coverage and the public media. That is why we're on the Internet, not on The New York Times or Wall Street Journal .

Jim Vrettos : Exactly. And you're one of the very few economists who have looked into the philosophical and historical origins of this.

Dismissing debt problems as an "externality" instead of at the core of policy solutions

Michael Hudson : I became an anthropologist and archeologist a Research Fellow in Babylonian economics at Harvard's Peabody Museum in 1984, to focus on that. It was obvious that the debts were not going to be rolled back. In 1980 the U.S. economy was so highly indebted that when interest rates went up to 20%, many economists thought that the debts would be wiped out in a convulsion of bankruptcy as in the 1930s. Instead, you had the government play a new role, to support Wall Street and to deregulate the economy for financial predators. The result was the Drexel Burnham era of corporate rating, and financial takeovers and debt pyramiding that has caused today's problem.

If the problem is financialization, then the solution to the economy has to be to de-financialize. That cannot be done as a slow process. It can only be done in a single stroke, a quantum leap. I don't see a constituency for wiping out the debt as long as people believe that you have to help the banks save the economy and help the 1% trickle down their wealth.

The 1% has no intention of letting its wealth trickle down. Its intention is to take even more wealth from the 99%. Its intention is to suck up, not trickle down. Its lobbyists write the laws to make sure that the wealth is sucked up, not trickled down. And unless you realize that there's a war of the financial sector against the rest of the economy, then as Warren Buffet said, "There's a war on, and we're winning it." But only they know there's a war. The victims don't even know there's a war.

Jim Vrettos : The victims become statistics that we're willing to put up with. One of the questions I have for you here: Each year, over 250,000 people die in the United States in what social scientists refer to as structural violence and economic devastation of living in poverty, with the strains, stresses and anxiety of trying to survive in the structure of work, family, criminal justice, health and housing. We're willing to put up with that, we're willing to blame the victim in a sense, and create a whole structure that attempts to address their problems without dealing with the structural roots.

Michael Hudson : Economists call these problems externalities. In other words, they're external to the economic model. Just as global warming and pollution are external to the model. This is at the root of "free market" theory rationalizing the status quo as natural, as if There Is No Alternative. The problems and costs to society created by financialization and living in the short run are considered external to the model, because the models themselves are short-term. and really focus on how the 1% can make more money. How can the financial sector make more money from the real economy? Debt and credit is see as the solution, not as the problem.

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Environmental pollution, personal violence, the suicide rate, emigration and shortening lifespan, that's all external because once you discuss them, then all of a sudden you broaden the problem beyond what economists talk about to what society talks about. In all of the academic disciplines this is occurring. Sociology was developed in an attempt to broaden economics to discuss these overall social issues. Just as the University of Chicago played a narrowing censorial role in economics, it played a similar role in sociology, just talking about status as if it is something inherent. Anthropology was created as a discipline in order look at the long picture. But that's been narrowed into what one anthropologist calls underwater basket weaving and a study of tribal groups.

There is no academic discipline that is focusing the debt problem that we're discussing. Any "discipline" is narrow. You need a pan-disciplinary approach – a broad approach that looks at society as an overall economic system, not as separating one economic organ from suicide rates or public health, as if none have any relationship with each other. It's a desegregated system. There's nothing like the kind of discussion you had in ancient Greece, Rome or Babylonia in ancient times when people treated the social problems as including personal character, the environment and everything else.

Jim Vrettos : Understood. Barber does talk about this to a certain extent by trying to make connections to racism, ecological devastation, war and militarism, the false moral narratives that hold up these injustices. Is that the sort of analysis we need, the thinking that we need to pursue?

Michael Hudson : Who's going to provide that kind of narrative in an academic framework, given the way that the universities segregate their educational system into disciplines? Can you provide it in the media? Is this something that you'd expect to get discussed in now The New York Times or the Wall Street Journal ? Is it something you'd expect to discuss on ABC TV, MSNBC or Fox news? Where are you going to discuss this?

Jim Vrettos : I understand what you're saying. We're all in our little silos here, so-called disciplines that are not interconnected. We don't see that in the political world, in the academic world, as you say, in the so-called spiritual, religious world as well. You've written about how religion and economics have been so separated and how that needs to be re-connected. Do you want to spend a little bit of time on that?

Michael Hudson : Every religion has gone downhill, just like classical economics, which turned into the opposite of what it was in the time of Adam Smith and John Stuart Mill. When I talk about religion's treatment of debt, I begin with Sumer and Babylonia and the idea of religion as preserving economic stability. It wasn't so much out of an idea of utopian idealism that the Mesopotamian rulers canceled debts. They wanted to prevent the economy from falling apart. They wanted to prevent the citizenry – the taxpayers and cultivators on the land – from falling into debt to an oligarchy that would use their money to overthrow the rulers and take over society, financial-style.

Religion tends to reflect the leadership of society, although it tends to begin as a moral reform movement. The leadership in the third millennium, second millennium and even the first millennium BC could not afford an oligarchy impoverishing the rest of society. If an oligarchy did that, society would fall apart. But gradually as Aristotle pointed out, every democracy turns into an oligarchy, and so do palace economies. The oligarchy in turn tends to our takeover religion. In Judaism, Jesus accused the Pharisees of loving money and replacing the Jubilee year with Rabbi Hillel's prosbul in which debtors waived their rights to have a debt cancellation under the Jubilee Year.

Same thing with Christianity. It began with the idea, expressed in Jesus's first sermon when he said that he had come to proclaim the Jubilee Year. He unrolled the scroll of Isaiah and said, that was his message. Christianity began that way. But by the fifth century of our era, it took the African branch of Cyril of Alexandria and St. Augustine, that said, "Okay, we're going to accept the world as it is. It's okay for the landlords to have their land and for the rich people to be rich, but we will just ask them to be moral and act with charity, especially to us paradigmatic poor in the Church."

You have every religion taken over, so you need a continual renovation, a continual Renaissance of religion. It usually is easier to start a new religion – or a new academic discipline – than trying to reform an institution mired in inertia. I don't think existing religions can be reformed, any more than the economics discipline that has deteriorated into a religion of financial wealth-seeking.

I don't know what's happening with the Catholic church. It has a Pope who seems to want to restore the Liberation Theology that the Church was moving toward in the late 20th century. I don't know what the future of that is. Obviously there was a fight by the last two Popes to oppose Liberation theology. The Protestant religions I think are pretty passive.

Jim Vrettos : Sounds like we're in the iron cage as the sociologist Max Weber put it.

Michael Hudson : I thought you were going to say the End Days.

Jim Vrettos : Well, I don't think he put it that way, but-

Michael Hudson : I meant the Book of Revelation.

Jim Vrettos : Right. Marx saw a little hope in the idea of praxis , correct?

Will Finance Capitalism destroy Industrial Capitalism?

Michael Hudson : He thought that industrial capitalism was going to be revolutionary in fulfilling its historical destiny of lowering the cost of production, above all by lowering costs and being more efficient by getting rid of the landlord class and the financial class. He expected credit to be made a public socialist infrastructure. His idea was that industrial capitalism would find an increasing role of socialism to be in its self-interest. In his day you saw what was called state socialism in Prussia and the rest of Germany. Marx was careful to point out that state socialism wasn't really socialism. But it was paving the way for a working-class democracy or revolution to take over.

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In Marx's day the fight for democracy was led by industrial capitalism. The only way to get rid of the landlord class and its predatory extraction of rent was to replace the veto power of the House of Lords over Parliament with a publicly elected House of Commons having primary legislative authority. The followers of Ricardo, the "Ricardian socialists" and John Stuart Mill backed parliamentary reform to extend voting power to the people. Marx assumed that it would be logical for industrial capitalists to act in their self-interest, and voters to act in theirs. But it hasn't worked out that way.

It seemed to be working that way, leading up to World War I. But that war I came like a meteor, knocking the West's economic development path out of orbit. The rentier class, the landlords and predatory banking class, made a resurgence. Instead of the government reflecting the interests of industry and the people in the form of rising wages to produce a rising circular flow and demand for industrial products, a positive feedback between industrial production and labor, you had the financial rentier sector – what I call the FIRE sector, Finance, Insurance and Real Estate – hijack the economy and bring about the permanent depression that we're in now.

This is my main point: We are in a permanent depression. There can be no recovery without wiping out the debt overhead (euphemized as "wealth"). As long as you leave the 1% with the lion's share of wealth (creditor claims) and property ownership, the economy cannot recover. Without realizing that, there cannot be a class consciousness regarding today's world.

Marx talked about the class consciousness of labor vis-a-vis its employers. That took place within the production and consumption sector. But today's class consciousness of wage earners has to see that industrial companies have been turned into financial companies. They've been financialized. A relevant class consciousness must realize that it's up to socialists to do what industrial capitalism failed to do – namely, to free society from the rentier sector, from the landlord class, the monopolists and financial creditor class. Without freeing society from them, you're going to have a neofeudal economy. As Rosa Luxemburg said, it's either socialism or barbarism. Barbarism is a permanent depression. All the classical economists warned against the landlord class, banks and the monopolists continuing to run society into the ground.

Jim Vrettos : The state has become a functionary of the financial sector. It hasn't withered away in the sense as Marx would have thought.

Michael Hudson : It has not evolved in the way he anticipated. Marx thought that at least the state might be for state capitalism. He worried it would go hand in hand with heavy industry and squeeze labor. The question was, would a state capitalism see its interest in supporting labor's living standards or not? But as it turns out, the financial sector is much more brutal than the industrial sector that Marx envisioned as evolving toward socialism. Finance conquers the entire economy, industry along with labor

Jim Vrettos : We're about out of time, but I have to ask, are there any examples that you can maybe point to – Denmark, Finland or anything that we can point to as a model that might be something we could emulate to a certain extent?

Michael Hudson : Certainly a social democracy helps, and Denmark and Finland never let themselves be financialized in the first place. They never let the 1% grab the control of the economy to the extent that has occurred in the United States and much of Europe. So the problem is, how do you get rid of a parasitic blister on society? That can only be done by cutting off the blister. Denmark and Finland have not had to deal with this problem, because they've remained more balanced.

What do you do when society has lost its balance? You have to think about structural reform. That's radical by definition. Structural reform is called an externality – exogenous, extraneous to what economists talk about. If you're talking about where the economy should go, mainstream economists are talking in a narrow policy tunnel that means "Be passive and do nothing, be quiet like a frog boiling in water."

Jim Vrettos : A frog boiling in water. Well, Michael, thank you very much. It's been most enlightening. Thank you so much for doing the show.

[May 04, 2020] The essence of a financial parasite is not only to drain the host's nourishment, but to dull the host's brain so that it does not recognize that the parasite is there by Michael Hudson

The problem here is that there is no countervailing force. Marxist idea that proletariat is such a force proved to be yet another utopia.
Notable quotes:
"... istory's main engine of economic exploitation – the banking, creditor and financial systems' ever-increasing extraction of value through interest payments. The rentier class and FIRE sector – Finance, Insurance and Real Estate – have long succeeded in depicting themselves as part of a productive economy. Yet for centuries, these sectors were recognized as being parasitic. ..."
"... The essence of a parasite is not only to drain the host's nourishment, but to dull the host's brain so that it does not recognize that the parasite is there. ..."
May 04, 2020 | www.unz.com

Jim Vrettos : Welcome once again to the Radical Imagination. I'm your host, Jim Vrettos. I'm a sociologist whose taught at John Jay College of Criminal Justice and Yeshiva University here in New York.

Our guest today on the Radical Imagination is Michael Hudson. He was on our March 8th show. We had such an overwhelmingly positive response to that show that we've asked him to return today, and he's been gracious enough to accept.

Unlike most economists, he's been a fierce champion and advocate for the economic rights of the poor, workers, disenfranchised and the vulnerable around the world through his scholarship and lifelong activism. His unique economic analysis has explored h istory's main engine of economic exploitation – the banking, creditor and financial systems' ever-increasing extraction of value through interest payments. The rentier class and FIRE sector – Finance, Insurance and Real Estate – have long succeeded in depicting themselves as part of a productive economy. Yet for centuries, these sectors were recognized as being parasitic.

Now with the United States losing some 10 million jobs in just the past two weeks and the world awash in debt, the total world gross domestic product is $90 trillion. The public and private debt is a mind-boggling $260 trillion. The pandemic has given this parasitic sector yet another, even more vicious opportunity to exploit and devour humanity.

As our guest puts it, the recently passed Trump "Bank and Landlord Relief" bill, mistakenly named the Coronavirus bill, starts by providing banks with an even larger giveaway of wealth than they received from Obama in 2008. Helping the banks, financial and real estate sectors in a so-called free market system is conflated with helping the industrial economy and general living standards for most Americans. The essence of a parasite is not only to drain the host's nourishment, but to dull the host's brain so that it does not recognize that the parasite is there.

[May 04, 2020] Killing the Host How Financial Parasites and Debt Bondage Destroy the Global Economy by Michael Hudson

This is the systemic payback for concentrating ownership of assets in the hands of the few: when their bubble-era priced assets plummet in value, the bottom falls out of all assets with narrow ownership. The price of superfluous assets such as boats, vintage cars, collectibles, art and vacation homes can quickly fall to a fraction of bubble-era valuations, destroying much of what was always fictional capital.
Aug 26, 2015 | www.amazon.com
Finance as Class Warfare Reviewed in the United States on October 7, 2015 Verified Purchase Finance as Class Warfare
By John M Repp
A review of Killing the Host (2015) Michael Hudson
The wealth of the 1% comes from the 99%. The 99% are enriching the 1%. There are many ways this happens, for example low wages and high prices. But increasingly, today, the 99% redistribute their wealth through indebtedness. In order to try and live in dignity, the 99%, or at least two-thirds of them that have debts, pay off their debts with interest as they educate themselves, buy houses or small businesses, buy a car, and use their charge cards. Debt peonage is ancient, much older than the industrial revolution and this older pattern is becoming more prominent every day
Since the crash of 2008, millions of people here and around the world have lost businesses, homes, and jobs. Today, many others despair at their not getting ahead financially. Too many blame themselves, thinking there is something wrong with their ability or drive. If they understood the economic, political, and financial system in which we live, maybe they would not blame themselves and we could find a collective solution to our problems.
Michael Hudson, distinguished research professor of economics at the University of Missouri, Kansas City has just written a book entitled Killing the Host (2015). Hudson writes that the FIRE sector (Finance, Insurance, and Real Estate) along with the monopoly control of natural resources like oil and gas is the parasite. Finance i.e. banks (what we call Wall Street) is the leader of the parasitic forces. The host is the productive economy like manufacturing and farming and needed services like health care and education. Even more sinister is the fact that, just like in biology, a successful parasite often inserts behavior-modifying enzymes into the host so the host acts like the parasite is part of itself and does not try to reject the parasite. In this case, the behavior modifying enzymes are a set of false ideas dominating the economics departments of leading American universities. Hudson calls those ideas "junk economics" and in this book Hudson labors to correct those false ideas. More often the set of ideas is called "neo-liberalism". The politicians and technocrats like Geithner, Summers, Greenspan, Rubin, Clinton, and Obama put those ideas into practice inside the government of the host economy. Banks now control our economic and financial policy. The USA is no longer a democracy at the top. It is an oligarchy.
There is $11.8 trillion in private debt in USA, for houses, education, cars, and consumption. This is overhead and it causes the price of housing, education, cars and consumer goods to be higher. Hudson called this "asset-price inflation". The debts displace money for other things in people's budgets. Hudson calls this "debt deflation". It is the private debt overload that is harming the US economy, not the government debt. Mixing the two up is one of the main ideas of "junk economics". Just ask yourself, would you worry about paying your debts if you could print new money? It is the ability to create new money that makes a sovereign government like the United States very different than a private household. Evidence that private debt is overhead is the fact that after each business cycle since the end of World War II, the private debt in the USA has increased and each recovery has been weaker.
Another idea of "junk economics", alluded to in the metaphor of parasite and host, is ignoring the difference between on the one hand actual production like manufacturing, farming, or needed services like health care and education, and on the other hand, the paying of interest to private banks. Calling them both "wealth creation" confuses people, especially economics students and via the mass media, the general public. It results in bad policy like the tax deductibility of interest and the tax favoritism of capital gains. A third key idea of "junk economics" is the idea that what a person earns in our society is a measure of the contribution they have made to wealth of our society. A hedge fund owner making a million dollars a hour, and that has happened, does not contribute 66,666 times what a $15 an hour person contributes.
Hudson writes that Obama presided over an oligarchic coup d'état. He let Geithner and Summers convince him, after the collapse of Lehman Brothers, that if the other big Wall Street Banks and hedge funds collapsed, the world economy would collapse. But there was an alternative to the bailouts. The Treasury Department could have taken control of the insolvent banks and could have wound them down like was done after the Savings and Loan crisis in the 1980's and 1990's. The FBI and SEC (Securities and Exchange Commission) could have continued their investigations into widespread mortgage fraud i.e. the creditors committed fraud, encouraged by the big Wall Street banks, by making loans to people they knew would not be able to pay back the loans, especially, after the higher interest rates kicked in after a few years. The Obama administration continued the Bush policy of stopping the FBI investigations. What was done instead was to bailout the winning speculators in unregulated derivatives, what Warren Buffet called "financial weapons of mass destruction" Even the insolvent banks, primarily Citibank and Goldman Sachs, could have made whole the plain vanilla part of the their business. The threat that America's ATM machines would have run out of cash was bogus. Seeing that there was an alternative, especially an alternative with a precedent in our history, makes clear why Hudson says Obama presided over an oligarchic coup d'état.
There is an intriguing quote in the book: "If there is a second meltdown it will come from a political revolt probably not originating in the United State.. (e.g. a country like Greece cannot or refuses to pay its debts)" James K. Galbraith, fall 2013
There is another possibility that Hudson does not mention. From The Methods of Nonviolent Action (1973) by Gene Sharp, we read that method number 88 is the nonpayment of debts or interest. (pp. 238-239) If a mass movement of debtors would stop paying interest of their odious debts, it could cause banks to become insolvent. The movement should then demand the nationalization of Wall Street and the Federal Reserve and write-down of people's odious debts, the taxation of "economic rent" which is unearned income from monopoly privilege, the revocation of the deductibility of interest, the creation of a public bank option, and the adoption of the policies of Modern Monetary Theory in which the nationalized Federal Reserve would create new money and Congress would spend it into the economy. Currently, the public/private Federal Reserve creates new money and gives it to the big Wall Street Banks to prop up their balance sheets, a process called "quantitative easing". Hudson has a 10 point program (p.403) He writes that "reform must be across the board, not piecemeal" (p. 406) and it "must be done quickly and totally, not slowly and marginally" (p.407).
Behind ancient debt bondage and the modern form of debt peonage is the same basic dynamic. The real economy cannot grow as fast as compound interest does. Because the temples and the palaces of the rulers in Mesopotamia and Egypt loaned the money that indebted the poor, when the social stress became too destructive, because the creditors were public institutions, they could cancel the debts more easily than the private creditors of today. The cancellation of debts released the bondsman, a form of slavery, to return to their families or their land. This was referred to in the Bible as Jubilee. Hudson's main academic area of study is the ancient Near East economies and long term economic trends. He was one of the few economists to predict the financial crash of 2008. >

Steve Sewall , Reviewed in the United States on March 23, 2016

This book suffers from typos and is not published by a major academic press (they like would not touch it even though Hudson's b

Congratulations you have just struck gold. This book suffers from typos and is not published by a major academic press (they like would not touch it even though Hudson's business and academic credentials are impeccable. He's taught at Harvard, worked at Chase). Bottom line, Michael Hudson may be the world's most advanced (and accessible) thinker on the global economics and state of capitalism today. A 2009 Financial Times entitled "Why some economists could see it coming" credited him with being one of a handful of economists who not only foresaw the global meltdown of 2007-2009 but foretold its causes. It referred to Hudson's 2006 Harper's Magazine cover story, which elaborately described these causes in terms of the predatory, so-called "FIRE economy" of lenders in the fields of Finance/Insurance and Real Estate.

Hudson's latest book, "Killing the Host", builds on the predatory phenomenon in nature whereby parasites prey on and ultimately consume their hosts by creating and maintaining the illusion that they are actual parts of the host's body. "Killing the Host" applies this metaphor the today's austerity-imposing, debt-sanctifying global economy. In it, Hudson shows how the predatory behavior of FIRE economy parasites - wittingly or unwittingly legitimized and legalized by neoliberal academic economists - perfectly replicates the illusory yet ultimately cannibalistic behavior of parasites in nature.

For more info, see his website[...] and
Wikipedia page [...]

Steve Sewall , Reviewed in the United Kingdom on January 1, 2019
This book suffers from typos and is not published by a major academic press (they like would not touch it even though Hudson's b

The sub-title of the book says it all – "How financial parasites and debt destroy the global economy" and this is without doubt one of the best books you will ever read on this topic. Hudson has been in the thick of it and this is often an authoritative, first hand, account. Like John Weeks' "Economics of the 1%" Hudson tells us that most of the economics we are taught is "junk" (Weeks describes it as "fakeconomics"). Unlike Weeks, Hudson avoids angry polemic and lays out the story of debt from a deep historical perspective. Hudson cites Aristotle's eternal political triangle – how history is an endless journey between oligarchy, aristocracy and democracy with the financialisation representing both the oligarchy and the aristocratic legs of the triangle. For Hudson our situation is simple, debt cannot be repaid hence most of it must be forgiven. In the first sermon of Jesus (Luke 4) the messiah unrolled the scroll of Isaiah and proclaimed a Jubilee Year of debt forgiveness – something the wealthy establishment of the day never forgave him for. Who knew?

Fast forward 2000 years and it seems nothing has changed. Economic crashes traditionally lead to debt write-downs (a "hair cut") but a new precedence was set in 2008 when creditors demanded they be paid 100% of what they had lent – even if that meant crashing the real economy such that the debts could not be repaid. This had gone beyond simple economics. It was now dogma – a dogma bent on destroying central government and the mixed economy. One by one all economies will be converted into private tollbooths for the collection of tribute to the financial sector. All economic activity above basic subsidence will be paid into the coffers of the 1% - the new aristocracy. They will bleed the real economy dry hence "killing the host". Finance is a parasite for which Hudson has a plan – and it is a drastic plan.

I have little doubt that Hudson is 100% on the money with his analysis of debt. However his analysis of political consequences maybe a little off the mark. He conflates the European Union with the Eurozone conveniently forgetting that Britain is not in the Euro. He claims that the new extremist far-right political parties that arose in Europe were the only ones addressing debt peonage whereas they demonstrably were NOT – they clearly blamed immigrants and were amply funded by Hedge Funds. His closing quote by Diana Johnstone (from Counterpunch) confuses internationalism for globalisation as if only the far-right nationalists can defend civilisation from financialisation. This is a sickening, inaccurate and disturbing conclusion and bears no resemblance to reality.

This book remains a must-read on the topic of our new road to debt serfdom. But you wish the author would choose his words more carefully.

Steve Sewall , Reviewed in Canada on October 3, 2015
This book suffers from typos and is not published by a major academic press (they like would not touch it even though Hudson's b

Highly informative and clearly written. Using the biological metaphor of parasitism, Hudson shows how the FIRE sector of our economy sucks the life out of the productive side (manufacturing, development of infrastructure et al).

[Apr 30, 2020] "Since I entered politics, I have chiefly had men's views confided to me privately. Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of something. They know that there is a power somewhere so organised, so subtle, so watchful, so interlocked, so complete, so pervasive, that they better not speak above their breath when they speak in condemnation of it." -- Woodrow Wilson, 28th President of the United States (1856-1924)

Apr 29, 2020 | www.unz.com

Anonymous Disclaimer , says: Show Comment April 19, 2012 at 6:49 pm GMT

Thank you for an excellent article on what is happening. My only criticism is that it appears that these things "just happen". With your insight and erudition, could you please address "why" the situation has arisen. What could be the motivation behind actions and policies which so clearly will destroy not only the 99% but also the basic wealth of the1%?

This is not something new, but a recurrent theme in world affairs.

" Behind all the governments and the armies there was a big subterranean movement going on, engineered by very dangerous people." "Since I entered politics, I have chiefly had men's views confided to me privately. Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of something. They know that there is a power somewhere so organised, so subtle, so watchful, so interlocked, so complete, so pervasive, that they better not speak above their breath when they speak in condemnation of it."
-- Woodrow Wilson, 28th President of the United States (1856-1924) "So you see, my dear Coningsby, that the world is governed by very different personages from what is imagined by those who are not behind the scenes." -- Benjamin Disraeli, British Prime Minister (1804-1881) President Franklin Delano Roosevelt wrote in November 1933 to Col. Edward House: "The real truth of the matter is, as you and I know, that a financial element in the larger centers has owned the government since the days of Andrew Jackson."

Many thanks

[Apr 29, 2020] Financialization of the USA has tremendous "externalities" and they will bite the USA now die to coronavirus epidemic

Apr 29, 2020 | www.unz.com

Miro23 , says: Show Comment April 29, 2020 at 6:50 pm GMT

@Art

The America that went to the Moon – would not fail. The JFK America had grit and can do.

NASA and space exploration are Anglo type things. Anglos (along with Germans), like engineering projects and technical challenges, and it was inventors like the Wright brothers and engineers like Henry Ford that built the US into the world's leading industrial power. They harnessed electricity, radio etc. to found new industries.

In contrast, America's new leadership is more into Jewish type things. Finance, speculation, deal making, publishing, show business, films. The heroes are the billionaire hedge fund managers (speculators) investment bankers (deal makers), billionaire media owners, Hollywood and big money types in general.

It's a different psychology, and there's no question that the Anglo model was better for the general public.

[Apr 24, 2020] Revealed the capitalist network that runs the world New Scientist by Debora Mackenzie and Andy Coghlan

Oct 19, 2011 | www.newscientist.com

The 1318 transnational corporations that form the core of the economy. Superconnected companies are red, very connected companies are yellow. The size of the dot represents revenue

AS PROTESTS against financial power sweep the world this week, science may have confirmed the protesters' worst fears. An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.

The study's assumptions have attracted some criticism, but complex systems analysts contacted by New Scientist say it is a unique effort to untangle control in the global economy. Pushing the analysis further, they say, could help to identify ways of making global capitalism more stable.

The idea that a few bankers control a large chunk of the global economy might not seem like news to New York's Occupy Wall Streetmovement and protesters elsewhere (see photo). But the study, by a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zurich, is the first to go beyond ideology to empirically identify such a network of power. It combines the mathematics long used to model natural systems with comprehensive corporate data to map ownership among the world's transnational corporations (TNCs).

"Reality is so complex, we must move away from dogma, whether it's conspiracy theories or free-market," says James Glattfelder. "Our analysis is reality-based."

Previous studies have found that a few TNCs own large chunks of the world's economy, but they included only a limited number of companies and omitted indirect ownerships, so could not say how this affected the global economy – whether it made it more or less stable, for instance.

The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company's operating revenues, to map the structure of economic power.

The work, to be published in PLoS One, revealed a core of 1318 companies with interlocking ownerships (see image). Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What's more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world's large blue chip and manufacturing firms – the "real" economy – representing a further 60 per cent of global revenues.

When the team further untangled the web of ownership, it found much of it tracked back to a "super-entity" of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network. "In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network," says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.

John Driffillof the University of London, a macroeconomics expert, says the value of the analysis is not just to see if a small number of people controls the global economy, but rather its insights into economic stability.

Concentration of power is not good or bad in itself, says the Zurich team, but the core's tight interconnections could be. As the world learned in 2008, such networks are unstable. "If one [company] suffers distress," says Glattfelder, "this propagates."

"It's disconcerting to see how connected things really are," agrees George Sugihara of the Scripps Institution of Oceanography in La Jolla, California, a complex systems expert who has advised Deutsche Bank.

Yaneer Bar-Yam, head of the New England Complex Systems Institute (NECSI), warns that the analysis assumes ownership equates to control, which is not always true. Most company shares are held by fund managers who may or may not control what the companies they part-own actually do. The impact of this on the system's behaviour, he says, requires more analysis.

Crucially, by identifying the architecture of global economic power, the analysis could help make it more stable. By finding the vulnerable aspects of the system, economists can suggest measures to prevent future collapses spreading through the entire economy. Glattfelder says we may need global anti-trust rules, which now exist only at national level, to limit over-connection among TNCs. Sugihara says the analysis suggests one possible solution: firms should be taxed for excess interconnectivity to discourage this risk.

One thing won't chime with some of the protesters' claims: the super-entity is unlikely to be the intentional result of a conspiracy to rule the world. "Such structures are common in nature," says Sugihara.

Newcomers to any network connect preferentially to highly connected members. TNCs buy shares in each other for business reasons, not for world domination. If connectedness clusters, so does wealth, says Dan Braha of NECSI: in similar models, money flows towards the most highly connected members. The Zurich study, says Sugihara, "is strong evidence that simple rules governing TNCs give rise spontaneously to highly connected groups". Or as Braha puts it: "The Occupy Wall Street claim that 1 per cent of people have most of the wealth reflects a logical phase of the self-organising economy."

So, the super-entity may not result from conspiracy. The real question, says the Zurich team, is whether it can exert concerted political power. Driffill feels 147 is too many to sustain collusion. Braha suspects they will compete in the market but act together on common interests. Resisting changes to the network structure may be one such common interest.

The top 50 of the 147 superconnected companies

1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
4. AXA
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp
17. Natixis
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
21. Morgan Stanley
22. Mitsubishi UFJ Financial Group Inc
23. Northern Trust Corporation
24. Société Générale
25. Bank of America Corporation
26. Lloyds TSB Group plc
27. Invesco plc
28. Allianz SE 29. TIAA
30. Old Mutual Public Limited Company
31. Aviva plc
32. Schroders plc
33. Dodge & Cox
34. Lehman Brothers Holdings Inc*
35. Sun Life Financial Inc
36. Standard Life plc
37. CNCE
38. Nomura Holdings Inc
39. The Depository Trust Company
40. Massachusetts Mutual Life Insurance
41. ING Groep NV
42. Brandes Investment Partners LP
43. Unicredito Italiano SPA
44. Deposit Insurance Corporation of Japan
45. Vereniging Aegon
46. BNP Paribas
47. Affiliated Managers Group Inc
48. Resona Holdings Inc
49. Capital Group International Inc
50. China Petrochemical Group Company

* Lehman still existed in the 2007 dataset used

Graphic:The 1318 transnational corporations that form the core of the economy

(Data: PLoS One)

[Mar 27, 2020] Origins of the USA finacilization drive

Mar 27, 2020 | www.moonofalabama.org

Prof K , Mar 26 2020 19:57 utc | 25

VK,
The financialization of the US economy has deep roots, going back to the postwar boom, during which western Europe and Japan began to outcompete US firms in world trade. By the mid 60s the US was running trade deficits with west Germany and Japan. As a result, US dollars began accumulating in central banks globally, with no purpose. When foreign governments began to exchange their dollars for gold under the bretton woods agreement, Nixon abrogated the system of fixed currencies backed by gold and refused to negotiate a new international monetary system. A new structure of economic relations emerged: the US would slowly deindustrialize because of a lack of competitiveness, it would run systematic trade deficits, but other countries would lend their dollars back to Wall Street as well as to the Treasury Department to fund the US federal deficit. This allowed financialization to take off.
The key point is that financialization is rooted in long-term dynamics of declining American competitiveness vis a vis its principal rivals.
Some people have take a short term view of this process, believing it gives the US structural power in the world system.
Over time, though, it has lead to structural economic weaknesses, grotesque inequality, unpayable debt, and endless crises.

thiamin , Mar 26 2020 20:03 utc | 27

I dont blame Trump either. Of course they would bail out the financial market: that is all america has left. The financial crowd since the Clinton era have been selling out everyone to get rich. Now all they have left are the bail outs. Even their military is useless because they cannot destroy china without hurting their american corporations that they keep propping up. Poor bastards.
vk , Mar 26 2020 21:34 utc | 58
This information is crucial and makes my hypothesis that the USA is "financializing" even stronger:

Figures for US corporate profits in Q4 and for 2019

Overall corporate profits rose 2.2% year over year in Q4, but ended up exactly flat for the whole of 2019. Most important, non-financial sector profits were down 2.1% year over year in Q4 and down 3.1% in 2019 as a whole compared to 2018.

This shows that the US corporate sector was already in a profits slump before the virus broke. Q1 2020 data should be revealing.

The trend in domestic non-financial corporate profits has been downwards for some time. These profits at end 2019 were 21% below the level at the end of 2014.

In other words, the USA is managing to save its financial sector, but not its "real economy". The USG moved mountains to keep profitability of the financial sector stable in 2019Q4, but the "real economy" (non-financial sector) fell almost at the same magnitude as the financial sector's grew (-2.1%).

And this is not a punctual event: the American non-financial sector had a 21% lower profit rate than it had in 2014 - and 2014 is still the post-crisis era, so they were not good profits either.

If this trend continues, we should expect a long-term continuity of the deindustrialization of the USA, increased militarization (so as to keep the USD standard), and the domination of the so-called "gig jobs", where the working class is essentially reduced to a "quick bucks", "pay to play" labor force.

[Mar 24, 2020] The Financial System Isn't The Economy - Mind The Gap by Bruce Wilds

Mar 23, 2020 | www.zerohedge.com

Authored by Bruce Wilds via Advancing Time blog,

The financial system is not the economy even though many people do not recognize the distinction. This means the gigantic efforts by the world's central banks and governments to essentially "bail-out" both will prove somewhat ineffective. Covid-19 has become the catalyst for a major reset of both the financial sector and the Main Street economy, this article will attempt to give some clarity as to what we might find still standing on the other side of this crisis. Note the use of the word crisis, anyone who does not view the covid-19 now as a watershed event is oblivious to the world around them

Originally the title to this piece was "Mind The Lag-Time Gap - The Worst Is Yet To Come." You may call me Captain Obvious if you hone in on the later part of this title but the first portion is the most important part. We should make a real effort to remember to mind the gap between events appearing on the radar and when they actually impact day to day life. There is such a thing as lag-time, everything is not immediate in our fast-moving world, some events take time to play out. The covid-19 crisis is greatly complicated because we have no real idea of how long it will persist. Hints have been made, possibly to ready the population, that this could or will likely continue for months.

The Sell-off Has Been Dramatic

The scale, scope, and speed at which world markets have sold off and lost value as investors try to get in front of this thing has been dramatic. Global stock and bond markets have seen an estimated $25 trillion of 'paper' wealth erased in the last month. This has erased all the gains from the December 2018 crash lows with more of the impact focused on stocks than bonds. In its wake, the sell-off has stripped many people of their savings and jeopardized the future existence of many businesses and financial institutions.

On the flip-side of the carnage is the ramping up of promises that a flood of money and aid is forthcoming. All options are on the table to get money into the hands that need it, some of it in the way of adding liquidity, some of it as a gift to anyone with their hand out. The specifics are spotty at best but one thing we can be sure of is that those lobbying hardest will get the most. The questions that remain to be answered are, how well this will work and will this infusion of cash be enough?

This Has Become A giant Game Of Jenga

As the world faces the biggest financial bailout in history it is now being reported in the news the US, in conjunction with the Federal Reserve, will now lend up to $4 trillion to businesses affected by the coronavirus pandemic. "Working with the Federal Reserve - we'll have up to $4 trillion of liquidity that we can use to support the economy," Treasury Secretary Steven Mnuchin. told Fox News on Sunday. What Mnuchin, a former Goldman Sachs executive, did not talk about is how dangerous these volatile markets are for the average investor.

Unfortunately, as with most programs unleashed by the "Financial-Political Complex," we can expect much of the money to rapidly flow to enriching those atop the wealth pyramid. Another certainty is that when all is said and done those in charge will rapidly claim things would have been far worse if they had not taken such draconian actions. People have shown they have a very short memory when it comes to the truth. Many Americans also have a difficult time understanding a large reason for the rapid growth of inequality is because the wealthy one-tenth of one percent of the population controls and shapes the nation's policy to their advantage.

So far covid-19 is a new entry on to the scene. The reality of how it will affect the economy has yet to be realized and will trickle down to society. What I deem the Financial-Political Complex will protect its own with a massive bailout under the guise of "the greater good." This extension of crony capitalism will throw just enough to the masses to silence their outrage. Large businesses will be the winners while the big losers again will be the middle-class, small businesses, and social mobility.

A few of the things that may change society are detailed below. Many people think the impact on labor force participation will remain mild with workers viewing all this as transitory. As the impact of COVID-19 take root and if activity fails to rapidly normalize, it is possible more workers may reevaluate their life and decide to exit the labor force altogether. The same will happen with many small business owners that come to the conclusion this is a sign to close their doors and retire. Covid-19 has fed fear and insecurity, these are not feelings that increase investors' desire or take on new risks.

While you hear about the massive aid package the Financial-Political Complex is concocting to prop up this mess we should not forget they are responsible for much of the damage flowing from this crisis. For years they ignored the growing weakness on Main Street and focused on rising GDP numbers that were driven by government deficit spending. Addressing this now is like trying to turn a battleship around in a lake the size of a bathtub, nearly impossible. If it can be done it will take a long time. No matter how much money they throw at this the economy will not turn around on a dime or spring back. Regardless of how the financial sector fares the economy is destined to feel a great deal of pain.

We are in the second inning of a long game. It is only as this lingers that we begin to feel the full power of the lag-time effect. Anyone that thinks next month will be a return to business as usual and fails to mind the gap between expectations and reality is primed for disappointment. Too big to fail has become deeply embedded in our crony capitalist society and a key part of the Financial-Political Complex now running the show. If you are not part of this group I suggest you prepare to be thrown under the bus for "the greater good."

[Mar 22, 2020] The Everything Bubble, Fictitious Capital and Coronavirus by Frank Lee

Notable quotes:
"... Financialisation operates through three different conduits: changes in the structure and operation of financial markets, changes in the behaviour of nonfinancial corporations, and changes in economic policy. ..."
"... Yes, the contrived-virus (convid19) is most certainly a smoke screen for global financial collapse ..."
"... The media and the Government are in lockstep. They are quarantining areas and locking down, not to contain the virus but to contain the ensuing violence when people finally and hopefully figure out that they are getting royally screwed. ..."
"... The oil markets are playing a role in the market turmoil. And its not the Corona virus, but the radical state overreaction aided by the cynical shameless hype mongering media that has crashed the markets. ..."
"... Corona as an economic instrument ? Can't argue that medical claims are just as inflated as the amount of money that has been printed. As a companion piece to Frank's excellent article take a look at Renegade Inc's film explaining why a Fiat economy is bound to end in tears. ..."
Mar 21, 2020 | off-guardian.org

The years since the 1970s are unprecedented in terms of their volatility in the price of commodities, currencies, real estate and stocks. There have been 4 waves of financial crises: a large number of banks in three, four or more countries collapsed at about the same time. Each wave was followed by a recession, and the economic slowdown which began in 2008 was the most severe and most global since the great depression of the 1930s."
Manias, Crashes and Panics – Kindelberger and Aliber

Interestingly enough 1971 was the year when Nixon took the world off the gold standard, which had been in effect since 1944. Fiat-bugs please note.

More to the point, however. Booms and busts have always been normal in a capitalist economy. But in recent years this has been a feature which has been exacerbated by and involves that part of the economy indicated by the acronym FIRE (Finance, Insurance and Real Estate) and its growing importance in the economy in both qualitative and quantitative terms.

Financialisation is a process whereby financial markets, financial institutions, and financial elites gain greater influence over economic policy and economic outcomes. Financialisation transforms the functioning of economic systems at both the macro and micro levels. Its principal impacts are to:

Since 1970 this part of the economy has grown from almost nothing to 8% of US Gross Domestic Product (GDP). This means that one dollar in every ten is associated with finance. In terms of corporate profits finance's contribution now represents around 40% of all corporate profits in the US. This is a significant figure and, moreover it does not include those overseas earnings of companies whose profits are repatriated to their countries of origin.

Thus, the increasing presence and role of finance in overall economic activity and the increase of profits channelled to the financial sector represent the salient indicators as to what has been termed financialization. It is argued by some that financialization may put the economy at risk of debt deflation and prolonged recession.

Financialisation operates through three different conduits: changes in the structure and operation of financial markets, changes in the behaviour of nonfinancial corporations, and changes in economic policy. Countering financialisation calls for a multifaceted agenda that:

restores policy control over financial markets

challenges the neoliberal economic policy paradigm encouraged by financialisation

makes corporations responsive to interests of stakeholders other than just financial markets

reforms the political process so as to diminish the influence of corporations and wealthy elites

The rent-seeking nature of finance is common to all forms of insurance, banking, monopolistic pricing, and property. This has not always been the case, or at least wasn't as pronounced as it is at present. There was a time when the banking system was junior partner in the relationship between banks and industry. Banks provided industry with loans for investment with a view to maximising profit for both. This is patently not the case today.

Generally speaking, banks will lend for property purchases, stock buy-backs, and perhaps loans for dubious mergers and acquisitions. Moreover, when we speak of 'profits' this has now assumed a rather obscure meaning. Profits were generally understood as a realization of surplus value.

Firms made stuff – goods and services – which had a value, which was then sold on the market at a profit. Given the competitive nature of the system, firms invested in increased capital formation and output which increased productivity, surplus value and ultimately profit.

With regard to Investment banks like Goldman Sachs and the commercial banks they do not create value; they are purely rent-extractive. For example, commercial banks make a loan out of thin air, debit this loan to the would-be mortgagee who then becomes a source of permanent income flow to the bank for the next 25 years.

Goldman Sachs makes year-on-year 'profits' by doing – what exactly? Nothing particularly useful. But then Goldman Sachs is part of the cabal of central banks and Treasury departments around the world. It is not unusual to see the interchange of the movers and shakers of the financial world who oscillate between these institutions. Hank Paulson, Mario Draghi, Steve Mnuchin, Robert Rubin on and on it goes.

This financialised system now moves in ever-increasing levels of instability. But what did we expect when the whole institutional structure – its rules, regulations and practises – were deregulated and finance was let off the leash.

Thatcher, Reagan, the 'Big Bang' had set the scene and there was no going back: neoliberalism and globalization had become the norm. From this point on, however, there followed a litany of crises mostly in the developing world but these disturbances were in due course to move into the developed world. Serial bubbles began to appear.

US stock prices [which of course would only ever go up] began to decline in the Spring of 2000, and fell by 40% in the next three years. Whilst the prices of NASDAQ stocks decline by 80%."
Manias, Panics and Crashe s – Kindleberger and Aliber

Chastened monies moved out of this market and into property speculation. It is common knowledge what happened next. The run-up to 2008 was floated on a sea of cheap credit. The price of stocks pushed property prices to vertiginous heights until – pop, went the weasel.

The reason was quite simple. Any boom and bust has an inflexion point where boom turns to bust. This is when buyers incomes, and borrowers inability to extend their loans could no longer support the rise in the price level. Euphoria turned to panic as borrowers who once clamoured to buy were now desperate to sell. 2008 had arrived.

The strange thing, however, regarding the property price boom-and-bust was that it was based upon pure speculation. Prices went up, prices went down. Some – a few – made money, quite a few lost money. Investors were wondering what had happened to their gains which they had made during the up phase. Where had all that money gone?

The short answer is – nowhere. It was never there in the first place. It was fictitious capital. Gains which had appeared and then disappeared like a will 'o' the wisp. As opposed to physical capital – machinery, labour and raw materials, and money capital which enabled through purchase the production of value to take place, we have fictitious capital which is a claim on future production. If my house goes up by 10% that is a capital gain, if everybody's house goes up by 10% that is asset-price inflation

Fictitious capital is a by-product of capitalist accumulation. It is a concept used by Karl Marx in his critique of political economy. It is introduced in chapter 25 of the third volume of Capital. Fictitious capital contrasts with what Marx calls "real capital", which is capital actually invested in physical means of production and workers, and "money capital", which is actual funds being held.

The market value of fictitious capital assets (such as stocks and securities) varies according to the expected return or yield of those assets in the future, which Marx felt was only indirectly related to the growth of real production. Effectively, fictitious capital represents "accumulated claims, legal titles, to future production'' and more specifically claims to the income generated by that production.

The moral of the story is that it is not possible to print wealth or value. Money in its paper representation of the real thing, e.g., gold, is not wealth it is a claim on wealth.

Of course, this would be lost on establishment economists, bankers, and financial journalists, whose view is that the policy should be QE, liquidity injections, and so forth. A one-trick pony.

And what has all of this to do with Coronavirus? Well, everything actually.

I take it that we all knew that the grotesquely overleveraged world economy was heading for a 'correction' but that's a rather a soothing description. "Massive correction" would be a better description. That is the nature of the beast. The world was a bubble of paper money looking for a pin. It found one.

Have a nice day all.


John ,

The "gold" backed currency is just another myth of stability, gold is controlled by central banks and hoarded by the owners of such, the syndicate in pc terms for delicate ears. Meaning the syndicate can adjust it as they please and decide what gold is worth as they've done in the past on a weekly basis. Inflation and deflation are used to rob the vast majority of people and expect there to be deflation coming up as that is the worst of the two. Price stability is much more desirable across the staples that people actually need, not what backs the man made tool called currency. The goal of responsible civil government should be full employment of its citizens (and price stability of essential for living), especially in productive industries, not useless luxury industries which do not benefit in any way. Now QE is just another form of inflation on a massive scale, good if you have say a house that will go up, but the more currency you have the less it's worth and the central banksters are using it.

Prices rise but wages and salaries do not rise anywhere near inflation, it's a slow sinking into poverty and vassalage of which mortgages are just a form of debt slavery. You can own nothing, you're just a renter of all things to be molded and caged if necessary by the syndicate owners and their God-State.

At some point no one will be able to afford houses and the crash will come. They DO NOT CARE if you payoff the debt, what's important is that you pay to service the debt thus keeping you in line. If you go out of line they can just demand the money now, thus putting you in the streets. When the time comes the God-State will take possession of all housing, all industry etc and the slavery will be complete. Just like the Soviet Union there will be an elite that are immune "gods" to all this, there is actually already this today, the "olympians" kingpins etc whatever you want to call them.

Biff ,

Yes, the contrived-virus (convid19) is most certainly a smoke screen for global financial collapse. Another day down under and another super tanker full of media hype and horseshit arrives. But then it struck me. Most of us know that Convid19 is about as deadly as the common cold.

In fact the Government even tells you this if you listen carefully to press conferences. This to me can only mean one obvious thing.

The media and the Government are in lockstep. They are quarantining areas and locking down, not to contain the virus but to contain the ensuing violence when people finally and hopefully figure out that they are getting royally screwed. The warning flag will be shutdown of social media services or the internet in your area. Then watch out. They have created a world where our only means of communication is the internet. You can't even make a phone call in Aus without the internet. Imagine it's not there.

Robbobbobin ,

"Yes, the contrived-virus (convid19) is most certainly a smoke screen for global financial collapse."

Are you saying that if COVID-19 were not contrived but a genuine public health problem then it could (so would) not be used as a smokescreen, i.e. that the contrivance of a virus of some sort (in this case COVID-19) is an essential aspect of your narrative; that if there were no pathogen engendering a pandemic problem then a serviceable smokescreen could (so would) not be contrived based on some factor other than a biological one, or are you saying something else altogether?

simply put ,

Money exists to facilitate trade.

So if the economy grows you need to put more money into circulation, if it shrinks you need to take money out of circulation.
That's why a gold standard does not work very well in a modern world, it cannot adapt to the changing environment, you cannot increase or decrease the amount of gold in the world (not as needed anyway) so you end up with not enough "money" available (or too much), both disastrous for the economy.

The banking system is corrupt, but not because of fiat money.

Ken Kenn ,

Lenin talked about making Statues out of Gold post a Communist Society so its' inherent worth is in the eye of the shareholder in its price or it's perceived future price.

Money ( fiat or otherwise ) is only an agreed exchange of labour to price of goods between a group of swindler Capitalists who ideally would wish that all the other Capitalists to pay their workers more so that they can buy the other Capitalists goods who don't pay their workers more.

The state of play at the moment is a bit Rooseveltian.

Is it better to be a poorer capitalist temporarily than not a future capitalist at all?

the UK Neo – Liberal position says yes only because there is a tiny chance that the masses will twig what's going on and why it's going on in this way.

80% of wages is better than 0% of wages/income.

This is predicted to last just 3 months.

If it lasts a year watch it all change.

Fact is- in the end the Middle Classes and down will pick up the tab.

And if the 'We ' are picking up the tab anyway ' We ' may as well demand and get 100% of wages/income.

As Thatcher said – It's our money – not the State's.

Theoretically of course in a democracy.

Toby Russell ,

I don't believe this or that form of money can ever be the be-all-and-end-all form. Fiat has its place, a gold standard has its place, shells have their place, gift exchanges, IOUs, etc. There are reasonable arguments to be made for each, but each reasonable argument, to be reasonable, would have to include historical context / societal conditions as a very large part of its logic.

Far more important than 'money as wealth' is how we culturally understand the nature of wealth that money can only ever be a claim on (an important function, an important component of wealth). As Rhys points out below, wealth is a slippery thing – it's subjective to a considerable degree after all – but if one thing unites all 'instances' of it, that would be its networked nature. There is no wealth at all without some sort of complex, living and healthy ecosystem to generate it, continually, dynamically. So another feature of wealth would be its dynamic and ever evolving nature. Another would be that there is thus no final guarantee of Always Having So Much Wealth I Never Have To Work Again. (Whatever work is. Bullshit jobs, anyone ?)

And as for productivity, well, what's that? Is productivity only productive when wealth is produced? On what definition of wealth? Good sleep produces health, assuming good exercise, good diet, healthy soil, richly biodiverse ecosystems, etc. The same is true of friendships, community, trust, fun All things that cannot be manufactured. Not that there's anything wrong with manufacture, which etymologically comes from manual , the hand, thus skill, craftsmanship, etc. All that good stuff.

So it's slippery, nuanced, open to discussion. What kills wealth, on the other hand – and is killing wealth right in front of our eyes – is narrow, dogmatic assertions about what it is. One's thing's for sure: it's not money (he asserts dogmatically). Money needs a thorough demotion, in my view, and things like sleep, community and trust need a great big cultural promotion.

Yet again, we are at a strange and mighty inflection point historically. They're popping up now with alarming regularity! Something is obviously in the offing.

Will our imaginations and courage fail us this time around?

RobG ,

Think of Henry Ford's famous quote.

Here in France last weekend was Acte 70, with a huge number of gilets jaunes out on the streets for the 70th consecutive week, protesting against 'austerity' and neoliberalism. This weekend, Acte 71, thus far there's been no street protests. I guess the gilets jaunes will know that it will bring bad publicity for them at the moment. What they are doing instead is issuing a massive call for everyone to open windows on their home this evening at 9pm, and bash pots and pans as loudly as possible. It'll be interesting to see how many people will do this.

No singing on balconys baloney here.

Alan Tench ,

Please speculate: why is the number of deaths compared to infections very much lower in all the Scandinavian countries than elsewhere in Europe? Let's just assume the figures might be reasonably accurate for this one. Also, looking at all the figures (sorry, I used Wikipedia for this), am I right in suspecting that the number of recoveries is being blatantly unreported in just about every country?

Ted ,

The oil markets are playing a role in the market turmoil. And its not the Corona virus, but the radical state overreaction aided by the cynical shameless hype mongering media that has crashed the markets. As the evidence rolls in, the actual Corona virus, and not whatever it is that is going on in Italy (a radical statistical outlier among all world nations), is rather boring. Much more boring than the normal flu virus. And let's not forget the possibility of an epidemic of false positives in a radical increase in PCR testing for Corona virus. Here in the West of the US, only 7% or so of tests yield positive results what if 100% of those are false positives during the normal tail end of flu season? see for example:

https://www.doh.wa.gov/Emergencies/Coronavirus

Robbobbobin ,

'I have a five pound note, issued by the Bank of England. It clearly states: "I promise to pay the bearer the sum of five pounds on demand." It is signed by the Chief Cashier on behalf of the Governor of the Bank of England. However, if I were to take this bank note to the Bank of England and demand my five pounds, I would be swiftly escorted from the building.'

Unlikely. If they could not oblige you there they would certainly refer you to a nearby commercial bank who would be happy to pay you five one-pound coins, or the equivalent in any lesser denomination, on their behalf, as promised. Of course, that would not counter your point, but it would keep their promise.

Seamus Padraig ,

OT: If anyone here wants a good laugh, read the comments on this ridiculous tweet.

https://twitter.com/cia/status/1241052116141178882

Gary Weglarz ,

Thanks Seamus, I needed that.

stupid iriot ,

Very amusing Seamus (but not funny for the victims) however, having read through all the tweets I didn't see one advocating "Spend many happy hours building your own Lego model of Netanyahu's bulldozers"

Jen ,

CIA must be desperate to recruit kiddies to spy on their parents through online games.

Mike Ellwood ,

Quite. As Minsky said, anyone can create money. The trick is to get it accepted. Governments who issue currency give it value simply by insisting that their citizens pay them tax in it. And how do the citizens get the currency in the first place? Governments spend it into the economy.

If you had a closed, autarkic (no imports or exports) economy, government could control the value of its currency pretty closely if it chose to. It gets more complicated in the real world, where you need to import real resources, and your currency is being traded in the Foreign Exchange market. It helps if you have something that other countries want, that you can export.

At the end of the day, what matters are real resources (people, as well as things). As we see with the toilet roll panic (and other, more serious shortages).

Toby Russell ,

Your comment gets my vote, though I would argue that this discussion, and the point you make, needs much more airing. As such, the argument is not academic, but vital. And this new Bizzaro World we just burst into is the right place for it. And loudly.

Seamus Padraig ,

By the way, Ben Swann did a great show the other night analyzing the media hype surrounding Corona Virus data. Enjoy

https://www.youtube.com/embed/ohO8eAwi_po?version=3&rel=1&fs=1&autohide=2&showsearch=0&showinfo=1&iv_load_policy=1&wmode=transparent

Ted ,

See https://www.medrxiv.org/content/10.1101/2020.02.12.20022434v2

A crude mortality ratio of .04% for Covid cases once a population estimate is produced for Wuhan.

See also: https://www.japantimes.co.jp/news/2020/03/20/national/coronavirus-explosion-expected-japan/#.XnYruC9lChB

The Japan numbers have puzzled me for a while, since they are no slouches when it comes to managing epidemics. Where are the exploding numbers for this modern plague in Japan?

At some point, folks gotta say that the WHO needs to be reformed or closed down.

John Pretty ,

Ted, there has been no coronavirus epidemic in Japan and no panic:

https://www.bloomberg.com/news/articles/2020-03-19/a-coronavirus-explosion-was-expected-in-japan-where-is-it

Jen ,

Japan may have a healthier elderly population compared to the same age demographic in China and other parts of the world due to diet (less Western junk food consumption over past decades) and rates of smoking probably lower as well. Air pollution levels in Japan probably much lower due to greater use of public transport and Shinkansen bullet trains in particular since 1960s. No wonder Japan still wants to go ahead with Tokyo Olympics.

Seamus Padraig ,

Another ringer from Frank Lee!

But then Goldman Sachs is part of the cabal of central banks and Treasury departments around the world. It is not unusual to see the interchange of the movers and shakers of the financial world who oscillate between these institutions. Hank Paulson, Mario Draghi, Steve Mnuchin, Robert Rubin

They don't call it Government Sachs for nothing.

#CoronaHoax

DunGroanin ,

Let's play them at their own game.

I want to see McDonnell put out a clear simple response of what measures are actually needed – i listed them a few posts ago in haste but they still hold:

1. All self employed / free lancers etc ought to be paid at least 60% of their last years submitted accounts on a monthly basis directly by HMRC – they have their bank details and these figures at hand a simple database query can be constructed and tested within hours – There can be a max limit to that based on numbers of children.

2. All others without such records ought to be allowed the full and increased benefit amount.

3. The 80% for employees is smoke and mirrors – that also should be 60% and no charges or NI / pensions/ student loans etc to complicate matters.

4. All rent private and social to be suspended. All interest on mortgages, creditcards, loans and overdrafts to be cancelled permanently until normal service is resumed (not accumulated aa debt).

5. All capital payments to be suspended.

6. All council tax collections suspended.

7. BBC licence fee cancelled and direct funding by the HMRC introduced to provide pybluc service broadcasting only.

8. All credit ratings and any such nonsense to be suspended on individuals records – nothing should be added for failing to keep up payments since beginning of March.

9. Any government funds into banks, corporations, pfi's to be accompanied by equity stakes in these and retained until all such balance sheet investment has been returned.

BigB ,

I see your bubble has yet to pop, DG?

The "massive correction" – that is value destruction – has to happen before any return to "real, productive" values can occur. Financialisation distorted productive values so much that any "normalisation" would destroy the value of money. Normal service cannot just be resumed.

Put simply: there is more money than productive goods and services that can be claimed on now, and in the future. A lot more a lot, lot more. At least 75 times more.

As I've said time after time: the economy has to expand exponentially or it collapses. As it stands: there is no pause or reset button without massive value destruction. Which could be done responsibly – a la the heterodox economists "jubilee" – or irresponsibly by keep blowing the everything bubbles with QE 5.

If you understand which mechanism is being employed: you will understand home isolation and draconian lockdowns. If debt deflation becomes hyperinflation you might wake up in Rhodesia or the Weimar Republic and you know what came next? 🙁

DunGroanin ,

Have you missed the 40% drop in stocks BB?

And the wiping out of business Goodwill value of many a small business?

Its a major scalping. Which we are letting happen as they say 'hide' from each other. The banks are laughing all the way to the bank.

BigB ,

No: collapse of financial assets is just the prelude. The real contagion is corporate bond market: full of over-leveraged Zombie corporations. Particularly stressed are BBB bond junkies of the shale market but the whole market is junked out on a decade of cheap money. When they cannot pay their way – that is, service their debt – then the defaults, layoffs, and delinquencies start probably in the second quarter.

In other words: it hasn't even started yet. Problem: excessive debt. Solution: create more debt (and buy up the most toxic bonds). Any rebound makes matters worse in the longer term.

One scenario to watch is when Saudi oil hits the market in April. That will put deflationary pressure on oil which is already at $23. That could cause things to cascade (all asset classes are proxies for each other – Dr Jack Rasmus check out his blog for explainers).

The thing is DG: this has sweet FA to do with any virus. The knock-on effect of which would have been containable I guess. But to start an oil price war? MbS was either recklessly irresponsible, or quite deliberate. My feeling is the latter. It was coming anyway. What better than to blame *force majeure* of a virus? And have populations on lockdown as the effects wind through to Main St.

DunGroanin ,

I agree on the whole BB. The thing about debt is that it can be cancelled! If that means these 'investments' will also be wiped out.

BigB ,

As Michael Hudson says "debts that cannot be paid, will not be paid". We cancel the debts, or we cancel the future. No choice to be made really, is there?

Mike Ellwood ,

Not sure if this what you meant above, but in case not, NIC should be suspended indefinitely, both for employers and employed, and self-employed.

Harry Stotle ,

Corona as an economic instrument ? Can't argue that medical claims are just as inflated as the amount of money that has been printed. As a companion piece to Frank's excellent article take a look at Renegade Inc's film explaining why a Fiat economy is bound to end in tears.

https://www.youtube.com/embed/K5rVz9RzEvQ

BigB ,

Welcome to corona capitalism or the corona casino! 😀

nottheonly1 ,

Roughly translated:

The masses owe, what the billionaires own.

What the masses still own, is now taken away.

Those who understand, see that a most generous unconditional guaranteed basic income/compensation for damages suffered on life and property by those who run the present system, will not suffice.

A system that is sold to the masses as the gold standard of governance and distribution, has driven the collective of the species closer to extinction. Maybe extinction is the goal after all? If that is not the case, then the UBI accounts to be like a glimpse into a world without money in any form. A world in which everything is indeed free. Mother Earth has never been compensated for the damages and destruction done to her and her more connected life forms.

For various reasons, corona-whatever has the potential – and it was created to do/utilize that potential – to virtually/spiritually grow a mushroom out of homo sapiens' head. Due to the constant absorption of aerosolized air, having glyphosate in the bloodstream down into the bone marrow, being exposed to wireless **radiation** constantly and occupied with social media 24/7 has rendered the human immune system a sick joke compared to what it was before the commodification of everything and everything that will come.

The bucket must stop here. And I am more than willing to go. Just don't make Soylent Green from me. But to allow a human being to leave, when they decide to be "I'm good! I'm ready!" would also mean to allow fellow humans to leave at their choosing. Before they are forcefully removed from the pension/social security/Renten system.

Now is the time to end social networking. No more facebook, twitter, or whatever. The addiction of the masses to panic is wholly abused right now. And the u.s. has a president who thought he could weather it all out alone. And so did many more – doing everything they can to maintain their grip on power and wealth.

But the gallows are coming. For all of them. And that is not the result of the rulings of corrupt courts. They will join the only waiting line the rich ever have to experience. The call for the closure of all u.s./il/nato biological weapons laboratories has echoed yesterday. It will be followed by the end of militarism and killing for profit. Religions are failing human beings, because they, themselves are untruthful. And Julian Assange? Will he be given a corona?

As it goes with self-dynamical events, this one too, has long taken on a life of its own. The Universe allows for all crimes to happen, but it does not promote them. It does not judge them. Karma means 'action' and nobody cannot not act. Things need to be done constantly – if not to barely survive, then surely for the sake of the addiction to the virtual glass pearl that shine so bright.

And yes, by all means. Remember that traditional Chinese medicine offers a variety of herbal mixtures against practically everything. People need to boost their immune systems. All wifi must go. Towers must all be dismantled immediately and replaced with fiber optics. Planned obsolescence must be prohibited. It must all start here, now.

In Argentina, they were sounding the sirens yesterday – because corona is coming. It oddly reminded me of "Incoming ballistic millie alert! Not a Drill!". I know it's the people in the cities who are hit the hardest. Out on the countryside, one can at least be outdoors with plants and animals. Animals also suffer from this artificially induced madness. But it would have come anyway. Now getting back to what's really important.

BigB ,

If the economy really tanks – and it must, but not necessarily this time – they will have to totally restructure society without work or not enough of it. There is a deeply sinister side to what they are doing. Which is establishing a precedent for further doings. Imagine what they would do if there was a real economic crisis?

It is going to take a massive and concerted shift in the social conscience to turn it around now. It is the People's own alienated creative cultural powers that are being enacted by the market state system against the People. It is only the People who can enact a different system if they get another chance.

nottheonly1 ,

Exactly. Moving forward at this point means also to evolve. One time I was wondering what would happen if everyone would be told "Don't worry about it. It has already been taken care of."

When society acknowledges its nature to be more organic than bureaucratic. For Life to be much more alive, than following the needs of the very few.

There is a Mel Brooks classic worth watching: "Life Stinks". It applies as much to the owner class, as does 'Trading Places' – whereas I am afraid that the owner class was making fun of the working class/poor part of society.

Organic Food security has to be our priority. Ridding ourselves from what is making us really sick to be profited from by the owner class. Instead of giving ownership of corporations that are bailed out to the 'government' responsible for this mess, ownership must be transferred to the workers that run the business.

Co-Ops, baby, Co-Ops!

bob ,

A brilliant summation of current events:

https://hat4uk.wordpress.com/2020/03/21/explosive-covid19-evidence-theyre-lying-to-us-about-the-danger-so/

[Mar 15, 2020] Our Neo-Feudal System Is on the Verge of Collapse by Michael Hudson

Mar 15, 2020 | www.unz.com

Michael Hudson: [00:00:00] There's recognition that commercial banking has become dysfunctional and that most loans by commercial banks are either against assets – in which case the lending inflates the prices of real estate, stocks and bonds – or for corporate takeover loans.

The economy's low-income brackets have not been helped by today's financial system. Here in New York City, red lining and a visceral class hatred by high finance toward the poor characterized the major banks. From the very top to the bottom, they were very clear they were not going to lend to places with racial minorities like the Lower East Side. The Chase Manhattan Bank told me that the reason was explicitly ethnic, and they didn't want to deal with poor people.

A lot of people in these neighborhoods used to have savings banks. There were 135 mutual savings banks in New York City with names like the Bowery Savings Banks, the Dime Savings Bank, the Immigrant Savings Bank. As their names show, they were specifically to serve the low-income neighborhoods. But in the 1980s the commercial banks convinced the mutual savings banks to let themselves be raided. Their capital reserves of the savings banks, was just looted by Wall Street. The depositors' equity was stripped away (leaving their deposits, to be sure). Sheila Bair, former head of the FDIC, told me that the commercial banks' cover story was that they were large enough to provide more capital reserves to lend for low-income neighborhoods. The reality was that instead, they simply extracted revenue from these neighborhoods. Large parts of the largest cities in America, from Chicago and New York to others, are underbanked because of the transformation of commercial banks from providers of mortgages to emptiers-out, just revenue collectors. That leaves the main recourse in these neighborhoods to pay-day lenders at usurious interest rates. These lenders have become major new customers for Wall Street bankers, not the poor who have no comparable access to credit.

Apart from the savings banks, of course, you had the post office banks. When I went to work on Wall Street in the 1960s, 3 percent of U.S. savings were in the form of post office savings. The advantage, of course, is that post offices were in every neighborhood. So you actually had either a local community banking like savings banks – not like today's community banks, which are commercial banks, lending largely to real estate speculators to capitalize rental apartments into heavily mortgaged co-ops with much higher financial carrying charges – or you had post offices. You now have a deprivation of basic bank services in much of the economy, combined with an increasingly dysfunctional and predatory commercial banking system.

The question is, what's going to happen next time there's a bank crash? Sheila Bair wrote about after the 2008 crash that the most corrupt bank was Citibank – not only corrupt, but incompetent. She had wanted to take it over. But Obama and his Secretary of the Treasury, Tim Geithner, acted as lobbyists for Citibank from the beginning, protecting it from being taken over. But imagine what would have happened if Citibank would have been become a public bank – or other banks that are about to have negative equity if there is a downturn in the stock and bond and real estate market. Imagine what will happen if they were turned into public banks. They would be able to provide the kind of credit that the commercial banking system has refused to provide – credit to blacks, Hispanics and poor people that have just been red-lined in what is becoming a financially polarized dual economy, one for the wealthy and one for everyone else.

Walt McRee: [00:04:10] Well, power in that realm, of course, lies with the banking cartel. They look at public banks as a threat. They hate competition of any sort, it seems.

Michael Hudson: [00:04:18] Of course it is a threat.

Walt McRee: [00:04:22] And even when we say, Michael, that we're not going after the business you're already doing because you aren't lending to small, medium enterprises and so forth – we want to take on the infrastructure that you don't want to fund, but they still are pushing back. How will we be able to get past that?

Michael Hudson: [00:04:40] I think you should say that of course you're not going to take business away from them, because the public community bank or government-owned bank would not make corporate takeover loans or speculative derivative bets. It would not create the dysfunctional credit and debt overhead that has been expanding ever since 1999 when the Clinton administration changed the banking rules.

The problem is that the big commercial banks don't want the productive kind of loans that public banking would make. For instance, the reason they didn't want to extend credit to the Lower East Side or the Hudson Yards west side of New York was they wanted to sort of drive out their residents and gentrify it, by providing the money to the big developers who socially bulldoze these neighborhoods. Their policy is to kick out as many low-income renters or owners as they can, and replace them by raising rents from like $50 a month to $5,000 a month. That's what's happened on the Lower East Side from the time I first lived there to what rents are today.

There is a fight of the economy's unproductive sector against people who want to use credit in a productive way that actually helps the economy. I think it's a fight between good and evil, at least between the productive and unproductive economy, between economics for the people and economics for the One Percent.

ORDER IT NOW

Ellen Brown: [00:06:14] I wonder, though, if the Fed is going to even allow the banks to collapse again, with what they just did with the repo market. They can step in at any time to save anybody. I don't know that Congress, even has a say in it. What do you think?

Michael Hudson: [00:06:30] I think that's right. I've talked to Paul Craig Roberts and we discuss whether they can just keep on keeping these zombie banks alive. Can they keep the over-indebted zombie economy alive by the Federal Reserve manipulating the forward stock and bond markets to support prices? It doesn't actually have to buy stocks and bonds beyond the $4 trillion it's already put into Quantitative Easing. It can simply make manipulate the forward market. That doesn't really cost any money until the big crash comes. So I think one should have a discussion over what President Trump says is a boom that that he's created, with the stock market going up. Does that mean that the economy is getting richer? Are we fine with commercial banking the way it is, so that we don't need public banking?

I think you have to expose the fact that what's happened is artificial state intervention. What we have in the name of free market support of the banks is not a free market at all. It's a highly centralized market to support the predatory financial sector's wealth against the rest of the economy. The financial sector's wealth takes the form of credit to the rest of the economy, extracting interest and amortization, while making loans simply to increase asset prices for real estate and financial securities, not put new means of production in place to employ labor. So you have to go beyond the public banking issue as such, and look at the political context. Ultimately, the way that you defend public banking is to show how the economy works and how public banking could play a positive role in the economy as it should work.

Ellen Brown: [00:08:14] Can you explain what you meant by forward lending? I mean, they don't have to

Michael Hudson: [00:08:19] It's not forward lending, it's buying long. For the stock market's Dow Jones average, they'll contract to buy all its stocks or those in the S&P 500 in one month, or one week or whatever the timeframe is, for X amount – say, 2% over what they're selling today. Well, once the plunge protection team issues a guarantee to buy, the market is going to raise the bid prices for these stocks up to what the Fed and the Treasury have promised to pay for them. By the time the prices go up, the Fed doesn't actually have to buy these stocks, because everybody's anticipated that the Fed would buy them at this 2 percent gain. So it's a self-fulfilling prophecy. We're dealing with a government run by the banks and the creditor powers to artificially raise asset prices, on credit. This has kept alive a system that represents itself as creating prosperity. But it's not creating prosperity for the 99 Percent. Public banking would aim at prosperity for the 99 Percent, not just for the One Percent.

Ellen Brown: [00:09:46] I'm writing about Mexico's AMLO, who is now who has just announced in January that he will be building 2,700 branches of a public bank in the next two years. He's expecting 13,000 branches ultimately, so it will be the largest bank in the country. His reasoning is just what you're saying, that the banks have failed and have not serviced the poor. His mandate is to help the poor, and he can't do that if they don't have banking services.

Michael Hudson: [00:10:17] Is that national?

Ellen Brown: [00:10:18] Yes, all across the country.

Walt McRee: [00:10:22] "Loprabrador", AMLO. So we know that a public monetary source is a public utility. Our vision is to create a network of local and state public banks. That leads us to the view that what we really need to be targeting is the Federal Reserve, to ultimately turn it into a publicly-owned entity. Is that folly or

Michael Hudson: [00:10:55] I think the way to get people to support this is if they understand how the Federal Reserve was created. A few years ago I published an article in an Indian economic journal (I think it's on my website), about how the Federal Reserve was created. [1] "How the U.S. Treasury avoided Chronic Deflation by Relinquishing Monetary Control to Wall Street," Economic & Political Weekly (India), May 7, 2016. Available on Naked Capitalism an michael-hudson.com. There was a fight by Wall Street led by J.P. Morgan. America had a central bank until 1913 – the Treasury. Until 1913 the Treasury was doing everything that the Federal Reserve began to do. The idea of creating the Federal Reserve was to take power away from the Treasury. The Treasury wasn't even allowed to be on the board as an owner of Federal Reserve stock. The idea was to take decision-making away from Washington, away from democratic politics, and insulate the financial system from the democratic political system by turning control over to the corporate financial centers -- Wall Street, Chicago, and the other Federal Reserve districts. They were the same districts as those that the Treasury already had divided the country into. Remember, these were the decades leading up to World War I when there was a social democratic revolution from Europe to the United States. A guiding idea was to democratize banking.

Wall Street very quickly developed a counter strategy to this. And the counter strategy was the Federal Reserve. You're welcome to republish my article on your site. You and I both aim to reverse the counterrevolution mounted against classical economics and social democracy. The entity you're talking about would probably be under the aegis of the Treasury. You'd be putting the economy back in the direction that the world was moving before World War I derailed these efforts.

ORDER IT NOW

You talk of nationalizing the Fed. I know people don't like the word nationalizing. How about thing de-privatizing or de-Thatcherizing the Fed? You have to represent the Fed as having stolen economic and financial policy away from the public domain. It became part of the neoliberal project taking form in Austria in the 1930s. You're trying to restore the classical economic vision of productive versus unproductive credit, productive versus unproductive labor, and public money as opposed to private money. These distinctions were erased by the censorial neoliberal counter-revolution.

It's not that you're radical, that these people had a radical revolution to carve away the financial system from democracy. And you're restoring the classical vision of democratizing, re-democratizing finance and banking.

Walt McRee: [00:14:12] I want to thank you for saying that, Michael, because de-privatizing the Federal Reserve is so much more accurate and powerful. You'll recall that we kind of exchanged a phrase when I said "institutionalized deception.". I think that's really important. But let's say that prior to that, Stephanie Kelton gets in there, or somebody from the MMT crowd gets into a new administration prior to de-privatizing the Fed. Does MMT have a place to play or to emerge in that environment?

Michael Hudson: [00:14:55] Of course, and here's the role: You can leave the commercial banks to do what they're doing, but you're not going to provide Federal Reserve credit for them to load down the economy with unproductive debt. The question is, if you're going to create real community banking via a public banking sector, where will it get the money to lend out? How do we provide money to the red-lined areas of the economy to actually finance tangible capital investment and people's living needs, not just predatory lending? The way that MMT comes in is much like the Chicago plan for one hundred percent reserves. These community banks will need Treasury-created depository credit beyond the deposits they raise in their local areas.

They need more money. MMT will provide credit to these banks in exchange for their loan originations of a productive character, on terms that borrowers can afford, with realistic mortgages also to build public housing. The new Fed that we're talking about will be a major depositor and will provider of the capital deposits and reserves to the banks. Right now, it has provided $4 trillion of Quantitative Easing credit to the banks, not to put into the economy but only to inflate the stock and bond market and make housing more expensive. Wouldn't it be much better to provide credit to community banks that actually would make credit available for productive economic purposes – and not for takeover loans, stock buybacks and asset speculation?

Productive credit was what everybody expected banking to develop in the late 19th century. Germany and Central Europe were leading the way. It was called Middle Europa banking, as opposed to Anglo-American banking. (I discuss this contrast in Killing the Host .) That was essentially following the classical model, as everybody expected banking to evolve prior to World War I.

Ellen Brown: [00:17:29] Cool. That's totally what I also wrote about in my latest book. The Federal Reserve is where you should be getting credit, so you don't have to borrow it from somewhere else. Everybody thinks this whole repo thing is so contrived. It's re-hypothecated. One party owns the collateral at night, the other party owns it during the day. It's all just bluff to make it look like they borrowed something that wasn't really there. So let's just acknowledge that all money is just credit. And like you say, if you have a good loan, a good project to be monetized, that's the whole point of a bank. It will turn your future productivity into something you can spend in the marketplace. And the central bank is there to provide the credit.

Michael Hudson: [00:18:21] That's right.

Ellen Brown: [00:18:22] Turn it into dollars.

Michael Hudson: [00:18:24] That's right. My way of describing it is to look at history, to show that this is not a utopian idea. It is what made German and Central European banking so much more productive in the decades leading up to World War I. So we actually have historical examples of good banking versus bad banking. But the predators won in the end.

Ellen Brown: [00:18:53] Well, regarding this whole repo thing, one big problem we have with our public banks is the 110 percent collateralization requirement in California. How is a bank supposed to make loans if it has to use its deposits to buy securities – something safe and yielding low interest to back the deposits? It seems to me that what the big banks do – and I think we could do it, too – is to take those deposits and buy federal securities at 1.5 percent, and then they turn around and use the securities as collateral in the repo market, where they pay 1.5 percent. In other words, they earn 1.5 percent and they pay 1.5 percent. So it's a wash. They get their money for free. I think we could do that, too. Or are only certain players allowed to play that game, and we can't jump in?

Michael Hudson: [00:19:50] Well, you're the lawyer. Of course they could do it. I think one of the things that you and other progressives have recommended is that the Fed should stop paying money to the banks for their reserve deposits. Stop giving them the free giveaway. If you want to say, "We're against the largest welfare recipients in the country. They're not the people you think. They're the Wall Street banks. These hypocrites want to cut back Social Security to balance the budget. They want to cut back medical care and social services, and make themselves the only welfare recipients."

Ellen Brown: [00:20:30] Right, agreed. But if we just stand on our high horse and say this has to change, nothing will happen. We could do it ourselves and just show what you're doing in contrast to what they're doing

ORDER IT NOW

Michael Hudson: [00:20:44] You're asking for symmetry. They're making us carry a big load on our back, that they don't have to carry. They're loading the dice in their own favor. You want to unload the dice and stop the insider favoritism. You correctly represent the banks as being insiders. You have to say, "Look, these insiders are trying to keep a monopoly." You could use the anti-monopoly legislation that's been on the books since Teddy Roosevelt's time. You have a lot of legal power to break up the big banks. You could treat them like I think they could treat the pharmaceutical companies if Bernie gets in.

Walt McRee: [00:21:44] Monopolies are being challenged by the shadow banking industry. New forms of payment exchange technologies seem to be eating away at that singular source of credit. What's your prognosis for how that's going to evolve? Will the big banks find a way to clamp down on that ultimately?

Michael Hudson: [00:22:05] Are we talking about cryptocurrency?

Walt McRee: [00:22:07] That would be one example, yes.

Michael Hudson: [00:22:10] Well,. you can't stop people from gambling. People think that buying a cryptocurrency is like buying an Andy Warhol etching. Maybe it'll go up in price if a large number of people want it. But basically, it's junk. It's very speculative. It's certainly not stable. It goes up and down. One day there may be a solar flare that's going to wipe out all the bank records for these things. But there is no way to stop people from doing something that seems to be silly or gambling. You certainly will not insure them. So you will not give them any protection against loss. You also will want to insulate the economy from having any transactions in crypto, in these alternative money things that pose a big threat of loss. They are not real money, because the government will not accept payment of cryptocurrencies as taxes or for public goods and services. The government will only accept specified forms of money. You can create any kind of swap or bet. If you want to create the equivalent of a racetrack on horses. You can do it, but that's a financial racetrack. I think there may be taxes on racetracks. They were unregulated for a long time. But Hollywood movies showed that there's a lot of criminalization going on there.

Walt McRee: [00:23:59] We were all amused, well, maybe a little wondering about Max Kaiser. Ellen and I and Tyson Slokum had some time with him over there just before you were at his Brooklyn studio, but Max is into Bitcoin in a big way, and he sees it as the new gold.

Michael Hudson: [00:24:20] He told me that a lot of people watch his show because they're gold bugs or they are interested in Bitcoin. I think he's tried to take a neutral view of it, certainly in our personal conversations. He's not a gold bug and he's not a Bitcoin or other bug. But he said that a lot of people want to find out about it, so he has guests on his show telling people, "Here it is, take your choice." It's part of the new speculative financial landscape, just like swamps are part of landscape for Florida real estate. So he's going to cover the whole spectrum. Reuters produces his shows, and the audience wants to hear about this. So he talks about what they want to hear.

Ellen Brown: [00:25:20] I think he actually does promote Bitcoin. He's heavily invested in it and he was one of the originals, so he's obviously made a lot of money on it.

Michael Hudson: [00:25:29] Okay.

Ellen Brown: [00:25:29] I think he agrees that it can't be a national currency. It's too slow, too expensive, and too environmentally unfriendly. But like you say, it has been a good investment, just like fine art or something that, if people want it, the value goes up. Plus, there's a big black market for it, for trading and things that you don't want the government to know about.

Michael Hudson: [00:25:57] It's a real phenomenon. I know people who benefited from Andy Warhol. So he saw the phenomenon and he seems to have made money, but when Steve Keen and I and others got together with him for a couple of days two months ago, the topic never came up in discussion.

But gold did. I wonder where the gold of Libya went, for instance. Apparently it was all taken and I understand the US gave it to ISIS. Hillary said it had to go to ISIS to act as our Foreign Legion. We gave them Libya's weapons. Some of the gold must have just been taken by the CIA and State Department for dirty tricks for its black operations. Certainly, America wants to prevent any other country or large gold possessor from having enough gold to try to reinstate it as a means of settling balance-of-payments deficits. America runs a large military deficit, so at a certain point, the more money it spends abroad for its 800 military bases, the more gold it would lose. Just like in General de Gaulle's time during the Vietnam War, although actually Germany was taking more gold than France. So America wants to keep the dollar at the center of the world financial system. That really was why it went to war with Libya, because Libya was one of the first countries to de-dollarize and move its currency toward gold. So you're having a group of countries – Russia, China, Iran and others – add gold to their reserves instead of dollars. You're having a de-dollarization move throughout the world to break free from the US ability to do what it did do Iran.

When Iran borrowed in dollars under the Shah, it used Chase Manhattan Bank as its paying agent. It put enough money into the account to pay its foreign debts service. But then the State Department told Chase to screw Iran and refuse to turn over the payment. Now that the Shah wasn't running Iran, once Chase refused to turn over the payment and froze Iran's account, that meant that Iran went into default on the entire dollarized foreign debt. It was liable for a huge amount of capital.

ORDER IT NOW

That was a warning for the rest of the world that no government could safely put its money in an American bank or an American bank branch, or in a British branch that would act as a subsidiary of the Pentagon. Because if you do, the bank can simply force you into default at any time, just like the US CIA can come in and use electronic weaponry to destroy your bank payment-clearing system. That's why the threat of cutting Russia and China and other countries off from the Swift Interbank Clearing System led Russia to develop its own clearing system. With a flick of a switch it can begin to work anytime United States tries to cut Russia off from the SWIFT payments system. So you're having the whole world de-dollarize very quickly. And right now the question is what Europe will choose. Are Germany and other countries going to become part of the de-dollarized system, or remain part of the dollar area?

This is part of the fight against using the IT chips and the communications chips from Huawei. Huawei did not put US spyware into the system. The United States says that if it can't have a phone system and communications system that it can control by spyware and use to blow up your economy, your public utilities, your electrical systems, then you're our enemy, because we feel insecure without this control. When President Trump said that Huawei was a threat to US national security, he meant that we don't feel secure unless we have the power to destroy any economy that acts in any way that is independent of the United States – because you might do something we don't like. This is the most aggressive concept of security that one could imagine. So of course the rest of the world is seeing its own national security as having a financial dimension. The financial dimension is to create a monetary and financial system that minimizes connections to the dollar except to the extent of having to buy and sell dollars to stabilize foreign exchange rate.

Ellen Brown: [00:31:31] There's a lot of talk, even among central bankers, that we need to get off the dollar as a global reserve currency. But it seems to me that gold is also manipulatable. I mean, it's not the ideal I had envisioned a system where instead of reserves being a thing, like dollars or gold that you can actually trade, it would just be a measure, like a yardstick. You would be able to compare one currency to another according to what you could buy with it. Like you'd have a whole basket of things that everybody uses in every country. And now that they report that kind of stuff, it wouldn't be all that hard to get the figures and, you know, just compare and say, well, your dollar will be worth so many pesos in Mexico or whatever. That was my idea, but what do you think?

Michael Hudson: [00:32:27] That would meet one of the criteria of money, which is as a measure of value, but it would not do at all for international money. You have to have some means of constraint. In other words, suppose the United States continued to run another military budget deficit like it did in the Vietnam War. There is no way that you could use the balance of payments as a constraint on the policy of deficit countries, which are usually the military aggressors. The whole idea of going off gold was that under the gold standard no country can afford to make war, because if you go to war your currency collapses. In 1976, Herman Kahn and I went to the Treasury and – this is to answer your question. He put up a map of the world and said, "These are the countries – Scandinavia, Western Europe, the United States – that don't believe in gold. They're all politically stable social democratic countries. They have faith in government. No look at these others here's the rest of the world – India, South America, Africa and most of Asia. these are people that believe in gold. Why do they believe in gold, but not the Protestant cultural area? Well, they don't have faith in government. They don't trust governments. They want some option that is independent of government. Gold is not only to bribe the border guards if they're escaping from somewhere. They want to be free of governments that have been captured by anti-democratic, predatory forces."

He said if you tried to think of what you would make that is an alternative to the dollar that people could understand, well, for thousands of years, people have decided that gold and silver. (I'm sure that you could add platinum and palladium.) So they have been the ultimate means of settlement, and hence of international monetary constraint.

Gold isn't to be used as money. It's not to be used as a normal means of payment. What it is to be used for is as a balance-of-payments constraint on the ability of countries to run up chronic deficits that are mainly military in character. So I called our presentation "Gold: the Peaceful Metal." Well, needless to say, the Treasury didn't go for that, because they said that we had just explained how super-imperialism works via the dollar. So they didn't go back to gold. We lost that argument.

Ellen Brown: [00:35:34] Isn't the reason we went off gold standard, though, that there simply isn't enough gold and that we wound up leveraging it, and

Michael Hudson: [00:35:42] No, there's plenty of gold. There wasn't enough gold to pay for the military deficit. Every month the dollars we spent in Vietnam would be turned over to the banks in Indo-China. They were French. They'd turn the dollars over to Paris and General de Gaulle would turn in these dollars for gold. We had to pay in gold for the military deficit, which was the entire source of the US balance-of-payments deficits in the 50s, 60s and into the 70s. America went off gold so that it could afford to wage war without the constraint of losing its control over the international monetary system.

Ellen Brown: [00:36:29] We went after gold domestically because it didn't work. I mean, you had to use fractional reserve lending

Michael Hudson: [00:36:35] Yes, of course gold doesn't work domestically. It's certainly not an appropriate domestic money supply. I'm only talking about it for settlements among central banks internationally.

Ellen Brown: [00:36:49] But you said it's not to be traded. But if you don't, how do you settle your balance of payments?

ORDER IT NOW

Michael Hudson: [00:36:53] It can be traded. There is a market. And you began by saying, quite correctly, that gold prices are manipulated. Well, right now the US and the central banks are manipulating its price to keep it low, in the same way that they're manipulating the stock and bond market by buying forward. Except in the case of gold, they're selling forward. If they keep agreeing to sell gold at a very low price, people will see that if they can buy gold at this low price, why should they buy it at a higher price today, as the price will fall and be driven down. So, yes, gold is manipulated downwards today by the U.S. – essentially the plunge protection team acting internationally to keep the price of gold down to discourage other countries and populations from buying it is protection against collapse of the financial system.

So we're back to the fact that the financial system is dysfunctional. In a functional financial system, you wouldn't need domestic reference to gold. You'd have a domestic financial system that works fine without gold. Gold is what you have when the financial system becomes dysfunctional and there's a breakdown.

Ellen Brown: [00:38:21] Well, it almost seems like you need some sort of global regulator. But that's like a one-world government, which we all freak out about.

Michael Hudson: [00:38:28] You certainly don't want a one world government. Right now all the plans for world government are neoliberal. They aim essentially to limit, to break up democratic government regulation of corporate business, mining and monopolies. The idea of a one-world government is to destroy any democratic government's ability to make its own laws in the interests of labor or society. You would have a parallel government of wealth, government of property. It's what the University of Chicago calls the Law and Economics regime. And this is, this is fascism on an international scale. And there is a wonderful book by Quinn Slobodian in 2008, Globalists: The End of Empire and the Birth of Nationalism , showing how these plans were developed by fascists in the 1930s and by the fascist promoters at the University of Chicago. The fascist promoters were people like Hayek and von Mises and the Geneva economists around the League of Nations. So when they say they're anti-government, they're really anti-democracy. They're for an iron-fisted government by big business, big mining and big oil – and most of all, by big banks. That is the reason why people don't trust an international government. It would be an international iron fist of fascism, the way the current maneuvering of the financial classes and the rentier classes and the neocons have arranged things.

Ellen Brown: [00:39:56] Well, I totally agree. It's quite frightening. We want sovereignty for all our little nations, and even our little cities, states and so forth. But it seems to me, how do you get everybody to work together? For example, Venezuela has the debt problem that any country has that's heavily in debt to foreigners, or to vulture funds or whatever. There's not a universally recognized court that you can go to. And, you know, everybody agrees. It does seem like on some level we need some sort of collaborative effort where we all agree on the rules.

Michael Hudson: [00:40:33] Absolutely right. Now, of course, the United States would not recognize any international court. So, again, you'd have all the rest of the world belonging to the court, and the United States as the outlier. It's like you're the healthy body and we want to parasitize you. And it will not recognize the court. My Super-Imperialism reviews the history of this policy.

But you're right: There should be a court that would recognize such things as odious debt for governments. Venezuela's problem is that under the dictators that the Americans had installed by assassination and force, Venezuela had pledged its oil reserves as collateral for its international bonds. That gives a vested interest in the creditors to make it default and grab its oil reserves and its investments in the United States, the oil distributors it bought. So, yes, you do need a set of international rules for writing down bad debts. That means an alternative to the IMF. You need an anti-IMF. Instead of acting on behalf of the creditors imposing austerity on countries, you should create an organization representing society. And s the interest of society is to grow. Instead of promoting austerity like the IMF does, it would promote prosperity. Instead of financing the US government dollarization and giving US control, it would be part of the de-dollarization group.

So you'd have a pro-growth group of nations – of the world economy – using finance for growth and development with productive credit. You'd also have the United States providing predatory credit, austerity, cutting back Social Security, cutting back Medicare and having a polarizing economy that is shrinking and will end up looking like Greece or Argentina. The rest of the world would follow more productive and less oligarchic financial policies. That should ultimately be our global dream. But there's been little preparation for that. The financial sector's neoliberals have o put together an almost conspiratorial Law and Economics lobbying group to promote the Trans-Pacific Partnership and World Trade Organization rules blocking governments from imposing anti-pollution fines or regulating monopolies or closing tax havens. If you fine an oil company for polluting, the government is obliged under this international law to pay the oil companies what they would have earned if they would have continued to poison the environment. This is

Ellen Brown: [00:43:41] Shocking.

Michael Hudson: [00:43:41] Definitely. This is an international deathwish.

Ellen Brown: [00:43:45] Agreed. Totally agreed.

Walt McRee: [00:43:47] We've been speaking with economist Michael Hudson. Our thanks to him for being on this program again. And you'll be hearing more from Michael on future editions of It's Our Money.

Walt McRee: [00:43:59] Well, that's it for this edition of It's Our Money with Ellen Brown. Thanks to our guests or sponsors, Public Banking Associates, and to you for listening. Be sure to check out Ellen's latest writings on the economy and the changing world of money by visiting ellenbrown.com. And for more information on public banking, visit PublicBankingInstitute.org. For information on how local and state governments can obtain professional insight and council about public banks from key national experts, visit PublicBankingAssociates.com. I'm Walt McRee. See you next time on It's our Money with Ellen Brown.

Notes

[1] "How the U.S. Treasury avoided Chronic Deflation by Relinquishing Monetary Control to Wall Street," Economic & Political Weekly (India), May 7, 2016. Available on Naked Capitalism an michael-hudson.com.

animalogic , says: Show Comment March 13, 2020 at 8:51 am GMT

@dc.sunsets "This is why those who promise to "Plan" economic prosperity are liars and fools, for they have the PRETENSE of knowledge, nothing more. "
Of course, this point is true -- but its posed as an absolute. No government can "plan" an entire economy -- we know this from the failings of the USSR etc. But nor can economies be totally unplanned. The US is not an unplanned economy: its an economy planned by the 1% for the 1%.
Modern economies are "mixed". There is coordinated planning between the public & private sector.
Sadly the US Gov' has renounced its responsibilities to "plan". Had the US Gov "planned" it would never have allowed key industries, knowledge & talent to be off shored to China. Such off shoring was a private plan by the 1% for the 1%. Worked well -- for them.
Robert White , says: Show Comment March 13, 2020 at 4:54 pm GMT
Adding complexity to an already far too complex system merely hastens blow out of distributions that are skewed fat tails and stressed to a breaking point of systemic failure. Greenspan purposely built a complex financial empire of asset inflation to replace Volcker's fiscal prudence & macroprudential professionalism system wide.

Once Greenspan has locked in the asset inflation regime & deregulated Glass-Steagall Act it was off to the races on a credit card for the largest parasite in the financial empire governing by force.

On September 10th 2001 Donald Rumsfeld announced to the world that the ever incompetent Pentagon had misplaced $1.3 trillion USD of taxpayer money. On September 11th 2001 Donald Rumsfeld took part in a clandestine covert US Military operation to assassinate all of the principle investigators & forensic Chartered Accountants that were about to uncover the crimes taking place under Donald Rumsfeld's directorship as Pentagon executive.

The USA has always been a system of fraud by stealth of US Military force thugsterism & all out fascist behaviour.

Great synthesis by Hudson IMHO.

[Mar 02, 2020] Why the Coming Economic Collapse Will NOT be Caused by Corona Virus by Matthew Ehret

Highly recommended!
Notable quotes:
"... With Glass-Steagall now removed, legitimate capital such as pension funds could be used to start a hedge to end all hedges. Billions were now poured into mortgage-backed securities (MBS), a market which had been artificially plunged to record-breaking interest rate lows of 1-2% for over a year by the US Federal Reserve making borrowing easy, and the returns on the investments into the MBSs obscene. ..."
"... This is the system which died in 2008. Contrary to popular belief, nothing was actually resolved. For all the talk of an "FDR revival" under Obama, speculation wasn't actually regulated under the Dodd-Frank Act or the Volker Rule of 2010. No productive credit was created to grow the real economy under a national mission as was the case in 1933-1938. ..."
"... Banks were not broken up while derivatives GREW by 40% with the new bubble concentrated in the corporate/household debt sector now collapsing. During this time, nation states continued to be stripped, as austerity was rammed down the throats of nations. ..."
"... It should be no surprise that in the midst of this despair, a creative alliance was consolidated in defense of the interests of sovereign nation states and humanity at large led by the leadership of Russia and China. ..."
"... The Eurasian nations are already firmly committed to this new system, and if the west is to qualify morally to take part in this new epoch, then the first step will be a return to a Glass-Steagall. ..."
"... Joe Kennedy was tasked by FDR with creating the regulations to reform Wall Street, thus earning him their undying enmity. ..."
"... Joe Kennedy has therefore had a hard press and been accused of the Corbyn disease of anti-semitisms, and I imagine the same old experts will be lining up to give him another kicking ..."
"... I would venture that the coronavirus rollocks is all a cover for the inevitable economic collapse. ..."
"... At last. Sanity. A brilliantly truthful article. Almost totally agree with this history of how the fuck the fucking bankers got their hands on almost fucking everything. ..."
"... Interesting article, but the conclusions are off. That solution (i.e. return to Glass-Steagall) would have worked 20 , maybe 10 years ago. We are way to passed that point. The looters are now part of the system– no one will embrace Glass-Steal. The system is on life support. ..."
Mar 02, 2020 | off-guardian.org

(Photo by Philip FONG / AFP) (Photo by PHILIP FONG/AFP via Getty Images)

With last Monday's 1000 point stock market plunge the internet has been set ablaze with discussion of a new crash looming on the horizon. The fact that such a chain reaction collapse was only kept at bay due to massive liquidity injections by the Federal Reserve's overnight repo loans should not be ignored.

These injections which began in September 2019, have grown to over $100 billion per night all that to support the largest financial bubble in human history with global derivatives estimated at $1.2 quadrillion (20 times the global GDP!).

Sadly economic illiteracy is so pervasive among today's modern economists that the real reasons for this crisis have been entirely misdiagnosed with financial experts from CNN, to Forbes blaming the volatility on the spread of the Corona virus!

Not the Corona Virus: The real cause of the oncoming Financial collapse.

As refreshing as it is to hear candid criticisms of the system's failure and even support for the restoration of Glass-Steagall bank separation from presidential candidates like Bernie Sanders, Tulsi Gabbard or even the lame Elisabeth Warren we find that in each case, those candidates are on record supporting policies cooked up by the very same oligarchs they appear to despise in the form of the Green New Deal.

In spite of what many of its progressive proponents would wish, such a global green reform would not only impose Malthusian depopulation upon nation states globally were it accepted, but would establish a the supranational authority of a technocratic managerial elite as enforcers of a "de-carbonization agenda".

Due to the rampant lack of comprehension of how this crisis was created such that such idiotic proposals as "green new deals" are now seriously being suggested as remedies to our current ills, a bit of history is in order.

Some necessary background

"The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit."
Franklin Delano Roosevelt, first Inaugural Address 1933

Knowing that the "money changers" had only been able to create the great bubbles of the 1920s via their access to the deposits of the commercial banks, Franklin Roosevelt made the core of his battle against the abuses of Wall Street centre around a 1933 legislation entitled "Glass-Steagall", named after the two federally elected officials who led the reform with FDR.

This was a bill which forced the absolute separation of productive from speculative banking, guaranteeing via the Federal Deposit Insurance Corporation (FDIC) only those commercial banking assets associated with the productive economy, but forcing any speculative losses arising from investment banking to be suffered by the gambler. The striking success of this law inspired other countries around the world to establish similar bank separation.

Alongside principles of capital budgeting, public credit, parity pricing and a commitment to scientific and technological development, a dynamic had been created that would express the greatest hope for the world, and the greatest fear for the financial empire occupying the City of London and Wall Street.

The death of John F. Kennedy ushered in a new age of pessimism and cultural irrationalism from which our society has never recovered. The destruction of a long term vision as exemplified by the space program, the St. Lawrence Seaway and the New Deal projects had resulted in a tendency within the population to increasingly look upon present pleasures as the only reality, and future goods as the mystical expression of the sum of present pleasures.

In this new philosophical setting, so alien in previous epochs, money was permitted to act as a power unto itself for short term gains instead of serving the investments into the real productive wealth of society. With this new paradigm shift into the "now", a new economic model was adopted to replace the industrial economic model which had proven itself in the years preceding and following World War II.

The name for this system was "post-industrial monetarism". This would be a system ushered in by Richard Nixon's announcement of the destruction of the fixed-exchange rate Bretton Woods system and its replacement by the "floating rate" system of post 1971 fame.

During that same fateful year of 1971, another ominous event took place: the formation of the Rothschild Inter-Alpha Group of banks under the umbrella of the Royal Bank of Scotland, which today controls upwards of 70% of the global financial system.

The stated intention of this Group would be found in the 1983 speech by Lord Jacob Rothschild:

"two broad types of giant institutions, the worldwide financial service company and the international commercial bank with a global trading competence, may converge to form the ultimate, all-powerful, many-headed financial conglomerate."

This policy demanded the destruction of the sovereign nation-state system and the imposition of a new feudal structure of world governance through the age-old scheme of controlling the money system on the one side, and playing on the vices of credulous fools who, by allowing their nations to be ruled by the belief that hedonistic market forces govern the world, would seal their own children's doom.

All the while, geopolitical structures foreign to the United States constitutional traditions were imposed by nests of Oxford-trained Rhodes Scholars and Fabians who converted America into a global "dumb giant" enforcing a neo colonial program under a "Anglo-US Special Relationship". The Dulles brothers, McGeorge Bundy, Kissinger, and Bush all represent names that advanced this British directed plan throughout the 20th century.

London's 'Big Bang'

The great "liberalization" of world commerce began with a series of waves through the 1970s, and moved into high gear with the interest rate hikes of Federal Reserve Chairman Paul Volcker in 1980-82, the effects of which both annihilated much of the small and medium sized entrepreneurs, opened the speculative gates into the "Savings and Loan" debacle and also helped cartelize mineral, food, and financial institutions into ever greater behemoths.

Volcker himself described this process as the "controlled disintegration of the US economy" upon becoming Fed Chairman in 1978. The raising of interest rates to 20-21% not only shut down the life blood of much of the US economic base, but also threw the third world into greater debt slavery, as nations now had to pay usurious interest on US loans.

In 1986, the City of London announced the beginning of a new era of economic irrationalism with Margaret Thatcher's "Big Bang" deregulation. This wave of liberalization took the world by storm as it swept aside the separation of commercial, deposit and investment banking which had been the post-world war cornerstone in ensuring that the will of private finance would never again hold more sway than the power of sovereign nation-states.

After decades of chipping away at the structure of regulation that FDR's bold intervention into history had built, the "Big Bang" set a precedent for similar financial de-regulation into the "Universal Banking" model in other parts of the western world.

The Derivative Time Bomb is Set

In September 1987, the 20-year foray into speculation resulted in a 23% collapse of the Dow Jones on October 19, 1987. Within hours of this crash, international emergency meetings had been convened with former JP Morgan tool Alan Greenspan introducing a "solution" which would have the future echoes of hyperinflation and fascism written all over it.

"Creative financial instruments" was the Orwellian name given to the new financial asset popularized by Greenspan, but otherwise known as "derivatives".

New supercomputing technologies were increasingly used in this new venture, not as the support for higher nation building practices, and space exploration programs as their NASA origins intended, but would rather become perverted to accommodate the creation of new complex formulas which could associate values to price differentials on securities and insured debts that could then be "hedged" on those very spot and futures markets made possible via the destruction of the Bretton Woods system in 1971.

So while an exponentially self-generating monster was created that could end nowhere but in a meltdown, "market confidence" rallied back in force with the new flux of easy money. The physical potential to sustain human life continued to plummet.

NAFTA, the Euro and the End of History

It is no coincidence that within this period, another deadly treaty was passed called the North American Free Trade Agreement (NAFTA). With this Agreement made law, protective programs that had kept North American factories in the U.S and Canada were struck down, allowing for the export of the lifeblood of highly skilled industrial workforce to Mexico where skills were low, technologies lower, and salaries lower still.

With a stripping of its productive assets, North America became increasingly reliant on exporting cheap resources and services for its means of existence.

Again, the physically productive powers of society would collapse, yet monetary profits in the ephemeral "now" would skyrocket. This was replicated in Europe with the creation of the Maastricht Treaty in 1992 establishing the Euro by 1994 while the "liberalization" process of Perestroika replicated this agenda in the former Soviet Union. While some personalities gave this agenda the name "End of History" and others "the New World Order", the effect was the same.

Universal Banking, NAFTA, Euro integration and the creation of the derivative economy in a space of just several years would induce a cartelization of finance through newly legalized mergers and acquisitions at a rate never before seen. The multitude of financial institutions that had existed in the early 1980s were absorbed into each other at great speed through the 1990s in true "survival of the fittest" fashion. No matter what level of regulation were attempted under this new structure, the degree of conflict of interest, and private political power was uncontrollable, as evidenced in the United States, by the shutdown of any attempt by Securities and Exchange Commission head Brooksley Born to fight the derivative cancer at its early stages.

By 1999 a politically castrated Bill Clinton found himself signing into law a treaty authored by then Treasury Secretary Larry Summers known as the Gramm-Leach-Bliley Act, which would be the final nail in the coffin for the Glass-Steagall separation of commercial and investment banking in the United States.

The new age of unregulated trading and creation of over-the-counter derivatives caused these strange financial instruments to grow from $60 trillion in 2000 to $600 trillion by 2008.

The 2000-2008 Frenzy

With Glass-Steagall now removed, legitimate capital such as pension funds could be used to start a hedge to end all hedges. Billions were now poured into mortgage-backed securities (MBS), a market which had been artificially plunged to record-breaking interest rate lows of 1-2% for over a year by the US Federal Reserve making borrowing easy, and the returns on the investments into the MBSs obscene.

The obscenity swelled as the values of the houses skyrocketed far beyond the real values to the tune of one hundred thousand dollar homes selling for 5-6 times that price within the span of several years.

As long as no one assumed this growth was ab-normal, and the unpayable nature of the capital underlying the leveraged assets locked up in the now infamous "sub-primes" and other illegitimate debt obligations was ignored, then profits were supposed to just continue infinitely. Anyone who questioned this logic was considered a heretic by the latter-day priesthood.

The stunning "success" of securitizing housing debts immediately induced a wave of sovereign wealth funds to come into prominence applying the same model that had been used in the case of mortgage-backed securities (MBS) and collateralized debt obligations (CDO) to the debts of entire nations.

The securitizing of bundled packages of sovereign debts that could then be infinitely leveraged on the de-regulated world markets would no longer be considered an act of national treason, but the key to easy money.

Conclusion

This is the system which died in 2008. Contrary to popular belief, nothing was actually resolved. For all the talk of an "FDR revival" under Obama, speculation wasn't actually regulated under the Dodd-Frank Act or the Volker Rule of 2010. No productive credit was created to grow the real economy under a national mission as was the case in 1933-1938.

Banks were not broken up while derivatives GREW by 40% with the new bubble concentrated in the corporate/household debt sector now collapsing. During this time, nation states continued to be stripped, as austerity was rammed down the throats of nations.

It should be no surprise that in the midst of this despair, a creative alliance was consolidated in defense of the interests of sovereign nation states and humanity at large led by the leadership of Russia and China.

This leadership took the form of the China-led Belt and Road Initiative which has grown to embrace over 130 countries today and looking more and more like an Asian-led version of the New Deal of the 1930s.

Indeed, China's capacity to unleash long term credit for thousands of international long term infrastructure projects was made possible by the fact that it was the only country on the globe which had not given up the principles of bank separation which were destroyed in every other nation.

Very few western figures stood up to this self-induced destruction over the decades, but one notable exception here worth mentioning is the figure of the late American economist Lyndon LaRouche (1922-2019) who not only resisted this process for over four decades , but fought alongside the Schiller Institute to promote New Silk Road as early as 1996 .

With the 2016 Brexit and election of President Trump, a new wave of nationalist spirit has become a fire which the technocrats have lost their capacity to snuff out.

Increasingly, the idea that nation-states have a power over the private banking system has become revived and discussion for reforming the now dead Trans-Atlantic system is increasingly shaped not by the calls for a "New World Order" as Sir Kissinger would have liked, but rather for a New Silk Road and a true New Deal.

The Eurasian nations are already firmly committed to this new system, and if the west is to qualify morally to take part in this new epoch, then the first step will be a return to a Glass-Steagall.

Matthew Ehret is the Editor-in-Chief of the Canadian Patriot Review , a BRI Expert on Tactical talk , and has authored 3 volumes of 'Untold History of Canada' book series. In 2019 he co-founded the Montreal-based Rising Tide Foundation and can be reached at [email protected]

Hugh O'Neill ,

Excellent article which I could almost understand (my eyes glaze over at any mention of filthy lucre). The author makes clear that the world took a different trajectory after the convenient death of JFK. As I recall from a biography of his father, Ambassador Joe, was that Joe Kennedy was tasked by FDR with creating the regulations to reform Wall Street, thus earning him their undying enmity.

Joe Kennedy has therefore had a hard press and been accused of the Corbyn disease of anti-semitisms, and I imagine the same old experts will be lining up to give him another kicking

Spinky ,

A New Deal? A Green New Deal or a true New Deal? After revealing all of this incredible amount of manipulation of banking without going the final step to the ultimate controllers of the deep state, and you suggest another New Deal? What the world needs now is for the control systems to fail, not to be re supported again with handouts from the corporatocracy to the workers. We need to reclaim our communities with local food security via non corporate food systems based on living soils. We need to reclaim any kind of semblance of currency sanity with local currencies and supports. We need health care based on food as medicine, food that is not GMO and chemical based, but based on healthy local ecosystems, not transportation systems spanning the globe, controlled by central planners of any ideological stripe. Only if we focus on our own local regions can we ever hope to have any semblance of sanity again. We need to realize that the corporatocracy, the deep state, doesn't concern itself with ideologies other than as tools to control us with. All they care about is control, like all neurotics. After going through that entire article outlining the insanity of regulation and control and deregulation and infinity of financial flows and the obvious insanity of all of it, you surely must see that the ones with the money making the systems work are totally gonzo and the best the rest of us can do is focus on what we can do locally, like they have done in Greece. We can't control trillionaires with logical arguments. It ain't gonna happen. Bernie Sanders can become president and he still isn't going to stop the trillionaires and their insane efforts to control the planet. He will just be a different type of puppet with different types of handouts and control mechanisms. Voting is pointless and so are efforts at regulation. At this point, the best we can do is abandon the system, focus on our communities and self sufficiency locally, and try to avoid the system collapse when it falls around us.

RobG ,

It looks like they're rolling out the police state in the UK https://www.bbc.com/news/uk-51708550 but we'll have to wait until tomorrow (Tuesday) to get a better idea of what the psychopaths are trying to foist on us.

I would venture that the coronavirus rollocks is all a cover for the inevitable economic collapse.

Dungroanin ,

At last. Sanity. A brilliantly truthful article. Almost totally agree with this history of how the fuck the fucking bankers got their hands on almost fucking everything.

The first quibble is that starting history at FDR ignores the period of the creation of the Fed all the way back to it's prototype the BoE.

The second is about the creation of the Euro which ignores the political economic security desire of the evolving EU – the EMU and it's years of alignment of the EC preceding Maastricht and the bastardisation of the original vision by the rapid enrollment of countries and economies for Geopolitical (and even anti-EU) reasons. The EU being more likely to implement a 'Glass-Steagle' type of alignment through the level-playing-field ever-closet-union. That chalice being liberally poisoned by the global Banker interests.

Torontonian,

Interesting article, but the conclusions are off. That solution (i.e. return to Glass-Steagall) would have worked 20 , maybe 10 years ago. We are way to passed that point. The looters are now part of the system– no one will embrace Glass-Steal. The system is on life support.

[Jan 26, 2020] The Collapse of Neoliberalism by Ganesh Sitaraman

Highly recommended!
From the book The Great Democracy by Ganesh Sitaraman.
This is a very valuable article, probably the best written in 2019 on the topic, that discusses several important aspects of neoliberalism better then its predecessors...
Notable quotes:
"... For some, and especially for those in the millennial generation, the Great Recession and the wars in Iraq and Afghanistan started a process of reflection on what the neoliberal era had delivered. ..."
"... neoliberal policies had already wreaked havoc around the world ..."
"... "excessively rapid financial and capital market liberalization was probably the single most important cause of the crisis"; he also notes that after the crisis, the International Monetary Fund's policies "exacerbated the downturns." ..."
"... In study after study, political scientists have shown that the U.S. government is highly responsive to the policy preferences of the wealthiest people, corporations, and trade associations -- and that it is largely unresponsive to the views of ordinary people. The wealthiest people, corporations, and their interest groups participate more in politics, spend more on politics, and lobby governments more. Leading political scientists have declared that the U.S. is no longer best characterized as a democracy or a republic but as an oligarchy -- a government of the rich, by the rich, and for the rich. ..."
"... Neoliberalism's war on "society," by pushing toward the privatization and marketization of everything, indirectly facilitates a retreat into tribalism. ..."
"... neoliberalism's radical individualism has increasingly raised two interlocking problems. First, when taken to an extreme, social fracturing into identity groups can be used to divide people and prevent the creation of a shared civic identity. ..."
"... Demagogues rely on this fracturing to inflame racial, nationalist, and religious antagonism, which only further fuels the divisions within society. Neoliberalism's war on "society," by pushing toward the privatization and marketization of everything, thus indirectly facilitates a retreat into tribalism that further undermines the preconditions for a free and democratic society. ..."
"... The second problem is that neoliberals on right and left sometimes use identity as a shield to protect neoliberal policies. As one commentator has argued, "Without the bedrock of class politics, identity politics has become an agenda of inclusionary neoliberalism in which individuals can be accommodated but addressing structural inequalities cannot." What this means is that some neoliberals hold high the banner of inclusiveness on gender and race and thus claim to be progressive reformers, but they then turn a blind eye to systemic changes in politics and the economy. ..."
"... They thought globalization was inevitable and that ever-expanding trade liberalization was desirable even if the political system never corrected for trade's winners and losers. They were wrong. These aren't minor mistakes. ..."
"... In spite of these failures, most policymakers did not have a new ideology or different worldview through which to comprehend the problems of this time. So, by and large, the collective response was not to abandon neoliberalism. After the Great Crash of 2008, neoliberals chafed at attempts to push forward aggressive Keynesian spending programs to spark demand. President Barack Obama's advisers shrank the size of the post-crash stimulus package for fear it would seem too large to the neoliberal consensus of the era -- and on top of that, they compromised on its content. ..."
"... When it came to affirmative, forward-looking policy, the neoliberal framework also remained dominant. ..."
"... It is worth emphasizing that Obamacare's central feature is a private marketplace in which people can buy their own health care, with subsidies for individuals who are near the poverty line ..."
"... Fearful of losing their seats, centrists extracted these concessions from progressives. Little good it did them. The president's party almost always loses seats in midterm elections, and this time was no different. For their caution, centrists both lost their seats and gave Americans fewer and worse health care choices. ..."
"... The Republican Party platform in 2012, for example, called for weaker Wall Street, environmental, and worker safety regulations; lower taxes for corporations and wealthy individuals; and further liberalization of trade. It called for abolishing federal student loans, in addition to privatizing rail, western lands, airport security, and the post office. Republicans also continued their support for cutting health care and retirement security. After 40 years moving in this direction -- and with it failing at every turn -- you might think they would change their views. But Republicans didn't, and many still haven't. ..."
"... Although neoliberalism had little to offer, in the absence of a new ideological framework, it hung over the Obama presidency -- but now in a new form. Many on the center-left adopted what we might call the "technocratic ideology," a rebranded version of the policy minimalism of the 1990s that replaced minimalism's tactical and pragmatic foundations with scientific ones. The term itself is somewhat oxymoronic, as technocrats seem like the opposite of ideologues. ..."
"... The technocratic ideology preserves the status quo with a variety of tactics. We might call the first the "complexity canard." ..."
"... The most frequent uses of this tactic are in sectors that economists have come to dominate -- international trade, antitrust, and financial regulation, for example. The result of this mind-set is that bold, structural reforms are pushed aside and highly technical changes adopted instead. Financial regulation provides a particularly good case, given the 2008 crash and the Great Recession. When it came time to establish a new regulatory regime for the financial sector, there wasn't a massive restructuring, despite the biggest crash in 70 years. ..."
"... Instead, for the most part, the Dodd-Frank Act was classically technocratic. It kept the sector basically the same, with a few tweaks here and there. There was no attempt to restructure the financial sector completely. ..."
"... The Volcker Rule, for example, sought to ban banks from proprietary trading. But instead of doing that through a simple, clean breakup rule (like the one enacted under the old Glass-Steagall regime), the Volcker Rule was subject to a multitude of exceptions and carve-outs -- measures that federal regulators were then required to explain and implement with hundreds of pages of technical regulations ..."
"... Dodd-Frank also illustrates a second tenet of the technocratic ideology: The failures of technocracy can be solved by more technocracy. ..."
"... Dodd-Frank created the Financial Stability Oversight Council, a government body tasked with what is called macroprudential regulation. What this means is that government regulators are supposed to monitor the entire economy and turn the dials of regulation up and down a little bit to keep the economy from another crash. But ask yourself this: Why would we ever believe they could do such a thing? We know those very same regulators failed to identify, warn about, or act on the 2008 crisis. ..."
"... In the first stage, neoliberalism gained traction in response to the crises of the 1970s. It is easy to think of Thatcherism and Reaganism as emerging fully formed, springing from Zeus's head like the goddess Athena. ..."
"... Early leaders were not as ideologically bold as later mythmakers think. In the second stage, neoliberalism became normalized. It persisted beyond the founding personalities -- and, partly because of its longevity in power, grew so dominant that the other side adopted it. ..."
"... Eventually, however, the neoliberal ideology extended its tentacles into every area of policy and even social life, and in its third stage, overextended. The result in economic policy was the Great Crash of 2008, economic stagnation, and inequality at century-high levels. In foreign policy, it was the disastrous Iraq War and ongoing chaos and uncertainty in the Middle East. ..."
"... The fourth and final stage is collapse, irrelevance, and a wandering search for the future. With the world in crisis, neoliberalism no longer has even plausible solutions to today's problems. ..."
"... The solutions of the neoliberal era offer no serious ideas for how to restitch the fraying social fabric, in which people are increasingly tribal, divided, and disconnected from civic community ..."
Dec 23, 2019 | newrepublic.com
Welcome to the Decade From Hell , our look back at an arbitrary 10-year period that began with a great outpouring of hope and ended in a cavalcade of despair. The long-dominant ideology brought us forever wars, the Great Recession, and extreme inequality. Good riddance.

With the 2008 financial crash and the Great Recession, the ideology of neoliberalism lost its force. The approach to politics, global trade, and social philosophy that defined an era led not to never-ending prosperity but utter disaster. "Laissez-faire is finished," declared French President Nicolas Sarkozy. Federal Reserve Chairman Alan Greenspan admitted in testimony before Congress that his ideology was flawed. In an extraordinary statement, Australian Prime Minister Kevin Rudd declared that the crash "called into question the prevailing neoliberal economic orthodoxy of the past 30 years -- the orthodoxy that has underpinned the national and global regulatory frameworks that have so spectacularly failed to prevent the economic mayhem which has been visited upon us."

... ... ...

[Jan 26, 2020] How (Not) to Criticize Karl Polanyi by Steven Klein

Notable quotes:
"... Steven Klein is a political theorist who is an Assistant Professor of Political Science at the University of Florida. He writes and teaches about democracy, the welfare state, and European political thought. ..."
Jun 05, 2017 | democracyjournal.org

A recent critique of Karl Polanyi reveals more about the limits of our current political debates than anything about the man himself.

Globalization has not been doing so well lately. Since the 2008 financial crisis, the idea that unfettered free markets bring unadulterated benefits to society has lost its sheen. Trump's election demolished Republican Party catechisms around free trade. The irony of our current moment is that the center-left politicians, traditionally wary of markets, have become the great defenders of global openness, while the opponents of globalization are gravitating to the nationalist right.

Once a relatively obscure Hungarian academic, Karl Polanyi has posthumously become one of the central figures in debates about globalization. This recent interest in his thought has occasioned an unsympathetic treatment by Jeremy Adelman in the Boston Review . Adelman, a Princeton professor, has scores to settle with Polanyi. But his article ends up revealing more about the limits of our current political debates than anything about the man himself.

Polanyi's classic book, The Great Transformation: The Political and Economic Origins of Our Time , published in 1944, argued that the utopian obsession with self-adjusting markets had wreaked havoc in nineteenth-century European society, eventually laying the groundwork for the rise of fascism. His once unfashionable views have witnessed a remarkable revival of late. His name is frequently invoked when describing the dangers that global market integration poses to democracy. Polanyi has now moved one step closer to intellectual canonization with the publication of Gareth Dale's excellent biography, Karl Polanyi: A Life on the Left (2016), the impetus of Adelman's article.

First, there are aspects of Polanyi's thought worth criticizing. His historical account of the origins of the market society is murky. He neglects gender, race, and colonialism, although he was a supporter of anti-colonial struggles. Yet, instead, Adelman returns to a well-worn and wrong-headed criticism of Polanyi: that his thought represents a romantic revolt against markets in favor of a warm communalism, a stance that inevitably leads to violent nationalism and tyrannical "collectivism."

More troubling still is Adelman's explanation for why Polanyi was supposedly attracted to romantic attacks on liberalism. In Adelman's telling, Polanyi, who was born into an assimilated Jewish family but converted to Christianity, suffered from a sort of intellectual Stockholm Syndrome: Excluded from European society, he romanticized his murderous oppressors. He longed for the communal belonging that was denied to him as a Jew. And so Polanyi, Adelman declares, wanted to "merge into the national Volk ." This desire explains his "blind spot for reactionary nationalism," which "would only grow with time" as he looked to the passions of nationalist belonging "as a way to restore a sense of fraternal community." Polanyi's rejection of liberalism was thus a rejection of his own Judaism. He attacked market liberalism and excused reactionary nationalism because of his unfulfillable desire to belong in a Europe defined by ethnic unity and anti-Semitism.

Now, there is much to be said about Polanyi's social circumstances and life story, beautifully recounted in Dale's biography. The complex identity of assimilated Jewish elites in the Austro-Hungarian Empire and Polanyi's lifelong attraction to Christianity certainly informed his thinking. There is also a larger story here about the attraction of interwar Jewish intellectuals to various strains of Christianity. Perhaps this fascination reflected a degree of self-loathing for highly educated Jews, caught in the double binds of Jewish identity: either too assimilated and therefore incapable of authenticity, or else clinging to their primitive roots. Or perhaps a radical interpretation of aspects of Christianity provided such Jews with a standpoint to criticize Europe without having their criticisms dismissed on account of their Judaism. These are all interesting and worthy questions.

For Adelman, though, Polanyi's conversion to Christianity is a bludgeon with which to attack him, a crude device to explain Polanyi's (again supposed) hatred for European liberalism. But the idea that Polanyi, who was forced to flee Europe, is some sort of apologist for nationalism is just plain wrong. Indeed, he viewed European liberalism's attachment to market fundamentalism as the barrier to an alliance between democratically inclined liberals and the working masses. The worst that could be said of him on this account is that he underestimates nationalism as a source of opposition to markets, although he certainly was aware of the fascist threat. But his central point was always that, if we want to avoid an authoritarian reaction to the ravages of the market, we need to develop a democratic alternative to pro-market liberalism.

To tar Polanyi with the brush of reactionary nationalism, Adelman makes some strange claims. For instance, he argues that Polanyi affiliates Judaism with liberalism, both of which he then views as stepping stones to Christianity and socialism, respectively. The only problem is that Polanyi explicitly associated Christianity , and not Judaism, with liberalism -- Christianity revealed the principle of individual freedom that is the core of liberalism -- and, for him, both Christianity and liberalism stood in need of a revision that would push them toward democratic socialism. Of course, deeply internalized anti-Semitism could be more important than Polanyi's actual statements. The problem with such psychological arguments, though, is their pointillist quality: They cohere better from afar than up close.

Reading Polanyi is admittedly a frustrating experience. He mixes high theory, historical narrative, and overheated journalistic polemic into a distinct mélange. Yet at the center of his thinking is a brilliant idea: that the three core "inputs" of the economy -- labor, land, and money -- are what he calls "fictitious" commodities. By this, Polanyi means that, try as we might, workers are never going to move at a moment's notice to wherever markets dictate, markets aren't going to replenish rivers and fields, and governments will bail out banks to keep money flowing. To take one not-exactly-random example: Since land, to Polanyi, is more than just a resource for market exchange, so too will housing only ever be a partial commodity. Access to housing is a vital interest, and so democracies will face pressure to introduce a variety of regulations that "distort" housing markets. So, it is hardly surprising that the financial crisis was centered on mortgages -- try as we might, we will never get housing markets to be the smooth, frictionless edifices imagined by economists. A house cannot be moved like a bushel of wheat. Adelman misses the significance of these arguments because he reduces Polanyi's thinking to the binary of morality or markets. But the central opposition, for Polanyi, is democracy or markets. Democratic demands for social protection conflict with the dictates of the market, a fact that is ever more apparent in our era of financial capitalism.

Adelman boils this down to a simplistic rejection of the market as such, an inability to see how markets can function as engines of wealth-creation and need-satisfaction. But here Polanyi fully agrees with Adelman about the remarkable potential of markets. Polanyi's attack on market liberalism is not that it impoverishes the masses in favor of the rich. The problem with markets, for him, is that they are so good at producing efficiencies that they tend to override all other considerations. To unlock their full potential, markets require the subordination of all individual, social, and political institutions to their dictates.

Polanyi expresses this as the tension between habitation and improvement: We cannot live off the land while we improve the land. This is a lesson that the Greeks and other Europeans are currently learning first-hand, as the search for long-term competitiveness through "structural reforms" leads to massive unemployment. Polanyi thinks this hunt is politically unrealistic and potentially explosive. Societies create moral expectations around fairness, rewards for effort, and stability that markets, by their nature, cannot meet. What is efficient from a market perspective can be profoundly harmful from a human perspective -- Polanyi learned this as a teenager, when his father went through a traumatic bankruptcy.

If Polanyi's argument was just that markets were immiserating and destroyed communal integration, we should certainly consign him to the dustbin of failed moral economists. Fortunately, that was not his view. But Adelman's line of attack reveals more about our contemporary moment than it does about Polanyi. It speaks to a growing rift between liberalism and the left. Liberals want globalization with a human face, while leftists echo Polanyi in fundamentally questioning the undemocratic political infrastructure of our current market era. The unexpected strength of Sanders in the United States, Mélenchon in France, and now Corbyn in the UK shows that old political dogmas are dying.

Adelman's read of Polanyi reinforces the liberal view that globalization is a done deal and left anti-globalization rests on a romantic fantasy, one that cannot but appease the racism and nationalism of the "losers" of the market. Just as, if you squint hard enough, you can persuade yourself that Polanyi is a sort of self-hating, pseudo-nationalist reactionary, despite his professed socialism, so too, if you work at it, can you merge Sanders and Trump, Mélenchon and Le Pen into one anti-globalization, anti-liberal morass.

Yet Polanyi provides a vital avenue out of this paralyzing deadlock between pro-globalization liberalism and nationalist populism. Our contemporary market order is in crisis not because of fuzzy-headed leftists, adorned in too many buttons, who refuse to get with the program. Nor is the crisis one last revolt from the losers of globalization, animated by the fever dreams of white Americans and "native" Europeans. Our order is in crisis because it has failed to deliver on its own promise of widely distributed, real growth. For Polanyi, the central problem was how to channel the reaction to such inevitable failures in a democratic rather than authoritarian direction. Polanyi saw many different avenues toward this goal, including Roosevelt's New Deal. Today, of course, we face different political conditions, but many similar problems: a massively exploitative consumer credit "marketplace," the degraded power of workers, and flows of speculative capital that undermine democracy. Tackling these issues, though, will require a more foundational rethink of a global institutional order that facilitates market exchange above all else.

One last thought: Adelman takes capitalism's revival after World War II as an embarrassment for Polanyi. To be sure, Polanyi failed to foresee the remarkable resiliency of capitalism, produced in part by the ability of elites to absorb the undercurrents of his own teaching and construct a form of embedded, organized capitalism. The flipside of post-war capitalism, though, was the creation of an environmental crisis the full scope of which has only now become apparent. If Polanyi failed to predict the persistence of our market society, he was certainly prescient about the destructive environmental implications of unconstrained growth. In this respect, as in many others, we should heed his warnings and learn from his thought, as today the stakes could hardly be higher.

Read more about Globalization Karl Polanyi Liberalism nationalism socialism

Steven Klein is a political theorist who is an Assistant Professor of Political Science at the University of Florida. He writes and teaches about democracy, the welfare state, and European political thought.

[Jan 25, 2020] Davos Man - Misbegotten Progeny Of Keynesian Central Bankers

Jan 25, 2020 | www.zerohedge.com

Davos Man - Misbegotten Progeny Of Keynesian Central Bankers by Tyler Durden Sat, 01/25/2020 - 12:00 0 SHARES

Authored by David Stockman via LewRockwell.com,

There were a reported 119 billionaires attending the Davos confab this year – plus the Donald, who took a day off from Impeachment to address this august gathering of the world's movers and shakers.

There was also 1500 private jets crowding the surrounding airports – plus the notable train-traveling 17-year old expert on planetary climate science, Greta Thunberg.

Also, among the 10 billionaires in attendance from communist China is Ren Zhenfei, founder of Huawei and father of its CFO, Meng Wanzhou. Even as dad courts the rich and famous on the slopes, daughter languishes in a Canadian jail waiting extradition to the US because she had the audacity to do business with Iran against Washington's instructions and Trump's latest fatwa against the Tehran government.

These odd juxtapositions plus countless more got us to thinking about Davos Man himself and the ultimate juxtaposition of our times.

To wit, the combined net worth of the world's billionaires in the year 2000 was $1 trillion , according to Forbes, but at this bublicious moment that number is reckoned at just under $10 trillion . So the 2,150 members of the Billionaires Club now have more net worth than 60% of the world's population combined. That's 4.6 billion people!

In so noting, of course, we are not joining the Bernie Sanders/AOC/Pocahontas brigade. In a world of free markets, honest money and de minimis government, the more billionaires the better. But what we sincerely doubt is that there was an honest and sustainable basis for a 10X gain in the net worth of the Billionaires Club over a two decade period when the world's nominal GDP only rose from $35 trillion to $85 trillion, or by 2.4X .

After all, the predominately financial assets comprising the world's net worth are merely the capitalization of its underlying income or GDP. And there is no basis in either sound economics or basic math for the former to grow nearly four times faster than the latter for two decades running.

Stated differently, unless the age-old laws of sound money have been repealed by the economic gods themselves, Davos Man is fixing to become nearly as rare as Neanderthal Man or, more to the point, has been a case of Piltdown Man all along.

Recall that the latter had been touted by some British scoundrels in 1912 to be a 500,000 year-old homo sapiens and evolution's missing link. Alas, it was actually a ho-hum 50,000 year-old human skeleton fused with the jawbone and teeth of a modern orangutan.

Billionaire Haven

As it happened, it took the world about three decades to figure out that Piltdown Man was a hoax, but the hoax attendant to Davos Man is already plain as day. That's because by even tolerating Greta's impending extinction hysteria and the Donald's hideous Greatest Ever Economy boasts, the assembled billionaires are demonstrating that they are not 4X geniuses after all – just bubble riders on the great central banking hoax of the 21st century.

Indeed, we would suppose that some kind of guilt-tripping would account for the grandly named World Economic Forum's (WEF) solicitude for the global warming scam and its intellectually pre-pubescent poster girl, Greta. But why in the world would the purported deep thinkers of the WEF not laugh the Donald's malarkey right off the stage?

On the way to Switzerland he tweeted a superlative that would be the envy of the biggest braggart in the school yard:

"We are now NUMBER ONE in the Universe, by FAR!! .

And then he thickened the goo while at the podium in Davos:

America's newfound prosperity is undeniable, unprecedented and unmatched anywhere in the world America made this stunning turnaround not by making minor changes to a handful of policies but by adopting a whole new approach. Every decision we make is focused on improving the lives of every day Americans. We are determined to create the highest standard of living that anyone can imagine. "

Folks, that's just blithering poppycock. We are at the end of the longest and weakest business cycle expansion in history (month # 127), yet real median household income has barely returned to where it stood two decades ago.

The idea that Trump-O-Nomics has anything to do with paving the way for the "highest standard of living that anyone can imagine" is just content free bluster.

The facts actually show that the US standard of living has been stagnant for two decades, rising and falling with the business cycle, but gaining on average the grand sum of $87 per year (2018 $) since 1999.

That's right. As shown in the graph below, the $63,179 median reported for 2018 is undoubtedly the high water mark for years to come, yet it represented a mere 2.7% gain from the $61,526 level (2018 $) posted way back in 1999.

While the data for 2019 is not yet available, it is evident that the various categories of income gain last year barely kept up with inflation, meaning that real median family income was flat. So the coming recession in the early 2020s will send the black bars in the chart sliding lower as they did during and after each of the recessions marked by the white space.

Here's the thing. The Donald's policies have immensely harmed the foundations on which today's tepidly expanding business cycle rests. Yet there has been no short-run benefit in terms of accelerating overall GDP growth, and actually a sharp deceleration of business investment and export growth.

Likewise, the vaunted 70% of GDP attributable to personal consumption spending (PCE) is been essentially kept alive by borrowing.

Nearly 67% of the gain in personal consumption expenditures since Q4 2012, when the US economy had fully recovered from the Great Recession, has been accounted for by household debt growth. The latter (purple bars) is up by a fully $2.4 trillion to a record $16 trillion compared to personal consumption (PCE) growth of just $3.6 trillion during the same 81 month period.

What the "strong economy" gummers forget, of course, is that sooner or later you have to pay the piper when the economy becomes as debt-ridden as today's world. You are supposed to actually pay down debt during the up-phase of the cycle, but self-evidently that has not remotely happened this time around the barn.

So you can boast about the Greatest Economy Ever if you are the Donald and reassure about a "solid" economy if you are stock-options rich Davos Man, but that doesn't gainsay the unsustainable economic and monetary rot upon which it is all based.

At the end of the day, what the Donald is crowing about is simply the residual momentum of the debt-ridden, growth-impaired economy he inherited, and what the geniuses gathered at Davos are calling a "strong" economy is actually a mere simulacrum of a real business boom – a fiction slathered in artificially and irrationally soaring share prices and stock options

The truth is, we are heading into the strum-und-drang of the Turbulent Twenties, but the alleged adults in the room at Davos don't have a clue. They apparently think America's three-decade long fantasy of free lunch economics and unhinged partisan warfare is sustainable indefinitely.

It's not.

If you are sitting on phantasmagorical stock market paper values and not sweating bullets about the implications of the central banks' $25 trillion balance sheet, the world's $255 trillion of debt, the Red Ponzi's monumental malinvestment, the Donald's war on trade, immigrants and fiscal sanity, the bipartisan war on constitutional government in America, the Empire's claim to global extraterritoriality and the statist grab for power in the name of a phony climate crisis, then you are not paying attention.

Each and every one of these force vectors are bearing down ominously upon the pathway ahead. But the malignancies of runaway debt and egregiously inflated financial bubbles stand front and center.

Here is a graph of US net worth versus national income (GDP) gains since Q4 2000, and it speaks for itself. To wit:

Needless to say, when the wealth of the top 1% (1.3 million households) is growing at nearly twice the rate of national income and by 11X more than the bottom half of households ( 63.5 million), there is absolutely nothing sustainable about it.

In fact, it's the reason why the real extinction threat at this week's confab in Switzerland is not the one Greta is scolding her elders about, but of Davos Man himself.

And if they cannot tell that Trump is the greatest economic charlatan to ever grace high office in the world's largest economy, they surely well and truly deserve their fate.

* * *

Former Congressman David A. Stockman was Reagan's OMB director, which he wrote about in his best-selling book, The Triumph of Politics . His latest books are The Great Deformation: The Corruption of Capitalism in America and Peak Trump: The Undrainable Swamp And The Fantasy Of MAGA . He's the editor and publisher of the new David Stockman's Contra Corner. He was an original partner in the Blackstone Group, and reads LRC the first thing every morning.

[Jan 25, 2020] Financialization Has Cemented Declines In Fertility Rates, Births, Eventually Depopulation

Jan 25, 2020 | www.zerohedge.com

Financialization Has Cemented Declines In Fertility Rates, Births, & Eventually Depopulation by Tyler Durden Sat, 01/25/2020 - 13:00 0 SHARES

Authored by Chris Hamilton via Econimica blog,

Summary

Nations with 56% of world GDP have declining annual births and childbearing populations, nations with 35% of GDP have declining births but still rising/flat childbearing populations, nations with less than 9% of world GDP have rising births and childbearing populations.

Detailed below are 1950 through 2040 annual births, female childbearing, and female post-childbearing populations of worlds largest economies. Utilizing UN World Population Prospects 2019 data.

In the wake of the great financial crisis of 2009, ZIRP/NIRP were utilized, federal deficit spending soared, asset prices skyrocketed, employment rose to record levels...but strangely fertility rates and total births have continued falling. Actually, collapsing. Record wealth has been accompanied by record low birth rates and unwillingness to have children, suggesting that those reaping the gains of the asset-price-pallooza are not of childbearing age. The policies since 2009 have rewarded asset holders for being asset holders and penalized young, poor, and those without assets...for being without assets.

Simply put, costs of living and assets have risen far faster than incomes. Rent, daycare, insurance, education, healthcare, etc. etc. have taken a progressively greater share of income leading to fewer and later marriages, fewer and later children, and a general unwillingness to reproduce. All this has led to collapsing populations of young (and now young adults) among the nations that consume over 90% of the worlds exports and ultimately means collapsing demand while excess capacity is set to soar.

So, today I show that of the top 50+ global economies, 6 have rising annual births and childbearing populations, 9 have falling annual births but still have a rising or flat childbearing population (the precursor to depopulation), 35+ have falling births, a falling childbearing population, are in secular decline, and depopulating from the bottom up (negative birth rates coupled with declining childbearing populations) . Essentially, global consumer bases are collapsing from the young up, and this situation is only accelerating...and more debt, more QE, more interest rate cuts are only pushing birth rates and total births lower.

The 20 to 40 and 40+ year-old populations of females are not so much projections as simple math, these females already exist and are just shifted forward through the next twenty years assuming existing immigration patterns. Births from 2020 on are projections. Nations are in order of the percentage change of their 20 to 40 year-old female childbearing populations from 2020 through 2040. GDP and % of total global GDP are also included for relativity.

Falling (births falling, childbearing population also declining)

***For those nations with large variations of significantly faster declines among childbearing population than projected in births, I add an estimated dashed line with declining births mirroring declining childbearing populations.

Taiwan (#15 GDP, 0.7%)

Taiwan 2020 – 2040

20-40 year old females -1.15 million, -35%

Est. annual births -61k, -35% (UN projects -17k, -10%)

40+ year old females +1.3 million, +20%

South Korea (#9 GDP, 1.9%)

South Korea 2020 – 2040

20-40 year old females -2.1 million, -33%

Est. annual births -100k, -33% (UN projects -20k, -6%)

40+ year old females +2.6 million, +17%

Singapore (#21 GDP, 0.4%)

Singapore 2020 – 2040

20-40 year old females -210k, -26%

Est. annual births -30k, -50% (UN projects -18k, -30%)

40+ year old females +0.5 million, +34%

Eastern Europe excluding Russia (#13 GDP, 1.3%)

2020 – 2040 (Belarus, Bulgaria, Czechia, Hungary, Poland, Moldova, Romania, Slovakia, Ukraine)

20-40 year old females -4.6 million, -24%

UN projects annual births -240k, -17%

40+ year old females, +0, +0%

China (#3 GDP, 16%)

China 2020 – 2040

20-40 year old females -44 million, -22%

Est. annual births -3.2 million, -22% (UN projects -1.1m, -7%)

40+ year old females +76 million, +22%

Japan (#4 GDP, 6%)

Japan 2020 – 2040

20-40 year old females -2.3 million, -18%

Est. annual births -155k, -18% (UN projects -40k, -5%)

40+ year old females -2.1 million, -5%

Thailand (#14 GDP, 0.6%)

Thailand 2020 – 2040

20-40 year old females -1.6 million, -17%

UN projects annual births -144k, -21%

40+ year old females +3.3 million, +18%

Chile (#27 GDP, 0.3%)

Chile 2020-2040

20-40 year old Females -470k, -16%

UN projects annual births -20k, -11%

40+ year old Females +1.3 million, +31%

Russia (#8 GDP, 1.9%)

Russia 2020 – 2040

20-40 year old females -3 million, -15%

UN projects annual births -220k, -13%

40+ year old females +1 million, +2%

Vietnam (#29 GDP, 0.3%)

Vietnam 2020 – 2040

20-40 year old females -2.3 million, -15%

UN projects annual births -320k, -20%

40+ year old females +8.8m, +45%

Brazil (#6 GDP, 2.1%)

Brazil 2020 – 2040

20-40 year old females -5 million, -14%

UN projects annual births -620k, -22%

40+ year old females +19 million, +43%

Iran (#15 GDP, 0.5%)

Iran 2020 – 2040

20-40 year old females -2 million, -14%

UN projects annual births -260k, -14%

40+ year old females +10m, +71%

Colombia (#24 GDP, 0.4%)

Colombia 2020 – 2040

20-40 year old females -1 million, -11%

UN projects annual births -175k, -23%

40+ year old females +4.6 million, +46%

Western Europe (EU+ 29 countries...#2 GDP, 22%)

Western Europe 2020 – 2040

20-40 year old females -5 million, -9%

UN projects annual births -225k, -5%

40+ year old females +8 million, +6%

Malaysia (#20 GDP, 0.4%)

Malaysia 2020-2040

20-40 year old females -350k, -6%

UN projects annual births -85k, -16%

40+ year old females +3.7 million, +71%

Turkey (#14 GDP, 0.9%)

Turkey 2020 – 2040

20-40 year old females -400k, -3%

UN projects annual births -145, -11%

40+ year old females +7 million, +42%

Peru (#30 GDP, 0.3%)

Peru 2020-2040

20-40 year old females -190k, -3%

UN projected births -130k, -21%

40+ year old females +3.3 million, +55%

Bangladesh (#25 GDP, 0.4%)

Bangladesh 2020 – 2040

20-40 year old females -240k, -1%

UN projects annual births -600k, -23%

40+ year old females, +19 million, +78%

Flattening ( Births falling, childbearing population still rising) South Africa (#22 GDP, 0.4%)

South Africa 2020-2040

20-40 year old females +0.9 million, +9%

UN projects annual births -10k, -1%

40+ year old females +5.3 million, +58%

India (#5 GDP, 3.4%)

India 2020 – 2040

20-40 year old females +9 million, +4% (2032 is peak childbearing down, down from there)

UN projects annual births -3.4m, -14%

40+ year old females +116 million, +54%

Argentina (#17 GDP, 0.5%)

Argentina 2020 – 2040

20-40 year old females +430k, +6%

UN projects annual births -30k, -4%

40+ year old females +3.1 million, +34%

Indonesia (#12 GDP, 1.3%)

Indonesia 2020 – 2040

20-40 year old females +2.7 million, +6%

UN projects annual births -88k, -2%

40+ year old females +22.6 million, +47%

Saudi Arabia (#13 GDP, 0.9%)

Saudi Arabia 2020 – 2040

20-40 year old females +280k, +5%

UN projects annual births -90k, -15%

40+ year old females +4 million, +96%

United Arab Emirates (#18 GDP, 0.5%)

UAE 2020-2040

20-40 year old females +60k, +4%

UN projects births +6k, 6%

40+ year old females +500k, 71%

Mexico (#11 GDP, 1.5%)

Mexico 2020 – 2040

20-40 year old females +0.7 million, +3%

UN projects annual births -265k, -12%

40+ year old females +12 million, +52%

USA (#1 GDP, 25%)

US 2020 – 2040

20-40 year old females +500k, +1%

Est. annual births -290k, -8% (UN projects +340k, +9%)

40+ year old females +16 million, +20%

Canada (#7 GDP, 2%)

Canada 2020 – 2040

20-40 year old females +50k, +1%

UN projects annual births +15k, +3%

40+ year old females +2.6 million, +26%

Growing ( Rising births and rising childbearing populations) Nigeria (#16 GDP, 0.5%)

Nigeria 2020 – 2040

20-40 year old females +21 million, +76%

UN projects annual births +2.4 million, +34%

40+ year old females +15 million, +81%

Israel (#19 GDP, 0.4%)

Israel 2020 – 2040

20-40 year old females +400k, +35%

UN projects annual births +30k, +17%

40+ year old females +600k, +37%

Egypt (#26 GDP, 0.3%)

Egypt 2020-2040

20-40 year old females +5.1 million, +33%

UN projects annual births +0.5 million, +24%

40+ year old females +9.6, +70%

Pakistan (#28 GDP, 0.3%)

Pakistan 2020 – 2040

20-40 year old females +11.4 million, +33%

UN projects annual births +20k, +0%

40+ year old females +22 million, +86%

Philippines (#23 GDP, 0.4%)

Philippines 2020 – 2040

20-40 year old females +3 million, +18%

UN projects annual births +145k, +7%

40+ year old females +10.7 million, +66%

Australia/New Zealand (#10 GDP, 1.7%)

Australia/New Zealand 2020-2040

20-40 year old females +350k, +8%

UN projects births +0, +0%

40+ year old females +2.3 million, +31%

* * *

Many will applaud the fast declining and decelerating population growth of the nations that do all the consuming, but we are fast approaching a demographic and economic waterfall among the consuming nations that will leave little to no export led growth potential for poor nations. And that, coupled with increasingly widely available access to birth control, means poor nations economic growth (plus birth rates and total births) are likely to follow the consumer nations down. The outcome is a global inverted pyramid with surging elderly populations (and the policies to support them) the cause of collapsing young populations.


The Palmetto Cynic , 48 seconds ago link

It's a feature of societal decline, not a bug. Rudyard Kipling explains it.

http://www.kiplingsociety.co.uk/poems_copybook.htm

punjabiraj , 3 minutes ago link

And what if the 3rd world finds itself and replaces its dependencies? It has the population growth that the primitive economic model required for the initial cheap labor and consumption growth.

Get your heads out of your own gimme gimme arseholes and think a bit more laterally.

Shadow1275 , 5 minutes ago link

No you IDIOT (The dumbass who wrote this article) its so simple its not even funny.

When women aren't allowed to work= lots of children born

When women are allowed to work= no children born.

Its so pathetically simple, and to the thomas malthusians who claim this is a good thing, earth's population isn't getting smaller, the only thing that happens when your wet depopulation dreams come true is lower iq populations outgrowing higher iq populations and taking over their territory. Despite your best efforts, african, south american, and indian populations are still pooping out 8-9 kids.

Demographics is destiny and we will have no chance if we do not face reality.

vbomber11 , 6 minutes ago link

We don't have enough good jobs and resources for the population now, of course things have to be done to reduce birth rates. And people living longer just makes things worse. But keep eating junk food and being a medical zombie because you know...more jobs.

Kayhla the Prettiest , 7 minutes ago link

Japan is in real trouble on this issue. Their elderly population is huge and all the young men prefer virtual girls to real ones. That is going to cripple their economy over the next two decades.

2banana , 4 minutes ago link

True. But one day - the Japanese will start having kids again. And their country will still be Japanese and be not overrun by hordes of invaders on welfare. So it will work itself out.

Nature_Boy_Wooooo , 8 minutes ago link

Democrats...."we need population growth to keep the economy growing." Also Democrats......"we need birth control and abortion."

pHObuk0wrEHob71Suwr2 , 10 minutes ago link

Could it be as simple as when kids are a liability people have less of them? The middle class don't collect welfare.

greatdisconformity , 10 minutes ago link

Global human population passed global sustainable levels late in the 19th Century. Our genius economists need to come up with a new economic model that does not require endless population growth and resource consumption.

Good luck with that. Economics is a science that failed.

Nature_Boy_Wooooo , 11 minutes ago link

The wealthy should seed the next generation of servants. Stop wearing condoms while you're banging Instagram models.

Samual Vimes , 13 minutes ago link

"... that will leave little to no export led growth potential for poor nations ..."

Except migration.

[Jan 11, 2020] Big Money in Politics Doesn't Just Drive Inequality. It Drives War. - FPIF

Notable quotes:
"... Citizens United ..."
Jan 11, 2020 | fpif.org

Big Money in Politics Doesn't Just Drive Inequality. It Drives War.

Military contractors have shelled out over $1 million to the 2016 presidential candidates -- including over $200,000 to Hillary Clinton alone.

By Rebecca Green , April 27, 2016 . Originally published in OtherWords .

Print Friendly, PDF & EmailPrint Military-Industrial Diagnosis

Khalil Bendib / OtherWords.org

The 2016 presidential elections are proving historic, and not just because of the surprising success of self-proclaimed socialist Bernie Sanders, the lively debate among feminists over whether to support Hillary Clinton, or Donald Trump's unorthodox candidacy.

The elections are also groundbreaking because they're revealing more dramatically than ever the corrosive effect of big money on our decaying democracy.

Following the 2010 Citizens United Supreme Court decision and related rulings, corporations and the wealthiest Americans gained the legal right to raise and spend as much money as they want on political candidates.

The 2012 elections were consequently the most expensive in U.S. history. And this year's races are predicted to cost even more. With the general election still six months away, donors have already sunk $1 billion into the presidential race -- with $619 million raised by candidates and another $412 million by super PACs.

Big money in politics drives grave inequality in our country. It also drives war.

After all, war is a profitable industry. While millions of people all over the world are being killed and traumatized by violence, a small few make a killing from the never-ending war machine.

During the Iraq War, for example, weapons manufacturers and a cadre of other corporations made billions on federal contracts.

Most notoriously this included Halliburton, a military contractor previously led by Dick Cheney. The company made huge profits from George W. Bush's decision to wage a costly, unjustified, and illegal war while Cheney served as his vice president.

Military-industrial corporations spend heavily on political campaigns. They've given over $1 million to this year's presidential candidates so far -- over $200,000 of which went to Hillary Clinton, who leads the pack in industry backing.

These corporations target House and Senate members who sit on the Armed Forces and Appropriations Committees, who control the purse strings for key defense line items. And cleverly, they've planted factories in most congressional districts. Even if they provide just a few dozen constituent jobs per district, that helps curry favor with each member of Congress.

Thanks to aggressive lobbying efforts, weapons manufacturers have secured the five largest contracts made by the federal government over the last seven years. In 2014, the U.S. government awarded over $90 billion worth of contracts to Lockheed Martin, Boeing, General Dynamics, Raytheon, and Northrop Grumman.

Military spending has been one of the top three biggest federal programs every year since 2000, and it's far and away the largest discretionary portion. Year after year, elected officials spend several times more on the military than on education, energy, and the environment combined.

Lockheed Martin's problematic F-35 jet illustrates this disturbingly disproportionate use of funds. The same $1.5 trillion Washington will spend on the jet, journalist Tom Cahill calculates , could have provided tuition-free public higher education for every student in the U.S. for the next 23 years. Instead, the Pentagon ordered a fighter plane that can't even fire its own gun yet.

Given all of this, how can anyone justify war spending?

Some folks will say it's to make us safer . Yet the aggressive U.S. military response following the 9/11 attacks -- the invasions of Iraq and Afghanistan, the NATO bombing of Libya, and drone strikes in Pakistan and Yemen -- has only destabilized the region. "Regime change" foreign policies have collapsed governments and opened the doors to Islamist terrorist groups like ISIS.

Others may say they support a robust Pentagon budget because of the jobs the military creates . But dollar for dollar, education spending creates nearly three times more jobs than military spending.

We need to stop letting politicians and corporations treat violence and death as "business opportunities." Until politics become about people instead of profits, we'll remain crushed in the death grip of the war machine.

And that is the real national security threat facing the United States today. Share this:

[Jan 11, 2020] Meet the CEOs Raking It in from Trump's Aggression Toward Iran - FPIF

Notable quotes:
"... Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and co-edits the IPS publication Inequality.org. Follow her at @SarahDAnderson1. ..."
Jan 11, 2020 | fpif.org

Meet the CEOs Raking It in from Trump's Aggression Toward Iran

Major military contractors saw a stock surge from the U.S. assassination of an Iranian general. For CEOs, that means payday comes early.

By Sarah Anderson , January 6, 2020 . Originally published in Inequality.org .

Print Friendly, PDF & EmailPrint military-industrial-complex-arms-contractors

Chris Devers / Flickr

CEOs of major U.S. military contractors stand to reap huge windfalls from the escalation of conflict with Iran. This was evident in the immediate aftermath of the U.S. assassination of a top Iranian military official last week. As soon as the news reached financial markets, these companies' share prices spiked, inflating the value of their executives' stock-based pay.

I took a look at how the CEOs at the top five Pentagon contractors were affected by this surge, using the most recent SEC information on their stock holdings.

Northrop Grumman executives saw the biggest increase in the value of their stocks after the U.S. airstrike that killed Qasem Suleimani on January 2. Shares in the B-2 bomber maker rose 5.43 percent by the end of trading the following day.

Wesley Bush, who turned Northrop Grumman's reins over to Kathy Warden last year, held 251,947 shares of company stock in various trusts as of his final SEC Form 4 filing in May 2019. (Companies must submit these reports when top executives and directors buy and sell company stock.) Assuming Bush is still sitting on that stockpile, he saw the value grow by $4.9 million to a total of $94.5 million last Friday.

New Northrop Grumman CEO Warden saw the 92,894 shares she'd accumulated as the firm's COO expand in value by more than $2.7 million in just one day of post-assassination trading.

Lockheed Martin, whose Hellfire missiles were reportedly used in the attack at the Baghdad airport, saw a 3.6 percent increase in price per share on January 3. Marillyn Hewson, CEO of the world's largest weapon maker, may be kicking herself for selling off a considerable chunk of stock last year when it was trading at around $307. Nevertheless, by the time Lockheed shares reached $413 at the closing bell, her remaining stash had increased in value by about $646,000.

What about the manufacturer of the MQ-9 Reaper that carried the Hellfire missiles? That would be General Atomics. Despite raking in $2.8 billion in taxpayer-funded contracts in 2018, the drone maker is not required to disclose executive compensation information because it is a privately held corporation.

We do know General Atomics CEO Neal Blue is worth an estimated $4.1 billion -- and he's a major investor in oil production, a sector that also stands to profit from conflict with a major oil-producing country like Iran.

*Resigned 12/22/19. **Resigned 1/1/19 while staying on as chairman until 7/19. New CEO Kathy Warden accumulated 92,894 shares in her previous position as Northrop Grumman COO.

Suleimani's killing also inflated the value of General Dynamics CEO Phebe Novakovic's fortune. As the weapon maker's share price rose about 1 percentage point on January 3, the former CIA official saw her stock holdings increase by more than $1.2 million.

Raytheon CEO Thomas Kennedy saw a single-day increase in his stock of more than half a million dollars, as the missile and bomb manufacturer's share price increased nearly 1.5 percent. Boeing stock remained flat on Friday. But Dennis Muilenberg, recently ousted as CEO over the 737 aircraft scandal, appears to be well-positioned to benefit from any continued upward drift of the defense sector.

As of his final Form 4 report, Muilenburg was sitting on stock worth about $47.7 million. In his yet to be finalized exit package, the disgraced former executive could also pocket huge sums of currently unvested stock grants.

Hopefully sanity will soon prevail and the terrifyingly high tensions between the Trump administration and Iran will de-escalate. But even if the military stock surge of this past Friday turns out to be a market blip, it's a sobering reminder of who stands to gain the most from a war that could put millions of lives at risk.

We can put an end to dangerous war profiteering by denying federal contracts to corporations that pay their top executives excessively. In 2008, John McCain, then a Republican presidential candidate, proposed capping CEO pay at companies receiving taxpayer bailouts at no more than $400,000 (the salary of the U.S. president). That notion should be extended to companies that receive massive taxpayer-funded contracts.

Sen. Bernie Sanders, for instance, has a plan to deny federal contracts to companies that pay CEOs more than 150 times what their typical worker makes.

As long as we allow the top executives of our privatized war economy to reap unlimited rewards, the profit motive for war in Iran -- or anywhere -- will persist. Share this:

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and co-edits the IPS publication Inequality.org. Follow her at @SarahDAnderson1.

[Jan 03, 2020] For corporate Democrats and their profuse media allies, the approach of disparaging and minimizing Bernie Sanders in 2019 didn't work. In 2020, the next step will be to trash him with a vast array of full-bore attacks

Dec 29, 2019 | www.truthdig.com

A central premise of conventional media wisdom has collapsed. On Thursday, both the New York Times and Politico published major articles reporting that Bernie Sanders really could win the Democratic presidential nomination. Such acknowledgments will add to the momentum of the Bernie 2020 campaign as the new year begins -- but they foreshadow a massive escalation of anti-Sanders misinformation and invective.

Throughout 2019, corporate media routinely asserted that the Sanders campaign had little chance of winning the nomination. As is so often the case, journalists were echoing each other more than paying attention to grassroots realities. But now, polling numbers and other indicators on the ground are finally sparking very different headlines from the media establishment.

From the Times : " Why Bernie Sanders Is Tough to Beat ." From Politico : " Democratic Insiders: Bernie Could Win the Nomination ."

Those stories, and others likely to follow in copycat news outlets, will heighten the energies of Sanders supporters and draw in many wavering voters. But the shift in media narratives about the Bernie campaign's chances will surely boost the decibels of alarm bells in elite circles where dousing the fires of progressive populism is a top priority.

For corporate Democrats and their profuse media allies, the approach of disparaging and minimizing Bernie Sanders in 2019 didn't work. In 2020, the next step will be to trash him with a vast array of full-bore attacks.

Along the way, the corporate media will occasionally give voice to some Sanders defenders and supporters. A few establishment Democrats will decide to make nice with him early in the year. But the overwhelming bulk of Sanders media coverage -- synced up with the likes of such prominent corporate flunkies as Rahm Emanuel and Neera Tanden as well as Wall Street Democrats accustomed to ruling the roost in the party -- will range from condescending to savage.

When the Bernie campaign wasn't being ignored by corporate media during 2019, innuendos and mud often flew in his direction. But we ain't seen nothing yet.

With so much at stake -- including the presidency and the top leadership of the Democratic Party -- no holds will be barred. For the forces of corporate greed and the military-industrial complex, it'll be all-out propaganda war on the Bernie campaign.

While reasons for pessimism are abundant, so are ample reasons to understand that a Sanders presidency is a real possibility . The last places we should look for political realism are corporate media outlets that distort options and encourage passivity.

Bernie is fond of quoting a statement from Nelson Mandela: "It always seems impossible until it is done."

From the grassroots, as 2020 gets underway, the solution should be clear: All left hands on deck.


Jan Goslinga 38 minutes ago ,

Elections aren't real. Democrats will nominate Joe Biden to lose the election. Trump will remain as fascist strongman and the dems will continue to blame his neoconservative policies on his white trash constituency.

Bernie serves a few important functions.
1. he keeps the radicals from leaving the plantation and going 3rd party.
2. his promotion of progressive policies will make Biden less popular and help him lose to Trump
3. Bernie and his "socialism" can then be blamed for losing the election to Trump

Maxwell Jan Goslinga 15 minutes ago ,

Unfortunately this comment will be buried in this monstrosity of a thread- now at over 300 comments with only about a third of them having a much relevance.

You might consider re-posting in reply to one of the foremost comments. Your simple realism will certainly not be well received during the campaign hallucinations.

I've often wondered how it is people could believe the elections could have any positive and lasting impact on their lives if they have been through a couple of cycles. Do they not also wonder how it is that these election (marketing) campaigns now stretch out for well over a year nowadays demanding everyone's political attention, energy and resources. To say it is a colossal waste does not quite capture the enormity of the mind job being to people.

Mensch59 Maxwell 8 minutes ago • edited ,

Your simple realism will certainly not be well received during the campaign hallucinations.

Yeah, yeah, sure, sure. You "realists" who are true believers that you have the Truth and have a calling to preach the Truth absolutely must stand against the unwashed masses who claim that your "reality" isn't even intersubjectively verifiable, much less dialectical & material [eta & historical ].

I quite enjoyed what SteelPirate/LaborSolidarity had to say about you attempting to gain a vanguard following by trolling lib-prog sites.

Mensch59 Jan Goslinga 21 minutes ago ,

Elections aren't real.

Never pay attention to anyone who claims what's "real" and what isn't. Politics certainly doesn't exist in the realm of an objective, concrete, physical, naturalistic, materialistic reality which is shared by a consensus of rational observers. At best, politics deals with intersubjectively verifiable social phenomena. Thus, politics is mostly idealistic in the belief that each mind generates its own reality.

This realization is the topic of intersubjective verifiability, as recounted, for example, by Max Born (1949, 1965) Natural Philosophy of Cause and Chance , who points out that all knowledge, including natural or social science, is also subjective. p. 162: "Thus it dawned upon me that fundamentally everything is subjective, everything without exception. That was a shock."
newestbeginning 2 hours ago ,

Meanwhile the wealth of the world's top 500 grew 25% in 2019...

https://www.livemint.com/ne...

V4V 2 hours ago • edited ,

Noam Chomsky on Bernie Sanders's Chances of Success- "...the chances he can be elected are pretty small." (Waiting with bated breath for copious downvotes by those who hate the truth and hate reality).

https://cdn.embedly.com/widgets/media.html?src=https%3A%2F%2Fwww.youtube.com%2Fembed%2FEpXJvWSa4FQ%3Ffeature%3Doembed&url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DEpXJvWSa4FQ&image=https%3A%2F%2Fi.ytimg.com%2Fvi%2FEpXJvWSa4FQ%2Fhqdefault.jpg&key=21d07d84db7f4d66a55297735025d6d1&type=text%2Fhtml&schema=youtube

PGGreen V4V 2 hours ago • edited ,

Most of who support Sanders know that his presidency will involve an uphill battle. Chomsky is being realistic.

But there really is no better option for meaningful change working within the political system than supporting Sanders. it is also important to note that "Our Revolution" has energized many young activists, encouraging them to continue the fight. This goes beyond politics to social and economic issues. If Sanders leaves us with a movement, this may turn out to be more important than the presidency in the long run.

Keep working for effective moral and economic justice and democracy!

V4V PGGreen an hour ago ,

Well, I have said this several times, it's not the microscopic left that you need to convince, it's the majority of self-identifying Democrats not supporting Sanders that you need to convince. I am repelled by the Democratic Party, but there are millions who identify as Democrats and many are proud of it. You need to convince them, not us.

PGGreen V4V 21 minutes ago • edited ,

Yes, although I don't think that those who support a Leftist agenda--whether you actually call them Leftists or not--are quite so microscopic a group as you imply. But you don't need to convince me or most others here (probably) that Sanders isn't perfect, or that it will be difficult for him to be elected president. We already know; we simply consider him the best option within this context of voting.

Have you ever thought of turning your approach to systemic commentary (which is valid and interesting, BTW, I'm not discounting it) around and saying what candidates you support-- in this context being discussed of voting-- instead of which ones you don't? And then explaining why such support would be effective?

I would say that what is wrong with the world is more a fault of the economic and political system than of Sanders alone--who not only plays small part in causing what is wrong, but a significant part in trying to correct it. Yes, he works within the system. That is a given. It may be, as Chris Hedges thinks, that there is no hope working within the system. But Noam Chomsky's approach also bears serious consideration that even Hedges doesn't discount. Voting will only be a small part of what brings about change, but it may make some slight difference--if you can stomach it. And it only takes a small amount of time.

"In a system of immense power, small differences can translate into large outcomes."

I don't see much of an argument that Sanders will be no better as president than Trump (and if you think so, I'd like to hear you argue it). I suspect you find the compromise unpalatable. I can understand that. I, too, draw the line at a certain point. I couldn't vote for HRC.

Yes, Sanders isn't perfect. Chomsky also said another important thing: "We're all compromised." Everyone who is a citizen of the US is compromised, and bears some measure of responsibility for the military interventions undertaken by our government. Perhaps we should renounce our citizenship, refuse to pay taxes, etc. But most of us don't -- not even those of us committed to activist work in other ways -- significant ways -- to make things better.

So what are those ways, for you?

V4V PGGreen 6 minutes ago ,

But you don't need to convince me or most others here (probably) that Sanders isn't perfect

-for me it isn' that he's not perfect, it's that I think he sucks

"In a system of immense power, small differences can translate into large outcomes."

-funny, that's a favorite line of Democrats

I get that, but it doesn't negate that Sanders's chances are next to nil.

Your suggestion of me signaling whom I support would fall on deaf ears around here. I have said this many times- I will probably for the Green Party candidate or the Socialist Equality Party candidate. If only a Democrat and Republican appear on the ballot then I would refuse to vote even if I had to pay a fine. I am not in the habit of telling anyone whom to vote for unless asked.

Before a 3rd can succeed, the fantasy that the fix can come through the Democrats needs to be destroyed. Not to worry, in due time it will be obvious.

Mensch59 PGGreen 16 minutes ago ,

My guess/bet is that V4V believes that the truth "We're all compromised" doesn't apply to him.
He sees himself as a truth-knower and a truth-teller.
He won't commit to logical argumentation.
He'll preach the truth to you.

Patrick_Walker V4V 2 hours ago • edited ,

I saw this video long ago--and agreed with it. But though Sanders' chances are small, they're still vastly larger than the NONEXISTENT chances of success of the purist, "Born to Lose" left. Why not just admit that you've totally given up and simply like to spent your time bitching and criticizing those of us with some (albeit small) hope?

V4V Patrick_Walker an hour ago • edited ,

simply like to spent your time bitching and criticizing those of us with some (albeit small) hope?

-straw man

That isn't what I do because I couldn't care less whom Democrats support and vote for. Typically, I post some unpleasant truth about Sanders, like his lackluster polling numbers or his support for neoliberal warmongers and sit back and watch the ad hominems and downvotes roll in. I am not normally on the attack, I am usually on the receiving end.

I admit that I see this forum as a form of entertainment. I admit I have zero expectation that someone to my liking will be elected president and that the system is going to change anytime soon. Do I believe it possible? Yes, I believe it is possible, I just don't believe it possible using the corrupt, Democratic Party as a vehicle and that's where we differ.

And that the crux of our issue- you believe the Democratic Party can be used a vehicle to convert the CIA/Wall Street/War Inc. Democrats into the peoples' party, and I do not. If the needed changes are ever to arrive, it will be in spite of the Democrats not because of them. I hope you stick around because in due time I'll be telling you, "Told ya so."

acme V4V an hour ago ,

The problem with your position is that, unlike Sanders, you don't seem to understand that a third candidate party candidate hasn't a snowball's chance in hell of being president unless if s/he somehow gets more electoral votes that both the major parties combined. If not, it goes to the house, and in the current partisan atmosphere, would be decided for the candidate of the House majority.
The major parties have a death-grip on the presidency while the electoral college exists.

V4V acme an hour ago • edited ,

You don't seem to understand that Sanders has a snowball's chance in hell of being the Democratic Party candidate for many reasons including the DNC arguing in court it is a private corporation and can legally rig primary and the trusty superdelegates for Biden.

What I propose is a movement outside the Democratic Party in inside it. I believe any attempt to reform the Democratic Party is doomed to fail. All this whistling in the dark over Sanders is a distraction and a kicking the can down the road to the time you Democrats finally realize it isn't going to work. You obviously didn't learn it in 2016, and I would be surprised if you learn it once Sanders tanks and begins campaigning for Biden just like he did Clinton. I will promise this, I'll say, "I told ya so" in a matter of months. That's okay, play it again, Sam.

Zsuzsi Kruska 4 hours ago • edited ,

People believe they need others to tell them what to do and give them the illusion somebody cares about them and has their best interests at heart. That's an archetype in the brain that goes back to our baby/childhood when we were dependent on our caregivers for sustenance, comfort and life itself.That's where the original concept of needing "leaders" comes from. But, what happens is psyco/sociopaths see this weakness in humanity and force their way to the top, to herd and exploit the gullible sheeple for their own agendas and selfish interests. No matter who rises to the top, she/he got their through the same system that's been going on since tribes had their chief; chief's lieutenant and witch doctor/shaman. Those three keep the tribe in line with their own desires. Chief through brute force, his lieutenant through information and witch doctor through religion and "spiritual" services; and all three require tribute and fees from the rest of the tribe. So, you will see, regardless of who the next POTUS will be, that same structure, although more complex today, will repeat itself. New boss/old boss, same ol' same ol'. All power has to be returned to the people at the local level before Wash. starts WWIII. But, if that happens, at least we won't have to worry about global warming with a nuclear winter after the bombs drop.

[Jan 01, 2020] FDA Failed to Police Opioids Makers, Thus Fueling Opioids Crisis

Jan 01, 2020 | www.nakedcapitalism.com

FDA Failed to Police Opioids Makers, Thus Fueling Opioids Crisis Posted on January 1, 2020 by Jerri-Lynn Scofield By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.

I had hoped to welcome 2020 with a optimistic post.

Alas, the current news cycle has thrown up little cause for optimism.

Instead, what has caught my eye today: 2019 closes with release of a new study showing the FDA's failure to police opioids manufacturers fueled the opioids crisis.

This is yet another example of a familiar theme: inadequate regulation kills people: e.g. think Boeing. Or, on a longer term, less immediate scale, consider the failure of the Environmental Protection Agency, in so many realms, including the failure to curb emissions so as to slow the pace of climate change.

In the opioids case, we're talking about thousands and thousands of people.

On Monday, Jama Internal Medicine published research concerning the US Food and Drug Administration's (FDA) program to reduce opioids abuse. The FDA launched its risk evaluation and mitigation strategy – REMS – in 2012. Researchers examined nearly 10,000 documents, released in response to a Freedom of Information ACT (FOA) request, to generate the conclusions published by JAMA.

As the Gray Lady tells the story in As Tens of Thousands Died, F.D.A. Failed to Police Opioids :

In 2011, the F.D.A. began asking the makers of OxyContin and other addictive long-acting opioids to pay for safety training for more than half the physicians prescribing the drugs, and to track the effectiveness of the training and other measures in reducing addiction, overdoses and deaths.

But the F.D.A. was never able to determine whether the program worked, researchers at the Johns Hopkins Bloomberg School of Public Health found in a new review, because the manufacturers did not gather the right kind of data. Although the agency's approval of OxyContin in 1995 has long come under fire, its efforts to ensure the safe use of opioids since then have not been scrutinized nearly as much.

The documents show that even when deficiencies in these efforts became obvious through the F.D.A.'s own review process, the agency never insisted on improvements to the program, [called a REMS]. . .

The FDA's regulatory failure had serious public health consequences, according to critics of US opioids policy, as reported by the NYT:

Dr. Andrew Kolodny, the co-director of opioid policy research at the Heller School for Social Policy and Management at Brandeis, said the safety program was a missed opportunity. He is a leader of a group of physicians who had encouraged the F.D.A. to adopt stronger controls, and a frequent critic of the government's response to the epidemic.

Dr. Kolodny, who was not involved in the study, called the program "a really good example of the way F.D.A. has failed to regulate opioid manufacturers. If F.D.A. had really been doing its job properly, I don't believe we'd have an opioid crisis today."

Now, as readers frequently emphasize in comments: pain management is a considerable problem – one I am all too well aware of, as I watched my father succumb to cancer. He ultimately passed away at my parents' home.

That being said, as CNN tells the story in The FDA can't prove its opioid strategy actually worked, study says :

Although these drugs "can be clinically useful among appropriately selected patients, they have also been widely oversupplied, are commonly used nonmedically, and account for a disproportionate number of fatal overdoses," the authors write.

The FDA was unable, more than 5 years after it had instituted its study of the opioids program's effectiveness, to determine whether it had met its objectives, and this may have been because prior assessments were not objective, according to CNN:

Prior analyses had largely been funded by drug companies, and a 2016 FDA advisory committee "noted methodological concerns regarding these studies," according to the authors. An inspector general report also concluded in 2013 that the agency "lacks comprehensive data to determine whether risk evaluation and mitigation strategies improve drug safety."

In addition to failing to evaluate the effective of the limited steps it had taken, the FDA neglected to take more aggressive steps that were within the ambit of its regulatory authority. According to CNN:

"FDA has tools that could mitigate opioid risks more effectively if the agency would be more assertive in using its power to control opioid prescribing, manufacturing, and distribution," said retired FDA senior executive William K. Hubbard in an editorial that accompanied the study. "Instead of bold, effective action, the FDA has implemented the Risk Evaluation and Mitigation Strategy programs that do not even meet the limited criteria set out by the FDA."

One measure the FDA could have taken, according to Hubbard: putting restrictions on opioid distribution.

"Restricting opioid distribution would be a major decision for the FDA, but it is also likely to be the most effective policy for reducing the harm of opioids," said Hubbard, who spent more than three decades at the agency and oversaw initiatives in areas such as regulation, policy and economic evaluation.

The Trump administration has made cleaning up the opioids crisis – which it inherited – a policy priority. To little seeming effect so far. although to be fair, this is not a simple problem to solve. And litigation to apportion various costs of the damages various prescription drugmakers, distributors, and doctors caused it far from over – despite some settlements, and judgements (see Federal Prosecutors Initiate Criminal Probe of Six Opioid Manufacturers and Distributors ; Four Companies Settle Just Before Bellwether Opioids Trial Was to Begin Today in Ohio ; Purdue Files for Bankruptcy, Agrees to Settle Some Pending Opioids Litigation: Sacklers on Hook for Billions? and Judge Issues $572 Million Verdict Against J & J in Oklahoma Opioids Trial: Settlements to Follow? )

Perhaps the Johns Hopkins study will spark moves to reform the broken FDA, so that it can once again serve as an effective regulator. This could perhaps be something we can look forward to achieving in 2020 (although I won't hold my breath).

Or, perhaps if enacting comprehensive reform is too overwhelming, especially with a divided government, as a starting point: can we agree to stop allowing self-interested industries to finance studies meant to assess the effectiveness of programs to regulate that very same industry? Please?

This is a concern in so many areas, with such self-interested considerations shaping not only regulation, but distorting academic research (see Virginia Supreme Court Upholds Ruling that George Mason University Foundation Is Not Subject to State FOIA Statute, Leaving Koch Funding Details Undisclosed ).

What madness!

[Jan 01, 2020] Bernie Could Win the Nomination

Notable quotes:
"... For corporate Democrats and their profuse media allies, the approach of disparaging and minimizing Bernie Sanders in 2019 didn't work. In 2020, the next step will be to trash him with a vast array of full-bore attacks. ..."
"... When the Bernie campaign wasn't being ignored by corporate media during 2019, innuendos and mud often flew in his direction. But we ain't seen nothing yet. ..."
Dec 29, 2019 | www.truthdig.com

A central premise of conventional media wisdom has collapsed. On Thursday, both the New York Times and Politico published major articles reporting that Bernie Sanders really could win the Democratic presidential nomination. Such acknowledgments will add to the momentum of the Bernie 2020 campaign as the new year begins -- but they foreshadow a massive escalation of anti-Sanders misinformation and invective.

Throughout 2019, corporate media routinely asserted that the Sanders campaign had little chance of winning the nomination. As is so often the case, journalists were echoing each other more than paying attention to grassroots realities. But now, polling numbers and other indicators on the ground are finally sparking very different headlines from the media establishment.

From the Times : " Why Bernie Sanders Is Tough to Beat ." From Politico : " Democratic Insiders: Bernie Could Win the Nomination ."

Those stories, and others likely to follow in copycat news outlets, will heighten the energies of Sanders supporters and draw in many wavering voters. But the shift in media narratives about the Bernie campaign's chances will surely boost the decibels of alarm bells in elite circles where dousing the fires of progressive populism is a top priority.

For corporate Democrats and their profuse media allies, the approach of disparaging and minimizing Bernie Sanders in 2019 didn't work. In 2020, the next step will be to trash him with a vast array of full-bore attacks.

Along the way, the corporate media will occasionally give voice to some Sanders defenders and supporters. A few establishment Democrats will decide to make nice with him early in the year. But the overwhelming bulk of Sanders media coverage -- synced up with the likes of such prominent corporate flunkies as Rahm Emanuel and Neera Tanden as well as Wall Street Democrats accustomed to ruling the roost in the party -- will range from condescending to savage.

When the Bernie campaign wasn't being ignored by corporate media during 2019, innuendos and mud often flew in his direction. But we ain't seen nothing yet.

With so much at stake -- including the presidency and the top leadership of the Democratic Party -- no holds will be barred. For the forces of corporate greed and the military-industrial complex, it'll be all-out propaganda war on the Bernie campaign.

While reasons for pessimism are abundant, so are ample reasons to understand that a Sanders presidency is a real possibility . The last places we should look for political realism are corporate media outlets that distort options and encourage passivity.

Bernie is fond of quoting a statement from Nelson Mandela: "It always seems impossible until it is done."

From the grassroots, as 2020 gets underway, the solution should be clear: All left hands on deck.


Jan Goslinga 38 minutes ago ,

Elections aren't real. Democrats will nominate Joe Biden to lose the election. Trump will remain as fascist strongman and the dems will continue to blame his neoconservative policies on his white trash constituency.

Bernie serves a few important functions.
1. he keeps the radicals from leaving the plantation and going 3rd party.
2. his promotion of progressive policies will make Biden less popular and help him lose to Trump
3. Bernie and his "socialism" can then be blamed for losing the election to Trump

Maxwell Jan Goslinga 15 minutes ago ,

Unfortunately this comment will be buried in this monstrosity of a thread- now at over 300 comments with only about a third of them having a much relevance.

You might consider re-posting in reply to one of the foremost comments. Your simple realism will certainly not be well received during the campaign hallucinations.

I've often wondered how it is people could believe the elections could have any positive and lasting impact on their lives if they have been through a couple of cycles. Do they not also wonder how it is that these election (marketing) campaigns now stretch out for well over a year nowadays demanding everyone's political attention, energy and resources. To say it is a colossal waste does not quite capture the enormity of the mind job being to people.

Mensch59 Maxwell 8 minutes ago • edited ,

Your simple realism will certainly not be well received during the campaign hallucinations.

Yeah, yeah, sure, sure. You "realists" who are true believers that you have the Truth and have a calling to preach the Truth absolutely must stand against the unwashed masses who claim that your "reality" isn't even intersubjectively verifiable, much less dialectical & material [eta & historical ].

I quite enjoyed what SteelPirate/LaborSolidarity had to say about you attempting to gain a vanguard following by trolling lib-prog sites.

Mensch59 Jan Goslinga 21 minutes ago ,

Elections aren't real.

Never pay attention to anyone who claims what's "real" and what isn't. Politics certainly doesn't exist in the realm of an objective, concrete, physical, naturalistic, materialistic reality which is shared by a consensus of rational observers. At best, politics deals with intersubjectively verifiable social phenomena. Thus, politics is mostly idealistic in the belief that each mind generates its own reality.

This realization is the topic of intersubjective verifiability, as recounted, for example, by Max Born (1949, 1965) Natural Philosophy of Cause and Chance , who points out that all knowledge, including natural or social science, is also subjective. p. 162: "Thus it dawned upon me that fundamentally everything is subjective, everything without exception. That was a shock."
newestbeginning 2 hours ago ,

Meanwhile the wealth of the world's top 500 grew 25% in 2019...

https://www.livemint.com/ne...

V4V 2 hours ago • edited ,

Noam Chomsky on Bernie Sanders's Chances of Success- "...the chances he can be elected are pretty small." (Waiting with bated breath for copious downvotes by those who hate the truth and hate reality).

https://cdn.embedly.com/widgets/media.html?src=https%3A%2F%2Fwww.youtube.com%2Fembed%2FEpXJvWSa4FQ%3Ffeature%3Doembed&url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DEpXJvWSa4FQ&image=https%3A%2F%2Fi.ytimg.com%2Fvi%2FEpXJvWSa4FQ%2Fhqdefault.jpg&key=21d07d84db7f4d66a55297735025d6d1&type=text%2Fhtml&schema=youtube

PGGreen V4V 2 hours ago • edited ,

Most of who support Sanders know that his presidency will involve an uphill battle. Chomsky is being realistic.

But there really is no better option for meaningful change working within the political system than supporting Sanders. it is also important to note that "Our Revolution" has energized many young activists, encouraging them to continue the fight. This goes beyond politics to social and economic issues. If Sanders leaves us with a movement, this may turn out to be more important than the presidency in the long run.

Keep working for effective moral and economic justice and democracy!

V4V PGGreen an hour ago ,

Well, I have said this several times, it's not the microscopic left that you need to convince, it's the majority of self-identifying Democrats not supporting Sanders that you need to convince. I am repelled by the Democratic Party, but there are millions who identify as Democrats and many are proud of it. You need to convince them, not us.

PGGreen V4V 21 minutes ago • edited ,

Yes, although I don't think that those who support a Leftist agenda--whether you actually call them Leftists or not--are quite so microscopic a group as you imply. But you don't need to convince me or most others here (probably) that Sanders isn't perfect, or that it will be difficult for him to be elected president. We already know; we simply consider him the best option within this context of voting.

Have you ever thought of turning your approach to systemic commentary (which is valid and interesting, BTW, I'm not discounting it) around and saying what candidates you support-- in this context being discussed of voting-- instead of which ones you don't? And then explaining why such support would be effective?

I would say that what is wrong with the world is more a fault of the economic and political system than of Sanders alone--who not only plays small part in causing what is wrong, but a significant part in trying to correct it. Yes, he works within the system. That is a given. It may be, as Chris Hedges thinks, that there is no hope working within the system. But Noam Chomsky's approach also bears serious consideration that even Hedges doesn't discount. Voting will only be a small part of what brings about change, but it may make some slight difference--if you can stomach it. And it only takes a small amount of time.

"In a system of immense power, small differences can translate into large outcomes."

I don't see much of an argument that Sanders will be no better as president than Trump (and if you think so, I'd like to hear you argue it). I suspect you find the compromise unpalatable. I can understand that. I, too, draw the line at a certain point. I couldn't vote for HRC.

Yes, Sanders isn't perfect. Chomsky also said another important thing: "We're all compromised." Everyone who is a citizen of the US is compromised, and bears some measure of responsibility for the military interventions undertaken by our government. Perhaps we should renounce our citizenship, refuse to pay taxes, etc. But most of us don't -- not even those of us committed to activist work in other ways -- significant ways -- to make things better.

So what are those ways, for you?

V4V PGGreen 6 minutes ago ,

But you don't need to convince me or most others here (probably) that Sanders isn't perfect

-for me it isn' that he's not perfect, it's that I think he sucks

"In a system of immense power, small differences can translate into large outcomes."

-funny, that's a favorite line of Democrats

I get that, but it doesn't negate that Sanders's chances are next to nil.

Your suggestion of me signaling whom I support would fall on deaf ears around here. I have said this many times- I will probably for the Green Party candidate or the Socialist Equality Party candidate. If only a Democrat and Republican appear on the ballot then I would refuse to vote even if I had to pay a fine. I am not in the habit of telling anyone whom to vote for unless asked.

Before a 3rd can succeed, the fantasy that the fix can come through the Democrats needs to be destroyed. Not to worry, in due time it will be obvious.

Mensch59 PGGreen 16 minutes ago ,

My guess/bet is that V4V believes that the truth "We're all compromised" doesn't apply to him.
He sees himself as a truth-knower and a truth-teller.
He won't commit to logical argumentation.
He'll preach the truth to you.

Patrick_Walker V4V 2 hours ago • edited ,

I saw this video long ago--and agreed with it. But though Sanders' chances are small, they're still vastly larger than the NONEXISTENT chances of success of the purist, "Born to Lose" left. Why not just admit that you've totally given up and simply like to spent your time bitching and criticizing those of us with some (albeit small) hope?

V4V Patrick_Walker an hour ago • edited ,

simply like to spent your time bitching and criticizing those of us with some (albeit small) hope?

-straw man

That isn't what I do because I couldn't care less whom Democrats support and vote for. Typically, I post some unpleasant truth about Sanders, like his lackluster polling numbers or his support for neoliberal warmongers and sit back and watch the ad hominems and downvotes roll in. I am not normally on the attack, I am usually on the receiving end.

I admit that I see this forum as a form of entertainment. I admit I have zero expectation that someone to my liking will be elected president and that the system is going to change anytime soon. Do I believe it possible? Yes, I believe it is possible, I just don't believe it possible using the corrupt, Democratic Party as a vehicle and that's where we differ.

And that the crux of our issue- you believe the Democratic Party can be used a vehicle to convert the CIA/Wall Street/War Inc. Democrats into the peoples' party, and I do not. If the needed changes are ever to arrive, it will be in spite of the Democrats not because of them. I hope you stick around because in due time I'll be telling you, "Told ya so."

acme V4V an hour ago ,

The problem with your position is that, unlike Sanders, you don't seem to understand that a third candidate party candidate hasn't a snowball's chance in hell of being president unless if s/he somehow gets more electoral votes that both the major parties combined. If not, it goes to the house, and in the current partisan atmosphere, would be decided for the candidate of the House majority.
The major parties have a death-grip on the presidency while the electoral college exists.

V4V acme an hour ago • edited ,

You don't seem to understand that Sanders has a snowball's chance in hell of being the Democratic Party candidate for many reasons including the DNC arguing in court it is a private corporation and can legally rig primary and the trusty superdelegates for Biden.

What I propose is a movement outside the Democratic Party in inside it. I believe any attempt to reform the Democratic Party is doomed to fail. All this whistling in the dark over Sanders is a distraction and a kicking the can down the road to the time you Democrats finally realize it isn't going to work. You obviously didn't learn it in 2016, and I would be surprised if you learn it once Sanders tanks and begins campaigning for Biden just like he did Clinton. I will promise this, I'll say, "I told ya so" in a matter of months. That's okay, play it again, Sam.

Zsuzsi Kruska 4 hours ago • edited ,

People believe they need others to tell them what to do and give them the illusion somebody cares about them and has their best interests at heart. That's an archetype in the brain that goes back to our baby/childhood when we were dependent on our caregivers for sustenance, comfort and life itself.That's where the original concept of needing "leaders" comes from. But, what happens is psyco/sociopaths see this weakness in humanity and force their way to the top, to herd and exploit the gullible sheeple for their own agendas and selfish interests. No matter who rises to the top, she/he got their through the same system that's been going on since tribes had their chief; chief's lieutenant and witch doctor/shaman. Those three keep the tribe in line with their own desires. Chief through brute force, his lieutenant through information and witch doctor through religion and "spiritual" services; and all three require tribute and fees from the rest of the tribe. So, you will see, regardless of who the next POTUS will be, that same structure, although more complex today, will repeat itself. New boss/old boss, same ol' same ol'. All power has to be returned to the people at the local level before Wash. starts WWIII. But, if that happens, at least we won't have to worry about global warming with a nuclear winter after the bombs drop.


trilobytegames 3 days ago ,

As usual, I find your analysis and commentary honest and accurate. However, I do take exception to your pulling out these canards:
"Trump's contempt of Congress and attempt to get Volodymyr Zelensky, the Ukrainian president, to open an investigation of Joe Biden and his son, Hunter, in exchange for almost $400 million in U.S. military aid and allowing Zelensky to visit the White House are impeachable offenses"

Trump has certain executive privileges and him being guilty of contempt of Congress should be up to the Supreme Court to decide. Jonathan Turley in his testimony made that quite clear. Military aid was never mentioned in the phone call. Zelensky was unaware aid would be withheld. So if Trump were using the money as a means to induce Zelensky to do those favors, it was a totally botched one. To quote Dr. Strangelove, "The whole point of the doomsday machine is lost...if you keep it a secret!"

Nir Haramati 3 days ago • edited ,

New avenues for accountability and oversight became possible in Washington, D.C., in 2019, following the election of a new Democratic Party majority in the House (and the most diverse Congress ever) in the 2018 midterms. As a result, Democrats took hold of the subpoena power that rests in the House of Representatives, along with the power to set the agenda across congressional committees. As a result, 2019 has been full of important moments for congressional oversight of both the Trump administration and private business. Here are five of the most important moments in congressional oversight in 2019.

1. Betsy DeVos, Are You "Too Corrupt" or "Too Incompetent"? ...
2. Big Bank CEOs Are Stumped by Simple Budgets ...
3. Wells Fargo Announces Plan to Divest From Private Prisons in Congressional Testimony ...
4. Rep. Ilhan Omar vs. Elliott Abrams ...
5. Voting to Impeach the President ...

Congressional Oversight Claimed Important Victories in 2019. Here Are the Top 5

The only people who lie and obfuscate facts as much as Trump and his GOP cult are neo progressive demagogues and propaganda buffs like Chris 'regime-change-in-America' Hedges.

Kaptain Amerika 3 days ago • edited ,

Absolutely bush should have been impeached, convicted, removed and executed for war crimes and mass murder.

But because he wasn't doesn't mean that our orange Fuhrer shouldn't be.
He is the most dangerous authoritarian propagandist and threat to this country since Hitler.

Dr Hacksaw Kaptain Amerika 3 days ago • edited ,

"[Trump] is the most dangerous authoritarian propagandist and threat to this country since Hitler."

Correction, Kaptain: Since Obama.

rosemariejackowski Dr Hacksaw 3 days ago ,

THE MOST DANGEROUS IN HISTORY....
https://countercurrents.org...

Kaptain Amerika Dr Hacksaw 3 days ago ,

NObama was a horrible POTUS for the 99% and is THE reason why we have trump, but he didn't poison every aspect of the government and everything else like your orange Fuhrer is doing, which is the exact same tactic that Hitler used to create Nazi Germany.

Ron Ruggieri Dr Hacksaw 3 days ago ,

The generic Left is ignoring this aspect of the Trump impeachment circus . The whole farce IS political. Now Senator Lisa Murkowski wants her Republican Party to rise above politics ( and do the wrong thing ? ). In the past three years when did the Democrat Party ever rise above politics ? Politics USA is always CLASS politics, always IMPERIALIST , MILITARIST politics . All the " liberal " Democrats have been slobbering over the UN-ELECTED shadow government of the United States , the National Security Police State , slobbering over FBI, CIA bureaucrats , uniformed officials of the Pentagon War Crimes Machine . Join them ?

This Senator Lisa Murkowski -no surprise - is in good standing with the Israel Lobby collectively determined to nullify the 2016 presidential election . NEWS clip :

[ "There are about 6 million Jewish people living in America, so as a percentage it's quite small, but in terms of influence its quite big," Farage said. Farage seemed to question why Israel was not facing election-meddling accusations, saying Israeli groups "have a voice within American politics" but "I don't think anybody is suggesting that the Israeli government tried to affect the result of the American elections."]

Did not the Kafkaesque Trump impeachment hearings look and sound like Old Yiddish Theater soap opera ? How many working class Christian Americans have heartfelt moral and cultural ties to the Ukraine of all places, now celebrating its first Jewish friend of Zionist Apartheid Israel president ? Who in the USA authorized this character to wage a proxy war against post-communist Russia ? WE THE PEOPLE ?
Guess WHO is promoting the HATE RUSSIA, New McCarthyism ?

VallejoD 3 days ago ,

$748 billion in 2020 for the military death machine equals $23 MILLION A SECOND.

How many schools or hospitals could have been built, how many roads or bridges repaired, how many students educated with the money the MIC has squandered in the few seconds it has taken me to write this?

We are destroying our people from the inside out. This is treason.

[Jan 01, 2020] A central premise of conventional media wisdom has collapsed. On Thursday, both the New York Times and Politico published major articles reporting that Bernie Sanders really could win the Democratic presidential nomination

Notable quotes:
"... New York Times ..."
Dec 29, 2019 | www.truthdig.com

A central premise of conventional media wisdom has collapsed. On Thursday, both the New York Times and Politico published major articles reporting that Bernie Sanders really could win the Democratic presidential nomination. Such acknowledgments will add to the momentum of the Bernie 2020 campaign as the new year begins -- but they foreshadow a massive escalation of anti-Sanders misinformation and invective.

Throughout 2019, corporate media routinely asserted that the Sanders campaign had little chance of winning the nomination. As is so often the case, journalists were echoing each other more than paying attention to grassroots realities. But now, polling numbers and other indicators on the ground are finally sparking very different headlines from the media establishment.

From the Times : " Why Bernie Sanders Is Tough to Beat ." From Politico : " Democratic Insiders: Bernie Could Win the Nomination ."

Those stories, and others likely to follow in copycat news outlets, will heighten the energies of Sanders supporters and draw in many wavering voters. But the shift in media narratives about the Bernie campaign's chances will surely boost the decibels of alarm bells in elite circles where dousing the fires of progressive populism is a top priority.

For corporate Democrats and their profuse media allies, the approach of disparaging and minimizing Bernie Sanders in 2019 didn't work. In 2020, the next step will be to trash him with a vast array of full-bore attacks.

Along the way, the corporate media will occasionally give voice to some Sanders defenders and supporters. A few establishment Democrats will decide to make nice with him early in the year. But the overwhelming bulk of Sanders media coverage -- synced up with the likes of such prominent corporate flunkies as Rahm Emanuel and Neera Tanden as well as Wall Street Democrats accustomed to ruling the roost in the party -- will range from condescending to savage.

When the Bernie campaign wasn't being ignored by corporate media during 2019, innuendos and mud often flew in his direction. But we ain't seen nothing yet.

With so much at stake -- including the presidency and the top leadership of the Democratic Party -- no holds will be barred. For the forces of corporate greed and the military-industrial complex, it'll be all-out propaganda war on the Bernie campaign.

While reasons for pessimism are abundant, so are ample reasons to understand that a Sanders presidency is a real possibility . The last places we should look for political realism are corporate media outlets that distort options and encourage passivity.

Bernie is fond of quoting a statement from Nelson Mandela: "It always seems impossible until it is done."

From the grassroots, as 2020 gets underway, the solution should be clear: All left hands on deck.


Jan Goslinga 38 minutes ago ,

Elections aren't real. Democrats will nominate Joe Biden to lose the election. Trump will remain as fascist strongman and the dems will continue to blame his neoconservative policies on his white trash constituency.

Bernie serves a few important functions.
1. he keeps the radicals from leaving the plantation and going 3rd party.
2. his promotion of progressive policies will make Biden less popular and help him lose to Trump
3. Bernie and his "socialism" can then be blamed for losing the election to Trump

Maxwell Jan Goslinga 15 minutes ago ,

Unfortunately this comment will be buried in this monstrosity of a thread- now at over 300 comments with only about a third of them having a much relevance.

You might consider re-posting in reply to one of the foremost comments. Your simple realism will certainly not be well received during the campaign hallucinations.

I've often wondered how it is people could believe the elections could have any positive and lasting impact on their lives if they have been through a couple of cycles. Do they not also wonder how it is that these election (marketing) campaigns now stretch out for well over a year nowadays demanding everyone's political attention, energy and resources. To say it is a colossal waste does not quite capture the enormity of the mind job being to people.

Mensch59 Maxwell 8 minutes ago • edited ,

Your simple realism will certainly not be well received during the campaign hallucinations.

Yeah, yeah, sure, sure. You "realists" who are true believers that you have the Truth and have a calling to preach the Truth absolutely must stand against the unwashed masses who claim that your "reality" isn't even intersubjectively verifiable, much less dialectical & material [eta & historical ].

I quite enjoyed what SteelPirate/LaborSolidarity had to say about you attempting to gain a vanguard following by trolling lib-prog sites.

Mensch59 Jan Goslinga 21 minutes ago ,

Elections aren't real.

Never pay attention to anyone who claims what's "real" and what isn't. Politics certainly doesn't exist in the realm of an objective, concrete, physical, naturalistic, materialistic reality which is shared by a consensus of rational observers. At best, politics deals with intersubjectively verifiable social phenomena. Thus, politics is mostly idealistic in the belief that each mind generates its own reality.

This realization is the topic of intersubjective verifiability, as recounted, for example, by Max Born (1949, 1965) Natural Philosophy of Cause and Chance , who points out that all knowledge, including natural or social science, is also subjective. p. 162: "Thus it dawned upon me that fundamentally everything is subjective, everything without exception. That was a shock."
newestbeginning 2 hours ago ,

Meanwhile the wealth of the world's top 500 grew 25% in 2019...

https://www.livemint.com/ne...

V4V 2 hours ago • edited ,

Noam Chomsky on Bernie Sanders's Chances of Success- "...the chances he can be elected are pretty small." (Waiting with bated breath for copious downvotes by those who hate the truth and hate reality).

https://cdn.embedly.com/widgets/media.html?src=https%3A%2F%2Fwww.youtube.com%2Fembed%2FEpXJvWSa4FQ%3Ffeature%3Doembed&url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DEpXJvWSa4FQ&image=https%3A%2F%2Fi.ytimg.com%2Fvi%2FEpXJvWSa4FQ%2Fhqdefault.jpg&key=21d07d84db7f4d66a55297735025d6d1&type=text%2Fhtml&schema=youtube

PGGreen V4V 2 hours ago • edited ,

Most of who support Sanders know that his presidency will involve an uphill battle. Chomsky is being realistic.

But there really is no better option for meaningful change working within the political system than supporting Sanders. it is also important to note that "Our Revolution" has energized many young activists, encouraging them to continue the fight. This goes beyond politics to social and economic issues. If Sanders leaves us with a movement, this may turn out to be more important than the presidency in the long run.

Keep working for effective moral and economic justice and democracy!

V4V PGGreen an hour ago ,

Well, I have said this several times, it's not the microscopic left that you need to convince, it's the majority of self-identifying Democrats not supporting Sanders that you need to convince. I am repelled by the Democratic Party, but there are millions who identify as Democrats and many are proud of it. You need to convince them, not us.

PGGreen V4V 21 minutes ago • edited ,

Yes, although I don't think that those who support a Leftist agenda--whether you actually call them Leftists or not--are quite so microscopic a group as you imply. But you don't need to convince me or most others here (probably) that Sanders isn't perfect, or that it will be difficult for him to be elected president. We already know; we simply consider him the best option within this context of voting.

Have you ever thought of turning your approach to systemic commentary (which is valid and interesting, BTW, I'm not discounting it) around and saying what candidates you support-- in this context being discussed of voting-- instead of which ones you don't? And then explaining why such support would be effective?

I would say that what is wrong with the world is more a fault of the economic and political system than of Sanders alone--who not only plays small part in causing what is wrong, but a significant part in trying to correct it. Yes, he works within the system. That is a given. It may be, as Chris Hedges thinks, that there is no hope working within the system. But Noam Chomsky's approach also bears serious consideration that even Hedges doesn't discount. Voting will only be a small part of what brings about change, but it may make some slight difference--if you can stomach it. And it only takes a small amount of time.

"In a system of immense power, small differences can translate into large outcomes."

I don't see much of an argument that Sanders will be no better as president than Trump (and if you think so, I'd like to hear you argue it). I suspect you find the compromise unpalatable. I can understand that. I, too, draw the line at a certain point. I couldn't vote for HRC.

Yes, Sanders isn't perfect. Chomsky also said another important thing: "We're all compromised." Everyone who is a citizen of the US is compromised, and bears some measure of responsibility for the military interventions undertaken by our government. Perhaps we should renounce our citizenship, refuse to pay taxes, etc. But most of us don't -- not even those of us committed to activist work in other ways -- significant ways -- to make things better.

So what are those ways, for you?

V4V PGGreen 6 minutes ago ,

But you don't need to convince me or most others here (probably) that Sanders isn't perfect

-for me it isn' that he's not perfect, it's that I think he sucks

"In a system of immense power, small differences can translate into large outcomes."

-funny, that's a favorite line of Democrats

I get that, but it doesn't negate that Sanders's chances are next to nil.

Your suggestion of me signaling whom I support would fall on deaf ears around here. I have said this many times- I will probably for the Green Party candidate or the Socialist Equality Party candidate. If only a Democrat and Republican appear on the ballot then I would refuse to vote even if I had to pay a fine. I am not in the habit of telling anyone whom to vote for unless asked.

Before a 3rd can succeed, the fantasy that the fix can come through the Democrats needs to be destroyed. Not to worry, in due time it will be obvious.

Mensch59 PGGreen 16 minutes ago ,

My guess/bet is that V4V believes that the truth "We're all compromised" doesn't apply to him.
He sees himself as a truth-knower and a truth-teller.
He won't commit to logical argumentation.
He'll preach the truth to you.

Patrick_Walker V4V 2 hours ago • edited ,

I saw this video long ago--and agreed with it. But though Sanders' chances are small, they're still vastly larger than the NONEXISTENT chances of success of the purist, "Born to Lose" left. Why not just admit that you've totally given up and simply like to spent your time bitching and criticizing those of us with some (albeit small) hope?

V4V Patrick_Walker an hour ago • edited ,

simply like to spent your time bitching and criticizing those of us with some (albeit small) hope?

-straw man

That isn't what I do because I couldn't care less whom Democrats support and vote for. Typically, I post some unpleasant truth about Sanders, like his lackluster polling numbers or his support for neoliberal warmongers and sit back and watch the ad hominems and downvotes roll in. I am not normally on the attack, I am usually on the receiving end.

I admit that I see this forum as a form of entertainment. I admit I have zero expectation that someone to my liking will be elected president and that the system is going to change anytime soon. Do I believe it possible? Yes, I believe it is possible, I just don't believe it possible using the corrupt, Democratic Party as a vehicle and that's where we differ.

And that the crux of our issue- you believe the Democratic Party can be used a vehicle to convert the CIA/Wall Street/War Inc. Democrats into the peoples' party, and I do not. If the needed changes are ever to arrive, it will be in spite of the Democrats not because of them. I hope you stick around because in due time I'll be telling you, "Told ya so."

acme V4V an hour ago ,

The problem with your position is that, unlike Sanders, you don't seem to understand that a third candidate party candidate hasn't a snowball's chance in hell of being president unless if s/he somehow gets more electoral votes that both the major parties combined. If not, it goes to the house, and in the current partisan atmosphere, would be decided for the candidate of the House majority.
The major parties have a death-grip on the presidency while the electoral college exists.

V4V acme an hour ago • edited ,

You don't seem to understand that Sanders has a snowball's chance in hell of being the Democratic Party candidate for many reasons including the DNC arguing in court it is a private corporation and can legally rig primary and the trusty superdelegates for Biden.

What I propose is a movement outside the Democratic Party in inside it. I believe any attempt to reform the Democratic Party is doomed to fail. All this whistling in the dark over Sanders is a distraction and a kicking the can down the road to the time you Democrats finally realize it isn't going to work. You obviously didn't learn it in 2016, and I would be surprised if you learn it once Sanders tanks and begins campaigning for Biden just like he did Clinton. I will promise this, I'll say, "I told ya so" in a matter of months. That's okay, play it again, Sam.

Zsuzsi Kruska 4 hours ago • edited ,

People believe they need others to tell them what to do and give them the illusion somebody cares about them and has their best interests at heart. That's an archetype in the brain that goes back to our baby/childhood when we were dependent on our caregivers for sustenance, comfort and life itself.That's where the original concept of needing "leaders" comes from. But, what happens is psyco/sociopaths see this weakness in humanity and force their way to the top, to herd and exploit the gullible sheeple for their own agendas and selfish interests. No matter who rises to the top, she/he got their through the same system that's been going on since tribes had their chief; chief's lieutenant and witch doctor/shaman. Those three keep the tribe in line with their own desires. Chief through brute force, his lieutenant through information and witch doctor through religion and "spiritual" services; and all three require tribute and fees from the rest of the tribe. So, you will see, regardless of who the next POTUS will be, that same structure, although more complex today, will repeat itself. New boss/old boss, same ol' same ol'. All power has to be returned to the people at the local level before Wash. starts WWIII. But, if that happens, at least we won't have to worry about global warming with a nuclear winter after the bombs drop.


trilobytegames 3 days ago ,

As usual, I find your analysis and commentary honest and accurate. However, I do take exception to your pulling out these canards:
"Trump's contempt of Congress and attempt to get Volodymyr Zelensky, the Ukrainian president, to open an investigation of Joe Biden and his son, Hunter, in exchange for almost $400 million in U.S. military aid and allowing Zelensky to visit the White House are impeachable offenses"

Trump has certain executive privileges and him being guilty of contempt of Congress should be up to the Supreme Court to decide. Jonathan Turley in his testimony made that quite clear. Military aid was never mentioned in the phone call. Zelensky was unaware aid would be withheld. So if Trump were using the money as a means to induce Zelensky to do those favors, it was a totally botched one. To quote Dr. Strangelove, "The whole point of the doomsday machine is lost...if you keep it a secret!"

Nir Haramati 3 days ago • edited ,

New avenues for accountability and oversight became possible in Washington, D.C., in 2019, following the election of a new Democratic Party majority in the House (and the most diverse Congress ever) in the 2018 midterms. As a result, Democrats took hold of the subpoena power that rests in the House of Representatives, along with the power to set the agenda across congressional committees. As a result, 2019 has been full of important moments for congressional oversight of both the Trump administration and private business. Here are five of the most important moments in congressional oversight in 2019.

1. Betsy DeVos, Are You "Too Corrupt" or "Too Incompetent"? ...
2. Big Bank CEOs Are Stumped by Simple Budgets ...
3. Wells Fargo Announces Plan to Divest From Private Prisons in Congressional Testimony ...
4. Rep. Ilhan Omar vs. Elliott Abrams ...
5. Voting to Impeach the President ...

Congressional Oversight Claimed Important Victories in 2019. Here Are the Top 5

The only people who lie and obfuscate facts as much as Trump and his GOP cult are neo progressive demagogues and propaganda buffs like Chris 'regime-change-in-America' Hedges.

Kaptain Amerika 3 days ago • edited ,

Absolutely bush should have been impeached, convicted, removed and executed for war crimes and mass murder.

But because he wasn't doesn't mean that our orange Fuhrer shouldn't be.
He is the most dangerous authoritarian propagandist and threat to this country since Hitler.

Dr Hacksaw Kaptain Amerika 3 days ago • edited ,

"[Trump] is the most dangerous authoritarian propagandist and threat to this country since Hitler."

Correction, Kaptain: Since Obama.

rosemariejackowski Dr Hacksaw 3 days ago ,

THE MOST DANGEROUS IN HISTORY....
https://countercurrents.org...

Kaptain Amerika Dr Hacksaw 3 days ago ,

NObama was a horrible POTUS for the 99% and is THE reason why we have trump, but he didn't poison every aspect of the government and everything else like your orange Fuhrer is doing, which is the exact same tactic that Hitler used to create Nazi Germany.

Ron Ruggieri Dr Hacksaw 3 days ago ,

The generic Left is ignoring this aspect of the Trump impeachment circus . The whole farce IS political. Now Senator Lisa Murkowski wants her Republican Party to rise above politics ( and do the wrong thing ? ). In the past three years when did the Democrat Party ever rise above politics ? Politics USA is always CLASS politics, always IMPERIALIST , MILITARIST politics . All the " liberal " Democrats have been slobbering over the UN-ELECTED shadow government of the United States , the National Security Police State , slobbering over FBI, CIA bureaucrats , uniformed officials of the Pentagon War Crimes Machine . Join them ?

This Senator Lisa Murkowski -no surprise - is in good standing with the Israel Lobby collectively determined to nullify the 2016 presidential election . NEWS clip :

[ "There are about 6 million Jewish people living in America, so as a percentage it's quite small, but in terms of influence its quite big," Farage said. Farage seemed to question why Israel was not facing election-meddling accusations, saying Israeli groups "have a voice within American politics" but "I don't think anybody is suggesting that the Israeli government tried to affect the result of the American elections."]

Did not the Kafkaesque Trump impeachment hearings look and sound like Old Yiddish Theater soap opera ? How many working class Christian Americans have heartfelt moral and cultural ties to the Ukraine of all places, now celebrating its first Jewish friend of Zionist Apartheid Israel president ? Who in the USA authorized this character to wage a proxy war against post-communist Russia ? WE THE PEOPLE ?
Guess WHO is promoting the HATE RUSSIA, New McCarthyism ?

VallejoD 3 days ago ,

$748 billion in 2020 for the military death machine equals $23 MILLION A SECOND.

How many schools or hospitals could have been built, how many roads or bridges repaired, how many students educated with the money the MIC has squandered in the few seconds it has taken me to write this?

We are destroying our people from the inside out. This is treason.

[Dec 21, 2019] America weaponized the global financial system. Now other states are fighting back

Notable quotes:
"... Since 2001, America has increasingly turned global economic and financial networks into weapons that can be used against adversaries. As we showed in earlier research, financial networks such as the "dollar clearing system" and the SWIFT messaging service, which provide foundations for the global financial system, have been used by the United States to gather intelligence and to isolate entire economies, such as Iran, from the global financial system. ..."
"... As we discuss in a new article in Foreign Affairs , other countries are beginning to think about how they can best respond: by threatening retaliation, by creating their own networks, or by insulating themselves from U.S. pressure. ..."
Dec 21, 2019 | www.nakedcapitalism.com

"America weaponized the global financial system. Now other states are fighting back." [ WaPo ].

" Since 2001, America has increasingly turned global economic and financial networks into weapons that can be used against adversaries. As we showed in earlier research, financial networks such as the "dollar clearing system" and the SWIFT messaging service, which provide foundations for the global financial system, have been used by the United States to gather intelligence and to isolate entire economies, such as Iran, from the global financial system.

Control of these networks allows the United States to issue "secondary sanctions" against countries, businesses or individuals that it wants to target, obliging non-U.S. actors to adhere to the sanctions or risk substantial penalties.

Now, these tools are leading to backlash and reaction. As we discuss in a new article in Foreign Affairs , other countries are beginning to think about how they can best respond: by threatening retaliation, by creating their own networks, or by insulating themselves from U.S. pressure.

[Dec 08, 2019] If you take away still viable American aerospace, automotive and pharmaceutical industries among very few others, you will find a wasteland of financial speculations and selling the snake oil

Dec 08, 2019 | www.unz.com

Jim Christian , says: December 6, 2019 at 2:48 am GMT

@Andrei Martyanov

but if you take away still viable American aerospace, automotive and pharmaceutical industries among very few others, you will find a wasteland of financial speculations and selling the snake oil

Lovely takes, Andrei. The people that need to read you see your name and immediately retort, "Agent for Putin", Washington Post-style. Gets them off the hook from thinking because after all, college deliberately taught them NOT to think. Most of the kids, they're hopeless. They're hopeless idiots, they know nothing of the Constitution, they think all is normal.

And they were fleeced by the academics that dumbed them down. Meanwhile, we have in effect, been selling each other hamburgers (services) for the past 50 years. Also, they've been selling the oil and gas right out from under our feet overseas and putting THAT in their pockets even as we pay a world price for gasoline and finished product. Every other country that produces crude gets a discount. Not us.

To steal a quote from a movie I watched once, they struck oil under our garden and all we get is dead tomatoes. Our society is hollowed out, depraved, the women becoming more and more hideous, all the institutions that held us together, deliberately broken. decay everywhere.

As for the military? A reflection of our society. When I went into the Navy in 1975, it was Stars and Stripes and we served in large part for Mom, Apple Pie and Chevrolet.

Today it is clear that the Stars and Stripes should be dollar signs over a defense contractor logo. The rest? From where I sit today, for most kids, Mom is a divorced slut, Apple Pie is a turd in a wax paper wrapper and Chevrolet is a bent shit can from China.

This isn't a society I'd defend as a nation worth defending. The feminists sit on their fat, comfortable asses, made such on the labors of us White guys and they declare their hatred. Only a moron or a kid that needs a shot at a job or trade or gets a kick out of airplanes or such joins.

Our women in general aren't worth defending on the streets or the world. Not in the Blue cities, they are hideous. Take care of your own woman and kids and community and hell with the rest. There's no draft, the society mostly hates Vets, so it isn't for country most serve.

It's to grab something, from a trade, to a pilot's license. A military based on that has no staying power. And our corruptions and waste and outright theft in military procurement for shitty weapons makes us ripe for the taking. And our talent is wasted building shitty weapons and the second level builds shitty airliners.

Can't fly into space? We cannot fly, literally, to anywhere in the newest build out, the Maxx. And we're depending on the Theranos of Aerospace, Spacex/Musk to get us to space? Right! Except for the nukes, we're ripe, man.

Andrei, speaking of Musk, how the Hell does he smoke big fat doobies and keep his security clearance when everyone else in Washington gets fired for getting near the stuff? Queer privilege? I'm convinced the whole thing with Musk is a shell game. You?

Thanks for your work. Very good stuff, but we can't get those who need it to even look. Our people are incapable of marching in the streets or even seeing why they should. Kudos to those who did it to us. They did a fine job.

Jim Christian , says: December 6, 2019 at 2:55 am GMT
@Frederick V. Reed It has a dangerous set of nukes. The tripwires are and have always been easy-sinkers like our surface ships. The psychos that run our policy have subs and silos with missiles with lots of nukes...

[Dec 06, 2019] Finance sector as percent of US GDP, 1860-present the growth of the rentier economy - Democratic Underground

Dec 06, 2019 | www.democraticunderground.com

Financialization is a term sometimes used in discussions of financial capitalism which developed over recent decades, in which financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics.

Financialization is a term that describes an economic system or process that attempts to reduce all value that is exchanged (whether tangible, intangible, future or present promises, etc.) either into a financial instrument or a derivative of a financial instrument. The original intent of financialization is to be able to reduce any work-product or service to an exchangeable financial instrument... Financialization also makes economic rents possible...financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics...

Companies are not able to invest in new physical capital equipment or buildings because they are obliged to use their operating revenue to pay their bankers and bondholders, as well as junk-bond holders. This is what I mean when I say that the economy is becoming financialized. Its aim is not to provide tangible capital formation or rising living standards, but to generate interest, financial fees for underwriting mergers and acquisitions, and capital gains that accrue mainly to insiders, headed by upper management and large financial institutions. The upshot is that the traditional business cycle has been overshadowed by a secular increase in debt.

Instead of labor earning more, hourly earnings have declined in real terms. There has been a drop in net disposable income after paying taxes and withholding "forced saving" for social Security and medical insurance, pension-fund contributions and–most serious of all–debt service on credit cards, bank loans, mortgage loans, student loans, auto loans, home insurance premiums, life insurance, private medical insurance and other FIRE-sector charges. ... This diverts spending away from goods and services.

In the United States, probably more money has been made through the appreciation of real estate than in any other way. What are the long-term consequences if an increasing percentage of savings and wealth, as it now seems, is used to inflate the prices of already existing assets - real estate and stocks - instead of to create new production and innovation?

http://en.wikipedia.org/wiki/Financialization

[Dec 04, 2019] Hedge funds often behave like a gangsters when they buy business

This is a racket, is not it. RICO statute should be applicable...
Dec 04, 2019 | www.nakedcapitalism.com

Big Tap , December 4, 2019 at 1:25 am

A video from Tucker Carlson. Every once in a while he's allowed to say things the mainstream media isn't allowed to say.

The video is about Paul Singer (Elliott Management) and his hedge fund buying into Cabela's which was headquartered in Sydney, Nebraska. Cabela's was merged with Bass Pro Shops and the town lost 2000 jobs and was hard hit by Singer and his fund but Elliott Management and Singer made a nice profit.

It shows the people and town left behind after the jobs leave. Watching this was depressing.

https://youtu.be/IdwH066g5lQ

Pat , December 4, 2019 at 4:21 am

Just reading the written article was depressing enough. And Elliot Management only had 11% of the business, but they dictated the need to sell.

[Nov 28, 2019] The financial industry is generally a con game built on managing perception and after all its all about the money when we strip away the facade.

Nov 28, 2019 | www.moonofalabama.org

jared , Nov 28 2019 19:47 utc | 40

@ psycho - 7

Nice link. It's often interesting to hear from the source the explanation for why their actions acceptable and everything will be OK. The financial industry is generally a con game built on managing perception and after all its all about the money when we strip away the facade. As the former ZH was so effective in making known - when it gets serious one has to lie.

An also interesting counter point:
https://www.zerohedge.com/political/lessons-japans-monetary-experiment

psychohistorian , Nov 28 2019 20:48 utc | 43

I have now read completely the St. Louis Fed report that I linked to in comment #7 and I want to provide a quote from it and discuss the obfuscation therein.

"
In addition to owing money to "the public," the U.S. government also owes money to departments within the U.S. government. For example, the Social Security system has run surpluses for many years (the amount collected through the Social Security tax was greater than the benefits paid out) and placed the money in a trust fund. These surpluses were used to purchase U.S. Treasury securities. Forecasts suggest that as the population ages and demographics change, the amount paid in Social Security benefits will exceed the revenues collected through the Social Security tax and the money saved in the trust fund will be needed to fill the gap. In short, some of the $22 trillion in total debt is intergovernmental holdings -- money the government owes itself. Of the total national debt, $5.8 trillion is intergovernmental holdings and the remaining $16.2 trillion is debt held by the public.

"
The US Social Security Insurance program use to be a stand alone entity with a huge trust fund of Treasuries that wasn't debt but in the Reagan/Greenspan era the funds were "stolen" (turned into debt) and used to fund "Star Wars" etc. while payment for the program became a budget item along with managing the contribution amounts to keep it viable into the future....they took it away from the actuarial folk, spent the money and it is now a political debt football.

[Nov 23, 2019] The UN Is Being Turned into a Public-Private Partnership Harris Gleckman Explains Stealth Takeover by World Economic Forum

Nov 23, 2019 | www.nakedcapitalism.com

"The UN Is Being Turned into a Public-Private Partnership": Harris Gleckman Explains Stealth Takeover by World Economic Forum Posted on November 21, 2019 by Yves Smith Yves here. It is exciting to see Lynn Fries, a Geneva-based film-maker that we know from her days at The Real News Network, featuring important stories independently. OpenDemocracy presented this segment , on the corporate infiltration of the UN, and hence international governance. Lynn speaks with Harris Gleckman, Senior Fellow at the Center for Governance and Sustainability, and the author of 'Multistakeholder Governance and Democracy : A Global Challenge '. For the past 30 years, he has been a leading expert on multinational corporations, global environmental management, financing for development, global governance institutions, and the economics of climate change. They discuss how the World Economic Forum, best known for its annual Davos gathering for the rich and connected, has entered into a troubling agreement with the UN

Produced by GPEnewsdocs.

https://www.youtube-nocookie.com/embed/93aEyOUI0vY

LYNN FRIES : This newsdoc explores the folly of expecting private enterprise to operate in the service of the public interest on a grand scale, globally, in key fields: Financing the United Nations 2030 Agenda and Sustainable Development Goals, Climate change, Health, Digital cooperation, Gender equality and the empowerment of women, Education and skills. Specifically, it explores the United Nation's Strategic Partnership Agreement with the World Economic Forum. The agreement was signed by the Office of the UN Secretary-General and Executives of WEF, the World Economic Forum better known as DAVOS, a leading proponent of public-private partnerships and a multistakeholder approach to global governance.

The United Nations as the world's intergovernmental multilateral system should always focus on protecting common goods and providing global public benefits. That's the position of signatories of an Open Letter sent to the UN Secretary-General by hundreds of civil society organizations from all regions of the world. The letter states: "This public-private partnership will permanently associate the UN with transnational corporations, some of whose essential activities have caused or worsened the social and environmental crises that the planet faces. This is a form of corporate capture". The letter calls on the Secretary-General to terminate the Agreement.

I met up with Harris Gleckman to get his take on all this. Harris Gleckman is the author of "Multistakeholder Governance and Democracy: A Global Challenge" and is currently working on a handbook on the governance of multistakeholderism. Harris Gleckman is a Senior Fellow at the Center for Governance and Sustainability, UMass Boston. We go now to our featured clips of that meeting.

LYNN FRIES : Civil society is calling the World Economic Forum-UN Agreement as a corporate takeover of the UN.

HARRIS GLECKMAN: The UN Charter starts with the words "We the Peoples". What the Secretary-General is doing through the Global Compact and now through the partnership with the World Economic Forum is tossing this out the window. He is saying: I'm going to align the organization with a particular structural relationship with multinationals, with multistakeholderism, and set aside attention to all the different peoples of the world in their particular interests of environment, health, water needs and really talk about how to govern the world with those who have a particular role in creating problems of wars from natural resources, of creating problems relating to climate, creating problems relating to food supply and technologies. That is undermining a core element of what the United Nations has been and should be for its next 75 years.

LYNN FRIES : It's striking that the Agreement was signed as the UN is celebrating 100 years of multilateralism, the centenary year 1919 to 2019. And next year 2020 will mark the 1945 signing of the UN Charter 75th anniversary.

HARRIS GLECKMAN : Lynn, if I could give you an overview of what I'm concerned about the aspect of this about multistakeholderism is that the Secretary-General is the leading public figure for the multilateral system, the intergovernmental system. The World Economic Forum is the major proponent or one of the major proponents that a multi-stakeholder governance system should replace or marginalize the multilateral system. So the Secretary-General is taking steps to just jump on the bandwagon of multistakeholderism without a public debate about the democratic character of multistakeholderism, about a public debate about whether this is effectively able to solve problems, without a public debate about how stakeholders are selected to become global governors or even a public debate about what role the UN should have with any of these multistakeholder groups.

LYNN FRIES : I noted that the letter that was sent to the UN Secretary-General was also copied to the President of the General Assembly, the President of the Security Council and the Chair of the G77 with a request that it be circulated to all Governments as an Official Document.

HARRIS GLECKMAN : The Secretary-General should have gone to the intergovernmental process to debate this issue and now civil society is saying to the intergovernmental process: If the Secretary-General isn't going to tell you about it, we want you to have that debate anyway.

LYNN FRIES : In addressing the UN Secretary-General the letter by Civil Society Organizations recognized that the Secretary-General faced serious challenges.

HARRIS GLECKMAN: Yes it is absolutely the case that the Secretary-General is caught in a very difficult bind. Governments are not able to collect and are not collecting their taxes from the bulk of international business activities because of movements around tax havens. Government's say: well we don't have the money, so we cannot underwrite an effort to have a credible global governance system and this is affecting the operation of the UN. So the Secretary-General is looking at a challenge. He has the financial challenge: under payment of current dues and underfunding of the whole organization and an aggressive effort by the Trump administration to deconstruct all the organizations of the international system in a period Lynn where as you observed it's the hundredth year of multilateralism and the 75th year of the United Nations. And here the Secretary-General has two major crises on his hands in terms of the integrity of the system.

LYNN FRIES: Briefly give us some context on what you see as the motivation of the World Economic Forum.

HARRIS GLECKMAN : The World Economic Forum's motivation for joining, for perhaps, even driving forward this idea of a strategic partnership came from their work following the financial crisis starting n 2008-09. Davos, the common name for the World Economic Forum, convened 700 people working for a year and a half on a project that they called Global Redesign Initiative. They created that project because they realized that the whole public view about globalization as "a good for the world" was crumbling as a result of the financial crisis. And so they wanted to propose a new method of governing the world. And two of the elements of their proposal – that's actually a 700 page research paper – were to have a new relationship with governments in the United Nations system and to advocate that the global problems of the world should be solved by multistakeholder groups. This new partnership with the Secretary-General is an implementation of what they laid out in their Global Redesign Initiative to have a special place in the United Nations system for corporations to influence the behavior of the international organizations. And also for those corporations to be able to say to other people: Look we're in partnership with the United Nations so treat us as if we were neutral friendly bodies.

Let me just share with you a couple of examples that may help convey how serious that is. The Sustainable Development Goals were negotiated by governments in open sessions and they determined what the goals should be in 17 areas. Multistakeholder groups have announced that they are going to implement Goal 8 or Goal 6. And in the process, they declare: Here is how we will work on health, here's how we will work on education, here's how we will work on the environment. And rewrite what is the outcome of the Sustainable Development Goals in their own organizational interest. In some ways, that's not surprising. You bring together a group of companies, selected governments, selected civil societies, selected academics and they will have their own internal dynamic of concern. But what they do is they assert that what they are doing- their rewritten version- actually they are telling the world: Well, we are actually doing the UN version. But that is not what their text is.

For example, in the energy field, in the energy goal there are five key adjectives that describe the target about global energy needs. The leading multistakeholder group, Sustainable Energy for All, their target has four of those adjectives and they drop the one which was AFFORDABILITY. This is how the process of multistakeholders taking over an area, redefining it but to the public announcing that they are implementing the intergovernmental goals is an unhealthy development in global governance.

LYNN FRIES : The Civil Society letter referred to the Agreement as a public-private partnership as did you in a recent OPED. Explain more about the public interest issue with public-private partnerships.

HARRIS GLECKMAN : Well let's take a particular effort of a public-private partnership in providing water in a city. Historically this is a public or a municipal function to make sure that there is adequate amounts of water. The quality of water is healthy and its safety. And that it's regularly and reliably available to the residents in the area. When a public-private partnership comes in, the corporate side may have an interest in some of these goals but add an additional one. That is they want a return on their investment, they want a profit from it. So some of the items of those various public functions – access, quality of material of water, reliability of water, access to all people then gets suddenly changed. So if there's a manufacturing facility in one part of town more water may be diverted in that direction. If water purification is a little hard about a particular element: We may get a little lazy about doing that in the interests of profits. If it's going to take a lot of work to dig up a street and replace pipes, they'll say: Well, we can wait another five years and use those pipes which may have lead in them. All because now you add the fact that this public-private partnership needs to make a return of profit on what should be, what historically has a public municipal function. So you create this unequal development in terms of meeting public needs against the now new requirement that if you want a water system, you have to produce a profit for some of the actors involved.

LYNN FRIES : Food security is a major issue for vast populations. Comment on the implications for food security.

HARRIS GLECKMAN : If we want to build, recover, create a food secure world, you need to work with those who are growing, producing foods directly. Not those who are processing, distributing, marketing, rebranding. We need to start at the very base and create a system of engagement with small farmers, with small fishing families, with those around the world who are the actual food producers. Who have been preserving knowledge and building knowledge for centuries, they received that knowledge from centuries. That's the direction that would change the way in which we could actually look at the issues of hunger and food security in the world in a quite different fashion. Going to those who have a profit-centered motive in global governance will sharply narrow what might be possible to do. That's what the partnership will tend to do as the Secretary General and WEF have private discussions about how do we address the issue of food security while not talking very loud about how we make a profit in that process.

LYNN FRIES : If the UN Secretary-General invited you for a 1:1 what would you say?

HARRIS GLECKMAN : I think that I would say to the Secretary-General that he needs to give a major re-examination of the way the United Nations works with all of the peoples of the world. In order to provide a stronger base for the United Nations, the doors have to be made wider so that the views of various popular bodies, social movements, communities around the world have far greater access to the United Nations. I'd also say to him. Mr. Secretary General, the UN needs an open and clear conflict of interest policy and a conflict of interest practice. For those multinationals who are causes of problems, who aggravate the global problems of inequality we need and you as Head of the United Nations need to separate the United Nations from that process. They should not be invited to attend meetings. They should not be allowed to make statements. In the climate area, those who are continuing to extract natural resources from the ground where they should stay we have taken too much of carbon out of the ground. If we're going to meet the Paris Accord, they should have no role entering the United Nations. I'd also say to the Secretary General that he needs to establish a much bigger office to support civil society. At the moment, the UN support for civil society organization institutional support is about two people. That is absolutely the wrong level of engagement with the wider elements of civil society. And the last thing I would probably say to the Secretary-General is that the UN is very proud of having developed a system of internal governance that protects the weaker countries, the smaller countries, that their views can be heard in the intergovernmental governance process. The Secretary-General should not engage with multi stakeholder groups who do not have a rulebook that allows for the protection of smaller members of the group, that does not have a way to appeal and challenge decisions that does not require public disclosure of their finances, all of those characteristics of multistakeholderism. The Secretary General should have and the UN should have no relationship with those who are not interested in protecting core concepts of democracy

LYNN FRIES : We have to leave it there. Special thanks to our guest contributor, Harris Gleckman, and thank you for watching and for your interest in this segment of GPEnewsdocs coming to you from Geneva, Switzerland.


Ignacio , November 21, 2019 at 6:46 am

The WEF and its various constituencies try to overtake control of development with their "public-private partnership" flag but how these, let's say, partnerships, actually work and interact with local communities and governments is an issue that need to attract more scrutiny and transparency. If one uses the migratory pressure as a measure, so far, development in Africa, South America and South Asia is not doing a good job on the part of local communities. There may be a few success cases, as it seems to be the case that deforestation in Brazil that while proceeding it's way, has somehow slowed down compared to the last decade of the XXth century. But when a success story is analysed what you find behind is simply strong government action as the Brazilian did starting in 2004 when they begun the monitoring of development in the Amazon basin and expanded in 2006 with a moratorium in soya culture and beef production. The WEF has a series of initiatives on what they call sustainable development that sound excellent in their web pages but in reality do not seem to work so well and the UN should be kept independent and legally above of the WEF initiatives to monitor development and accountability. This initiative will almost certainly result in foxes governing henhouses.

As I see it the WEF makes the hell of a good PR job without counterbalancing parties.

Olga , November 21, 2019 at 9:54 am

Truly scary stuff and why does it remind me of the way public transport was destroyed in the US: step 1 – starve it of revenue; step 2 – privatize it (while promising better service); step 3 – let it rot; and step 4 – close it down (responding to the public, gripping about how bad the service had become). The job accomplished!
One has to wonder what the Sec. General has been smoking lately and where are Russians and Chinese to push back?

DHG , November 21, 2019 at 10:26 am

The UN will never accomplish its mission, man is incapable of bringing about world peace. The UN is here for one reason and one reason only and that is to destroy the false religious system when the political rulers hand it their power to accomplish just that.

Susan the Other , November 21, 2019 at 11:19 am

If WEF is looking at doing infrastructure on a global scale that is based on good science, is sustainable and maintainable, the ultimate power over the "multi-stakeholder groups" submitting their bids to the UN should be the UN – this means a new UN mandate that must be ratified yearly by voters, and bureaucrats that must win elections. If this big idea is going to accomplish what needs to be done the "stakeholders" might want to take a close look at what happened to the dearly departed ideas of neoliberalism. Neoliberalism was destroyed from within by the need for ever more profit; by the" rat-race to the bottom" and by externalizing costs in the form of pollution – by the most obviously unsustainable practices, both social and environmental. If the goal is clear and comprehensive all these problems inherent in yesterday's capitalism will have to be addressed at the get-go. It is a difference of scale whether a city hires a contractor to do new waterlines, or the UN hires "multi stakeholder groups" to do some continent-wide 50 year project. That means the UN will need to become answerable to the people for the management of all these big ideas. Because conflict of interest will be so massive as to be unmanageable otherwise. And one definition will be imperative – Just what stake or stakes is/are held by "multi-stakeholder groups"? Because what is at stake is the planet itself. Not money.

Titus , November 21, 2019 at 1:14 pm

To quote Lambert, 'Everything is going according to plan'.

RBHoughton , November 21, 2019 at 9:04 pm

The UN problem has always been money. The 200 nation states are dilatory in paying their dues. This gives the few rich countries power – 'cooperate with us and we'll fund your activities.' Its not as bare-faced as I state it but you get the picture. To solve this problem we need the majority of countries to vote to make national dues a precedent claim on each government. Publish the result of the vote and monthly progress towards the aim. Name the countries cooperating.

Once the UN administration is confident of its income it can plan its activities better, make peoples' health and livelihoods a priority and achieve a much higher profile amongst humanity.

Nielsen , November 22, 2019 at 1:55 am

After heavy drought in Chile the rivers magically recovered the day when a delegation from the UN arrived to inspect the riots.

RÍO ACONCAGUA CON AGUA!!!! 20/10/2019
https://www.youtube.com/watch?v=yERs4OmqVK8

A settler tells how the Mapocho River magically recovers its flow, as has happened in recent days in different parts of Chile.
https://www.youtube.com/watch?v=J0bdwdpwcmI

Water is used to cultivate avocados
https://www.youtube.com/watch?v=JEPuk87jNzs

Stop buying avocados from Chile.

And mining

"Mining transnationals find it cheaper to buy water rights than to desalinate seawater and transport it for tens or hundreds of kilometers. Even more so if they have to use less polluting but more expensive desalination technologies.
This is an unequal and unjust war where the main victims are the poor population, small farmers and the sustainable development of our region of Atacama.
We continue to approve and facilitate the approval of mining projects and mega-projects without making it a condition not to consume water from the basin.
– The population of Copiapó, Caldera, Tierra Amarilla and Chañaral, particularly the lower income population, suffers the consequences of having to endure repeated supply cuts, low pressure and a terrible quality of drinking water.
The drinking water crisis in the mentioned cities is a direct consequence of the over exploitation of the Copiapó river basin by foreign mining companies, of the purchase-sale and speculation with water rights, as well as of the irrationality and indolence of the State in not establishing priorities in the use of the vital water"
https://www.youtube.com/watch?v=8lGEONBfvTM

Translated with http://www.DeepL.com/Translator

Sofia Monsalve , November 22, 2019 at 8:32 am

Although corporate meddling is not unheard of in the UN system, under the new terms of the UN-WEF partnership, the UN will be permanently associated with transnational corporations. In the long-term, this would allow corporate leaders to become 'whisper advisors' to the heads of UN system departments.
The UN system is already under a significant threat from the US Government and those who question a democratic multilateral world. Additionally, this ongoing corporatization will reduce public support for the UN system in the South and the North, leaving the system, as a whole, even more vulnerable.To prevent a complete downfall, the UN must adopt effective mechanisms that prevent conflicts of interest consistently. Moreover, it should strengthen peoples and communities which are the real human rights holders, while at the same time build a stronger, independent, and democratic international governance system.
There is a strong call to action going on by hundreds of organizations against this partnership agreement http://bit.ly/33bRQZP

Marybeth Gardam , November 22, 2019 at 1:46 pm

How can a civil society organization sign on to this letter?

[Nov 11, 2019] We're Living In A System Of The Banks, By The Banks, For The Banks by Greg Hunter

Nov 11, 2019 | www.zerohedge.com

Via Greg Hunter's USAWatchdog.com,

Edward Griffin, author of the wildly popular book about the Federal Reserve "The Creature from Jekyll Island," is holding a conference this weekend called "Red Pill Expo."

It is all about waking people up from the illusions they are being told. Griffin explains, "The illusions are in health, in politics and in education. The illusions are in the media, in money and in banking, which is my specialty. So, people are coming, some of whom are informed, but most respond to the slogan we are using for the "Red Pill Expo," and the slogan is 'Because you know something is wrong.' That sort of spells it out for most people, not just in America, but for people all over the world. People everywhere are being fed propaganda, lies and false stimuli of all kinds, but deep in their hearts, deep in their instincts, they know something is wrong ."

What's wrong in the financial world with the longest expansion in history and the Fed starting QE (money printing) again? Griffin says:

" We are living in a system of the banks, by the banks and for the banks, and that is the reality...

They see that the wheels are coming off ... The system of inflation in which we live cannot go on forever...

All systems of exponential growth always collapse. They come to an end at some point, and it's hard to tell exactly at what point, but you do know there is a breaking point where it just moves beyond reality. The banks know this better than anybody. So, I am assuming that they feel they are at the end. You can smell it. You can see it. You can touch it almost. So, what do you do? ...

I think their thinking is, hey, we are at the end and let's just grab all we can so when the system collapses, we will be okay . That is kind of a crude way of putting it, but I think they are going for broke because they know it is broke, and there is not much they can do about it."

So, what's the plan by the bankers? Griffin says, "I think I know..."

" They are waiting for the big collapse to come. They will personally be okay because they will have amassed hard assets. They are trying to hold all the gold, all the silver, all the real estate and all the stuff that has value. They want all the tools, factories and food supplies, but everything else, based on numbers, paper and debt, that will collapse. So, they will be able to pick up everything for pennies on the dollar."

What does the little guy do? G. Edward Griffin says simply, "Hold hard assets." Griffin also says,

"This question usually comes in the form of what does the average guy do? ...The answer is if you want to do something, stop being average. You've got to climb up out of that level. You have to become un-average. You have to start asking questions, and stand up and take it on the chin now and again. You've got to get into the fray. Join the battle. Speak up and join with others with like minds, and start becoming active in the political arena."

Join Greg Hunter as he goes One-on-One with G. Edward Griffin, author of "The Creature from Jekyll Island" and founder of the upcoming "Red Pill Expo."

https://www.youtube.com/embed/S37N8McqpWY

To Donate to USAWatchdog.com Click Here ) (This video was demonetized–once again. To buy a copy of the book "The Creature from Jekyll Island," click here.

[Nov 02, 2019] Bankrupsy bill was passed -- with neoliberal Biden's very active assistance -- specifically to ensure that for the vast mass of Americans there would be even less recourse during the coming crash. He was always a prostitute of financial industry and his record proves that.

Nov 02, 2019 | crookedtimber.org

Mark Pontin 10.31.19 at 10:42 pm @ 50

50 )
As for the pretense that knowledge of Biden's graft is new and something Trump pulled out of the bag, here's a 2008 Pro Publica report referencing and linking to other reports over the decades from fully centrist, mainstream rags like the NY Times and the Wall Street Journal --

https://www.propublica.org/article/bidens-cozy-relations-with-bank-industry-825

Biden's Cozy Relations With Bank Industry
by Eric Umansky Aug. 25, 2008, 10:36 a.m. EDT

'With Sen. Joe Biden joining the Democratic ticket, there's renewed scrutiny of Biden's connections to the credit card industry. Biden has been particularly cozy with MBNA, a financial services company from Delaware, and now a subsidiary of Bank of America.

'Over the past 20 years, MBNA has been Biden's single largest contributor. And as the New York Times and Wall Street Journal note, Biden's son Hunter was hired out of law school by MBNA and later worked as a lobbyist for the company.

'The Times also details just how helpful Biden has been to MBNA and the credit card industry. The senator was a key supporter of an industry-favorite bill -- the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" -- that actually made it harder for consumers to get protection under bankruptcy.

'As the Times notes, Biden was one of the first Democratic supporters of the bill and voted for it four times until it finally passed in March 2005 '

This article continues and thousands more reports like it were published over the decades.

However, please note that last fact: the timing of the bill, 2005. This was the period when Ben Bernanke, after his 'helicopter money' speech endorsing quantitative easing in 2002, was being wheeled into position by the powers that be to become Fed chairman. And the reason for both "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" and Bernanke being wheeled into place was that the financial industry were preparing for the financial blowout, which they well aware was coming.

In other words, that bill was passed -- with Biden's very active assistance -- specifically to ensure that for the vast mass of Americans there would be even less recourse and the crash would be even harder when it hit.

Because that's just the kind of politician Biden has always been.

[Nov 01, 2019] If you want details about the financialization of the Western world, this looks like a good series to read up on.

Nov 01, 2019 | www.moonofalabama.org

psychohistorian , Oct 31 2019 17:24 utc | 22

Below is a link to the 1st of a 10 part series written by Ramin Mazaheri about the Western financial system that uses as its jumping-off point the 2018 book Collusion: How Central Bankers Rigged the World by Nomi Prins, a former Wall Street executive who saw the light and is now informing on the crimes of Western imperialism-capitalism.

http://thesaker.is/how-qe-has-radically-changed-the-nature-of-the-wests-financial-system/

If you want details about the financialization of the Western world, this looks like a good series to read up on.

[Oct 28, 2019] Notes on financialization: The Corruption of the Public Mind and Flight Into Fantasy

Oct 28, 2019 | jessescrossroadscafe.blogspot.com

"I thought of this upside down debt pyramid when I was at Citibank in the early '60s. I first gave talks on it inside the bank, trying to influence the bank because I saw too much borrowing short term and lending long term. It was just awful! I kept on warning the bank, but was just brushed aside.

When Nixon closed the gold window I said, 'This is my chance to get out,' so I took it. [laughing] It was a great move on my part because I could buy gold and gold mining shares when gold was F$50 an ounce or less. Now Citibank is on the problem list because it has so many bad assets."

John Exter, 1991, Simplex Munditis

"Among the items of interest in JPMorgan Chase's written [earnings] presentation was that it spent $6.7 billion in this past third quarter buying up its own stock and thus boosting its stock price artificially beyond outside investor demand. The third quarter buybacks of its stock came on top of spending $5 billion in the second quarter and $4.7 billion in the first quarter, bringing its net repurchases of its own stock just so far this year to a whopping $16.4 billion -- money that could have otherwise gone to loans to small businesses to kickstart innovation and job growth in America.

The [House Financial Services'] Subcommittee notes that buybacks have skyrocketed from less than $200 billion in 2000 to a record $811 billion last year. The mega banks on Wall Street are responsible for a big chunk of those dollars.

Another unprecedented and totally crazy aspect of today's banking scene is that criminal felony charges no longer matter. You can be a bank like JPMorgan Chase, holding $1.6 billion in deposits for risk-adverse savers, while also being regularly charged with crimes."

Pam and Russ Martens, Capping the Craziest Banking Era in US History

"It is no exaggeration to say that since the 1980s, much of the global financial sector has become criminalised, creating an industry culture that tolerates or even encourages systematic fraud. The behaviour that caused the mortgage bubble and financial crisis of 2008 was a natural outcome and continuation of this pattern, rather than some kind of economic accident.

This behaviour is criminal. We are talking about deliberate concealment of financial transactions that aided terrorism, nuclear weapons proliferation and large-scale tax evasion; assisting in major financial frauds and in concealment of criminal assets; and committing frauds that substantially worsened the worst financial bubbles and crises since the Depression.

And yet none of this conduct has been punished in any significant way."

Charles H. Ferguson, Heist of the century: Wall Street's role in the financial crisis

"Twenty-five years ago, when most economists were extolling the virtues of financial deregulation and innovation, a maverick named Hyman P. Minsky maintained a more negative view of Wall Street; in fact, he noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Wall Street encouraged businesses and individuals to take on too much risk, he believed, generating ruinous boom-and-bust cycles. The only way to break this pattern was for the government to step in and regulate the moneymen.

Many of Minsky's colleagues regarded his 'financial-instability hypothesis,' which he first developed in the nineteen-sixties, as radical, if not crackpot. Today, with the subprime crisis seemingly on the verge of metamorphosing into a recession, references to it have become commonplace on financial web sites and in the reports of Wall Street analysts. Minsky's hypothesis is well worth revisiting."

John Cassidy, The Minsky Moment , The New Yorker, 4 February 2008.

"The more people rationalize cheating, the more it becomes a culture of dishonesty. And that can become a vicious, downward cycle. Because suddenly, if everyone else is cheating, you feel a need to cheat, too."

Stephen Covey

"The prevalence of the corporation in America has led men of this generation to act, at times, as if the privilege of doing business in corporate form were inherent in the citizen; and has led them to accept the evils attendant upon the free and unrestricted use of the corporate mechanism as if these evils were the inescapable price of civilized life, and, hence to be borne with resignation.

Through size, corporations, once merely an efficient tool employed by individuals in the conduct of private business have become an institution -- an institution which has brought such concentration of economic power that so-called private corporations are sometimes able to dominate the state.

Coincident with the growth of these giant corporations, there has occurred a marked concentration of individual wealth; and that the resulting disparity in incomes is a major cause of the existing depression [1933].

We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both."

Supreme Court Justice Louis D. Brandeis

"You can know the value of every item of merchandise, but if you don't know the value of your own soul it is all a vanity.

This, this then is the essence of all wisdom -- that you should know who you will be when your Day of Reckoning arrives."

Rumi

"A fair amount of the earnings growth the S&P 500 has exhibited in recent years might be ephemeral, related to gains in the value of companies' investments rather than the underlying strength of their operations. Under the hood, then, profit margins aren't as good as they appear. If business starts to falter, companies' may take an ax to costs, with bad repercussions for the economy."

Justin Lahart, Wall Street Journal, Squeeze on U.S. Companies May Be Worse Than It Seems

"Every bubble rests on two pillars: a) it's different this time; b) some other sucker will buy this worthless asset from me at a higher price, so I should hold on against my better judgment."

Louis-Vincent Gave

"Price discovery is not a sexy function of markets, but it is critical to the efficient allocation of scarce capital and resources, and to the preservation of the long term wealth of investors and the economy as a whole. If price discovery is compromised by manipulation, then we will all be gradually impoverished and the economy will be imbalanced and unstable.

Over the past 25 years the forces of regulatory liberalisation and demutualisation of markets have allowed the largest global banks to set the rules, processes and infrastructure of global markets to their own self-interested requirements."

London Banker, Lies, Damn Lies, and LIBOR

"There seems little question that in 1929, modifying a famous cliche, the economy was fundamentally unsound. This is a circumstance of first-rate importance. In 1929 the rich were indubitable rich. The figures are not entirely satisfactory, but it seems certain that the five per cent of the population with the highest incomes in that year received approximately one-third of all income. The proportion of personal income received in the form of interest, dividends, and rent – the income, broadly speaking, of the well-to-do – was about twice as great as in the years following the Second World War.

This highly unequal income distribution meant that the economy was dependent on a high level of investment or a high level of luxury consumer spending or both. The rich cannot buy great quantities of bread. If they are to dispose of what they receive it must be on luxuries or by way of investment in new plants and new projects. Both investment and luxury spending are subject, inevitably, to more erratic influences and to wider fluctuations than the bread and rent outlays of the $25-week workman. This high bracket spending and investment was especially susceptible, one may assume, to the crushing news from the stock market in October 1929."

John Kenneth Galbraith, The Great Crash of 1929


"Wall Street got the credit for this prosperity and Wall Street was dominated by just a small group of wealthy men. Rarely in the history of this nation had so much raw power been concentrated in the hands of a few businessmen.

Everything was not fine that spring with the American economy. It was showing ominous signs of trouble. Steel production was declining. The construction industry was sluggish. Car sales dropped. Customers were getting harder to find. And because of easy credit, many people were deeply in debt. Large sections of the population were poor and getting poorer.

Just as Wall Street had reflected a steady growth in the economy throughout most of the 20s, it would seem that now the market should reflect the economic slowdown. Instead, it soared to record heights. Stock prices no longer had anything to do with company profits, the economy or anything else. The speculative boom had acquired a momentum of its own.

On September 5th, economist Roger Babson gave a speech to a group of businessmen. 'Sooner or later, a crash is coming and it may be terrific.' The market took a severe dip. They called it the "Babson Break." The next day, prices stabilized, but several days later, they began to drift lower. Though investors had no way of knowing it, the collapse had already begun."

The market fluctuated wildly up and down. On September 12th, prices dropped ten percent. They dipped sharply again on the 20th. Stock markets around the world were falling, too. Then, on September 25th, the market suddenly rallied.

Practically every business leader in American and banker, right around the time of 1929, was saying how wonderful things were and the economy had only one way to go and that was up.

There came a Wednesday, October 23rd, when the market was a little shaky, weak. And whether this caused some spread of pessimism, one doesn't know. It certainly led a lot of people to think they should get out.

And so, Thursday, October the 24th -- the first Black Thursday -- the market, beginning in the morning, took a terrific tumble. The market opened in an absolutely free fall and some people couldn't even get any bids for their shares and it was wild panic. And an ugly crowd gathered outside the stock exchange and it was described as making weird and threatening noises. It was, indeed, one of the worst days that had ever been seen down there.

But Monday was not good. Apparently, people had thought about things over the weekend, over Sunday, and decided maybe they might be safer to get out. And then came the real crash, which was on Tuesday, when the market went down and down and down, without seeming limit...Morgan's bankers could no longer stem the tide. It was like trying to stop Niagara Falls. Everyone wanted to sell.

In brokers' offices across the country, the small investors -- the tailors, the grocers, the secretaries -- stared at the moving ticker in numb silence. Hope of an easy retirement, the new home, their children's education, everything was gone."

PBS American Experience, The Great Crash of 1929


"Our basic trouble was not an insufficiency of capital . It was an insufficient distribution of buying power coupled with an over-sufficient speculation in production. While wages rose in many of our industries, they did not as a whole rise proportionately to the reward to capital , and at the same time the purchasing power of other great groups of our population was permitted to shrink .

We accumulated such a superabundance of capital that our great bankers were vying with each other, some of them employing questionable methods, in their efforts to lend [leverage] this capital at home and abroad . I believe that we are at the threshold of a fundamental change in our popular economic thought, that in the future we are going to think less about the producer and more about the consumer.

Do what we may have to do to inject life into our ailing economic order, we cannot make it endure for long unless we can bring about a wiser, more equitable distribution of the national income."

Franklin D. Roosevelt, 1932

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason. But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right."

John Kenneth Galbraith

"It's not just political spin, however, that explains the rose-colored coverage [in the media]. Another explanation is that the media is plain stupid -- quick to accept guidance from economists on Wall Street, for example, who have a vested interest in making everything wonderful."

John Crudele

"It is difficult to get a man to understand something, when his salary depends on his not understanding it."

Upton Sinclair


"Experience, however, shows that neither a state nor a bank ever have had the unrestricted power of issuing paper money without abusing that power; in all states, therefore, the issue of paper money ought to be under some check and control; and none seems so proper for that purpose as that of subjecting the issuers of paper money to the obligation of paying their notes either in gold coin or bullion."

David Ricardo

"When depreciated, mutilated, or debased coinage or currency is in concurrent circulation with money of high value in terms of precious metals, the good money automatically disappears.

Bad money drives out good."

Thomas Gresham

[Oct 06, 2019] Why Finance Is Too Important to Leave to Larry Summers by Mark Ames

Under neoliberalism it is Financial oligarchy who controls the press. Exceptions can exist but they are mostly limited to Internet sites and foreign MSM. And they ust conform the rule.
Notable quotes:
"... By Mark Ames, author of Going Postal: Rage, Murder and Rebellion from Reagan's Workplaces to Clinton's Columbine ..."
"... The oligarchy has spent decades on a project to "defund the Left," and they've succeeded in ways we're only just now grasping. "Defunding the Left" doesn't mean denying funds to the rotten Democratic Party; it means defunding everything that threatens the 1%'s hold on wealth and power. ..."
"... A ProPublica study in May put it in numbers: In 1980, the ratio of PR flaks to journalists was roughly 1:3. In 2008, there were 3 PR flaks for every 1 journalist. And that was before the 2008 shit hit the journalism fan. ..."
"... This is what an oligarchy looks like. I saw the exact same dynamic in Russia under Yeltsin: When he took power in 1991, Russia had the most fearless and most ideologically diverse journalism culture of any I've ever seen, a lo-fi, hi-octane version of American journalism in the 1970s. ..."
"... But as soon as Yeltsin created a class of oligarchs to ensure his election victory in 1996, the oligarchs snapped up all the free media outlets, and forced out anyone who challenged power, one by one. ..."
"... The only way to prevent that from happening to is to support the best of what we have left. Working for free sucks. It can't hold, and it won't. ..."
"... Larry's always got an agenda. Ours should be to contain self-interested incompetent repeat grifters like Larry. There should be legislation for anyone in politics: 3 strikes and yer out. I think the Obama administration's response to the GFC counted as at least 3 strikes. And should have eliminated lotsa democrats, most importantly all of his "advisors". And also his VP. ..."
Oct 05, 2019 | www.nakedcapitalism.com

... ... ...

By Mark Ames, author of Going Postal: Rage, Murder and Rebellion from Reagan's Workplaces to Clinton's Columbine .

... ... ...

Efforts to discredit Taibbi for his work in Moscow got traction in 2017, curiously, right before the release of his book on the police killing of Eric Garner, I Can’t Breathe. Paste Magazine contacted the women that worked at The eXile, all of whom confirmed that Ames never committed any misconduct toward women, and amplified the curious timing. From Paste:

Paste was able to trace the effort to cast eXile as a factual memoir back to an alt-right author named Jim Goad in 2011. Goad, whose magazine, ANSWER Me!, had been parodied by The eXile…

However, the narrative that the book was an accurate portrayal of the lives Taibbi and Ames led in Moscow wouldn’t really take off until October of this year—ahead of the book tour for I Can’t Breathe, Taibbi’s look at the death of Eric Garner and its aftermath….

How did this happen?

Simply put, for most Americans today, the culture and stereotypes Taibbi and Ames were lampooning are completely foreign and unfamiliar….

“The paper was to be a mirror of the typical expatriate in ‘exile,’ who was a pig of the highest order,” Taibbi explained. “He was usually a Western consultant who made big bucks teaching Russians how to fire workers or privatize markets in the name of ‘progress,’ then at night banged hookers and blew coke and speed. The reality is most of the Westerners in town were there to turn Russia into a neoliberal puppet state by day, and get laid and shitfaced by night. So the paper was a kind of sarcastically over-enthusiastic celebration of this monstrous community’s values.”

The oligarchy has spent decades on a project to "defund the Left," and they've succeeded in ways we're only just now grasping. "Defunding the Left" doesn't mean denying funds to the rotten Democratic Party; it means defunding everything that threatens the 1%'s hold on wealth and power.

One of their greatest successes, whether by design or not, has been the gutting of journalism, shrinking it down to a manageable size where its integrity can be drowned in a bathtub. It's nearly impossible to make a living as a journalist these days; and with the economics of the journalism business still in free-fall like the Soviet refrigerator industry in the 1990s, media outlets are even less inclined to challenge power, journalists are less inclined to rock the boat than ever, and everyone is more inclined to corruption (see: Washington Post, Atlantic Monthly).

A ProPublica study in May put it in numbers: In 1980, the ratio of PR flaks to journalists was roughly 1:3. In 2008, there were 3 PR flaks for every 1 journalist. And that was before the 2008 shit hit the journalism fan.

This is what an oligarchy looks like. I saw the exact same dynamic in Russia under Yeltsin: When he took power in 1991, Russia had the most fearless and most ideologically diverse journalism culture of any I've ever seen, a lo-fi, hi-octane version of American journalism in the 1970s.

But as soon as Yeltsin created a class of oligarchs to ensure his election victory in 1996, the oligarchs snapped up all the free media outlets, and forced out anyone who challenged power, one by one. By the time Putin came to power, all the great Russian journalists that I and Taibbi knew had abandoned the profession for PR or political whoring. It was the oligarchy that killed Russian journalism...

The only way to prevent that from happening to is to support the best of what we have left. Working for free sucks. It can't hold, and it won't.

... ... ...

Rodger Malcolm Mitchell , October 5, 2019 at 11:15 am

OMG! Please Say It Isn't True. Not Sleepy Summers, Again!!

Susan the other` , October 5, 2019 at 12:32 pm

Thanks for this oldie goldie. I'm sure everyone has noticed that Larry is crawling out of his hole again. He's trying not to attract too much attention to himself. Because he knows how bad his press is. He's aligning with "scholars" who are a little more financially left and he's trying not to look arrogant, so he's settling for stupid and desperate. Desperate for a political niche. He's made quiet endorsements for Libra and he's been a little too open to crypto currencies.

Larry's always got an agenda. Ours should be to contain self-interested incompetent repeat grifters like Larry. There should be legislation for anyone in politics: 3 strikes and yer out. I think the Obama administration's response to the GFC counted as at least 3 strikes. And should have eliminated lotsa democrats, most importantly all of his "advisors". And also his VP.

skippy , October 5, 2019 at 6:45 pm

Maybe if people started calling DINOs Thirdway – Washington consensus in the memory of the Democratic party .

James , October 5, 2019 at 10:01 pm

You had to love the eXile's "worst foreign correspondent in Moscow" contest:
http://exiledonline.com/old-exile/vault/pr/pr83.html

[Sep 01, 2019] Wendy's Billionaire Owner Spurns Farmworkers While Profiting Off Pension Funds by Derek Seidman

Aug 26, 2019 | truthout.org
here is a battle of wills going on right now that stretches from the tomato fields of Florida to the highest echelons of Wall Street.

On one side, you have Nelson Peltz , the wealthy hedge fund manager and Trump donor whose firm, Trian Partners, oversees around $10 billion in assets. Peltz is worth $1.7 billion and owns a $123 million estate in Florida -- and that's just one of his lavish homes.

On the other side, you have thousands of low-wage Florida farmworkers, and their grassroots organization, the Coalition of Immokalee Workers (CIW).

The two sides are at odds over the social responsibility practices of Wendy's, the fast food mega-chain. Peltz, his hedge fund firm Trian, and the other partners who own Trian effectively own Wendy's. They are the company's biggest shareholders: Trian owns 12.4 percent of Wendy's stock, and Peltz and his Trian colleagues also have large personal shareholdings in Wendy's. Trian dominates Wendy's board. Peltz himself is the chairman and Trian President Peter May is vice-chair. Peltz's son is on the board, too.

For years, CIW, a widely recognized human rights organization, has been campaigning to get Wendy's to join the Fair Food Program , which ensures better wages and safer working conditions for farmworkers. The Program, for which CIW received a Presidential Medal of Freedom from President Obama, was recently declared by 2019 Pulitzer Prize finalist Bernice Yeung to be a "#MeToo-era marvel " because it "not only creates real consequences for harassment but also prevents it from happening at all" in agriculture. Wendy's just needs to agree to join up and only buy from growers that adhere to the Fair Food Program's human rights-based code of conduct, and to pay a premium to improve farmworkers' wages. Walmart, McDonald's, Burger King, Taco Bell and a host of other major brands are on board with the Fair Food Program.

But not Peltz and Wendy's.

Peltz, like other hedge fund billionaires opposing workers' human rights campaigns in the companies they own, may be ignoring some of his own key partners: pension funds and other progressive institutions that invest in Trian.

Union members, liberal universities and progressive nonprofits might be upset to learn that their money is propping up a Wall Street billionaire who refuses to do right by low-wage farmworkers.

A significant percentage of the $10 billion in assets that Trian oversees comes from clients like union members' pension funds, liberal universities, and progressive nonprofits and foundations -- all of which might be upset to learn that their money is propping up a Wall Street billionaire who refuses to do right by low-wage farm workers.

Three Public Worker Pension Funds

Just three of Trian's clients alone -- the pension funds for California teachers, New York public employees and teachers in Ontario, Canada -- account for around 20 percent of all the assets Trian reports to be overseeing.

These three big clients hold billions of dollars in trust for stakeholders and communities that are overwhelmingly pro-worker -- including hundreds of thousands of current and retired union members who care deeply about worker rights and social justice.

And, as the table below shows, while these pension funds are some of Trian's biggest clients, their investments with Trian amount to just a small sliver of their overall portfolios. In other words, these funds are more important to Trian than Trian is to these funds:

Trian client Amount invested with Trian Percentage of all assets Trian oversees ($10 billion) Percentage of all assets client invests
California State Teachers' Retirement System (CalSTRS) $1,007,186,000 10% .0043% (of $233.9 billion)
New York State and Local Retirement System (NYSLRS) $618,000,000 6.18% .00298% (of $206.9 billion)
Ontario Teachers' Pension Plan (OTPP) Over $300,000,000 Over 3% .0015% (of $191.1 billion)
Totals $1,925,186,000 19.18% .0043% or less is each case

The California State Teachers' Retirement System (CalSTRS) manages the pensions of California's teachers. It claims 949,512 total members and beneficiaries -- many of whom are union members. The CalSTRS board contains several members that are associated with labor unions that support workers, including its chair , Sharon Hendricks, who is affiliated with the California Federation of Teachers, and Harry Keiley, its vice chair, who is affiliated with the California Teachers Association. CalSTRS also has a record of severing its investments from industries engaged in harmful practices, like private prisons , dirty coal and firearms .

CalSTRS is a major client of Trian, with over $1 billion invested as of last June , and it clearly has access to Peltz. For example, CalSTRS Chief Investment Officer Christopher J. Ailman sits alongside Peltz on a nine-member advisory board for Delivering Alpha, a financial conference that will take place on September 19 in New York City. Trian has also spent over $123,000 since 2015 lobbying CalSTRS (as well as the California Public Employees' Retirement System ) on the issue of "investments."

The New York State and Local Retirement System (NYSLRS) is the state public employee pension fund and the pension fund of police and firefighters. It claims a total of 1,122,626 members, retirees and beneficiaries, including many union members. NYSLRS has $618 million invested with Trian as of last March.

The Ontario Teachers' Pension Plan (OTPP) is, according to its website, "Canada's largest single-profession pension plan." It represents 327,000 teachers and retirees. The OTPP has over $150 million invested in two separate Trian funds -- so, over $300 million in total. It's worth noting that OTPP doesn't reveal the exact amount of its total investments with Trian, so it's possible that the amount is much more than $300 million.

The OTPP's board includes the former general secretary of the Elementary Teachers' Federation of Ontario, a union which represents 78,000 members in the Ontario public school system.

Just these three clients together -- CalSTRS, NYSLRS and OTTP -- invest over $1.918 billion with Trian -- about 20 percent of all funds Trian oversees.

SEIU Members' Pension Fund Invests With Trian

In addition, members of one of the most powerful and progressive unions in the country, Service Employees International Union (SEIU), appear to have their pensions invested with Trian. The health care workers' pension fund of SEIU affiliate 1199SEIU had $16,106,742 invested in three Trian funds as of the end of 2017.

The pension fund -- which is governed by a board of trustees of which half of the members are designated by the union -- has a relatively small investment with Trian, a drop in the bucket of its overall portfolio. 1199SEIU Trustees -- and SEIU's progressive members -- might very well be troubled to learn that their retirement funds are invested with a hedge fund that is standing in the way of the Fair Food Program, which has been widely recognized as one of the most effective models to combat human rights abuses in U.S. agriculture.

SEIU more broadly has been outspoken in its support for the Coalition of Immokalee Workers in the past. It appears as an organizational endorser of the Alliance for Fair Food, a network of allies who support the CIW, and representatives from SEIU locals have rallied in support of the CIW and at conferences with the CIW.

The University of Chicago Invests With Trian

At least one major U.S. university also invests with Trian: The University of Chicago.

Trian's president and one of its founding partners, Peter W. May , is an emeritus trustee of the University of Chicago and a life member of the advisory council of the University of Chicago Booth School of Business. May -- who himself is listed in Wendy's most recent proxy statement as a major shareholder of the company's common stock -- is also the vice chair of Wendy's board, sitting right next to Peltz at the top of the company's corporate governance.

Because of May's official positions with the University of Chicago, the school is required to disclose in its Form 990 filings any payments it made to Trian and May. According to the last six years of the University's available records , it has paid Trian $6,305,866 in management and incentive fees from mid-2012 to June 2018. The highest yearly fees -- $2,145,729 -- were in the 2014-2015 fiscal year and the lowest -- $620,000 -- were in the 2017-2018 fiscal year

While the university doesn't disclose how much it invests with Trian, hedge funds typically charge clients around a 2 percent fee of all assets managed and around a 20 percent share of any gains. Based on the most recent known fees of $620,000 paid to Trian by University of Chicago, we can conservatively speculate that the University invests at least $10 million with Trian.

Many members of the University of Chicago campus community appear to hold values that stand in stark contrast with Trian and Peter May's refusal to join the Fair Food Program. For example, workers across the school recently formed the University of Chicago Labor Council, which unites all campus unions "to build inter-union solidarity and worker power with the community" and to "organize together for a better future." They held a rally this past May Day "to advocate for workers' rights at UChicago and in the broader South Side community."

The school's Graduate Student Union has also been very active , and undergraduates have formed solidarity efforts to support campus labor action. Moreover, calls for opposing unethical corporate practices are nothing new to the University of Chicago community: In 2016, more than 250 faculty members signed a call for the university to divest from its fossil fuel holdings.

https://littlesis.org/maps/4216-investors-propping-up-trian-nelson-peltz/embedded/v2

Trian's Nonprofit Clients

Several other clients of Trian include other well-meaning foundations, nonprofit organizations, public bodies and more pension funds:

Disney Foundation May Be Invested With Trian

Interestingly, the Walt and Lilly Disney Foundation may also be invested with Trian. A filing from 2013 reveals an investment with Trian with a market value of $3,218,453. The Disney Foundation filings stopped disclosing specific investments after 2013.

Abigail Disney, the granddaughter of Roy Disney, who was the co-founder of Walt Disney Productions, has been a vocal supporter of the Coalition of Immokalee Workers. Just this summer, she spoke out against unfair labor practices at Disney World on Democracy Now !

How Will Investors React?

Peltz and Trian care deeply about maintaining and expanding their relationships with big institutional investors like pension funds. For example, as mentioned above, Peltz sits on the advisory board for the upcoming 2019 Delivering Alpha conference, a major annual investor conference, alongside several chief investment officers of the major pension funds, including the California State Teachers' Retirement System. Peltz will also be a speaker at Delivering Alpha.

There is ample precedent for activism around pension fund financing of questionable corporate labor practices.

Meanwhile, there is ample precedent for activism around pension fund financing of questionable corporate labor practices that are incongruent with those funds' ethical standards. Take CalSTRS, for example. Toys R Us workers protested CalSTRS' investments with Wall Street firms that bankrupted their employer. More broadly, CalSTRS has formally stated that its values include addressing burning issues like the climate, the opioid crisis and the gun crisis. As mentioned, it has divested from corporate areas -- from coal to private prisons -- it deemed unethical.

Moreover, in the wake of the #MeToo movement, CalSTRS board of trustees chair Sharon Hendricks has joined a group of 13 California female pension fund trustees "to improve corporate disclosures on sexual harassment, violence and misconduct," according to the Los Angeles Times . According to Pensions & Investments , the Trustees United created four principles to help "recognize the risk to investors that sexual harassment and misconduct create," asserting that corporations must ensure "a work environment free of sexual harassment and violence."

Notably, while agricultural workers like tomato pickers are some of the most vulnerable targets of sexual harassment and violence, the Fair Food Program has proven to be a tested preventative that is "unique in the country," according to PBS's Frontline .

Today, the question remains: How will major worker and union pension funds respond to Trian and Peltz's refusal to follow the examples of companies like Walmart and McDonald's to do right by farm workers by joining the Fair Food Program?

[Aug 28, 2019] Deep at the core is the battle by Banksters and their allies to keep their institutions private versus the Classical and Populist goal of making them public utilities and how the World Wars helped the former to gain their goals.

Notable quotes:
"... As Hudson points out, WW1 was a coup for the USA's financial sector and allowed them to gain control of academia to erase Marx and his Classical Economist allies and replace them with their own toadies along with their newly formed product--Propaganda and the nascent Police State, which the institution of Prohibition greatly facilitated. ..."
Aug 28, 2019 | www.moonofalabama.org

karlof1 , Aug 26 2019 15:45 utc | 103

The latest by Crooke I found a curious read since he bases his article on his interpretation of Adam Tooze's books about the world wars, neither of which I've read. Curious because we know from Hudson that the counterrevolution by the Feudal Lords of banking and land holding against Classical Economists and their political allies began in earnest well before then in @1870 and that their Race for Africa was a big part of their efforts to regain their hold on their home governments.

Within the USA, a similar revolution was being waged although it began several decades later in response to the Populists.

As Hudson points out, WW1 was a coup for the USA's financial sector and allowed them to gain control of academia to erase Marx and his Classical Economist allies and replace them with their own toadies along with their newly formed product--Propaganda and the nascent Police State, which the institution of Prohibition greatly facilitated.

I wrote the above to provide barflies with a contrasting historical context much of which was recently reviewed via all the Marxian discussion and where the actual roots of Neoliberalism are seated.

Deep at the core is the battle by Banksters and their allies to keep their institutions private versus the Classical and Populist goal of making them public utilities and how the World Wars helped the former to gain their goals.

Tooze's narrative seems okay on the surface, and it clearly fooled Crooke, but it's incomplete. What did the European Powers run out first that generated WW1's stalemate? Money for arms as posited or human bodies to man those arms? In George Seldes's censored interview with Hindenburg a week after the Armistice, published in You Can't Print That! , the defeated Field Marshal admitted it was the entry of American Men--human numbers--that turned the tide and made it clear to him that the war couldn't be won. Sure, money helped get the doughboys over there, but before they arrived masses of money were sent in both directions that didn't change the balance other than to create the unpayable postwar debts the Americans demanded be paid.


bevin , Aug 26 2019 16:21 utc | 109

karlofi@103
Hindenburg realised that the manpower resources of the US were crucial, though they hardly came into play on the battle field. But it was US raw materials, combined with the British blockade, that were the crucxial factor.

With the US the Alliance was simply, even minus Russia, too big, too powerful. And then there was the military reality that the Allies were beginning to organise themselves on the battlefield: including tanks etc.

As for the "Feudal Lords of Banking..." Hudson is a great resource, but his theory sounds wrong to me.

... ... ..

karlof1 , Aug 26 2019 17:02 utc | 114

bevin @109--

When I first happened across Seldes's interview and knowing the "stabbed in the back" claim that Hitler used in his rise to power, I was very curious as to why it was censored--what possible reason could be claimed to withhold such an important set of revelations? Clearly as Seldes himself says, if it had been published at the time, the entire course of subsequent history would likely have taken a different direction. Are you familiar with Seldes? He was I.F. Stone's idol and model with a penchant for truth-telling regardless of the subject or people involved. The book I linked to is filled with similar stories that contradicted the current narrative being sold to the masses, and his subsequent works are similar. But as you might guess, few people have ever heard of him or his writings.

Given what Hudson reveals about the manipulation of the learning/teaching of political-economy, it would be very wise to suspect much of what was/is produced via the "social sciences," (history written by the victors) which is why my collegiate mentor stressed the learning methodology he devised to try and arrive at the best non-subjective conclusion as possible whatever the inquiry--to try and duplicate as closely as possible the scientific method for confirmation of theories. I've discovered quite a lot of metaphysics within the entire spectrum of social science disciplines that's made me question a vast catalog of assumptions. As Fischer and other historians have discovered, historical truth often lies literally in the margins--the annotations--made by decision makers or obscure signals reports filed away within deep archives or forensic chemical reports detailing what is or isn't present within the samples. The learning of the revealed truths can be painful, making the adage Ignorance is Bliss rather powerful and enticing. But that's not for me as I subscribe to the alternative adage, The Truth will set you Free.

Vato , Aug 26 2019 17:51 utc | 119

Grieved @66

I'm just reading Keen's 2nd Edition of his Debunking Economics: The Naked Emperor Dethroned? where he writes on page 29: "[...], conventional Marxsim is as replete with logical errors as is neoclassical economics, even though Marx himself provides a far better foundation for economic analysis than did Walras or Marshall."

To my knowledge, Keen refers to himself as a Post-keynesian economist (not to be confused with bastardized Keynesian or central banks' Neo-Keynesian economics), highly influenced by the work of Hyman Minsky who learned under Schumpeter.

karlof1 , Aug 26 2019 18:04 utc | 122
Vato @119--

Hudson considered Minsky a friend and called him a "giant" within the political-economic realm as a founder of MMT.

karlof1 , Aug 26 2019 19:34 utc | 129
And as Hudson endlessly intones, the term free markets mean free from regulation means free from entities who covet controlling markets.
chu teh , Aug 26 2019 20:38 utc | 135
@ Karlof1 Aug 26 2019 19:34 utc

Far more workable:

"Freedom" is meaningless until the "freedom from" target is specified.

Observably, this seems not generally known.

[Aug 26, 2019] The path of the neoliberal empire is the path to higher and higher levels of financialization

Notable quotes:
"... Like any imperial economy the USA economy became the FIRE economy. The path of the empire is the path to higher and higher levels of financialization. ..."
"... As those sectors are mostly parasitic (and deteriorated to the level of parasitic predators under neoliberalism) that create a huge distortion in typical statistical measures like GDP. ..."
"... In 1990 FIRE overtook the manufacturing sector in terms of its contribution to GDP. The real estate is now the largest industry sector of the US economy which can be called a sector of flippers, Another implication is that for a large percentage of the population the personal wealth consists primarily of real estate. ..."
"... I would say that creation of 401K was one of the most shrewd neoliberal moves since 1980 as it greatly enhanced power of Wall Street and created opportunity for growth of such largely parasitic giants which fleece 401K lemmings (some more, some less) as Fidelity, Vanguard, Black Rock, etc. ..."
Aug 26, 2019 | economistsview.typepad.com

likbez -> Plp... , August 26, 2019 at 11:10 AM

Like any imperial economy the USA economy became the FIRE economy. The path of the empire is the path to higher and higher levels of financialization.

As those sectors are mostly parasitic (and deteriorated to the level of parasitic predators under neoliberalism) that create a huge distortion in typical statistical measures like GDP.

In 1990 FIRE overtook the manufacturing sector in terms of its contribution to GDP. The real estate is now the largest industry sector of the US economy which can be called a sector of flippers, Another implication is that for a large percentage of the population the personal wealth consists primarily of real estate.

The existence of a large rentier class (including middle class retires with their large 401K portfolios, mostly in stock mutual funds ) also negatively affects the economy. First of all creating and sustaining neoliberal "casino capitalism" mentality and creating cushion for Wall Street to speculate (without 401K accounts high frequency trading would be much more risky)

BTW till 2013 baby boomers real returns of 401K accounts heavily tilted to stock portfolios (which is the majority) were less than long term bonds. Only recent stock market rise erased those losses and put them in black.

Still since 2000 S&P raised from its pre dot-com bust peak of 1460 to only 2880 or so. Or ~ 2 times in 20 years. Inflation adjusted rate is considerably less as management fees are extracted from not inflation adjusted funds and thus are larger then they look.

In other words the direct buyer of long term government and high quality corporate bonds would be not worse, if not better as well as protected from the forthcoming recession losses, if any.

I would say that creation of 401K was one of the most shrewd neoliberal moves since 1980 as it greatly enhanced power of Wall Street and created opportunity for growth of such largely parasitic giants which fleece 401K lemmings (some more, some less) as Fidelity, Vanguard, Black Rock, etc.

In 1983, more than 7 million employees participated in a 401(k) plan. By 1991, that number had reached 48 million, and the combined assets of all 401(k) plans surpassed $1 trillion in 1996. Traditional pension plans were eliminated in early 2000.

[Aug 21, 2019] Losing a job in your 50s is especially tough. Here are 3 steps to take when layoffs happen by Peter Dunn

Unemployment benefits currently are usually is just six month or so; this is the time when you can plan you "downsizing". You do not need to rush but at the same time do not expect that you will get job offers quickly, if at all. Usually it does not happen. many advertised positions are fakes, another substantial percentage is already reserved for H1B candidates and posting them is the necessary legal formality.
Often losing job logically requires selling your home and moving to a modest apartment, especially if no children are living with you. At 50 it is abut time... You need to do it later anyway, so why not now. But that's a very tough decision to make... Still, if the current housing market is close to the top (as it is in 2019), this is one of the best moves you can make. Getting from your house several hundred thousand dollars allows you to create kind of private pension to compensate for losses in income till you hit your Social Security check, which currently means 66.
$300K investment in A quality bonds that returns 3% per year is enough to provides you with $24K per year "private pension" from 50 to age of 66 when social security kicks in. That allows you to pay for the apartment and amenities. The food is extra but with this level of income you qualify for food assistance.
This way you can take lower paid job, of much lower paid job (which mean $15 per hour), of temp job and survive.
And if this are many form you house sell your 401k remains intact and can supplement your SS income later on. Simple Excel spreadsheet can provide you with a complete picture of what you can afford and what not. Actually the ability to walk of fresh air for 3 or more hours each day worth a lot of money ;-)
Notable quotes:
"... Losing a job in your 50s is a devastating moment, especially if the job is connected to a long career ripe with upward mobility. As a frequent observer of this phenomenon, it's as scary and troublesome as unchecked credit card debt or an expensive chronic health condition. This is one of the many reasons why I believe our 50s can be the most challenging decade of our lives. ..."
"... The first thing you should do is identify the exact day your job income stops arriving ..."
"... Next, and by next I mean five minutes later, explore your eligibility for unemployment benefits, and then file for them if you're able. ..."
"... Grab your bank statement, a marker, and a calculator. As much as you want to pretend its business as usual, you shouldn't. Identify expenses that don't make sense if you don't have a job. Circle them. Add them up. Resolve to eliminate them for the time being, and possibly permanently. While this won't necessarily lengthen your fuse, it could lessen the severity of a potential boom. ..."
Feb 15, 2019 | finance.yahoo.com

... ... ...

Losing a job in your 50s is a devastating moment, especially if the job is connected to a long career ripe with upward mobility. As a frequent observer of this phenomenon, it's as scary and troublesome as unchecked credit card debt or an expensive chronic health condition. This is one of the many reasons why I believe our 50s can be the most challenging decade of our lives.

Assuming you can clear the mental challenges, the financial and administrative obstacles can leave you feeling like a Rube Goldberg machine.

Income, health insurance, life insurance, disability insurance, bills, expenses, short-term savings and retirement savings are all immediately important in the face of a job loss. Never mind your Parent PLUS loans, financially-dependent aging parents, and boomerang children (adult kids who live at home), which might all be lurking as well.

When does your income stop?

From the shocking moment a person learns their job is no longer their job, the word "triage" must flash in bright lights like an obnoxiously large sign in Times Square. This is more challenging than you might think. Like a pickpocket bumping into you right before he grabs your wallet, the distraction is the problem that takes your focus away from the real problem.

This is hard to do because of the emotion that arrives with the dirty deed. The mind immediately begins to race to sources of money and relief. And unfortunately that relief is often found in the wrong place.

The first thing you should do is identify the exact day your job income stops arriving . That's how much time you have to defuse the bomb. Your fuse may come in the form of a severance package, or work you've performed but haven't been paid for yet.

When do benefits kick in?

Next, and by next I mean five minutes later, explore your eligibility for unemployment benefits, and then file for them if you're able. However, in some states severance pay affects your immediate eligibility for unemployment benefits. In other words, you can't file for unemployment until your severance payments go away.

Assuming you can't just retire at this moment, which you likely can't, you must secure fresh employment income quickly. But quickly is relative to the length of your fuse. I've witnessed way too many people miscalculate the length and importance of their fuse. If you're able to get back to work quickly, the initial job loss plus severance ends up enhancing your financial life. If you take too much time, by your choice or that of the cosmos, boom.

The next move is much more hands-on, and must also be performed the day you find yourself without a job.

What nonessentials do I cut?

Grab your bank statement, a marker, and a calculator. As much as you want to pretend its business as usual, you shouldn't. Identify expenses that don't make sense if you don't have a job. Circle them. Add them up. Resolve to eliminate them for the time being, and possibly permanently. While this won't necessarily lengthen your fuse, it could lessen the severity of a potential boom.

The idea of diving into your spending habits on the day you lose your job is no fun. But when else will you have such a powerful reason to do so? You won't. It's better than dipping into your assets to fund your current lifestyle. And that's where we'll pick it up the next time.

We've covered day one. In my next column we will tackle day two and beyond.

Peter Dunn is an author, speaker and radio host, and he has a free podcast: "Million Dollar Plan." Have a question for Pete the Planner? Email him at [email protected]. The views and opinions expressed in this column are the author's and do not necessarily reflect those of USA TODAY.

[Aug 18, 2019] Quigley's book ( Tragedy and hope), outlines how the transnational financiers and the elites hold the masses in utter contempt.

Aug 18, 2019 | off-guardian.org

John Deehan

Professors Antony C Sutton, Carol Quigley and Guido Preparata wrote some very insightful books demonstrating how so much of what is accepted as official history is false. Quigley's book ( Tragedy and hope), outlines how the transnational financiers and the elites hold the masses in utter contempt. Moreover, Sutton demonstrates the fabricated fight between left and right is a mere distraction to enable them to progress with their plans for humanity. Furthermore, Preparata illustrates in his book, Conjuring Hitler, the notion that masses opinions count for nothing with the elites and the puppet politicians in terms of foreign policy.

As Sutton's research discovered, the transnational financiers financed both Communism, Fascism and Nazism and came to some rather disturbing conclusions about their intentions.

Quigley summed it up " the powers of financial capitalism had a far- reaching aim nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.

This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements and conferences.

The apex of the system was to be the Bank for International Settlements (BIS) in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations Each central bank sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world." Tragedy and Hope.

[Aug 16, 2019] If 2008 financial market meltdown or its aftermath is any indication, there is no accountability for the rich and the powerful.

Aug 16, 2019 | www.unz.com

Anon [134] Disclaimer , says: August 16, 2019 at 2:49 pm GMT

@animalogic The US Companies make tons of money from China. Nike, Boeing, Starbucks, Apple, the list goes on. GM sells more cars in China than in the US; KFC is huge in China and generates more revenue than in any other countries; China is the second largest market for Hollywood movies; Four American accounting firms grab more than 50% of market shares; last time I walked in a convenient store in Shanghai, I noticed that every brand of toothpaste is American brand (with one exception which is South Korean). These companies aren't stupid. If they don't do business in China their market shares would be filled by companies from Japan, Europe and others.

The question is how do you distribute these wealth generated from China? The current US political system is tilted in favor of the rich. If 2008 financial market meltdown or its aftermath is any indication, there is no accountability for the rich and the powerful. Anyone who pins his hopes on Trump will be sorely disappointed. Trade war or any kind of wars with China won't solve the problem.

https://www.foxbusiness.com/business-leaders/ceo-worker-pay-ratio-gap

Overall, CEO compensation has increased by 1,007.5 percent (or more conservatively, 940.3 percent) since 1978, according to the report.

Meanwhile, the typical American worker has only seen their wages grow by about 11.9 percent, the EPI said.

Back in 1965, the CEO-to-worker pay ratio was 20-to-1 for options realized and 16-to-1 for options granted. By 1978, the ratio was 30-to-1 for options realized and 23-to-1 for options granted.

[Aug 03, 2019] It ought to be clear the Creditor Class--The Money Power--is the "Western" People's #1 Enemy over the past 3,000+ years,

Aug 03, 2019 | www.moonofalabama.org

karlof1 , Aug 3 2019 5:15 utc | 61

psychohistorian @49--

Since @ 1,000BC, what Class has benefitted the most and how was that done? Yes, their "God" has many names, the one you ascribe is Mammon. When Nixon went off gold, which Class benefitted the most and why? And before Nixon went off gold, FDR went off gold, which Class benefitted and why? I could continue enumerating the numerous Financial Crises that have occurred within the British and Outlaw US Empires--yes, the Brits have had their share but for differing reasons & ever since Thatcher have seen their Public Assets stripped ever more and to which Class's benefit?

It ought to be clear the Creditor Class--The Money Power--is the "Western" People's #1 Enemy over the past 3,000+ years, but where are the books detailing that fact or fictions related to it? Seems pretty quiet ever since Jesus threw out the money changers/creditors from the Temple--who else has done so and when or why not? What happened to the attempt to attack the Money Power via the Occupy Wall Street Initiative? William Greider wrote a great book, Who Will Tell the People that mainly fell on deaf ears as nothing stirred. Nader ran several times and was muted by Big Lie Media--why and which Class benefitted? The answers are always the same. Isn't it time the equation was changed so the answers are no longer the same?

[Jun 23, 2019] Only the greedy, selfish, well off, egotistical and share holders believe that Public Services should, could and would benefit from privatisation and deregulation.

Apr 11, 2019 | discussion.theguardian.com

JohnS58 , 11 Apr 2019 06:15

Only the greedy, selfish, well off, egotistical and share holders believe that Public Services should, could and would benefit from privatisation and deregulation.

Education and Health for example are (in theory) a universal right in the UK. As numbers in the population rise and demographics change so do costs ie delivery of the service becomes more expensive.As market force logic is introduced it also becomes less responsive - hence people not able to get the right drugs and treatment and challenging and challenged young people being denied an education that is vital for them in increasing numbers.

Meanwhile - as Public Services are devalued and denuded in this system the private sector becomes increasingly wealthy at the top while its workers become poorer and less powerful at the bottom.

With the introduction of Tory austerity which punishes the latter to the benefit of the former there is no surprise that this system does not work and has provided a platform for the unscrupulous greedy and corrupt to exploit Brexit and produce conditions which will take 'Neoliberalism' to where logic suggests it would always go - with the powerful rich protected minority exerting their power over an increasingly poor and powerless majority.

[Jun 23, 2019] The competitive tender approach ensures the cheapest bids get the contracts and the cheapest bids are those most likely to employ exploited labour and cheap materials as well as cutting corners

Apr 10, 2019 | discussion.theguardian.com

Monkeybiz -> dd34342 , 10 Apr 2019 20:27

The competitive tender approach ensures the cheapest bids get the contracts and the cheapest bids are those most likely to employ exploited labour and cheap materials as well as cutting corners. Result? a job of sorts gets done, but the quality is rubbish, with no investment or pride in the product. Look at Hong Kong where this is longstanding practice: new tunnel, half the extractor fans do not work correctly because they were poorly installed. I once spoke to the Chief Engineer of the Tsing Ma bridge, he was stressed out of his socks for the whole construction period trying to monitor all the subcontractors who had bid so low they had to cheat to make a profit with the result that they would try to cut corners and avoid doing things if they thought they could get away with it. Good job that engineer was diligent. Others may be less able or willing.
Monkeybiz -> dd34342 , 10 Apr 2019 20:20

BTW: I seldom find comparisons in UK-media to other countries when those countries are better.

I think that's because most of the UK media is propaganda for the established system, which they rely on for advertising revenue and access to information. If an outlet's journalists start seriously questioning the existing system, a few things happen: 1. the journo doesn't get promoted within the system; 2. their access to information is curtailed (they are not invited to briefings etc., and; 3. advertising revenue drops. As the business model of most mainstream media is to present consumer audiences to advertisers, this is not going to sit well with the owners, see 1 and 2 above leading to poor evaluations. Any journo with half a brain quickly learns this and fits in. Only so far and no further.

[Jun 23, 2019] I have to agree that whilst some things have flourished once privatised, certain services must remain in public ownership and control to enable governments to improve or reduce, depending on national taxation and expenditure

Apr 10, 2019 | discussion.theguardian.com

Richard Burston , 10 Apr 2019 17:11

As a Tory for most of my longish life, I have to agree that whilst some things have flourished once privatised, certain services must remain in public ownership and control to enable governments to improve or reduce, depending on national taxation and expenditure - if people want better services then they must be prepared to pay for them, and of course the long-term pensions of the workforce. Managers should be subject matter experts before running departments, not just accountants or management consultants, so they can improve delivery not just constantly re-structure or carp on about 'efficiency savings'.

Having worked in shipping, that industry has oscillated several times but rail is an interesting example - a disaster in the dying days of national ownership, the private world started well improving safety, reliability and capacity but has gone downhill in recent years, not helped by the track management system. Again, the airlines started well but now several have gone into administration and BA has 'down-qualitied' itself to become one of the worst.

Some parts of the NHS can be provided by private industry but limited to service provision and collective buying only - certainly NOT cancer screening.
Then, when you look at private providers who go bust and completely fail to provide any acceptable capability - jails, probation, social care etc. one wonders when, if ever, politicians will realise that it costs them, the civil service and commercial management an incredible amount of time, effort and cost just to fail!

[Jun 23, 2019] Outsourcing government work is the most inefficient way of getting it done for the benefit of taxpayers.

Apr 10, 2019 | discussion.theguardian.com

MichaelAnthony , 10 Apr 2019 17:31

Outsourcing government work is the most inefficient way of getting it done for the benefit of taxpayers. When the profits private companies make from it are added to what economies must invest to pay the taxes for it it's astonishing how popular it has become throughout the world, something only explicable if those authorising it are amongst the most stupid of financial administrators or the most corrupt.
Outsourcing for example £1m worth of work requires that amount to be paid in taxes, which needs about £5m to be earned in wages and profits to pay £1m in taxes, which in turn needs an investment of perhaps ten times that amount, when the £1m is borrowed by debt laden governments to be repaid by over-borrowed and overtaxed economies.
If the outsourced company is not profit-making it will borrow the capital to be able to deliver what's required and that in turn will raise the amount it will want for future work, which is what I think accounts for Carillion and the other outsource giants going to the wall.
The process is generally the fault of governments failing to adhere strictly to the necessity of only paying its workforce on average the same as the private sector pays its workers, which in democracies is not an unfair requirement demanded by equality legislation. Many would claim that such was why Margaret Thatcher decided on privatising so many public utilities especially after the miners' strike in Ted Heath's government and why it gained so much support and popularity when wages and benefits for similar skill levels seemed so much better and jobs more secure for many public sector workers involved than they were in the private sector. Now of course, the high costs of private necessary public services are making life unbearable for the majority of workers and welfare recipients while profits are going abroad to those who own them and the EU in getting the flak – courtesy of the media - for the resultant poverty and austerity, allowed the false £350m a week to win the referendum. The £4 billion a week worth of exports to the EU paid most of that and the way companies are relocating to hedge against Brexit means a lot of lost jobs will go with them – some earlier estimates but it at more than 100,000 - which doesn't seem to deter those determinedly wanting out of the EU one little bit.
This is a blessing for the low labour cost Member States, who being in the populous markets the multinationals need, can attract the UK industries looking to further cut costs and freight charges so those that go will never come back because higher costs in the Brexit UK will not be compensated for easily with uncompetitive price hikes for EU customers, unlike CAP payments that have been promised to farmers by the government proBrexit Minister.
The doom and gloom felt by many I think is well justified when sovereign debt and bank credit is considered relative to taxes. While sovereign debt is regarded as an asset and future taxes are acceptable for bank credit and both can be securitized by banking systems to borrow even more capital that will be acceptable to central banks as QE, it's not surprising that sovereigns don't need to worry about economies being unable to provide the taxes their governments unlawfully spend even when leaving it for future generations is also unlawful i.e. is a crime, since if they don't, their central banks and bond holders covered by them will. When the cost in trillions since 2016 already spent by government in preparing for Brexit is included one can't help but think that the financial economy has made a proverbial killing from UK incorporated and now owns most if not all of it. If most of the finance for Brexit came from its financiers and investors is it possible that after Brexit they'll pour trillions back into the economy to make it capable of not only surviving but also competing favourably with the EU, Japan, China, and the US?

[Jun 23, 2019] Hardly anything has flourished after privatisation.

Apr 10, 2019 | discussion.theguardian.com

makingalist -> Richard Burston , 10 Apr 2019 18:06

I have to disagree. Hardly anything has flourished after privatisation. The big failures, which get all the publicity, were generally basket case private businesses which had to be nationalised to save them from collapse.

Sometimes they are stuffed with public money and sold at a loss to the public, like the Tory nationalisation of Rolls Royce, or deprived of funds like British Rail to provide an excuse to liberate thousands of square miles of real estate

This latter is the scheme for the NHS with hospitals and other property provided at great public expense sold off to any shark who says he has the money, and once it's private load the enterprise with debt and walk away.

[Jun 23, 2019] So neoliberalism stumbles on almost as a reflex action. Ben Fine calls it a 'zombie' but I think the better analogy is cannibalism.

Unlike the privatisations of the 80s and 90s there's barely any pretence these days that new sell-offs are anything more than simply part of a quest to find new avenues for profit-making in an economy with tons of liquid capital but not enough places to profitability put it.
Apr 10, 2019 | discussion.theguardian.com

hartebeest , 10 Apr 2019 18:42

Back in the Thatcher/Reagan years there were at people around who genuinely believed in the superiority of the market, or at least, made the effort to set out an intellectual case for it.

Now we're in a different era. After 2008, hardly anyone really believes in neoliberal ideas anymore, not to the point that they'd openly make the case for them anyway. But while different visions have appeared to some extent on both left and right, most of those in positions of power and influence have so internalised Thatcher's 'there is no alternative' that it's beyond their political horizons to treat any alternatives which do emerge as serious propositions, let alone come up with their own.

So neoliberalism stumbles on almost as a reflex action. Ben Fine calls it a 'zombie' but I think the better analogy is cannibalism. Unlike the privatisations of the 80s and 90s there's barely any pretence these days that new sell-offs are anything more than simply part of a quest to find new avenues for profit-making in an economy with tons of liquid capital but not enough places to profitability put it. Because structurally speaking most of the economy is tapped out.

Privatising public services at this point is just a way to asset strip and/or funnel public revenue streams to a private sector which has been stuck in neoliberal short-term, low skill, low productivity, low wage, high debt mode for so long that it has lost the ability to grow. So now it is eating itself, or at least eating the structures which hold it up and allow it to survive.

[Jun 23, 2019] The central premise used by Governments for privatising public servcies seems to have been that publicly run services are inefficient compared to private companies

Apr 10, 2019 | discussion.theguardian.com

lollipops42 , 10 Apr 2019 18:49

The central premise used by Governments for privatising public servcies seems to have been that publicly run services are inefficient compared to private companies; that the need to turn a profit means wasteful systems and behaviours are minimised. Therefore, money can be saved by outsourcing as private companies can provide the same or better service more cheaply.

I think this is very disrespectful to all those who work in public service, many of whom are dedicated to their jobs to provide care or a good service to members of the public. The idea that making money is the only motivating force that can make someone do their job well seems flawed. Further, if efficiency gains alone are not enough to make a profit, then the only recourse for companies is to provide a poorer service or be more exploitative of their employees, which is regularly played out.

This central premise is not widely challenged by politicians. It seems accepted as fact. I wonder if there have been any studies to either support or challenge this idea.

[Jun 08, 2019] Seventeen Ways to Think About the Finance Curse

Jun 07, 2019 | www.nakedcapitalism.com

By Nicholas Shaxson a journalist and writer on the staff of Tax Justice Network. He is author of the book Poisoned Wells about the oil industry in Africa, published in 2007, and the more recent Treasure Islands: Tax havens and the Men who Stole the World, published by Random House in January 2011. He lives in Berlin. Originally published at Tax Justice Network

The Finance Curse is a concept first developed by the Tax Justice Network . It is a relatively simple idea -- and also an original and powerful multi-level critique of the modern global economy.

Here we frame it in a number of different ways.

1. Shrink Finance

We all need good finance. A financial sector has a useful core surrounded by a toxic, predatory part. This should be entirely uncontroversial, especially following the global financial crisis.

It seems sensible, then, to shrink finance down to its useful core. A fast-growing strand of academic research, known as Too Much Finance , backs this up. Here's a startling picture from the real world, illustrating the excess bloat ( source .)

2. Wealth Extraction vs. Wealth Creation

This is closely related to Point 1. The bad part of finance is engaged in predatory wealth extraction , as opposed to the good part, which supports wealth creation (and other socially useful ends.)

This has geographical dimensions, as well as racial, gender, disability-based, and others. The most privileged interests profit from wealth extraction, while the least privileged tend to be those being extracted from .

Other terms that have often been used in this context: Makers vs Takers ; Producers vs. Predators; there are various other terms, some less pleasant.

This framing provides exceptionally rich research material, into the many different mechanisms of financial wealth extraction.

3. Cuckoo in the Nest

"The City of London likes to portray itself as the goose that lays the golden eggs. In reality it is a different bird: a cuckoo in the nest, crowding out and killing other sectors that could have made Britain more prosperous."

(The quote is from The Finance Curse book , which lays out some of the many ways in which this happens.)

We're feeding the wrong bird

This highlights the damage that oversized, extractive finance inflicts on other parts of the economy, crowding out other sectors. This, too, has geographical, racial, gender, and disability-based implications, as laid out here .

Studies have sought to quantify the damage. Here's one , estimating that the excess size of Britain's financial sector inflicted a massive £4.5 trillion cumulative hit to British GDP from 1995-2015, which includes the period of the great financial crisis. It explains:

A similar calculation for the United States estimated a $13-23 trillion hit to the United States from 1990-2023. These costs are due to misallocation of resources, excess "rents" due to the financial sector, and financial crisis.

4. The Tax Haven Comparison

Tax havens are financial centres that transmit harm outwards, elsewhere, offshore, to other countries. It harms foreigners: " This hurts them ." The Finance Curse, by contrast, transmits harm inwards, to one's own country. " This hurts us ."

If we're worried about helping low income countries, this is an especially useful frame, because it's relatively hard to get governments or citizens to support (apparently) altruistic actions to help foreigners, or to engage in complex international collaborations to counter a race to the bottom.

It's far more powerful to rally people behind a platform that caters to national self-interest. Shrink predatory global finance, not only to 'help them', but to 'help ourselves.' (In the process, this will help victims in other countries too.)

This also helps clarify the boundaries of the finance curse concept. Tax havens certainly hurt or 'curse' people elsewhere, but that's an extension of the core "this hurts us" concept.

5. The Resource Curse Comparison

The Finance Curse concept originally emerged from discussions between John Christensen, a former Economic Adviser to the British tax haven of Jersey, and Nicholas Shaxson, then an expert on the "Resource Curse" afflicting many countries whose economies are dominated by oil or minerals or natural resources. Likewise, the Finance Curse afflicts countries with a dominant financial centre.

The key misunderstanding around the Resource Curse is that these countries are poor because elites are stealing all the money. That does happen, of course, but the deeper understanding is that many of these countries are even poorer than if they'd never discovered any natural resources. It also leads to what's known as "path dependence," as other sectors wither, leading to a problem known as 'putting all your eggs in one basket.'

As the " too much finance " literature shows, finance has similar effects.

There is a large overlap between the two "curses," both in terms of the causes, and the effects: a similar "brain drain," a "Dutch Disease," recurring volatility and crises, rent-seeking (or wealth-extraction) dynamics, state capture by private interests, and plenty more. To understand more, see Section 1.0 here .

6. The Telephone Comparison

We need finance, but the measure of its contribution to our economy isn't whether it creates billionaires and big profits, but whether it provides useful services to us at a reasonable cost.

Imagine if telephone companies suddenly became insanely profitable and began churning out lots of billionaires, and telephony grew to dwarf every other economic sector -- yet our phone calls were still crackly and expensive and the service unreliable.

We'd soon smell a rat. All that wealth, and all those telephone billionaires, would be a sign of sickness, not health. (This analogy comes from here. )

7. The Paradox

Another way to frame the finance curse is to couch it in terms of an apparent paradox, which is is that more money or " too much finance " makes you poorer . This again overlaps with the Resource Curse above, sometimes known as the Paradox of Poverty from Plenty .

This also connects with the point that a large portion of finance is wealth-extracting rather than wealth-creating, as Point 2 outlines.

8. Financialisation

This is a term preferred by academics, which overlaps heavily with the Finance Curse. Different people offer different definitions : perhaps the best-known comes from Prof. Gerald Epstein:

"the increasing importance of financial markets, financial motives, financial institutions, and financial elites in the operation of the economy and its governing institutions, both at the national and international levels."

Financialisation essentially involves two trends, particularly marked since the 1970s. First, the growth in size in the financial sector. Second, the increasing penetration of financial techniques, tools, and especially debt into different parts of industry, agriculture, caring professions, and many other parts of the non-financial economy, so that they increasingly resemble financial actors. This involves wealth extraction and is justified by the shareholder value revolution.

This infographic gives just one example of what the second aspect of financialisation looks like. A wealth-extraction pipeline.

9. Shareholder Value

From the 1970s, intellectuals led by Milton Friedman and Michael Jensen argued for that corporations should no longer be run for the benefit of a range of stakeholders (owners, employees, communities, taxpayers etc.,) but instead should have a single-minded focus on maximising wealth for owners.

This way of thinking encapsulates the ideology behind the giant shift towards wealth extraction since the 1970s. (The shift is described and illustrated in the Private Equity chapter here .)

10. Mafia

The supporters of "more finance" say that the financial sector creates large numbers of jobs, tax revenues, trade surplus, and so on. (For example, here .) For many if not most people, that's the end of the story.

But one could make the same fallacious argument about organised crime. Mafia-owned businesses create jobs, pay taxes, contribute to exports, and so on. But that is not to say that the Mafia is a good thing. Ideally we want to keep the businesses, but take the Mafia out of them. Similarly, we want to de-financialise our economies.

(We're not saying here that the financial sector is necessarily like the mafia, though parts of it may be. We're merely making an analogy, to aid understanding.)

11. Net Versus Gross

This is another way to challenge the false claims about a financial sector's alleged contribution to the economy that hosts it (such as those published by TheCityUK ). These figures they like to put about represent the sector's gross contribution to the economy.

But the gross benefits are meaningless when it comes to making sensible policy. We need the net contribution. That is, the benefits minus the costs of oversized finance. Here's one publication that lays out the net contribution.

12. Optimal Financial Sector Size

This is one of several graphs published by the IMF, the Bank for International Settlements, and others. The basic relationship is that a country's financial sector has an optimal, growth-maximising size.

They recognise that if a country's financial sector gets too big, it turns predatory and further growth in finance reduces that country's economic growth. (For more such graphs, see here .)

This graphic, from finance Prof. Gerald Epstein conceptualises the difference another way.

Point D is where an economy would be if there wasn't a financial sector: little more than subsistence farming. Point A is the optimal point where growth would be maximised, with an optimally sized financial sector serving its useful roles. Point C is where the economy currently is. (Point B is merely an effort to separate out the effects of crisis from other effects.)

For more on this, see here .

13. There Is No Trade Off: It Is Not Democracy Versus Growth

Many people labour under a misguided belief that there is a trade off between democracy and prosperity. As in: "If we tax and regulate finance and big business too much, we'll lose jobs in the City of London and Wall Street." Better give the capitalists freedom to do what they do best.

The Finance Curse shows us that there is no trade-off. If we tax and regulate the financial sector as democracy demands to curb predatory activities, the finance curse tells us that this shrinkage of the financial sector will make us more, not less, prosperous, as those studies in Section 3 suggest. This is especially true in larger economies. It's a win-win.

This means that the Finance Curse carries an enormously hopeful, positive message.

14. The Pie

This is closely related to the "No Trade Off" point above. Many people think that if we redistribute the pie more fairly, we'll shrink the overall size of the pie, and it will discourage or frighten away investment.

The finance curse shows that this is incorrect. If we redistribute the pie more fairly by curbing wealth extraction and shrinking finance back to its useful core, we'll grow the pie. This is the ultimate win-win.

When resources are shared less fairly, the pie is smaller.
The finance curse helps show why.

This links the finance curse to debates about inequality, and to another strand of research showing that more unequal countries grow more slowly.

15. Race to the Bottom

When one country enacts a secrecy law, a tax or financial regulatory loophole, or an environmental free pass, to stay 'competitive,' others may follow suit, to "stay in the global race." A race to the bottom ensues. The result is ever lower taxes and rules and regulations on mobile billionaires and corporations, leaving the rest of us to pick up the consequences. This hurts both 'us' and 'others', overseas).

This is closely related to questions of "national competitiveness," below.

16. The Competitiveness Agenda

This is a way to talk about the Finance Curse's global dimensions, and how they hurt the country hosting oversized finance. It's perhaps the most complicated concept to convey. We're told our countries must 'compete' and be 'competitive.' We need a 'competitive' tax system and a 'competitive' financial centre. It sounds great! Motherhood and apple pie! Who wants to be 'uncompetitive.'? This is a potent ideology .

But what do these c-words mean? Countries aren't anything like companies, and the two forms of competition are utterly different beasts (to get a first sense of this, ponder the difference between a failed company , like Enron, and a failed state , like war-wracked Syria or Venezuela.)

National competitiveness can have many meanings, but the finance curse unpacks the most virulent strain: the Competitiveness Agenda , heavily associated with the now-discredited political movement known as the Third Way . In a nutshell, this agenda tells us to hand tax cuts, deregulation, tolerance for monopolies, subsidies, too-big-to-fail banks and big multinationals so they can compete on a global stage. In short, we must extract wealth from society, from ordinary people, and hand it to big banks and multinationals, so as to be "competitive." The finance curse shows that this is insane. A more 'competitive' economy in this sense will increase the role and size of finance, which the finance curse tells us will reduce growth and cause other harms.

The whole Competitiveness Agenda is an intellectual house of cards, ready to fall. Understanding the Finance Curse and how to tackle it provides great hope and vision for the future.

Note: other c-terms include "Open for business" (which means 'favouring handouts to multinationals.') "We are in a global race."

Further reading : the chapter on Charles Tiebout, here .

17. Unilateral Action Is Possible

A lot of people who want to "do something" about the race to the bottom focus on setting up international agreements to stem it.

In this context, collaboration is good, if you can get it. But this is hard: like "herding squirrels on a trampoline," especially when certain countries behave as if they have the incentive to cheat. People feel conflicted, as in 'we hate undermining poor countries, but (whisper it softly) we like the dirty money coming in." It's also hard to get large numbers of people onto the streets to support complex collaborative schemes to help foreigners. So the pushback is feeble.

The Finance Curse, however, offers a completely different approach, because it appeals to selfish national self-interest: "this hurts us." Once we understand this, then the brakes are off, and we can start really cracking down on this stuff.

And this changes everything.

Conclusion

The Finance Curse is a deep, rich and powerful tool, not just for analysing and understanding many of the most pressing complex economic issues of our time, but also for presenting these to a wide public in a simple way, and providing pointers for deep and widespread reform.

We hope this contributes to public understanding. We'll amend or add to it as time goes on, and store it permanently on our Finance Curse page .


JBird4049 , June 7, 2019 at 12:12 am

I never thought of Big Finance like a typical resource curse like gold or oil but it makes sense.

Jos Oskam , June 7, 2019 at 2:17 am

My shorthand remark:

"The financial sector does not make profits, they steal profits from others"

For years I have been ridiculed when I reacted like this to the umpteenth success story about bank ABC or financial conglomerate XYZ's profitability and thus their contributions to the economy. In this article I find my reasoning justified. Thanks for that.

Now on to the next step: getting rid of these parasites.

Hayek's Heelbiter , June 7, 2019 at 5:32 am

the increasing penetration of financial techniques, tools, and especially debt into different parts of industry, agriculture, caring professions, and many other parts of the non-financial economy,

Wonderful article, and so nice to see so much information consolidated into one source. The Finance Curse Page will be a great place to send the non-believers.

Somehow though, Shaxson omitted the sector probably the second most devastated after healthcare: education, perhaps because the more egregious manifestations have yet to reach the UK shores or to the scale that education, especially at the higher levels, has been captured by the profit mindset in the US. Or maybe it's because the UK doesn't have a billion-dollar college sports industry.

Carla , June 7, 2019 at 10:32 am

Thank you! I thought of that right away, too. U.S. colleges and universities are nothing more than, really, than a gigantic shadow pay-day loan operation (shadow banking is too dignified a term for them), extracting a huge toll from first, students and their families, but ultimately with the bill paid by the society at large.

This article by Nicholas Shaxson is a great contribution -- many thanks to Yves for posting it.

Eric , June 7, 2019 at 8:42 am

Wonderful approach! Gets at the information hiding aspects nicely. And for decades I summed this up with "kill all the mbas."

John B , June 7, 2019 at 9:10 am

A useful article, but frustrating. It does not follow the "show, don't tell" rule. It tells us 17 ways that the finance industry causes problems, but does not show us how. (For example, an infographic shows that payments to Trainline pass through many holding companies, but does not explain how that's a problem. The article does not explain the difference between wealth extraction and wealth creation, how or why finance costs more than it contributes, or at what point finance gets too big.)

In contrast, the linked Tax Justice Network article "The Finance Curse" by the same author does those things brilliantly. Thanks for leading me to that!

One point I'd add from a US perspective -- starting, I think, in the early 1980s, many of the smartest people in the country turned away from government, academia, and science, and devoted themselves to developing ways to extract money from companies, government, and individuals. This was seen not only as morally acceptable, but virtuous, thanks to Milton Friedman and the like. By now, they have developed techniques far more sophisticated than the minds of their prey can handle. A similar progression contributes to the obesity epidemic, a food providers get better at persuading us to eat more.

Off The Street , June 7, 2019 at 10:17 am

I'd look at that Trainline infographic as a good start and would like to see similar paths laid out in healthcare. Getting attention to the geography of business is one way to pique curiosity and encourage further research to find out if there is, for example, wealth creation or wealth destruction, or some of both, going on.

Thuto , June 7, 2019 at 9:15 am

Saying your country is "Open for business" confers street cred with the global investor class. I've been observing carefully as leaders in my part of the world fall over themselves to give investors assurances to this effect, from Emmerson Mnangagwa in Zimbabwe to our own Cyril Ramaphosa here in SA. With equity, bond and currency markets set up as de facto seisnometers giving near real time readings of investor sentiment, a perfect carrot and stick arrangement is set up to whip any dissenting rhetoric, which is quickly punished by downward market movements and negative press coverage, back into line. Unfettered access for investors and de facto policy and regulatory capture by and in service of said investors, iow your country being "open for business", is rewarded with markets rallying upwards. This sets up a dynamic where only the most courageous politicians would dare to colour outside the established narrative lines.

Allied with markets and a captured media acting as enforcement arms of the investor class, the jobs vs free rein to the capitalists dichotomy is ruthlessly exploited to cow any opponents of the free market agenda into submission. This is the dilemma facing many developing nations, they're advised to "compete" by opening up their markets to FDI to create jobs, but for investors the ranks of the precariously employed are seen as leverage in maintaining assymetry in power relations with the state. Given these differences in context, and what appears to my mind to be a better position (in comparison to what developing economies had/have in their attempts to cure the ills of the resource curse) from which to beat back the advances of financialization for developed economies, it remains to be seen whether the finance curse will be every bit as destructive to developed nations as the resource curse has been on many developing nations, but it's an analogy that sheds light on the pernicious effects of one sector effectively having the entire economy in a choke hold.

Norm , June 7, 2019 at 9:16 am

Not much to argue with here, except that it's neglecting the greatest and most enduring danger of a bloated financial sector which is that the bloat facilitates the total corruption of the government and therefore any possible recourse against the financial industry's predations.

Carla , June 7, 2019 at 10:50 am

The brilliance of the whole scheme is how government and private corruption work hand-in-hand the whole way.
Money equals speech: Buckley v. Valeo, decided Jan. 30, 1976. What a way to start our country's bicentennial year!

https://www.oyez.org/cases/1975/75-436

flora , June 7, 2019 at 2:06 pm

That was also true during the Gilded Age. Then, it was the Standard Oil Trust, and Gould's railroads, and JPMorgan's Northern Securities Company.

(They were called Robber Barons for a reason.)

Norb , June 7, 2019 at 9:22 am

It seems the only way of freeing oneself from financial bondage is just outright rejection. Use as little insurance, healthcare, and housing as possible. How else, baring revolution, to restore the "core" function of finance, which is to make a better life for the multitudes possible. Once the beneficial threshold has passed over into exploitation, there is no peaceful way back. The government must enforce regulations benefiting the collective good, or individuals are forced into servitude and poverty.

What to do? People need to fearlessly face the uncertainties in life. Fearlessly look at the true costs of our current system and lifestyles and choose to forgo individual security. The FIRE sector exists and continues to thrive because it sells the dream of individual prosperity at the expense of collective good. It sells the myth that if the individual is successful, society as a whole, will by default, also be successful and thrive. This is an illusion.

The collective good is a choice born out of individual sacrifice. The cynical and corrupt among us uses this fact as a lever to advance their own interests. Individual sacrifice is redirected from the common good to individual gain. In a word, parasites.

Collectivist or Individualist is the dividing line. This dividing line is best illustrated by the US tragedy of families going bankrupt due to medical expenses. The choice must be made between the hope of individual life or family(group) security and wellbeing. Out of desperation and love, most families choose bankruptcy. How much of this dynamic is free choice or just social conditioning and pressure? People forgoing treatment are most often ridiculed. Instead of focusing on the social tragedy right before our eyes, the dynamic is once again transformed into a selfish individual act.

To make any change possible, one must focus on the collective good above all else- the rest is just kicking the can down the road- until you can't.

Thuto , June 7, 2019 at 11:11 am

When families have to choose between bankruptcy and losing a loved one, then you know things have tipped over into complete anarchy. It used to be that human life had prime value and all other considerations were subordinate to that, but moral values have inverted to put profit above everything else, and human life is expendable and exists, in so far as the multitudes are concerned, only to swell the bottom lines of the various predators constantly circling us.

I wish people could find it within themselves to fearlessly face the uncertainties of life and harness that courage for the betterment of the collective as you rightly point out, but I fear for the majority the indoctrination of the neoliberal "every man for himself" is so complete that it renders that all but impossible. Most people have been desensitized to the injustices that are a common feature of modern life, and escapism abounds with all manner of distractions from drugs to reality tv shows (and everything else in between) numbing the pain of being subjected to a life of indentured servitude. As you say, there's no peaceful way back to a more sustainable, equitable model of organizing ourselves as a species. Our apex predators will fight tooth and nail to dismantle any broadbased, grassroots collectivist movements that threaten to wrestle power and wealth from where they're currently concentrated and many people, pacified by the ad nauseam bombardment with subliminal messaging pointing to the futility of resistance, do not have the stomach for the fight.

Our only hope is a critical mass of disaffected "radicals" who've inoculated themselves from being pacified by the propaganda. Akin to the "innovators" in the technology adoption lifecycle, they're the ones who are going to set the stage for the fightback against parasitic elements in our societies to "cross the chasm" and go mainstream (aided by the greed of the parasites squeezing the multitudes so hard they're woken up from their propaganda induced slumber). In this regard, the mathematics behind achieving critical mass, which is achieved somewhere between 2,5% and 3% of a whole system altering course, offers hope.

Susan the other` , June 7, 2019 at 12:42 pm

We are having so much trouble getting our concepts straight. Health is a human right, not a "cost". We are currently trying to externalize the cost of human health services. That's just like our lazy attitude about the costs of maintaining a healthy environment. Competitiveness is just another c-word. So is externalization. If we thought in terms of a cycle of energy, a cycle of human energy, we would have a much different economy. The economy breaks down when there is an interruption or imbalance in its energy cycle. When we see an opportunity to make a financial profit, but in order to do so we have to waste the environment or exhaust labor, we take it because that's being "competitive". It's such nonsense. That is one reason why being over financed ("over banked" as Wolfgang Schaeuble puts it) exponentiates the destruction of the economy. Finance has become the destroying angel.

Laura in SoCal , June 7, 2019 at 1:08 pm

A good book illustrating "financialization" is Glass House by Brian Alexander. It describes how practices today associated with private equity etc. have cannibalized the company Anchor Hocking (who makes glassware) and how that process has affected its headquarters town in the Mid-West. It was eye opening for me. I work in finance (with a small f), but have always worked directly for manufacturing companies.

rd , June 7, 2019 at 1:21 pm

My basic rule is to avoid complexity and buy specific simple single-purpose products.

1. Term life insurance for protecting my family's future income needs. As our savings build, that need declines.
2. Simple car and home insurance with umbrella policy.
3. Simple, well diversified low-expense mutual funds for retirement accounts. I generally avoid ETFs because my spouse or children would have to learn how to sell them without getting raped by HFT.
4. Simple low fee credit cards

My primary message to my wife and kids is that the finance sector wins when they can convince everyone that it is complex and not easily understood. They then become the equivalent of RC priests chanting in Latin so that they have to be the go-between on everything and they charge a hefty fee for that.

We live in a golden age of personal finance with great inexpensive products that were unimaginable 30 years ago. However, you have to sift through the smoke screen and son et lumiere show to find them. Most people get trapped along the way in some bad products that severely hamper their ability to be financially successful.

flora , June 7, 2019 at 2:03 pm

Great post. Great charts. Thanks very much.

JerryDenim , June 7, 2019 at 11:10 pm

Great piece. Fantastic analytical framework for examining the impact of finance on the greater economy and society at large. Nice to see someone attempting to encapsulate and categorize all of the specious arguments in favor of financialization, then methodically shred them in a very empirical and succinct fashion.

notabanktoadie , June 8, 2019 at 5:09 pm

Another way to look at our current finance system is as an out-moded relic of the Gold Standard when fiat was too expensive/scarce/difficult to create for everyone to use directly but largely only depository institutions, aka "the banks."

[Jun 05, 2019] America's Demise In One Simple Chart - The Path To A FIRE Economy

Jun 05, 2019 | www.zerohedge.com

America's Demise In One Simple Chart - The Path To A FIRE Economy

by Tyler Durden Wed, 06/05/2019 - 08:01 3 SHARES Twitter Facebook Reddit Email Print

Via Global Macro Monitor,

We originally posted this chart in February 2011 , which we just updated also breaking out the real estate industry from FIRE (finance, insurance, and real estate). It is still just as shocking as it was back when we first produced it.

Economy Jumps The Shark

The U.S. economy jumped the shark in 1990 when FIRE overtook the manufacturing sector in terms of its contribution to GDP.

More stunning is that real estate is now the largest industry sector of the U.S. economy in terms of value added output, now surpassing manufacturing by 0.8 percent of GDP.

An Economy Of Flippers

Who would have thought in 1947 that output of the country's manufacturing sector would decline from one-quarter of the gross domestic product to close to 11 percent and would be surpassed by the output of a bunch of real estate agents and house flippers? Nothing against real estate agents, by the way, and Flipper was my favorite television show as a kid.

Real estate is now the largest industry as a percentage of GDP.

Greater Sensitivity To Interest Rates And More Leverage

No wonder why the economy and markets are so addicted to and can't live without low-interest rates. The danger is, however, the real estate sector is a highly leveraged industry. Real estate deflation is what the Fed fears most.


Honest Sam , 1 minute ago link

The FED may fear it, but the buyers who won't cough up $400,000 for a house or common wall that costs $100,000 to build, are slavering to buy one for a reasonable price.

Stainless Steel Rat , 11 minutes ago link

REITs seem happy. Whatever.🙄

Zero Schmeero , 8 minutes ago link

REITS buy only blue chip properties with AAA rated tenants on long term leases. They are satisfied with 7-8% returns, which, while stable, are crap.

Stainless Steel Rat , 1 minute ago link

That's exactly what I've been told. Thanks for confirming it. 👍

Zero Schmeero , 14 minutes ago link

Being an expert on real estate values, I find the position that the Fed fears real estate devaluation humorous. The Fed has gone along with everything that has worked to devalue real estate, but most especially the destruction of our manufacturing base.

First the industrial, now the retail sector is getting hammered by online sales and I'd wager no one at the Fed has said a peep as to how that damages local economies.

Providing low interest loans to commercial centers will do no good if you've damaged the economy to the extent that tenants can't pay rent because there is not enough sales.

Black Dog 32 , 23 minutes ago link

The Federal Reserve banks are listed in the private section of Finance and Insurance.

I thought they were public? /sarc

Fantasy Free Economics , 23 minutes ago link

It is a basic problem that folks in general believe government is honest, when in reality, honesty at the highest levels in government is not possible. Very little meaningful change can occur if people are willing to be taken advantage of. http://quillian.net/blog/take-this-rally-very-seriously/

Gophamet , 54 minutes ago link

It all comes down to a pathetically defective system overflowing with corrupt scum who make the laws. Dysfunction and manipulation is no way to run a country. Funny how things have degraded over the past 30 years or so until you realize many of the same pandering mutts are still seated. To make matters worse they breed their disease into all new blood skilled enough to pull the wool over the voters eyes, the majority of which are either too self absorbed, blatantly stupid or outright conned to realize the implications of the slow acting rot. With the half wit decisions being made on a full time basis, maybe lawmaker positions should only be part time without the perks of power!

mervyn , 1 hour ago link

I bet half of the durables are military hardware.

I take it back, it is replenishable.

Let it Go , 1 hour ago link

India has tightened the noose on E-retailers and America should too. Understanding the value of brick and mortar stores to local communities India has placed several restrictions on E-retailers in order to level the playing field and make things fair.

By far the worst abuser of the current e-commerce system here in America is Amazon which has developed strong ties with the government. Amazon has even incorporated a complacent United States Postal Service in expanding their advantage over businesses by delivering Amazon packages at a discount and even on Sunday.

To make matters worse state and local governments have put special packages together with incentives aimed at luring Amazon to build in their areas oblivious to the damage it will cause in coming years. More about what India is doing and what we can do in the article below.

https://India Tightens Noose On E-retailers And We Should Too! html

Paralentor , 1 hour ago link

Amazon effectively put a halt on the big box store sprawl that was happening all across America from the late 1980's to the early 2010's. I'll take Amazon and a healthy competitor (Coke needs Pepsi) over a Walmart every 4.5 miles in every direction

[May 11, 2019] Has Privatization Benefitted the Public? by Jomo Kwame Sundaram

Highly recommended!
Looks like pendulum start swinging against privatization...
Notable quotes:
"... As corporate profits are the private sector's yardstick of success, privatized monopolies are likely to abuse their market power to maximize rents for themselves. Thus, privatization tends to burden the public, e.g., if charges are raised. ..."
"... In most cases, privatization has not closed the governments' fiscal deficits, and may even worsen budgetary problems. Privatization may worsen the fiscal situation due to loss of revenue from privatized SOEs, or tax evasion by the new privatized entity. ..."
"... In most cases, profitable SOEs were privatized as prospective private owners are driven to maximize profits. Fiscal deficits have often been exacerbated as new private owners use creative accounting to avoid tax, secure tax credits and subsidies, and maximize retained earnings. ..."
"... As a rule of thumb, I'd say that any privatisations that require the introduction of convoluted pseudo-market structures or vast new regulatory bureaucracies or which derive most of their ongoing income from the public sector are likely to be contrary to the long-term public interest. In the UK, unfortunately, all these ships sailed a long time ago ..."
"... Chicago is the proving grounds for thirty or so years of the Democrats' surrender to neoliberalism and austerity politics. Let us not forget, brethren and sistren, that Rahm is the Spawn of Bill + Hill as well as dear friend and advisor of Obama. So there is the work of Daley to undo and the work of the Clintonians to undo. It will take more than one term for Lightfoot. ..."
"... Privatization, at any cost, is no longer a choice. We have abused the pension system and now the public must pay for private companies to provide the most basic services. ..."
"... I keep thinking that perhaps an Act could or should be introduced here in UK (same for the States, i suppose), which should ensure that all politicians that enable any type of privatisation of public resources or PFI arrangement (yes that old chesnut), should be made personally responsible for the results therof. ..."
"... And any losses to the public accidentally or "accidentally" occasioned by such commandeering over public resources, to be treated like deliberate misappropriation by the said public officials. With the financial and custodial penalties as may be appropriate. ..."
"... lots of private services that are suspiciously similar to public utilities in terms of natural monopoly, such as cable TV, internet and even railroads. Maybe these should be nationalized and treated more like public services. It can work when they're adequately funded and oversight accountability has teeth; major airports are a good example. ..."
"... Plus the state giveaways includes tens of millions of dollars each year in corporate tax credits in the name of job creation. A report by the nonprofit " Good Jobs First " revealed that over 300 Illinois companies are keeping the state taxes paid by their employees. EDGE- the Economic Development in a Growing Economy is a corporate freebie tax credit, which is partly from the state personal income taxes paid by workers. That's right, the biggest welfare queens are the corporations collecting and keep their employees state income tax payments. ..."
"... Can it get worse? According to the Chicago Trib , "The Chicago Mercantile Exchange (CME), for example, with billions of untaxed contracts worth well over a quadrillion dollars, and whose profit margin in recent years is higher than any of the top 100 companies in the nation, had the hubris to demand an $85 million per year tax break. They got it." The money is there to secure the pensions and budget but has been diverted to the corporate welfare queens for honoring us mere serfs with their presence in the humble fiefdom of Illinois. ..."
"... Michael Hudson, to his immense credit, explains the pernicious effects of privatization of common goods repeatedly throughout his work, and demonstrates that it has been with us at least as long as the ancient practice of land alienation and rural usury. ..."
Apr 07, 2019 | www.nakedcapitalism.com

Posted on April 7, 2019 by Jerri-Lynn Scofield Jerri-Lynn here. Another succinct post by Jomo Kwame Sundaram that makes clear the "benefits" of privatization are not evenly distributed, and in fact, typically, "many are even worse off" when the government chooses to transfer ownership of the family silver.

Note that SOE is the acronym for state owned enterprise.

For those interested in the topic, see also another short post by the same author from last September, debunking other arguments to promote the privatization fairy, Revisiting Privatization's Claims .

By Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development. Originally published at Inter Press Service

In most cases of privatization, some outcomes benefit some, which serves to legitimize the change. Nevertheless, overall net welfare improvements are the exception, not the rule.

Never is everyone better off. Rather, some are better off, while others are not, and typically, many are even worse off. The partial gains are typically high, or even negated by overall costs, which may be diffuse, and less directly felt by losers.

Privatized Monopoly Powers

Since many SOEs are public monopolies, privatization has typically transformed them into private monopolies. In turn, abuse of such market monopoly power enables more rents and corporate profits.

As corporate profits are the private sector's yardstick of success, privatized monopolies are likely to abuse their market power to maximize rents for themselves. Thus, privatization tends to burden the public, e.g., if charges are raised.

In most cases, privatization has not closed the governments' fiscal deficits, and may even worsen budgetary problems. Privatization may worsen the fiscal situation due to loss of revenue from privatized SOEs, or tax evasion by the new privatized entity.

Options for cross-subsidization, e.g., to broaden coverage are reduced as the government is usually left with unprofitable activities while the potentially profitable is acquired by the private sector. Thus, governments are often forced to cut essential public services.

In most cases, profitable SOEs were privatized as prospective private owners are driven to maximize profits. Fiscal deficits have often been exacerbated as new private owners use creative accounting to avoid tax, secure tax credits and subsidies, and maximize retained earnings.

Meanwhile, governments lose vital revenue sources due to privatization if SOEs are profitable, and are often obliged to subsidize privatized monopolies to ensure the poor and underserved still have access to the privatized utilities or services.

Privatization Burdens Many

Privatization burdens the public when charges or fees are not reduced, or when the services provided are significantly reduced. Thus, privatization often burdens the public in different ways, depending on how market power is exercised or abused.

Often, instead of trying to provide a public good to all, many are excluded because it is not considered commercially viable or economic to serve them. Consequently, privatization may worsen overall enterprise performance. 'Value for money' may go down despite ostensible improvements used to justify higher user charges.

SOEs are widely presumed to be more likely to be inefficient. The most profitable and potentially profitable are typically the first and most likely to be privatized. This leaves the rest of the public sector even less profitable, and thus considered more inefficient, in turn justifying further privatizations.

Efficiency Elusive

It is often argued that privatization is needed as the government is inherently inefficient and does not know how to run enterprises well. Incredibly, the government is expected to subsidize privatized SOEs, which are presumed to be more efficient, in order to fulfil its obligations to the citizenry.

Such obligations may not involve direct payments or transfers, but rather, lucrative concessions to the privatized SOE. Thus, they may well make far more from these additional concessions than the actual cost of fulfilling government obligations.

Thus, privatization of profitable enterprises or segments not only perpetuates exclusion of the deserving, but also worsens overall public sector performance now encumbered with remaining unprofitable obligations.

One consequence is poorer public sector performance, contributing to what appears to be a self-fulfilling prophecy. To make matters worse, the public sector is then stuck with financing the unprofitable, thus seemingly supporting to the privatization prophecy.

Benefits Accrue to Relatively Few

Privatization typically enriches the politically connected few who secure lucrative rents by sacrificing the national or public interest for private profit, even when privatization may not seem to benefit them.

Privatization in many developing and transition economies has primarily enriched these few as the public interest is sacrificed to such powerful private business interests. This has, in turn, exacerbated corruption, patronage and other related problems.

For example, following Russian voucher privatization and other Western recommended reforms, for which there was a limited domestic constituency then, within three years (1992-1994), the Russian economy had collapsed by half, and adult male life expectancy fell by six years. It was the greatest such recorded catastrophe in the last six millennia of recorded human history.

Soon, a couple of dozen young Russian oligarchs had taken over the commanding heights of the Russian economy; many then monetized their gains and invested abroad, migrating to follow their new wealth. Much of this was celebrated by the Western media as economic progress.


diptherio , April 7, 2019 at 9:11 am

SOE must stand for "state owned enterprise."

caloba , April 7, 2019 at 10:45 am

As a rule of thumb, I'd say that any privatisations that require the introduction of convoluted pseudo-market structures or vast new regulatory bureaucracies or which derive most of their ongoing income from the public sector are likely to be contrary to the long-term public interest. In the UK, unfortunately, all these ships sailed a long time ago

DJG , April 7, 2019 at 11:15 am

After the recent Chicago municipal elections, I wrote up some notes on the reasons for the discontent. This article by Sundaram explains exactly how these schemes work. Further, you can apply his criteria of subsidies for the rich, skimming, and disinheriting the middle class and poor to all of the following instances in Chicago.

If I may–some for instances of how Sundaram's observations turn up in U.S. cities:

Chicago is the proving grounds for thirty or so years of the Democrats' surrender to neoliberalism and austerity politics. Let us not forget, brethren and sistren, that Rahm is the Spawn of Bill + Hill as well as dear friend and advisor of Obama. So there is the work of Daley to undo and the work of the Clintonians to undo. It will take more than one term for Lightfoot.

Consider:
–Parking meters and enforcement have been privatized, starving the city of funds and, more importantly, of its police power.
–Taxes have been privatized in TIFs, where money goes and is never heard from again.
–There have been attempts to privatize the park system in the form of the Lucas museum and the current Obama Theme Park imbroglio, involving some fifty acres of park land.
–The school system has been looted and privatized. The Democrats are big fans of charter schools (right, "Beto"), seeing them as ways to skim money off the middle class and the poor.
–Fare collection on public transit has been privatized using a system so deliberately rudimentary and so deliberately corrupt that it cannot tell you at point of service how much you have paid as fare.
–Boeing was enticed to Chicago with tax breaks. Yes, that Boeing, the one that now deliberately puts bad software in your airplane.
–Property tax assessment has been an opaque system and source of skimming for lawyers.
–Zoning: Eddie Burke, pond scum, is just the top layer of pollution.
–And as we have made our descent, all of these economic dogmata have been enforced by petty harassment of the citizenry (endless tickets) and an ever-brutal police force.

And yet: The current Republican Party also supports all of these policies, so let's not pretend that a bunch of Mitch McConnell lookalikes are headed to Chicago to reform it.

California is no better , April 7, 2019 at 5:16 pm

Providing professional services i.e. architecture, engineering, etc. for a public entity, local or federal, does not yield unreasonable profits. Typically, the public agencies have their own staff to monitor and cost control a project. The professional services provided to private developers yields far more profit- oftentimes twice the profits associated with public agency work. Most professional services companies will transition their work to the public agencies during a recession.

At any rate, especially in Illinois, privatizing the work to avoid pension liabilities is no longer a choice. Michael Madigan pension promises will require the public to maintain a public service budget with no staff to fill potholes. Essentially, these are the no work jobs made popular by the Soprano crew twenty years ago.

Discussion of the downside of the privatization of public services is merely an oscillation from discussing the weather, the Bears or any other kitchen table discussion – nothing more than pleasant small talk to pass the time.

Privatization, at any cost, is no longer a choice. We have abused the pension system and now the public must pay for private companies to provide the most basic services.

stan6565 , April 7, 2019 at 6:36 pm

The question is, what can one do to help arrest this wholesale theft of public resources and their expropriation into the hands of well connected. " Public", as in, it is the working public over the last 100 or 200 years that created (or paid for), the electricity grid, or public schools, or entire armed or police forces

I keep thinking that perhaps an Act could or should be introduced here in UK (same for the States, i suppose), which should ensure that all politicians that enable any type of privatisation of public resources or PFI arrangement (yes that old chesnut), should be made personally responsible for the results therof.

And any losses to the public accidentally or "accidentally" occasioned by such commandeering over public resources, to be treated like deliberate misappropriation by the said public officials. With the financial and custodial penalties as may be appropriate.

Anybody out there with similar thoughts or should i really try harder and give up on drugs?

Tyronius Maximus , April 8, 2019 at 4:13 pm

I vociferously disagree with the assertion that the wrecking of pension funding in the past is the reason we are forced to leave privatization schemes in place today.

In a similar vein, the are lots of private services that are suspiciously similar to public utilities in terms of natural monopoly, such as cable TV, internet and even railroads. Maybe these should be nationalized and treated more like public services. It can work when they're adequately funded and oversight accountability has teeth; major airports are a good example.

rps , April 8, 2019 at 12:08 pm

Let's not forget the privatization of the Chicago Skyway , not once but twice.

Plus the state giveaways includes tens of millions of dollars each year in corporate tax credits in the name of job creation. A report by the nonprofit " Good Jobs First " revealed that over 300 Illinois companies are keeping the state taxes paid by their employees. EDGE- the Economic Development in a Growing Economy is a corporate freebie tax credit, which is partly from the state personal income taxes paid by workers. That's right, the biggest welfare queens are the corporations collecting and keep their employees state income tax payments.

Can it get worse? According to the Chicago Trib , "The Chicago Mercantile Exchange (CME), for example, with billions of untaxed contracts worth well over a quadrillion dollars, and whose profit margin in recent years is higher than any of the top 100 companies in the nation, had the hubris to demand an $85 million per year tax break. They got it." The money is there to secure the pensions and budget but has been diverted to the corporate welfare queens for honoring us mere serfs with their presence in the humble fiefdom of Illinois.

Paging Mike Madigan- The Institute on Taxation and Economic Policy lists Illinois as one of the "Terrible Ten" most tax-regressive states, imposing a much higher rate on poor residents for sales and excise taxes, property taxes and income taxes. Al Capone would be proud of him.

eg , April 7, 2019 at 12:04 pm

Michael Hudson, to his immense credit, explains the pernicious effects of privatization of common goods repeatedly throughout his work, and demonstrates that it has been with us at least as long as the ancient practice of land alienation and rural usury.

Natural monopolies ought to be nationalised, full stop.

Grizziz , April 7, 2019 at 12:39 pm

I support public ownership of natural monopolies, however it would be helpful if these pieces contained data, case studies or footnoted entries providing some empirical evidence of the author's thesis.

Thuto , April 7, 2019 at 1:00 pm

This article comes at a time when the clarion call for privatizing Eskom, SA's electricity utility, is hitting deafening levels. To the private sector, efficiency = maximizing profits by making the "bloated" enterprise lean (aka cutting the workforce) and quite literally mean (aka cutting services to "unprofitable" segments of the market, iow, the poor and vulnerable). When profits soar because the holy grail of efficiency is achieved, the mainstream business press brings out the champagne and toasts this "success" as proof that the previously "moribund" (they always exaggerate the state of things) monopolistic monolith has been given a new lease on life by privatizing it and the template is set for rescuing other "ailing" SOEs.

The drawbacks are never laid out as cleary as they are in this article and the plight of those worst affected, whether laid-off workers or those whose services have been cut, never makes it into the headlines.

PhilB , April 7, 2019 at 2:53 pm

And then there is prison privatization where the burden of operation and maintaining the institution should clearly be on the public so as to be constant reminder of the burden, among others reasons. The motivations by private prison operators to reduce services and costs out of site of the pesky prying eyes of the public are manifold.

RepubAnon , April 7, 2019 at 7:54 pm

Privatization is a great way to avoid having user fees wasted by providing services, and instead put to better use funding the re-election campaigns of politicians supporting privatization. Plus, it provides much-needed consulting fees for former politicians as well as job-creating 7-figure salaries for the CEOs,

(/snark, if you couldn't tell)

On a side note, the Dilbert comic strip is written about private industry ,

Iapetus , April 7, 2019 at 3:39 pm

There was a rudimentary plan put forward last June that recommended some pretty substantial privatizations of U.S. government assets and services which include:

-Privatizing the US Post Office ( through an Initial Public Offering or outright sale to a private entity ).
-Sell off U.S. government owned electricity transmission lines ( U.S. government owns 14% of this nations power transmission lines through TVA, Southwestern Power Administration, Western Area Power Administration, and Bonneville Power Administration ).
-Spin-off the Federal Aviation Administrations air traffic control operations into a private nonprofit entity.
-Spin-off the Department of Transportations operations of the Saint Lawrence Seaways Locks and Channels into a private non-profit entity.
-End the federal conservatorship of Fannie Mae and Freddie Mac, then regulate a new system of private guarantors for their MBS securities.

Not sure if these are still being considered.

Tom Stone , April 7, 2019 at 3:54 pm

There's no way I could ask that question with a straight face.

Jack Parsons , April 7, 2019 at 6:35 pm

At heart, the problem with privatization is that marketing to a government-employed purchaser or "purchase influencer" is ridiculously cheap, due to their poor accountability strictures.

This is abetted by the Katamari Damacy process (self-accretionary tendency) of money and power.

https://youtu.be/-U_Tccwyh70?t=139

The Rev Kev , April 7, 2019 at 7:50 pm

In Oz the electricity grids were privatized as they would be cheaper that way – or so people were told. Instead, the cost of electricity has risen sharply over the years to the point that it is effecting elections on both the State and Federal level as the price hikes are so controversial. A problem is that those companies have to pay back the loans used to buy the public electricity grids and as well, the senior management award themselves sky-high wages because they are totally worth it. These are factors that were never present when it was publicly owned. And just to put the boot in, those very same companies have been 'gold-plating' the electricity grid for their gain-

https://www.abc.net.au/news/2017-07-18/australian-gold-plated-power-grid/8721566

Meanwhile, whatever money the governments made selling their electricity companies has been long spent on white elephants or buying themselves re-elections by giving out goodies to voters.

Procopius , April 7, 2019 at 8:54 pm

buying themselves re-elections by giving out goodies to voters.

I don't reside in the states, so I don't see much of the detail of daily life. What are these "goodies" of which you speak? In what I am able to read on the internet, people aren't being given goodies any more. At least the old-time politicians handed out jobs, and turkeys at Christmas. The current crop do hand out jobs to their kids and immediate family, but not so much to anyone else.

John Rose , April 8, 2019 at 10:05 am

The county "poorhouse" in Lebanon County, PA over the years evolved into a bare-bones but very well run nursing home with caring, long-term staff. The Republican county commissioners, however, year after year, avoided raising taxes by underfunding the retirement plan for the employees. Then, "suddenly" there was a crisis because the underfunding had become legally untenable.
The solution was to sell the operation to a for-profit operator to fund the pansion plan shortfall at the minimal level required legally. In the next contract, the new owner cut health care and other benefits. The wages had always been minimal and he was free of the old pension plan requirements.
The employees went on strike for many months, the owner brought in replacements from companies that specialize in that service, until the employees had to cave in.
I had been counting on that facility when my sister was diagnosed with Alzheimers. I have family that is able to step in so she is provided for. Many others in the county are not so fortunate. Here are some staff comments: https://www.indeed.com/cmp/Cedar-Haven-Healthcare-Center/reviews?fcountry=ALL

Stratos , April 8, 2019 at 12:36 pm

" instead of trying to provide a public good to all, many [ordinary working people] are excluded because it is not considered commercially viable or economic to serve them."

There are also social and class dimensions to the exclusion. Private Internet Service Providers (ISPs) in the USA have made the "not commercially viable or economic to serve them" argument for decades when pressed about their refusal to wire the entire country. Their "business model" leaves millions without reliable broadband service in a variety of settings, from rural areas and small towns to inner cities and low income suburbs. In many cases, citizens in those areas have no access to broadband at all.

When small towns and counties in the US have taken the initiative to wire their localities, the ISPs have bribed state legislatures to pass laws prohibiting public broadband throughout the rest of the state. Talk about subversion of democracy! Insult to injury: the ISPs who wailed about "unfair competition" to state legislators then refuse to wire areas throughout the rest of the state.

Meanwhile, less affluent countries like Korea and Romania have lightning fast fiber optic broadband universally available at affordable prices.
https://motherboard.vice.com/en_us/article/jp5aa3/why-romanias-internet-is-so-much-faster-than-americas

Lack of universal and affordable broadband has two major effects:

➤ Local governments are shut out of economic opportunities because they lack connectivity. They are unable to shepherd business startups and existing businesses that need broadband to thrive. People move away. Businesses relocate or downsize. Local economies are left with erroding tax bases and boarded up downtowns.

➤ Children and young people in "broadband deserts" cannot tap into the many sources of learning that exist on the web. In particular, they don't have the opportunity to learn anything about frontend or backend web development applications such as, html, php, Ruby on Rails, Photoshop or Indesign.

That is one reason the US tech industry lacks workers from different backgrounds. Most tech workers grew up in areas the ISPs considered "commercially viable". In addition, many tech workers are self taught to some degree, even those with computer science degrees. It is difficult to be self taught if you lack access to the most basic resources and tools.

[Apr 30, 2019] Remarks by Senator Warren on Citigroup and its bailout provision

She rips the Obama White House for its allegiance to Citibank. But she does nto understadn that the problem is not with Citibank, but with the neoliberalism as the social system. Sad...
Democrats and Republicans are just two sides of the same coin as for neoliberalism. Which presuppose protecting banks, like Citigroup, and other big corporations. The USA political system is not a Democracy, we have become an Oligarchy with a two Party twist (Poliarchy) in whihc ordinary voters are just statists who have No voice for anyone except approving one of the two preselected by big money candidates. It's time we put a stop to this nonsense or we'll all go down with ship.
Anyway, on a positive note "Each time a person stands up for an ideal to improve the lot of others, they send forth a current that can sweep down the mightiest walls of oppression and resistence." RFK
Dec 12, 2014 | www.youtube.com

http://warren.senate.gov

Senator Elizabeth Warren spoke on the floor of the Senate on Dec. 12, 2014 about the provision that Citigroup added to the omnibus budget package.


Amazing Atheist , 4 years ago (edited)

The fact that it is almost shocking to see a politician actually advocating for the interest of their constituency is rather sad, don't you think? 

Nature Boy , 4 years ago

I wonder what kind of defamation scheme the Citi conmen are cooking up in response to Senator Warren's speech. She is truly a diamond in the rough-

cabiker91 , 4 years ago

This budget deal is absolutely disgusting. More financial deregulation, the potential for a second TARP, cuts to pensions, and cuts to funding for Pell Grants to help out students. Once again, the people lose.

dan10things , 4 years ago

So tough, so strong, and so right. And I love that she's not afraid to rip into Democrats and the White House for their complicity in selling out our country and tax dollars to the big banks. We need more strong politicians on both sides of the aisle like this.

Mark A. Johnson , 4 years ago

I wish more politicians had the courage to stand up to Wall Street the way you do. Loved your speech and please keep the heat on.

TheBambinoitaliano , 4 years ago

It's not party specific, though the Republicans are the worst. Both parties are to be blame. The biggest blame goes to the Americans who do not vote and those who have no clue who or what they are voting for. The government is the way it is, it's because of the attitude of Americans towards politics. Majority do not give a shit and hence you have that pile up in Washington and states legislature.

Elizabeth Warren is like a fictional do gooder character from Hollywood. No one take her seriously.

Blame all the politicians you want, you Americans voting or not voting are the lousiest employers in the world, because you hire a bunch of corruptors into your government. These corruptors in fact control your lives.

They abuse your money, spending every penny on everything but on you. You would not hand over your wallet or bank accounts to a strangers, yet are precisely doing that by putting these corruptors in the government.

Author F.E Feeley Jr. , 4 years ago

"I agree with you: Dodd Frank isn't perfect-- it should have broken you into pieces." Give em Hell Elizabeth! 

Stikibits , 4 years ago (edited)

The USA is run by crooks. There'll be a few changes when Senator Warren is President Warren. Warren/Sanders 2016!

Nick Lento , 4 years ago (edited)

This speech encapsulates and exposes all that is wrong with America in general and with our governance in particular. Taking the heinous provision out of the bill would be a great first baby step toward cleaning up our politics, economy and collective spirit as a nation. All the "smart money" says that Warren is engaged in a Quixotic attempt to do something good in a system that is irredeemably corrupted by money and the lust for power. The cynics may be right, perhaps America is doomed to be consumed by the parasites to the last drop of blood...but maybe not. Maybe this ugly indefensibly corrupt malevolent move to put the taxpayers back on the hook for the next trillion dollar bail out theft will be sufficient to wake up hundreds of millions of us. When the people wake up and turn on the lights, the crooks and the legally corrupt will slither away back into their hole...and many may just wind up in prison, where they belong. But so long as corrupt dirty dastardly interests can keepAmerica deceived and asleep, they will continue to drain our nation's life's blood dry. Please share this video widely. If half as many folks watch this speech as watched the Miley Cyrus "Wrecking Ball" YouTube, the provision to which Warren is objecting will be taken out very quickly indeed.

Gregory Ho , 4 years ago

Socialize the costs and privatize the profits! Yeeha! - Goldman Sachs, JP Morgan, Citigroup

JIMJAMSC , 4 years ago (edited)

As George Carlin said a decade ago,who are we going to replace these politicians with? They did not fall out of the sky or come from a distant planet. They are US. You can vote all you want and replace every last one of them but nothing will change. It is human nature. Besides the road from being on the local town council, to the mayor,Gov then into the Capital is littered with test to weed out anyone who might really pose a danger to the system. The occasional odd one that does make it to power is castrated or there simply to give the illusion that elections matter. Unless you can eliminate the attraction of greed,ego and power nothing will ever change. Just a quick look back at history tells you what is happening now and what will be going on in our future. The only difference is there are more zeros.

[Apr 08, 2019] Insofar as the Fed's "independence" has meant close ties to the financial industry, it has not been good news for most people in this country.

Apr 08, 2019 | economistsview.typepad.com

anne , April 06, 2019 at 12:56 PM

http://cepr.net/blogs/beat-the-press/the-independent-fed-isn-t-quite-what-it-is-cracked-up-to-be

April 6, 2019

The "Independent" Federal Reserve Isn't Quite What It Is Cracked Up to Be
By Dean Baker

Neil Irwin had a New York Times article * warning readers of the potential harm if the Federal Reserve loses its independence. The basis for the warning is that Donald Trump seems prepared to nominate Steven Moore and Herman Cain to the Fed, two individuals with no obvious qualifications for the job, other than their loyalty to Donald Trump. While Irwin is right to warn about filling the Fed with people with no understanding of economics, it is wrong to imagine that we have in general been well-served by the Fed in recent decades or that it is necessarily independent in the way we would want.

The examples Irwin gives are telling. Irwin comments:

"The United States' role as the global reserve currency -- which results in persistently low interest rates and little fear of capital flight -- is built in significant part on the credibility the Fed has accumulated over decades.

"During the global financial crisis and its aftermath, for example, the Fed could feel comfortable pursuing efforts to stimulate the United States economy without a loss of faith in the dollar and Treasury bonds by global investors. The dollar actually rose against other currencies even as the economy was in free fall in late 2008, and the Fed deployed trillions of dollars in unconventional programs to try to stop the crisis."

First, the dollar is a global reserve currency, it is not the only global reserve currency. Central banks also use euros, British pounds, Japanese yen, and even Swiss francs as reserve currencies. This point is important because we do not seriously risk the dollar not be accepted as a reserve currency. It is possible to imagine scenarios where its predominance fades, as other currencies become more widely used. This would not be in any way catastrophic for the United States.

On the issue of the dollar rising in the wake of the financial collapse in 2008, this was actually bad news for the U.S. economy. After the plunge in demand from residential construction and consumption following the collapse of the housing bubble, net exports was one of the few sources of demand that could potentially boost the U.S. economy. The rise in the dollar severely limited growth in this component.

The other example given is when Nixon pressured then Fed Chair Arthur Burns to keep interest rates low to help his re-election in 1972. This was supposed to have worsened the subsequent inflation and then severe recessions in the 1970s and early 1980s. The economic damage of that era was mostly due to a huge jump in world oil prices at a time when the U.S. economy was heavily dependent on oil.

While Nixon's interference with the Fed may have had some negative effect, it is worth noting that the economies of other wealthy countries did not perform notably better than the U.S. through this decade. It would be wrong to imply that the problems of the 1970s were to any important extent due to Burns keeping interest rates lower than he might have otherwise at the start of the decade.

It is also worth noting that the Fed has been very close to the financial sector. The twelve regional bank presidents who sit on the open market committee that sets monetary policy are largely appointed by the banks in the region. (When she was Fed chair, Janet Yellen attempted to make the appointment process more open.) This has led to a Fed that is far more concerned about keeping down inflation (a concern of bankers) than the full employment portion of its mandate.

Arguably, Fed policy has led unemployment to be higher than necessary over much of the last four decades. This has prevented millions of workers from having jobs and lowered wages for tens of millions more. The people who were hurt most are those who are disadvantaged in the labor market, such as African Americans, Hispanics, and people with less education.

Insofar as the Fed's "independence" has meant close ties to the financial industry, it has not been good news for most people in this country.

* https://www.nytimes.com/2019/04/06/upshot/fed-moore-cain-risk-partisanship.html

[Apr 08, 2019] Has Privatization Benefitted the Public naked capitalism

Notable quotes:
"... Privatization typically enriches the politically connected few who secure lucrative rents by sacrificing the national or public interest for private profit, even when privatization may not seem to benefit them. ..."
"... For example, following Russian voucher privatization and other Western recommended reforms, for which there was a limited domestic constituency then, within three years (1992-1994), the Russian economy had collapsed by half, and adult male life expectancy fell by six years. It was the greatest such recorded catastrophe in the last six millennia of recorded human history. ..."
"... Soon, a couple of dozen young Russian oligarchs had taken over the commanding heights of the Russian economy; many then monetized their gains and invested abroad, migrating to follow their new wealth. Much of this was celebrated by the Western media as economic progress. ..."
Apr 08, 2019 | www.nakedcapitalism.com

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<img src="http://b.scorecardresearch.com/p?c1=2&c2=16807273&cv=2.0&cj=1" /> Has Privatization Benefitted the Public? Posted on April 7, 2019 by Jerri-Lynn Scofield Jerri-Lynn here. Another succinct post by Jomo Kwame Sundaram that makes clear the "benefits" of privatization are not evenly distributed, and in fact, typically, "many are even worse off" when the government chooses to transfer ownership of the family silver.

Note that SOE is the acronym for state owned enterprise.

For those interested in the topic, see also another short post by the same author from last September, debunking other arguments to promote the privatization fairy, Revisiting Privatization's Claims .

By Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development. Originally published at Inter Press Service

In most cases of privatization, some outcomes benefit some, which serves to legitimize the change. Nevertheless, overall net welfare improvements are the exception, not the rule.

Never is everyone better off. Rather, some are better off, while others are not, and typically, many are even worse off. The partial gains are typically high, or even negated by overall costs, which may be diffuse, and less directly felt by losers.

Privatized Monopoly Powers

Since many SOEs are public monopolies, privatization has typically transformed them into private monopolies. In turn, abuse of such market monopoly power enables more rents and corporate profits.

As corporate profits are the private sector's yardstick of success, privatized monopolies are likely to abuse their market power to maximize rents for themselves. Thus, privatization tends to burden the public, e.g., if charges are raised.

In most cases, privatization has not closed the governments' fiscal deficits, and may even worsen budgetary problems. Privatization may worsen the fiscal situation due to loss of revenue from privatized SOEs, or tax evasion by the new privatized entity.

Options for cross-subsidization, e.g., to broaden coverage are reduced as the government is usually left with unprofitable activities while the potentially profitable is acquired by the private sector. Thus, governments are often forced to cut essential public services.

In most cases, profitable SOEs were privatized as prospective private owners are driven to maximize profits. Fiscal deficits have often been exacerbated as new private owners use creative accounting to avoid tax, secure tax credits and subsidies, and maximize retained earnings.

Meanwhile, governments lose vital revenue sources due to privatization if SOEs are profitable, and are often obliged to subsidize privatized monopolies to ensure the poor and underserved still have access to the privatized utilities or services.

Privatization Burdens Many

Privatization burdens the public when charges or fees are not reduced, or when the services provided are significantly reduced. Thus, privatization often burdens the public in different ways, depending on how market power is exercised or abused.

Often, instead of trying to provide a public good to all, many are excluded because it is not considered commercially viable or economic to serve them. Consequently, privatization may worsen overall enterprise performance. 'Value for money' may go down despite ostensible improvements used to justify higher user charges.

SOEs are widely presumed to be more likely to be inefficient. The most profitable and potentially profitable are typically the first and most likely to be privatized. This leaves the rest of the public sector even less profitable, and thus considered more inefficient, in turn justifying further privatizations.

Efficiency Elusive

It is often argued that privatization is needed as the government is inherently inefficient and does not know how to run enterprises well. Incredibly, the government is expected to subsidize privatized SOEs, which are presumed to be more efficient, in order to fulfil its obligations to the citizenry.

Such obligations may not involve direct payments or transfers, but rather, lucrative concessions to the privatized SOE. Thus, they may well make far more from these additional concessions than the actual cost of fulfilling government obligations.

Thus, privatization of profitable enterprises or segments not only perpetuates exclusion of the deserving, but also worsens overall public sector performance now encumbered with remaining unprofitable obligations.

One consequence is poorer public sector performance, contributing to what appears to be a self-fulfilling prophecy. To make matters worse, the public sector is then stuck with financing the unprofitable, thus seemingly supporting to the privatization prophecy.

Benefits Accrue to Relatively Few

Privatization typically enriches the politically connected few who secure lucrative rents by sacrificing the national or public interest for private profit, even when privatization may not seem to benefit them.

Privatization in many developing and transition economies has primarily enriched these few as the public interest is sacrificed to such powerful private business interests. This has, in turn, exacerbated corruption, patronage and other related problems.

For example, following Russian voucher privatization and other Western recommended reforms, for which there was a limited domestic constituency then, within three years (1992-1994), the Russian economy had collapsed by half, and adult male life expectancy fell by six years. It was the greatest such recorded catastrophe in the last six millennia of recorded human history.

Soon, a couple of dozen young Russian oligarchs had taken over the commanding heights of the Russian economy; many then monetized their gains and invested abroad, migrating to follow their new wealth. Much of this was celebrated by the Western media as economic progress.

diptherio , April 7, 2019 at 9:11 am

SOE must stand for "state owned enterprise."

Jerri-Lynn Scofield Post author , April 7, 2019 at 9:30 am

Yes it does. I've now added a sentence to my introduction to make that clear. I noticed the omission when I was uploading the post, but wasn't sure whether readers would be confused.

Thanks for your comment.

caloba , April 7, 2019 at 10:45 am

As a rule of thumb, I'd say that any privatisations that require the introduction of convoluted pseudo-market structures or vast new regulatory bureaucracies or which derive most of their ongoing income from the public sector are likely to be contrary to the long-term public interest. In the UK, unfortunately, all these ships sailed a long time ago

DJG , April 7, 2019 at 11:15 am

After the recent Chicago municipal elections, I wrote up some notes on the reasons for the discontent. This article by Sundaram explains exactly how these schemes work. Further, you can apply his criteria of subsidies for the rich, skimming, and disinheriting the middle class and poor to all of the following instances in Chicago.

If I may–some for instances of how Sundaram's observations turn up in U.S. cities:

Chicago is the proving grounds for thirty or so years of the Democrats' surrender to neoliberalism and austerity politics. Let us not forget, brethren and sistren, that Rahm is the Spawn of Bill + Hill as well as dear friend and advisor of Obama. So there is the work of Daley to undo and the work of the Clintonians to undo. It will take more than one term for Lightfoot.

Consider:
–Parking meters and enforcement have been privatized, starving the city of funds and, more importantly, of its police power.
–Taxes have been privatized in TIFs, where money goes and is never heard from again.
–There have been attempts to privatize the park system in the form of the Lucas museum and the current Obama Theme Park imbroglio, involving some fifty acres of park land.
–The school system has been looted and privatized. The Democrats are big fans of charter schools (right, "Beto"), seeing them as ways to skim money off the middle class and the poor.
–Fare collection on public transit has been privatized using a system so deliberately rudimentary and so deliberately corrupt that it cannot tell you at point of service how much you have paid as fare.
–Boeing was enticed to Chicago with tax breaks. Yes, that Boeing, the one that now deliberately puts bad software in your airplane.
–Property tax assessment has been an opaque system and source of skimming for lawyers.
–Zoning: Eddie Burke, pond scum, is just the top layer of pollution.
–And as we have made our descent, all of these economic dogmata have been enforced by petty harassment of the citizenry (endless tickets) and an ever-brutal police force.

And yet: The current Republican Party also supports all of these policies, so let's not pretend that a bunch of Mitch McConnell lookalikes are headed to Chicago to reform it.

California is no better , April 7, 2019 at 5:16 pm

Providing professional services i.e. architecture, engineering, etc. for a public entity, local or federal, does not yield unreasonable profits. Typically, the public agencies have their own staff to monitor and cost control a project. The professional services provided to private developers yields far more profit- oftentimes twice the profits associated with public agency work. Most professional services companies will transition their work to the public agencies during a recession.

At any rate, especially in Illinois, privatizing the work to avoid pension liabilities is no longer a choice. Michael Madigan pension promises will require the public to maintain a public service budget with no staff to fill potholes. Essentially, these are the no work jobs made popular by the Soprano crew twenty years ago.

Discussion of the downside of the privatization of public services is merely an oscillation from discussing the weather, the Bears or any other kitchen table discussion – nothing more than pleasant small talk to pass the time.

Privatization, at any cost, is no longer a choice. We have abused the pension system and now the public must pay for private companies to provide the most basic services.

stan6565 , April 7, 2019 at 6:36 pm

The question is, what can one do to help arrest this wholesale theft of public resources and their expropriation into the hands of well connected. " Public", as in, it is the working public over the last 100 or 200 years that created (or paid for), the electricity grid, or public schools, or entire armed or police forces

I keep thinking that perhaps an Act could or should be introduced here in UK (same for the States, i suppose), which should ensure that all politicians that enable any type of privatisation of public resources or PFI arrangement (yes that old chesnut), should be made personally responsible for the results therof.

And any losses to the public accidentally or "accidentally" occasioned by such commandeering over public resources, to be treated like deliberate misappropriation by the said public officials.

With the financial and custodial penalties as may be appropriate.

Anybody out there with similar thoughts or should i really try harder and give up on drugs?

eg , April 7, 2019 at 12:04 pm

Michael Hudson, to his immense credit, explains the pernicious effects of privatization of common goods repeatedly throughout his work, and demonstrates that it has been with us at least as long as the ancient practice of land alienation and rural usury.

Natural monopolies ought to be nationalised, full stop.

Grizziz , April 7, 2019 at 12:39 pm

I support public ownership of natural monopolies, however it would be helpful if these pieces contained data, case studies or footnoted entries providing some empirical evidence of the author's thesis.

Thuto , April 7, 2019 at 1:00 pm

This article comes at a time when the clarion call for privatizing Eskom, SA's electricity utility, is hitting deafening levels. To the private sector, efficiency = maximizing profits by making the "bloated" enterprise lean (aka cutting the workforce) and quite literally mean (aka cutting services to "unprofitable" segments of the market, iow, the poor and vulnerable). When profits soar because the holy grail of efficiency is achieved, the mainstream business press brings out the champagne and toasts this "success" as proof that the previously "moribund" (they always exaggerate the state of things) monopolistic monolith has been given a new lease on life by privatizing it and the template is set for rescuing other "ailing" SOEs.

The drawbacks are never laid out as cleary as they are in this article and the plight of those worst affected, whether laid-off workers or those whose services have been cut, never makes it into the headlines.

PhilB , April 7, 2019 at 2:53 pm

And then there is prison privatization where the burden of operation and maintaining the institution should clearly be on the public so as to be constant reminder of the burden, among others reasons. The motivations by private prison operators to reduce services and costs out of site of the pesky prying eyes of the public are manifold.

RepubAnon , April 7, 2019 at 7:54 pm

Privatization is a great way to avoid having user fees wasted by providing services, and instead put to better use funding the re-election campaigns of politicians supporting privatization. Plus, it provides much-needed consulting fees for former politicians as well as job-creating 7-figure salaries for the CEOs,

(/snark, if you couldn't tell)

On a side note, the Dilbert comic strip is written about private industry ,

Iapetus , April 7, 2019 at 3:39 pm

There was a rudimentary plan put forward last June that recommended some pretty substantial privatizations of U.S. government assets and services which include:

-Privatizing the US Post Office ( through an Initial Public Offering or outright sale to a private entity ).
-Sell off U.S. government owned electricity transmission lines ( U.S. government owns 14% of this nations power transmission lines through TVA, Southwestern Power Administration, Western Area Power Administration, and Bonneville Power Administration ).
-Spin-off the Federal Aviation Administrations air traffic control operations into a private nonprofit entity.
-Spin-off the Department of Transportations operations of the Saint Lawrence Seaways Locks and Channels into a private non-profit entity.
-End the federal conservatorship of Fannie Mae and Freddie Mac, then regulate a new system of private guarantors for their MBS securities.

Not sure if these are still being considered.

Tom Stone , April 7, 2019 at 3:54 pm

There's no way I could ask that question with a straight face.

Jack Parsons , April 7, 2019 at 6:35 pm

At heart, the problem with privatization is that marketing to a government-employed purchaser or "purchase influencer" is ridiculously cheap, due to their poor accountability strictures.

This is abetted by the Katamari Damacy process (self-accretionary tendency) of money and power.

https://youtu.be/-U_Tccwyh70?t=139

The Rev Kev , April 7, 2019 at 7:50 pm

In Oz the electricity grids were privatized as they would be cheaper that way – or so people were told. Instead, the cost of electricity has risen sharply over the years to the point that it is effecting elections on both the State and Federal level as the price hikes are so controversial. A problem is that those companies have to pay back the loans used to buy the public electricity grids and as well, the senior management award themselves sky-high wages because they are totally worth it. These are factors that were never present when it was publicly owned. And just to put the boot in, those very same companies have been 'gold-plating' the electricity grid for their gain-

https://www.abc.net.au/news/2017-07-18/australian-gold-plated-power-grid/8721566

Meanwhile, whatever money the governments made selling their electricity companies has been long spent on white elephants or buying themselves re-elections by giving out goodies to voters.

Procopius , April 7, 2019 at 8:54 pm

buying themselves re-elections by giving out goodies to voters.

I don't reside in the states, so I don't see much of the detail of daily life. What are these "goodies" of which you speak? In what I am able to read on the internet, people aren't being given goodies any more. At least the old-time politicians handed out jobs, and turkeys at Christmas. The current crop do hand out jobs to their kids and immediate family, but not so much to anyone else.

[Apr 05, 2019] Pelosi Accused of Deploying 'Most Dishonest Argument' Against Medicare for All by Jake Johnson

Pelosi: Sock Puppet For the Insurance Industry
Apr 05, 2019 | www.commondreams.org
described as "probably the most dishonest argument in the entire Medicare for All debate."

"People who love their employer-based insurance do not get to hold on to it in our current system. Instead, they lose that insurance constantly, all the time. It is a complete nightmare."
-- Matt Bruenig, People's Policy Project

In an interview with the Washington Post , the Democratic leader said she is "agnostic" on Medicare for All and claimed, "A lot of people love having their employer-based insurance and the Affordable Care Act gave them better benefits."

Matt Bruenig, founder of the left-wing think tank People's Policy Project, argued in a blog post that Pelosi's statement "implies that, under our current health insurance system, people who like their employer-based insurance can hold on to it."

"This then is contrasted with a Medicare for All transition where people will lose their employer-based insurance as part of being shifted over to an excellent government plan," Bruenig wrote. "But the truth is that people who love their employer-based insurance do not get to hold on to it in our current system. Instead, they lose that insurance constantly, all the time, over and over again. It is a complete nightmare."

To illustrate his point, Bruenig highlighted a University of Michigan study showing that among Michiganders "who had employer-sponsored insurance in 2014, only 72 percent were continuously enrolled in that insurance for the next 12 months.

"This means that 28 percent of people on an employer plan were not on that same plan one year later," Bruenig noted.

me title=

"Critics of Medicare for All are right to point out that losing your insurance sucks," Bruenig concluded. "But the only way to stop that from happening to people is to create a seamless system where people do not constantly churn on and off of insurance. Medicare for All offers that. Our current system offers the exact opposite. If you like losing your insurance all the time, then our current healthcare system is the right one for you."

All On Medicare -- a pro-Medicare for All Twitter account -- slammed Pelosi's remarks, accusing the Democratic leader of parroting insurance industry talking points:

The Speaker's alternative to the Medicare for All legislation co-sponsored by over 100 members of her caucus is a bill to strengthen the Affordable Care Act (ACA), which she introduced last week .

"We all share the value of healthcare for all Americans -- quality, affordable healthcare for all Americans," Pelosi told the Post . "What is the path to that? I think it's the Affordable Care Act, and if that leads to Medicare for All, that may be the path."

The nation's largest nurses union was among those who expressed disagreement with the Speaker's incrementalist approach.

In a statement last week, National Nurses United president Zenei Cortez, RN, said Pelosi's plan would "only put a Band-Aid on a broken healthcare system."

"National Nurses United, along with our allies, will continue to build the grassroots movement for genuine healthcare justice and push to pass Medicare for All," Cortez concluded.

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License

[Apr 04, 2019] How much of the present-day US economy is even real i.e., results in the production of actual goods that people might want, as opposed to dodgy financial/insurance transactions which may add a lot of dollar value to GDP, but don't create anything real that enhances the quality of life for the masses?

Apr 04, 2019 | www.unz.com

Digital Samizdat , says: April 4, 2019 at 5:33 pm GMT

@Andrei Martyanov All true. And one more point: compared with China, how much of the present-day US economy is even real – i.e., results in the production of actual goods that people might want, as opposed to dodgy financial/insurance transactions which may add a lot of dollar value to GDP, but don't create anything real that enhances the quality of life for the masses?

Economist used to have a joke: every time you break your leg, you increase GDP. First, you gotta pay the hospital (transaction), then you gotta pay your doctor (another transaction), then you gotta pay for your case (yet another transaction). All those transactions make it look like 'wealth' is being created, because they are–numerically, at least–increasing per capita GDP. But still: wouldn't you and the country actually be better off if you hadn't broken your leg in the first place?

[Apr 04, 2019] Finance Capitalism came out of London and hopped to America, especially post WW2.

Apr 04, 2019 | www.unz.com

MEFOBILLS , says: April 4, 2019 at 3:57 pm GMT

China, emerged as an "honest broker" among countries in the Middle East, and used the free market system to improve relations with its trading partners and grow its economy. The IC appears to find fault with Russia because it is using the system the US created to better advantage than the US.

Industrial Capitalism is the system China and Russia are running on. America briefly had this system from 1868 to 1912; it was called the American System of Economy (Henry Clay/Peshine Smith).

This type of economy uses state credit (from Treasury not banks) and injects it into industry. Industry then grows, and people's welfare is increased through improved productivity.

Finance Capitalism came out of London and hopped to America, especially post WW2. At the same time Atlantacism and Rim theory hopped. America still runs under this BIZWOG (Britain Israel World Government) matrix. This matrix depends on finance capitalism.

Finance Capitalism is the placing of EXISTING ASSETS onto a private bank ledger, to then hypothecate said assets into new bank credit. For example, a ships bill of lading may be used to create new bank credit, or existing homes are put on double entry ledger to make housing bubbles.

The closer analogs to China and Russian economy are American System of Economy, not the current American BIZWOG finance capital. The historical analogs would also be Canada 1938-1974, when Canada had a sovereign economy. Canada post 1974 was converted to finance capitalism and now are debt laden and suffering like the rest of the west.

Kaiser's Germany used industrial capitalism then Japan's Manchurian Railroad Engineers copied it for Japan. Mussolini in Italy copied parts of it, and NSDAP in Germany resurrected Frederick List and the Kaiser's methods.

Finance Capital out of wall street funded the Bolsheviks in what amounted to a looting operation of Russia. It is any wonder that finance capitalism found succor with communism since they are both pyramid schemes?

Rim Theory, Atlantacism, Finance Capitalism, and Brzezinsky's chessboard are part of the same thing, an excuse matrix for gobbling up the world into one double entry private bank ledger, to then benefit a special (((usury))) finance class of plutocrats.

The "markets" that China and Russia operate on are those of industrial capitalism, using state credit. China has four large state banks, and they often cancel debt instruments (housed in the state bank) to then effectively put debt free money into their economy. Russia injects gold into their Central Bank Reserves, to then emit Rubles. Both China and Russia inject into industry, their farm sectors, and other sectors to get a desired output to help their people, not put them into debt servitude.

The BIZWOG matrix will collapse, it is anti-logos and hence against the natural order. It is on the wrong side of history.

[Mar 23, 2019] Note on palace-coup attempts of Rod Rosenstein and Andrew McCabe

Mar 23, 2019 | news.yahoo.com

W e are still trying to fathom the apparent but transient palace-coup attempts of Rod Rosenstein and Andrew McCabe. No one has gotten to the bottom of the serial lying by McCabe and James Comey, much less their systematic and illegal leaking to pet reporters.

We do not know all the ways in which James Clapper and John Brennan seeded the dossier and its related gossip among the press and liberal politicians -- only that both were prior admitted fabricators who respectively while under oath misled congressional representatives on a host of issues.

The central role of Hillary Clinton in funding the anti-Trump, Russian-"collusion," Fusion/GPS/Christopher Steele dossier is still not fully disclosed. Did the deluded FISA court know it was being used by Obama-administration DOJ and FBI officials, who withheld from it evidence to ensure permission to spy on American citizens? Could any justice knowingly be so naïve?

Do we remember at all that Devin Nunes came to national prominence when he uncovered information that members of the Obama administration's national-security team, along with others, had systematically unmasked surveilled Americans, whose names then were leaked illegally to the press?

One day historians will have the full story of how Robert Mueller stocked his legal team inordinately with partisans. He certainly did not promptly disclose the chronology of, or the interconnected reasons for, the firings of Lisa Page and Peter Strozk. And his team has largely used process-crime allegations to leverage mostly minor figures to divulge some sort of incriminating evidence about the president -- none of it pertaining to the original mandated rationale of collusion.

These are the central issues and key players of this entire sordid attempt to remove a sitting president.

But we should remember there were dozens of other minor players who did their own parts in acting unethically, and in some cases illegally, to destroy a presidency. We have mostly forgotten them. But they reflect what can happen when Washington becomes unhinged, the media go berserk, and a reign of terror ensues in which any means necessary is redefined as what James Comey recently monetized as a "Higher Loyalty" to destroy an elected president.

Here are just a few of the foot soldiers we have forgotten.

Anonymous

On September 5, 2018 (a date seemingly picked roughly to coincide with the publication of Bob Woodward's sensational tell-all book about the inside of the Trump White House), the New York Times printed a credo from a supposed anonymous Republican official deep within the Trump administration. In a supposed fit of ethical conviction, he (or she) warned the nation of the dangers it faced under his boss, President Trump, and admitted to a systematic effort to subvert his presidency:

The dilemma -- which he does not fully grasp -- is that many of the senior officials in his own administration are working diligently from within to frustrate parts of his agenda and his worst inclinations. I would know. I am one of them.

Anonymous elaborated:

Given the instability many witnessed, there were early whispers within the cabinet of invoking the 25th Amendment, which would start a complex process for removing the president. But no one wanted to precipitate a constitutional crisis. So we will do what we can to steer the administration in the right direction until -- one way or another -- it's over.

We do not know whether Anonymous was describing the coup attempt as described by Andrew McCabe that apparently entailed Rod Rosenstein at the Justice Department informally polling cabinet officials, or marked a wider effort among Never Trump Republicans and deep-state functionaries to ensure that Trump failed -- whether marked by earlier efforts to leak confidential calls with foreign officials or to serve up unsubstantiated rumors to muckrakers or simply slow-walk or ignore presidential directives.

In any case, Anonymous's efforts largely explain why almost daily we hear yet another mostly unsubstantiated account that a paranoid, deranged, and dangerous Trump is holed up in his bedroom with his Big Macs as he plans unconstitutional measures to wreck the United States -- and then, by accident, achieves near-record-low peacetime unemployment, near-record-low minority unemployment, annualized 3 percent GDP growth, record natural-gas and oil production, record deregulation, comprehensive tax reform and reduction, and foreign-policy breakthroughs from the destruction of ISIS to cancellation of the flawed Iran deal.

James Baker

In the course of congressional testimony, it was learned that the FBI general counsel, James Baker, for a time had been under investigation for leaking classified information to the press. Among the leaks were rumored scraps from the Steele dossier passed to Mother Jones reporter David Corn (who has denied any such connection) that may have fueled his sensational pre-election accusation of Trump–Russian collusion.

Nonetheless, about a week before the 2016 election, Corn of Mother Jones was writing lurid exposés, such as the following, to spread gossip likely inspired from the Christopher Steele dossier (italics inserted):

Does this mean the FBI is investigating whether Russian intelligence has attempted to develop a secret relationship with Trump or cultivate him as an asset? Was the former intelligence officer and his material deemed credible or not?

An FBI spokeswoman says, "Normally, we don't talk about whether we are investigating anything." But a senior US government official not involved in this case but familiar with the former spy tells Mother Jones that he has been a credible source with a proven record of providing reliable, sensitive, and important information to the US government. In June, the former Western intelligence officer -- who spent almost two decades on Russian intelligence matters and who now works with a US firm that gathers information on Russia for corporate clients -- was assigned the task of researching Trump's dealings in Russia and elsewhere, according to the former spy and his associates in this American firm.

What does "assigned" mean, and by whom? That Fusion/GPS (which, in fact, is a generic opposition-research firm with no particular expertise in Russia) hired with disguised Clinton campaign funds a has-been foreign-national spy to buy dirt from Russian sources to subvert a presidential campaign?

Those leaks of Christopher Steele's dirt also did their small part in planting doubt in voters' minds right that electing Trump was tantamount to implanting a Russian asset in the White House. Baker has been the alleged center of a number of reported leaks, even though the FBI's general counsel should have been the last person to disclose any government communication to the press during a heated presidential campaign. And there is still no accurate information concerning what role, if any, Baker played in Andrew McCabe's efforts to discuss removing the president following the Comey firing.

Evelyn Farkas

On March 1, 2017, just weeks after Trump took office, the New York Times revealed that. in a last-minute order, outgoing president Obama had vastly expanded the number of government officials with access to top-secret intelligence data. The Obama administration apparently sought to ensure a narrative spread that Trump may have colluded with the Russians. The day following the disclosure, a former Pentagon official, Evelyn Farkas (who might have been a source for the strange disclosure of a day earlier), explained Obama's desperate eleventh-hour effort in an MSNBC interview:

I was urging my former colleagues, and, and frankly speaking the people on the Hill . . . it was more actually aimed at telling the Hill people, get as much information as you can, get as much intelligence as you can before President Obama leaves the administration.

Because I had a fear that somehow that information would disappear with the senior people who left so it would be hidden away in the bureaucracy, um, that the [stutters] Trump folks -- if they found out how we knew what we knew about their [the] Trump staff, dealing with Russians -- that they would try to compromise those sources and methods, meaning we no longer have access to that intelligence.

So I became very worried because not enough was coming out into the open and I knew that there was more. We have very good intelligence on Russia, so then I had talked to some of my former colleagues and I knew that they were also trying to help get information to the Hill.

Despite media efforts to spin Farkas's disclosure, she was essentially contextualizing how outgoing Obama officials were worried that the incoming administration would discover their own past efforts ("sources and methods") to monitor and surveil Trump-campaign officials, and would seek an accounting. Her worry was not just that the dossier-inspired dirt would not spread after Trump took office, but that the Obama administration's methods used to thwart Trump might be disclosed (e.g., " if they found out how we knew what we knew about their [the] Trump staff, dealing with Russians -- that they would try to compromise those sources and methods, meaning we no longer have access to that intelligence" ).

So Farkas et al. desperately sought to change the law so that their rumors and narratives would be so deeply seeded within the administrative state that the collusion narrative would inevitably lead to Congress and the press, and thereby overshadow any shock at the improper or illegal methods the Obama-administration officials had authorized to monitor the Trump campaign.

And Farkas was correct. Even today, urination in a Russian hotel room has overshadowed perjury traps, warping the FISA courts, illegal leaking, inserting a spy into the Trump campaign, and Russian collusion with Clinton hireling and foreign agent Christopher Steele.

Samantha Power
We now forget that for some reason, in her last year in office, but especially during and after the 2016 election, Power, the outgoing U.S. ambassador to the United Nations, reportedly asked to unmask the names of over 260 Americans picked up in government surveillance. She offered no real explanations of such requests.

Even stranger than a U.N. ambassador suddenly playing the role of a counterintelligence officer, Power continued her requests literally until the moments before Trump took office in January 2017. And, strangest of all, after Power testified before the House Oversight and Government Reform Committee, Representative Trey Gowdy reported that "her testimony is 'they [the unmasking requests] may be under my name, but I did not make those requests.'"

Who, in the world, then, did make those requests and why and, if true, did she know she was so being used?

And were some of those unmasking requests leaked, thus helping to fuel media rumors in late 2016 and early 2017 that Trump officials were veritable traitors in league with Russia? And why were John Brennan, James Clapper, Susan Rice, and Sally Yates reportedly in the last days (or, in some cases, the last hours) requesting that the names of Americans swept up in surveillance of others be unmasked? What was the point of it all?

In sum, did a U.N. ambassador let her name be used by aides or associates to spread rumors throughout the administrative state, and thereby brand them with classified government authenticity, and then all but ensure they were leaked to the press?

We the public most certainly wondered why the moment Trump was elected, the very name Carter Page became synonymous with collusion, and soon Michael Flynn went from a respected high-ranking military official to a near traitor, as both were announced as emblematic of their erstwhile complicit boss.

Ali Watkins and James Wolf

Watkins was the young reporter for Buzzfeed (which initially leaked the largely fake Steele dossier and erroneously reported that Michael Cohen would implicate Trump in suborning perjury) who conducted an affair with James Wolf, a staffer, 30 years her senior, on the Senate Intelligence Committee.

Wolf, remember, systematically and illegally began leaking information to her that found its way into sensationalized stories about collusion. But as Margot Cleveland of the Federalist pointed out, Watkins was also identified by Buzzfeed "in court filings as one of the individuals who 'conducted newsgathering in connection with the Dossier before Buzzfeed published the Article' on the dossier. This fact raises the question of whether Watkins received information from Wolfe concerning the dossier and, if so, what he leaked."

In other words, the dossier was probably planted among U.S. senators and deliberately leaked through a senior Senate aide, who made sure that the unverified dirt was published by the press to damage Donald Trump.

And it did all that and more.

The list of these bit players could be easily expanded. These satellites were not coordinated in some tight-knit vast conspiracy, but rather took their cue from their superiors and the media to freelance with assumed impunity, as their part in either preventing or ending a Trump presidency. And no doubt the Left would argue that the sheer number of federal bureaucrats and political appointees, in a variety of cabinets and agencies, throughout the legislative and the executive branches, all proves that Trump is culpable of something.

Perhaps. But the most likely explanation is that a progressive administrative state, a liberal media, and an increasingly radicalized liberal order were terrified by the thought of an outsider Trump presidency. Therefore, they did what they could, often both unethically and illegally, to stop his election, and then to subvert his presidency.

In their arrogance, they assumed that their noble professions of higher loyalties and duties gave them exemption to do what they deemed necessary and patriotic. And others like them will continue to do so, thereby setting the precedent that unelected federal officials can break the law or violate any ethical protocols they please -- if they disagree with the ideology of the commander in chief. We ridicule Trump for going ballistic at each one of these periodically leaked and planted new stories that raised some new charge about his stupidity, insanity, incompetence, etc. But no one has before witnessed any president subjected to such a comprehensive effort of the media, the deep state, political opponents, and his own party establishment to destroy him.

Subversion is the new political opposition. The nation -- and the Left especially -- will come to regret the legacy of the foot soldiers of the Resistance in the decades to come.

[Mar 21, 2019] Pentagon to probe if Shanahan used office to help Boeing

Mar 21, 2019 | finance.yahoo.com

The Pentagon's inspector general has formally opened an investigation into a watchdog group's allegations that acting Defense Secretary Patrick Shanahan has used his office to promote his former employer, Boeing Co.

Citizens for Responsibility and Ethics in Washington filed an ethics complaint with the Pentagon's inspector general a week ago, alleging that Shanahan has appeared to make statements promoting Boeing and disparaging competitors, such as Lockheed Martin.

Shanahan, who was traveling with President Donald Trump to Ohio on Wednesday, spent more than 30 years at Boeing, leading programs for commercial planes and missile defense systems. He has been serving as acting Pentagon chief since the beginning of the year, after James Mattis stepped down.

The probe comes as Boeing struggles to deal with a public firestorm over two deadly crashes of the Boeing 737 Max 8 jetliner within the last five months. And it focuses attention on whether Trump will nominate Shanahan as his formal pick for defense chief, rather than letting him languish as an acting leader of a major federal agency.

Dwrena Allen, spokeswoman for the inspector general, said Shanahan has been informed of the investigation. And, in a statement, Pentagon spokesman Tom Crosson said Shanahan welcomes the review.

"Acting Secretary Shanahan has at all times remained committed to upholding his ethics agreement filed with the DoD," said Crosson. "This agreement ensures any matters pertaining to Boeing are handled by appropriate officials within the Pentagon to eliminate any perceived or actual conflict of interest issue(s) with Boeing."

During a Senate hearing last week, Shanahan was asked by U.S. Sen. Richard Blumenthal, D-Conn., about the 737 Max issue. Shanahan said he had not spoken to anyone in the administration about it and had not been briefed on it. Asked whether he favored an investigation into the matter, Shanahan said it was for regulators to investigate.

On Wednesday, Blumenthal said that scrutiny of Shanahan's Boeing ties is necessary. "In fact, it's overdue. Boeing is a behemoth 800-pound gorilla -- raising possible questions of undue influence at DOD, FAA and elsewhere," said Blumenthal.

Shanahan signed an ethics agreement in June 2017, when he was being nominated for the job of deputy defense secretary, a job he held during Mattis' tenure. It outlined the steps he would take to avoid "any actual or apparent conflict of interest," and said he would not participate in any matter involving Boeing.

The CREW ethics complaint, based to a large part on published reports, including one by Politico in January, said Shanahan has made comments praising Boeing in meetings about government contracts, raising concerns about "whether Shanahan, intentionally or not, is putting his finger on the scale when it comes to Pentagon priorities."

One example raised by the complaint is the Pentagon's decision to request funding for Boeing 15EX fighter jets in the 2020 proposed budget. The Pentagon is requesting about $1 billion to buy eight of the aircraft.

Shanahan, 56, joined Boeing in 1986, rose through its ranks and is credited with rescuing a troubled Dreamliner 787 program. He also led the company's missile defense and military helicopter programs.

Trump has seemed attracted to Shanahan partially for his work on one of the president's pet projects -- creating a Space Force. He also has publicly lauded Shanahan's former employer, Boeing, builder of many of the military's most prominent aircraft, including the Apache and Chinook helicopters, the C-17 cargo plane and the B-52 bomber, as well as the iconic presidential aircraft, Air Force One.

This is only the third time in history that the Pentagon has been led by an acting chief, and Shanahan has served in that capacity for longer than any of the others.

Presidents typically take pains to ensure the Pentagon is being run by a Senate-confirmed official, given the grave responsibilities that include sending young Americans into battle, ensuring the military is ready for extreme emergencies like nuclear war and managing overseas alliances that are central to U.S. security.


3 hours ago Why did Trump appoint a former Boeing executive and industry lobbyist to the the Secretary of Defense to replace General Mattis? What in Shananhan's background makes him qualified to lead our nation's military forces? 3 hours ago WITHOUT A DOUBT HE DID., ALSO INVESTIGATE NIKKI HALEY'S APPOINTED ON BOEING'S BOARD TO REPLACE SHANAHAN. FOLLOW THE HOEING KICKBACKS(MONEY), TO DONALD TRUMP'S FAMILY. 3 hours ago Shanahan probably helped Boeing on the promise of a later payback just like Ms. Nikki Haley did while Gov of SC where Boeing built a new plant on her watch. She helped big time to keep the Unions out of the new Boeing plant and now Boeing is going to put her on their board of directors. Nothing like a bit of an obvious payoff. 2 hours ago Reminds me of the Bush Jr days in the White House. During the Gulf War (#2) Vice President #$%$ Cheney awarded oil company Halliburton (Cheney was CEO before accepting the VP job) to deliver meals for the troops. The contract was ?No Bid.? Why was an oil company delivering food to troops with a no bid contract? After Cheney?s Job was over being VP he went back to being CEO at Halliburton and moved Halliburton?s headquarters to Dubai. What an American! 2 hours ago Now we understand why Boeing & the FAA hesitated to ground those planes for few days despite many countries who did grounded those plane which is a precedent for a country to ground & NOT wait for the manufacturer. ONLY after Canada grounded those planes Boeing & the FAA & that's because Canada IS a the #1 flight partner of the US ! 4 hours ago Years ago there was a Boeing procurement scandal and Trump does love the swamp he claims to hate.

[Mar 19, 2019] Shotgun Marriage Deutsche Bank and Commerzbank Discuss Merger naked capitalism

Mar 19, 2019 | www.nakedcapitalism.com

Normally, when banks look into merging, the impetus is either opportunism, whether well informed or not, or desperation. The only thing that differentiates the possible combination of Deutsche Bank, long the sickest man of Europe, and not all that healthy Commerzbank is that the desperation isn't driven by the usual urgency, that a bank is about to keel over, unless, as some wags speculate, Deutsche's first quarter numbers are coming in so bad that the bank needs to have some of credible plan to Do Something before it announces the results. One commentor at the Financial Times reported that "DBK was and is having trouble with wholesale funding spreads widening very strongly." That suggests that the German giant, after so many years of limping along, may be too close to a tipping point for the officialdom to sit pat.

Bloomberg also highlighted high borrowing costs due to credit risk:

For Deutsche Bank, the urgency to address the situation is exacerbated by high funding costs and the risk of a credit rating cut. Chairman Paul Achleitner is said to see an expansion of Deutsche Bank's retail deposit base -- which Commerzbank would bring -- as one way to lower funding costs.

Germany is a particularly difficult banking market . Readers may recall how Michael Hudson, in his classic article From Marx to Goldman Sachs, pointed out how it had been inconceivable to Marx that finance-oriented capitalists would win out because their way of operating was harmful to manufacturing. Germany embraced an industry-oriented approach to capitalism, while Britain sought to be the world's banker. Hudson argues that an unfortunate and not widely recognized outcome of Germany's defeat in World War I was it helped advance finance-oriented capitalism into a dominant position.

While I can't prove it (and I hope those who know the German banking market better will pipe up), some of the difficulties Deutsche and Commerzbank are suffering appears to be the results of Germany being ambivalent about bank profits, as in on some level (and perhaps explicitly in some circles) seeing them as a drag on commerce if they rise above a very modest level. The reason I suspect this is that when I worked with the Japanese, who are also strongly mercantilist, manufacturing-oriented, banking profits were seen as a bad thing. Japanese banks had fabulously low returns on assets by global standards and were extremely lean. Sumitomo Bank, which was a bad boy by seeking to be Japan's most profitable bank, was pretty close to Citibank in total assets, had half as many foreign branches and about 2/3 as many domestic branches. In the mid-1980s, Citi had over 100,000 employees. Sumitomo Bank had 16,000 and was planning to reduce the number to 14,500.

Germany's Landesbanken have government backing and their Sparkasse purportedly are not profit oriented. The fact that most advanced economies feel the need to at least one bank as a serious international player is undermined by the big banks having even more difficult-than-in-other-countries competition for retail deposits.

But Germany feels it can't not have a national champion. From Bloomberg :

By bowing to officials' desire to forge a durable German lender with global reach out of two troubled firms, Deutsche Bank's leaders are hardly putting their woes behind them: massive job cuts, political turbulence, a weakening European economy, U.S. probes into its dealings with Donald Trump and a herculean integration – not to mention skeptical clients and investors -- lie ahead if they reach a deal.

That does not excuse Deutsche Bank having long been spectacularly mismanaged. It's been operating under what amounts to regulatory forbearance since the crisis, with capital levels way way below any other big international bank. But Deutsche is the classic "too big to fail" bank. Whether it is too big to bail is debatable, but the EU's new Banking Recovery and Resolution Directive, which banking experts almost to a person declared to be a horrorshow, was supposed to end bailouts and force bail ins .refusing to recognize that that's a prescription for bank runs. And even though Deutsche is very much the German government's problem, as readers no doubt have figured out, German politicians hate fiscal spending and stealth monetization of spending. So until there is a crisis to force their hands, they are allergic to providing official support to Deutsche.

No one is trying to put lipstick on this pig . It's remarkable to see how little support there is for the prosed merger. I've never seen comments in major media outlets, particularly citing the opinions of insiders. From the Financial Times :

The long-mooted idea of merging the two has been met with stiff opposition from the bank's influential unions, and scepticism by five of Deutsche Bank's top six shareholders, who fret that it may derail the lender's internal restructuring.

Among the few clear supporters of a deal are Paul Achleitner, Deutsche Bank chairman, Martin Zielke, Commerzbank chief executive and private equity fund Cerberus, one of the biggest shareholders in both lenders.

Deutsche Bank management had previously been resistant to a merger, but lacklustre performance, combined with the prospect of lower-for-longer interest rates and pressure from the German government to address the lenders' bloated costs and measly returns, triggered a rethink.

Of course, the reason for having to resort to Commerzbank is no major international bank would be saddled with a garbage barge like Deutsche. It's not just that it's hard to see why any bank that wasn't subject to German political pressures would even consider this idea; their regulators would nix it directly or kill the deal by imposing insurmountable conditions.

The nominal excuse for the deal is unpersuasive . The claim is that cost-cutting efforts at both banks have not gone deep enough, and the only way to cut further is to merge. I am admittedly generalizing from the US, but we have had far more bank consolidation than anywhere in the world. Bigger banks are not more efficient. Even if there are theoretical economies of scale in funding and in certain lines of business, they are often not realized. On top of that, there are diseconomies of scope.

For instance, it's clear that one of the hoped-for sources of cost savings is branch consolidation. But the US experience is that this is often a fail. Even when branches seem to overlap, customers don't like it when their favorite branch disappears. More customers than the banks expect leave.

The employees' union expects that up to 30,000 jobs would be axed if the merger went through. A common pattern with US bank deals is that the combined makes cuts that the separate banks could have made but didn't. One wonders here if a reason for the transaction is to bulldoze labor organizations.

The two banks expect to lose customers ..and this comment suggests they are mainly looking at business customers. Again from the Financial Times :

They estimated that while annual costs would fall by €2.3bn, a deal would trigger revenue losses of around €1.5bn because of clients moving business to rivals to maintain diverse banking relationships.

A worsening of the Deutsche Bank train wreck is guarantted . Clive gave a warning when the merger idea hotted up at the end of January:

The big banks have totally lost control of their IT estates. They have no consolidated idea what their installed assets are and what they do. I was on a conference call yesterday which managed to finally conclude -- after 9 months and I am not kidding -- definitively that an application was really still needed (it had been targeted for possible decommissioning).

We bought a US bank's UK book for a specific retail product two years ago. With a lot of luck we'll be able to do a very soft launch post migration onto our hosting (and there was the distinct advantage that we shared the same hosting platform and suppliers) in another six months. Full migration might, just might, be completed in another 18 months. The budget for the migration programme is £1.9bn. For one bloody product book. Bog standard vanilla consumer lending product lines. And we had to take an axe to a lot of the US bank product offers.

DB and CB would burn through their entire shareholders' equity before they even got half way through.

Even yours truly, who is hardly plugged into IT circles, has been hearing horror stories for at least 15 years. Richard Smith flagged this 2018 article, Inside Deutsche Bank's "dysfunctional" IT division . From the top of the piece:

So, COO Kim Hammonds is leaving Deutsche Bank. Less than a month after describing Deutsche as, "vastly complex," the, "most dysfunctional place she's ever worked," and in the middle of a, "difficult transformation," Hammonds has left, "by mutual agreement with the supervisory board." She was, "a breath of fresh air," according to the chairman. In some ways, however, Hammonds does not seem to have been fresh enough.

Hammonds' key task at Deutsche Bank was to streamline the bank's unwieldy array of operating systems. When now ex-CEO John Cryan presented his "Strategy 2020" plan in October 2015, he expressed his intention of eliminating 6,000 Deutsche Bank contractors and cutting the bank's operating systems from 45 to four. Two and a half years later, Deutsche still has 32 different operating systems, and the contractors we spoke to complained that the bank has become "toxic" to work for.

Lots of ugly detail for those of you who like that sort of thing.

And it's not as if Commerzbank is much better. Richard also cited this Handlesblatt story, Buchungspanne verärgert Commerzbank-Kunden , which he summarized as "A recent outbreak of TSB-like core banking cockupry (direct debits and standing orders failing)."

But as he concluded, "There's no set of systems so bad that you can't make them worse by doing a merger, so bring it on, say I."

If nothing else, this merger will be a full employment act of German bank consultants who can take the pain of working on such a mess. But even from this remove, it's obvious that the effort to prop up zombie-in-the-making Deutsche is running out of tricks. This will end badly. The only question is how quickly that becomes undeniable.

Jos Oskam , March 18, 2019 at 3:50 am

" seeing [bank profits] as a drag on commerce if they rise above a very modest level "

Right. I am not German but Dutch, and these two countries are geographically and spiritually close enough to share opinions on lots of things.

There exists a quite widespread sentiment here that "banks do not make profits, they steal somebody else's profits". The idea being that *real* profits are generated in a *real* economy where *real* things are done, built, manufactured and dug up. This in contrast to a "financial sector" leeching off the money streams that inevitably exist in the real economy, only to create pseudo-profits that more harm than benefit said real economy.

Personally, this view to me does not seem too far-fetched. But then, I'm not a banker.

barefoot charley , March 18, 2019 at 11:13 am

I'm not a banker either, but sometimes I want to eat one. Great comment.

Harry , March 18, 2019 at 12:03 pm

Banks dont make profits. They make rents.

vlade , March 18, 2019 at 4:11 am

DB needs to become smaller, not larger. Few years back, it was talking about selling its US equity business, no idea why that fell through. That IMO should be really the first step, not any sort of mergers.

There was an excellen article by somene, maybe even the ex-CEO of DB on its IT woes. IIRC, it was basically that the whole stuff was a collection of fiefs that were built in the last two decades, where the only goal was revenue or day 1 PnL, w/o any idea on what it takes to run the business.

Redlife2017 , March 18, 2019 at 6:42 am

I think that sort of "Worry About Day 2 Operations..but never actually do anything about it" is not an uncommon occurrence. My current firm / senior management is trying to un-pretzel their architecture out of a similar (if on a smaller platform) issue that has built up over 10 years. It's pretty hard to get out of it even with a lot of senior will and money. I can't imagine it building up over 20+ years!

I wonder what DB's data governance looks like. I bet the now ex-COO wasn't able to get the existing power-structure slapped around sufficiently to put the control / governance into place so that the architecture could be unwound. If step 1 (Data governance/ control over existing architecture) is impossible, then the rest is just a side-show (I know from current experience).

vlade , March 18, 2019 at 7:39 am

It's a very common occurence.

At one of my previous gigs, the firm struggled with anything new. I actually came up with a framework for them, which included commited revnue for the product to merge to the main systems, and a hard cap on revenue/no of deals until it was done.

15 years later, I just heard from my colleague there that the system I put in to deal with something is still doing it. It seems that the main cultprit is actually not the FO, as usual, but IT, who saw any successfull implementation outside of their process as a direct threat (especially if it was done on a fraction of their budget).

That then means you get a lot of small projects, which just get done – because the business has to work, after all – but never rolled into anything as the IT dept is constitutionally unable to do so due to its internal politics.

On your other point – well, to have some data governence, you have to know what data you have, and how it works. W/o that, you'll never get there.

Same goes for architecture. It's one thing to draw pretty pictures and boxes to present, but w/o actually understanding what's there now, and how it can work in the future (and that means not just on a sunny day, but when the midden hits the fan too), then control over the architecture gives you little, apart from some IT guys (and gals) getting to play with new technology to put on their CVs.

notabanker , March 18, 2019 at 9:13 am

My last year at a TBTF was working on a project to try and get our arms around architecture standards. It was the first time we had federated the bu based architects. Of course every BU "already had architectural standards". BU A had a documents store with 8000 entries documenting everything they knew about, BU B had a live, breathing web application that changed weekly as their governance process dictated, BU C had a 22 page powerpoint. That was 3 out of 12 at the table.

We took over tracking a global decommissioning initiative. It was basically low hanging fruit to just dump complexity. I found we hadn't even agreed on what decommissioning meant. Apps that were "decommissioned" 4 years earlier were still live in production because we couldn't figure out how to comply with regulatory reporting requirements without leaving it up. Another BU decided they weren't going to try and hit the goal because "they were making money". It was herding cats. Architects would agree to do something, and go back into their BU's and get stonewalled or outright directed to not do it. Regardless, it was a worthy effort because the first step in fixing a problem is admitting you have it.

My experience is that the IT orgs mirror the BU structure and governance. In three massive banks, I've only seen one centrally governed IT group, which very much mirrored how the company was run. It was an acquisition machine and the core merger methodology was to merge onto a common platform. The number 2 exec in the company ran the mergers and was ruthless, the CEO never flinched. There would be no legacy. It failed during the crisis, largely because that strong central governance made fatal business decisions that killed the whole org. So be careful what you wish for.

Harry , March 18, 2019 at 12:18 pm

Fascinating and makes perfect sense.

One of the UKs largest asset managers comes to mind as an example of the Centralization through IT platform approach.

All Investment Banks are to a great degree just franchise businesses. Go and make some money. Here is some budget and some desk space. Buy a computer and get on with it.

And they wonder why things sometimes go wrong.

Colonel Smithers , March 18, 2019 at 10:43 am

Thank you, Redlife.

Data governance?

I don't think that the firm would even know the concept.

Further to Clive's point, the group is a carcass for so-called professional services parasites to feast on.

The combination will be the German HBOS/Lloyd's. As there are NC contributors at that basket case, perhaps they will pipe up

Colonel Smithers , March 18, 2019 at 8:39 am

Thank you and well said, Vlade.

When I arrived in June 2016, I was told there well over a hundred systems in use. In essence, whenever some star signing was made, such star was told to go and buy whatever he / she needed.

To this day, the IT dysfunction continues. Sometimes, good systems are taken out of service due to cost and ones that can't work with what's left are retained. Go figure!

In addition to equities, the structured and leverage finance toxic waste should also go.

I get the impression that Stefan Hoops, the new head of global transaction banking, will detach bits from Treasury, Markets and Corporate Finance and add them to GTB and make a commercial bank, a new core to the bank. One can expect a pull back from the US, too.

The new model is likely to be Barclays plus, i.e. commercial banking with some IB and asset servicing, not a pure commercial bank like Lloyd's.

vlade , March 18, 2019 at 8:43 am

That new model would make much sense, as DB cannot survive just on commecial banking in Germany (Any plans to do just that would pretty much kill it, as it's too large to be supported by that), and there's no reasonable retail play unless it wants to to outside Germany.

But it would still require dropping substantial parts of the IB business. I see very little appetite for that..

chuck roast , March 18, 2019 at 10:51 am

Amazing! Yves' post and the various comments make it sound like IT has all the properties of a virus. Almost impossible to cure or expunge when it becomes dysfunctional. Moreover, its components can become toxic and morph into some new form.

I can't wait for AI!

notabanker , March 18, 2019 at 11:39 am

To me it's like accounting or engineering or operations. It's a reflection of the business. Keep in mind the example above represented a global MNC with 3 distinct credit card businesses, three distinct retail banking franchises, trading in every major capital market, investment banking organized by US, EMEA and Asia, Wealth Management with distinct philosophical differences by geography with core operations on 4 continents. And I suspect this is small time compared to Clive's experiences.

These organizations are too big and far too complex. NC has had numerous posts on how scale drives inefficiency once reaching a certain point. This is 100% the case.

flora , March 18, 2019 at 11:55 am

The heart of the banking and other IT problems, imo, is this: The people who wrote the original code to perform specific tasks understood, or were advised by people who understood exactly what the task was, what it did, how it fitted into the overall banking process , and what specific process upstream and downstream handoffs were required.

Bring in a new generation (or two) of new bankers who assume "the computer handles that" – without understanding the what and why of whatever 'that' is. Now you have the problem of not only computer integration, but also the problems of lost competency and lost institutional memory of core banking functions. That's before taking into account the budget cutting undermining IT departments, creating its own disfunction. imo.

Sound of the Suburbs , March 18, 2019 at 8:25 am

Bankers are like puppies and someone else needs to clean up the mess they leave behind.

"It's nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world" All the Presidents Bankers, Nomi Prins.

Look at the mess those naughty banker puppies have made, who will clear it up for them?

The structure of the Euro-zone meant there was no one to clean up properly after those naughty banker puppies.

No wonder DB is in trouble.

Mark , March 18, 2019 at 9:34 am

Speaking with no more qualification than being German, I would not say that banking profits are unwanted in general rather the industry has two or three significant challenges compared to the US.
First of all profit margins are very low across all businesses, even favoured ones such as automotive struggle to generate double digit operating margins and a sustained double digit net profit margin outside IT is very rare. Second there is good competition for retail customers and switching banks or keeping several accounts at different banks is very easy. 'Normal' banking consisting of debit card, credit card, online banking, wire transfers, ATM service and savings account are available for everyone not involved in personal bankruptcy proceedings free of charge. Hence 'access to deposit funding' not making profits is cited as a reason to merge. Interestingly the Sparkassen are usually on the expensive end of retail because they are committed to local branches and good conditions. The third point I would like to raise is more of a probably justified stereotype – Germans do a lot less borrowing than some other cultures see for instance private debt to GDP figures. Where I grew being in debt was considered shameful and everyone tried to pay back their debt ASAP be it 5 Mark for lunch or the mortgage on the house.
Other financial sectors, for instance insurance, do very good business and achieve significant profits in Germany.

Ignacio , March 18, 2019 at 7:08 pm

I don't think the difference you mention can be symplistically qualified as "cultural". It may also be, and probably more importantly, about incentives put in place to promote debt growth or lack thereof. Could it be that Germany didn't put them in the first place to prevent consumption and force surpluses or, easier, lending rates were in comparative terms and in relation with inflation higher in Germany than other Euro countries. If you believe that people in Spain, for instance, is willing to become wildly indebted to buy a house because of 'cultural reasons' you are mistaken. It is that many feel that there is no alternative. But then, becoming indebted results in a culture of debt

I have read that by the end of 2018 consumer credit and the housing marke were heating in Germany .

[Mar 19, 2019] Elizabeth Warren had a good speech at UC-Berkeley. She focused on the middle class family balance sheet and risk shifting

Mar 19, 2019 | www.nakedcapitalism.com

rc, March 18, 2019 at 4:01 pm

Elizabeth Warren had a good speech at UC-Berkeley. She focused on the middle class family balance sheet and risk shifting. Regulatory policies and a credit based monetary system have resulted in massive real price increases in inelastic areas of demand such as healthcare, education and housing eroding purchasing power.

Further, trade policies have put U.S. manufacturing at a massive disadvantage to the likes of China, which has subsidized state-owned enterprises, has essentially slave labor costs and low to no environmental regulations. Unrestrained immigration policies have resulted in a massive supply wave of semi- and unskilled labor suppressing wages.

Recommended initial steps to reform:

1. Change the monetary system-deleverage economy with the Chicago Plan (100% reserve banking) and fund massive infrastructure lowering total factor costs and increasing productivity. This would eliminate

2. Adopt a healthcare system that drives HC to 10% to 12% of GDP. France's maybe? Medicare model needs serious reform but is great at low admin costs.

3. Raise tariffs across the board or enact labor and environmental tariffs on the likes of China and other Asian export model countries.

4. Take savings from healthcare costs and interest and invest in human capital–educational attainment and apprenticeships programs.

5. Enforce border security restricting future immigration dramatically and let economy absorb labor supply over time.

Video of UC-B lecture: https://www.youtube.com/watch?v=akVL7QY0S8A&feature=youtu.be

Jerry B, March 18, 2019 at 5:26 pm

As I have said in other comments, I like Liz Warren a lot within the limits of what she is good at doing (i.e. not President) such as Secretary of the Treasury etc. And I think she likes the media spotlight and to hear herself talk a little to much, but all quibbling aside, can we clone her??? The above comment and video just reinforce "Stick to what you are really good at Liz!".

I am not a Liz Warren fan boi to the extent Lambert is of AOC, but it seems that most of the time when I hear Warren, Sanders, or AOC say something my first reaction is "Yes, what she/he said!".

[Mar 18, 2019] Boeing (BA) Secures $250M Deal to Support LRSO Cruise Missile

Mar 18, 2019 | finance.yahoo.com

Zacks Equity Research , Zacks March 18, 2019

The Boeing Company BA recently won a $250 million contract to offer weapon system integration for the Long Range Stand-Off (LRSO) Cruise Missile. Work related to the deal is scheduled to be completed by Dec 31, 2024.

The contract was awarded by the Air Force Nuclear Weapons Center, Eglin Air Force Base, Florida. Per the terms of the deal, this aerospace giant will provide aircraft and missile carriage equipment development and modification, engineering, testing, software development, training, facilities and support necessary to fully integrate the LRSO Cruise Missile on the B-52H bomber platform.

Attributes of LRSO

The LRSO is a nuclear-armed air-launched cruise missile, under development. It is set to replace the current AGM-86 air launched cruise missile (ALCM). LRSO, might be up to about 50% longer than Joint Air-to-Surface Standoff Missile-Extended Range (JASSM-ER) and still be suitable for internal carriage by the B-2 and B-52.

Our View

AGM-86 ALCM has been serving the U.S. Air Force quite efficiently. However, with increasingly sophisticated air defense systems developed by America's nemeses, especially Russia, demand for a new stealth nuclear-armed cruise missile capable of either destroying these defenses or penetrating them has been increasing consistently. In this scenario, the LRSO comes as the most credible stealthy and low-yield option available to the United States (according to Strategic Studies Quarterly Report).

Boeing's B-52, which has been the U.S. Air Force's one of the most preferred bombers, is completely dependent on long-range cruise missiles and cannot continue in the nuclear mission beyond 2030 without LRSO. As B-52 is expected to play a primary role in the U.S. nuclear mission for at least next decade and ALCM is already well beyond its originally planned end of life, we may expect more contracts similar to the latest one to usher in from the Pentagon in the coming days. This, in turn, should prove conducive to Boeing.

Price Performance

In a year's time, shares of Boeing have gained about 16.5% against the industry's 2.2% decline.

[Mar 18, 2019] A Recession Is Coming, And Maybe a Bear Market, Too by Gary Shilling

My be so, but it looks like Trump is adamant to keep stocks high flying. Such a S&500 promoter in chief...
Mar 18, 2019 | finance.yahoo.com

I first suggested the U.S. economy was headed toward a recession more than a year ago, and now others are forecasting the same. I give a business downturn starting this year a two-thirds probability.

The recessionary indicators are numerous. Tighter monetary policy by the Federal Reserve that the central bank now worries it may have overdone. The near-inversion in the Treasury yield curve. The swoon in stocks at the end of last year. Weaker housing activity. Soft consumer spending. The tiny 20,000 increase in February payrolls, compared to the 223,000 monthly average gain last year. Then there are the effects of the deteriorating European economies and decelerating growth in China as well as President Donald Trump's ongoing trade war with that country.

There is, of course, a small chance of a soft landing such as in the mid-1990s. At that time, the Fed ended its interest-rate hiking cycle and cut the federal funds rate with no ensuing recession. By my count, the other 12 times the central bank restricted credit in the post-World War II era, a recession resulted.

It's also possible that the current economic softening is temporary, but a revival would bring more Fed restraint. Policy makers want higher rates in order to have significant room to cut in the next recession, and the current 2.25 percent to 2.50 percent range doesn't give them much leeway. The Fed also dislikes investors' zeal for riskier assets, from hedge funds to private equity and leveraged loans, to say nothing of that rankest of rank speculations, Bitcoin. With a resumption in economic growth, a tight credit-induced recession would be postponed until 2020.

"Recession" conjures up specters of 2007-2009, the most severe business downturn since the 1930s in which the S&P 500 Index plunged 57 percent from its peak to its trough. The Fed raised its target rate from 1 percent in June 2004 to 5.25 percent in June 2006, but the main event was the financial crisis spawned by the collapse in the vastly-inflated subprime mortgage market.

Similarly, the central bank increased its policy rate from 4.75 percent in June 1999 to 6.5 percent in May 2000. Still, the mild 2001 recession that followed was principally driven by the collapse in the late 1990s dot-com bubble that pushed the tech-laden Nasdaq Composite Index down by a whopping 78 percent.

The 1973-1975 recession, the second deepest since the 1930s, resulted from the collapse in the early 1970s inflation hedge buying of excess inventories. That deflated the S&P 500 by 48.2 percent. The federal funds rate hike from 9 percent in February 1974 to 13 percent in July of that year was a minor contributor.

The remaining eight post-World War II recessions were not the result of major financial or economic excesses, but just the normal late economic cycle business and investor overconfidence. The average drop in the S&P 500 was 21.2 percent.

At present, I don't see any major economic or financial bubbles that are just begging to be pricked. The only possibilities are excess debt among U.S. nonfinancial corporations and the heavy borrowing in dollars by emerging-market economies in the face of a rising greenback. Housing never fully recovered from the subprime mortgage debacle. The financial sector is still deleveraging in the wake of the financial crisis. Consumer debt remains substantial but well off its 2008 peak in relation to household income.

Consequently, the recession I foresee will probably be accompanied by about an average drop in stock prices. The S&P 500 fell 19.6 percent from Oct. 3 to Dec. 24, but the recovery since has almost eliminated that loss. A normal recession-related decline of 21.2 percent – meeting the definition of a bear market – from that Oct. 3 top would take it to 2,305, down about 18 percent from Friday's close, but not much below the Christmas Eve low of 2,351.

A. Gary Shilling is president of A. Gary Shilling & Co., a New Jersey consultancy, a Registered Investment Advisor and author of "The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation." Some portfolios he manages invest in currencies and commodities.


The_Mick, 9 hours ago

"I first suggested the U.S. economy was headed toward a recession more than a year ago, and now others are forecasting the same."
And yet you were WRONG a year ago! You don't get excused for last year just because you're still predicting it!

Of course a recession is coming - maybe this year but maybe not for 10 years. Recessions happen from time to time but they are not predictable because economics has too many variables we can't quantify.

And do you think you're impressing anyone by adding "maybe a bear market too"???

What do you mean "maybe"? If there's a recession then, of course, our slightly overpriced market will experience a bear market! DUH! Terry7 hours ago I expected a deeper understanding from My Shilling. This article seems very week. If he had submitted it as an an economic paper I don't think he would get high marks. Many historical economic facts glossed over or omitted. Terrible job of describing the causes of the early 1970s world recession . As for a recession without a bear market.....? Don't make me laugh.... And buy the way we are already in a bear market !

This decade is a lot like the 1990s in that it has been a nice long run. But no business cycle goes on for every. It's just does not work like that because it is cycle in nature. After a ten year run in stocks it is less risky for serious money to be out of them that in them. That is why the bond market is so solid right not. Because it's not work risking all your cash for maybe a couple more percent when you have already make 300% or more..

The western economies are just running off free or very cheap money being constantly pumped into investment assets by the central banks. There are no real guts to them. USA, EU and Japan have been running the printing presses with abandonment. At the same time China and India are becoming the industrial power houses because they had over one billion people who will work for next to nothing.

Because every investment asset is pumped up of "free" money in the form of very low interest rate loans from the FED etc. Things are very fragile. And someone has give Powel this "reality check". So the FED does a 180 on policy and now looks like a Wall St poodle. And they speculators have gone back to pumping FANG stocks

But they all know this market is very pumped up and fragile. And they all keep their stop loss triggers very tight. That is why it falls so dramatically when it takes a hit. Like OMG the FED funds rate going from 2.75% to 3.00% !! So tread very carefully . The cracks are all around

Salo, 7 hours ago

I am only surprised when I read that another recession is not coming.

Almost 10 years since the "end" of the Great Recession, and all it took was $22 Trillion of borrowed money, a $4 Trillion in the red Fed balance sheet and interest rates just barely north of 2%. Oh, and one big beautiful corporate tax cut. Who knew expansionary economies were so uncomplicated?

Ricardo, 6 hours ago

I remember reading Gary Shilling's articles a few years after the Crash of 2009 when he attempted to prove without a doubt that market returns would be sub-par for decades to come. He was wrong and you would have missed out on the longest and biggest bull market in history. Be wary of what Gary has to tell you.

[Mar 18, 2019] Boeing Drops as Role in Vetting Its Own Jets Comes Under Fire

Mar 18, 2019 | finance.yahoo.com

Boeing Co. tumbled early Monday on heightened scrutiny by regulators and prosecutors over whether the approval process for the company's 737 Max jetliner was flawed.

A person familiar with the matter on Sunday said that the U.S. Transportation Department's Inspector General was examining the plane's design certification before the second of two deadly crashes of the almost brand-new aircraft.

Separately, the Wall Street Journal reported that a grand jury in Washington, D.C., on March 11 issued a subpoena to at least one person involved in the development process of the Max. And a Seattle Times investigation found that U.S. regulators delegated much of the plane's safety assessment to Boeing and that the company in turn delivered an analysis with crucial flaws.

Boeing dropped 2.8 percent to $368.53 before the start of regular trading Monday in New York, well below any closing price since the deadly crash of Ethiopian Airlines Flight 302 on March 10. Ethiopia's transport minister said Sunday that flight-data recorders showed "clear similarities" between the crashes of that plane and Lion Air Flight 610 last October.

U.S. Federal Aviation Administration employees warned as early as seven years ago that Boeing had too much sway over safety approvals of new aircraft, prompting an investigation by Transportation Department auditors who confirmed the agency hadn't done enough to "hold Boeing accountable."

The 2012 investigation also found that discord over Boeing's treatment had created a "negative work environment" among FAA employees who approve new and modified aircraft designs, with many of them saying they'd faced retaliation for speaking up. Their concerns pre-dated the 737 Max development.

In recent years, the FAA has shifted more authority over the approval of new aircraft to the manufacturer itself, even allowing Boeing to choose many of the personnel who oversee tests and vouch for safety. Just in the past few months, Congress expanded the outsourcing arrangement even further.

"It raises for me the question of whether the agency is properly funded, properly staffed and whether there has been enough independent oversight," said Jim Hall, who was chairman of the National Transportation Safety Board from 1994 to 2001 and is now an aviation-safety consultant.

Outsourcing Safety

At least a portion of the flight-control software suspected in the 737 Max crashes was certified by one or more Boeing employees who worked in the outsourcing arrangement, according to one person familiar with the work who wasn't authorized to speak about the matter.

The Wall Street Journal first reported the inspector general's latest inquiry. The watchdog is trying to assess whether the FAA used appropriate design standards and engineering analysis in approving the 737 Max's anti-stall system, the newspaper said.

Both Boeing and the Transportation Department declined to comment about that inquiry.

In a statement on Sunday, the agency said its "aircraft certification processes are well established and have consistently produced safe aircraft designs," adding that the "737 Max certification program followed the FAA's standard certification process."

The Ethiopian Airlines plane crashed minutes after it took off from Addis Ababa, killing all 157 people on board. The accident prompted most of the world to ground Boeing's 737 Max 8 aircraft on safety concerns, coming on the heels of the October crash of a Max 8 operated by Indonesia's Lion Air that killed 189 people. Much of the attention focused on a flight-control system that can automatically push a plane into a catastrophic nose dive if it malfunctions and pilots don't react properly.

In one of the most detailed descriptions yet of the relationship between Boeing and the FAA during the 737 Max's certification, the Seattle Times quoted unnamed engineers who said the planemaker had understated the power of the flight-control software in a System Safety Analysis submitted to the FAA. The newspaper said the analysis also failed to account for how the system could reset itself each time a pilot responded -- in essence, gradually ratcheting the horizontal stabilizer into a dive position.

Software Fix

Boeing told the newspaper in a statement that the FAA had reviewed the company's data and concluded the aircraft "met all certification and regulatory requirements." The company, which is based in Chicago but designs and builds commercial jets in the Seattle area, said there are "some significant mischaracterizations" in the engineers' comments.

[Mar 17, 2019] OPEC Threatens To Kill US Shale

Mar 17, 2019 | finance.yahoo.com

The Organization of Petroleum Exporting Countries will once again become a nemesis for U.S. shale if the U.S. Congress passes a bill dubbed NOPEC, or No Oil Producing and Exporting Cartels Act, Bloomberg reported this week , citing sources present at a meeting between a senior OPEC official and U.S. bankers.

The oil minister of the UAE, Suhail al-Mazrouei, reportedly told lenders at the meeting that if the bill was made into law that made OPEC members liable to U.S. anti-cartel legislation, the group, which is to all intents and purposes indeed a cartel, would break up and every member would boost production to its maximum.

This would be a repeat of what happened in 2013 and 2014, and ultimately led to another oil price crash like the one that saw Brent crude and WTI sink below US$30 a barrel. As a result, a lot of U.S. shale-focused, debt-dependent producers would go under.

Bankers who provide the debt financing that shale producers need are the natural target for opponents of the NOPEC bill. Banks got burned during the 2014 crisis and are still recovering and regaining their trust in the industry. Purse strings are being loosened as WTI climbs closer to US$60 a barrel, but lenders are certainly aware that this is to a large extent the result of OPEC action: the cartel is cutting production again and the effect on prices is becoming increasingly visible.

Related: Pakistan Aims To Become A Natural Gas Hotspot

Indeed, if OPEC starts pumping again at maximum capacity, even without Iran and Venezuela, and with continued outages in Libya, it would pressure prices significantly, especially if Russia joins in. After all, its state oil companies have been itching to start pumping more.

The NOPEC legislation has little chance of becoming a law. It is not the first attempt by U.S. legislators to make OPEC liable for its cartel behavior, and none of the others made it to a law. However, Al-Mazrouei's not too subtle threat highlights the weakest point of U.S. shale: the industry's dependence on borrowed money.

The issue was analyzed in depth by energy expert Philip Verleger in an Oilprice story earlier this month and what the problem boils down to is too much debt. Shale, as Total's chief executive put it in a 2018 interview with Bloomberg, is very capital-intensive. The returns can be appealing if you're drilling and fracking in a sweet spot in the shale patch. They can also be improved by making everything more efficient but ultimately you'd need quite a lot of cash to continue drilling and fracking, despite all the praise about the decline in production costs across shale plays.

The fact that a lot of this cash could come only from banks has been highlighted before: the shale oil and gas industry faced a crisis of investor confidence after the 2014 crash because the only way it knew how to do business was to pump ever-increasing amounts of oil and gas. Shareholder returns were not top of the agenda. This had to change after the crash and most of the smaller players -- those that survived -- have yet to fully recover. Free cash remains a luxury.

Related: The EIA Cuts U.S. Oil Output Projections

The industry is aware of this vulnerability. The American Petroleum Institute has vocally opposed NOPEC, almost as vocally as OPEC itself, and BP's Bob Dudley said this week at CERAWeek in Houston that NOPEC "could have severe unintended consequences if it unleashed litigation around the world."

"Severe unintended consequences" is not a phrase bankers like to hear. Chances are they will join in the opposition to the legislation to keep shale's wheels turning. The industry, meanwhile, might want to consider ways to reduce its reliance on borrowed money, perhaps by capping production at some point before it becomes forced to do it.

By Irina Slav for Oilprice.com

[Mar 16, 2019] The European banking system is about to implode with Italian banks in the worst state but French banks probably own the counterparty risks

Mar 16, 2019 | www.moonofalabama.org

Kevin Peters , Mar 15, 2019 12:34:55 PM | link

The European banking system is about to implode with Italian banks in the worst state but which banks then owe the counter party risks, step forward the French banks. Macron is as it will be recalled a Rothschild banker.

The likes of the British banks aren't much better of course but the EU needs the UK and more importantly it's money to rescue thewe EU banks. Trouble is this is impossible task, but the EU is not about to allow the fifth largest economy to simply walk away.

[Mar 10, 2019] Bond-Market Inflation Skeptics See Little to Fear in Coming Data by Emily Barrett

Mar 10, 2019 | finance.yahoo.com

"At this point in the cycle, a pickup in inflation will generally lead to corporate margin compression, which is potentially more supportive of maintaining a long duration stance," Bartolini, lead portfolio manager for U.S. core bond strategies, said after the jobs figures. He sees annual CPI remaining around this report's consensus of 1.6 percent -- the slowest since 2016 -- for a while.

Benchmark 10-year yields enter the week at 2.63 percent, close to the lowest level in two months. In the interest-rate options market, traders have been ramping up positions that target lower yields in five- and 10-year notes.

DougDoug,

The Fed is pretty much DONE with rate hikes, as paying the INTEREST on, 22 Trillion in Debt will get,.. UGLIER and UGLIER ! Especially with, all the new,.. Tax and SPEND Demo'Rat Liberals, coming into, Congress ! "We the People", will be,.. TOAST !!

I'm HOLDING, my "Floating Rate" senior secured, Bond CEF's and my Utility and Tech, CEF's, too ! Drawing NICE Dividends,.. Monthly !

The World is NOT ending for, the USA,.. THANKS,.. to Trump !

[Mar 10, 2019] U.S. SEC to review stock trading rules in big potential shakeup by John McCrank

Mar 10, 2019 | finance.yahoo.com

NEW YORK (Reuters) - The U.S. Securities and Exchange Commission is launching a review of the main set of rules governing stock trading, opening the door to the biggest potential changes in a decade-and-a-half, the head of the agency said on Friday.

The possible changes are aimed at making it easier to trade illiquid stocks, making more trading information available to investors, and improving the speed and quality of public data feeds needed for trading.

The SEC in 2005 adopted a broad framework called Regulation National Market System that was largely aimed at ensuring retail investors get the best price possible and preventing trades from being executed at prices that are inferior to bids and offers displayed on other trading venues.

Since then, faster, more sophisticated technology has put a bigger focus on rapid-fire, high-speed trading. There has also been an influx of new electronic stock exchanges, fragmenting liquidity and increasing costs for brokers around exchange connectivity and market data needed to fuel algorithmic trading.

"It is clear that the market challenges we faced in the early 2000s are not the same as the issues that we confront over a decade later," Jay Clayton, chairman of the SEC, said at an event in New York.

To get a better grasp of current market issues, the SEC held a series of roundtable discussions with industry experts last year that led to potential rule-making recommendations around thinly-traded securities, combating retail fraud, and market data and market access, Clayton said.

Some areas the SEC is looking at include:

The 2019 review follows an active 2018 for the SEC.

The regulator adopted rules to increase transparency around broker-dealer stock order routing and private off-exchange trading venues. It also ordered a pilot program to test banning lucrative rebate payments that exchanges make to brokers for liquidity-adding stock orders.

(Reporting by John McCrank; Editing by Tom Brown)

https://s.yimg.com/rq/darla/3-6-3/html/r-sf.html

Sign in to post a message. 17 viewing1 person reacting

judi 1 hour ago What about Naked Shorting? It is out of control and no one including the SEC is doing anything to stop it??

Tara 41 minutes ago The rules implemented in 2005 did nothing to help retail traders with accounts under 25K.
When are you going to address the real issue of stock price manipulation? Also, bring back the uptick rule. And while you are at it, we need rules to punish dishonest analysts who publish opinions of price that are so far off the charts, they never reflect actual earnings often announced days later.

Rob 38 minutes ago They are going to make it more in favor of big boys aka the banks

[Mar 10, 2019] Oil Market About To Enter Supply Deficit

Mar 10, 2019 | finance.yahoo.com

• The OPEC+ cuts have likely already tipped the oil market into a supply deficit, according to Barclays.
• OECD inventories fell dramatically over the past two years, and came back to the five-year average in 2018, where they have mostly remained.
• The OPEC+ cuts quickly headed off a renewed surplus, and will likely drain inventories over the course of this year. Inventories are set to fall below the five-year average.
• Still, Barclays says the market return to balance or even a small surplus in the second half of 2019.

2. China's oil demand not collapsing

<img src="https://s.yimg.com/it/api/res/1.2/.fxgVesli1gE.apMTKU4BQ--~A/YXBwaWQ9eW5ld3M7c209MTt3PTQ1MTtoPTMxNg--/http://media.zenfs.com/en-US/homerun/oilprice.com/43a64118adc9d08dff397f7e71a52626" itemprop="url"/>

• Some of the more catastrophic oil forecasts for 2019 centered on a sharp slowdown in Chinese demand.
• China's car sales actually contracted year-on-year over the last few months, and car sales could continue to fall this year.
• But China's demand, while slowing relative to years past, is still expected to grow by 0.5 mb/d in 2019, according to Barclays, the same rate of expansion as 2018.
• Next year, however, China's demand growth could slow a bit more, dipping below 0.4 mb/d, continuing a gradual deceleration in demand growth.

[Mar 05, 2019] Democratic senator to introduce tax on trading [Video]

Mar 05, 2019 | finance.yahoo.com

CNBC Videos

Senator Brian Schatz (D-Hawaii) is expected to introduce a new tax bill today. The senator says his bill would tax the sale of stocks, bonds and derivatives at a 0.1 rate. It would apply to any transaction in the United States. The senator says his proposal would clamp down on speculation and some high frequency trading that artificially creates more market volatility.

[Feb 27, 2019] Angry Bear " Mars Descending U.S. Security Alliances and the International Status of the Dollar

Feb 27, 2019 | angrybearblog.com

Mars Descending? U.S. Security Alliances and the International Status of the Dollar

Dan Crawford | February 26, 2019 6:11 am

US/Global Economics by Joseph Joyce

Mars Descending? U.S. Security Alliances and the International Status of the Dollar

A decade after the global financial crisis, the dollar continues to maintain its status as the chief international currency. Possible alternatives such as the euro or renminbi lack the broad financial markets that the U.S. possesses, and in the case of China the financial openness that allows foreign investors to enter and exit at will. Any change in the dollar's predominance, therefore, will likely occur in response to geopolitical factors.

Linda S. Goldberg and Robert Lerman of the Federal Reserve Bank of New York provide an update on the dollar's various roles. The dollar remains the dominant reserve currency, with a 63% share of global foreign exchange reserves, and serves as the anchor currency for about 65% of those countries with fixed exchange rates. The dollar is also widely utilized for private international transactions. It is used for the invoicing of 40% of the imports of countries other than the U.S., and about half of all cross-border bank claims are denominated in dollars.

This wide use of the dollar gives the U.S. government the ability to fund an increasing debt burden at relatively low interest rates. Moreover, as pointed out by the New York Times , the Trump administration can enforce its sanctions on countries such as Iran and Venezuela because global banks cannot function without access to dollars. While European leaders resent this dependence, they have yet to evolve a financial system that could serve as a viable alternative.

The dollar's continued predominance may also reflect other factors. Barry Eichengreen of UC-Berkeley and Arnaud J. Mehl and Livia Chitu of the European Central Bank have examined the effect of geopolitical factors -- the "Mars hypothesis" -- versus pecuniary factors -- the "Mercury hypothesis" -- in determining the currency composition of the international reserves of 19 countries during the period of 1890-1913. Official reserves during this time could be held in the form of British sterling, French francs, German marks, U.S. dollars and Dutch guilders.

The authors find evidence that both sets of factors played roles. For example, a military alliance between a reserve issuing country and one that held reserves would boost the share of the currency of the reserve issuer by almost 30% if there was a military alliance between these nations. They conjecture that the reserve issuer may have used security guarantees to obtain financing from the security-dependent nation, or to serve the role of financial center when the allied country needed to borrow internationally.

Eichengreen, Mehl and Chitu then use their parameter estimates to measure by how much the dollar share of the international reserves of nations that currently have security arrangements with the U.S. would fall if such arrangements no longer existed. South Korea, for example, currently holds 84% of its foreign reserves in dollars; this share would fall to 54% in the absence of its security alliance with the U.S. Similarly, the dollar component of German foreign exchange reserves would decline from 98% to 68%.

In previous eras, such calculations might be seen as interesting only for providing counterfactuals. But the Trump administration seems intent on cutting back on America's foreign military commitments. The U.S. and Korea, for example, have not negotiated a renewal of the Special Measures Agreement to finance the placement of U.S. troops in Korea. German Chancellor Angela Merkel has defended her country's role in NATO in the face of criticism from President Trump that Germany must spend more on defense expenditures. The possibility of a pan-European army to serve as an alternative security guarantee is no longer seen as totally far-fetched.

The dollar may be safe from replacement on economic grounds. But the imminent shrinkage of the British financial sector due to the United Kingdom's withdrawal from the European Union shows that political decisions follow their own logic, sometimes without regard for the economic consequences. If the dollar lose some of its dominance, it may be because of self-inflicted wounds.

[Feb 17, 2019] The Subtle Signal That the Bull Market Could Soon End

Feb 17, 2019 | finance.yahoo.com

A great predictor

What is this amazingly accurate indicator of a coming recession? The unemployment rate trend. I first came across this idea on the Philosophical Economics blog , whose author has adopted the pseudonym Jesse Livermore, in honor of the 20th-century investor.

This Livermore conducted a rigorous analysis in search of the perfect recession indicator. He evaluated several potential signals, including real retail sales growth, industrial production growth, real S&P 500 earnings-per-share growth, employment growth, real personal income growth, and housing starts growth. While some of these indicators were promising, none of them compared to the predictive ability of the unemployment rate trend.

Note that it's the unemployment rate trend that's the great predictor of a recession and not the unemployment rate itself. The unemployment rate is a lagging indicator of a recession. In other words, the rate goes up significantly only after a recession is in effect.

But before the unemployment rate moves significantly higher, the unemployment rate trend must change from downward to upward. And that's what Livermore found was a great leading indicator, or predictor, of an economic recession. This change in trend is determined by simply seeing when the latest unemployment rate is higher than the 12-month simple moving average of previous monthly unemployment rates.

So how well does this predictor work? Over the last 70 years, a change in the unemployment rate trend predicted every recession that occurred. In two cases, the recession came immediately after the change in the unemployment rate trend. In other cases, the trend changed several months in advance of the start of a recession.

The U.S. hasn't experienced an economic recession since the Great Recession of 2008 and 2009. Unemployment rates remain low. However, the U.S. unemployment rate for January, which was reported in early February, moved higher than the 12-month simple moving average of previous monthly unemployment rates.

The subtle signal that has proven to be accurate at predicting the onset of a recession has flashed. And if a recession is indeed on the way, the bull market will soon end.

One drawback

Is there a catch? Yep. While the unemployment rate trend has been uncannily accurate at indicating recessions, it also sometimes provides a false signal. In other words, the trend changes but a recession doesn't occur.

This scenario happened as recently as September 2016. The unemployment rate rose above the 12-month simple moving average for previous unemployment rates for one month. A recession didn't ensue, though, and the bull market kept on trucking.

[Feb 17, 2019] Gundlach Last year's market selloff was just a 'taste of things to come' by Julia La Roche

Feb 17, 2019 | finance.yahoo.com

Late last year, the S&P 500 ( ^GSPC ) tumbled 20% from its Oct. 3 intraday high to its Dec. 24 intraday. And despite the market's sharp 17% rally from those lows, Bond king Jeffrey Gundlach says we're in a bear market and that we could see new lows.

"A bear market has nothing to do with this 20% arbitrary thing," Gundlach, the CEO of $121 billion DoubleLine Capital, told Yahoo Finance in an exclusive interview. "It has to do with something crazy happening first, and then the crazy thing gives it up. And yet more traditional things continue to march on. But one by one they give it up." December's dip buyers will sell at lower levels

The market has since been saved by the Fed's pivot to be "patient" on monetary policy and the subsequent rally in the bond market, all of which has kept interest rates low. For now.

"If the long end of rates starts to rise, as I expect, and if we break through 3.50% on the 30-year, I think it's over," Gundlach added. "Because the competition from the bond market, particularly against a climate of limiting one of the engines of stock price appreciation, which is buybacks , is thought to be potentially in jeopardy."

Gundlach believes that investors who bought during December's dip will likely end up selling at a lower point.

See also

[Feb 15, 2019] CAPE Fear The Bulls Are Wrong. Shiller's Measure Is the Real Deal

Notable quotes:
"... The CAPE aims to correct for those distortions. It smooths the denominator by using not current profits, but a ten-year average, of S&P 500 earnings-per-share, adjusted for inflation. Today, the CAPE for the 500 reads 29.7. It's only been that high in two previous periods: Before the crash of 1929, and during the tech bubble from 1998 to 2001, suggesting that when stocks are this expensive, a downturn may be at hand. ..."
"... is 36.1% higher ..."
"... Here's the problem that the CAPE highlights. Earnings in the past two decades have been far outpacing GDP; in the current decade, they've beaten growth in national income by 1.2 points (3.2% versus 2%). That's a reversal of long-term trends. ..."
"... Right now, earnings constitute an unusually higher share of national income. That's because record-low interest rates have restrained cost of borrowing for the past several years, and companies have managed to produce more cars, steel and semiconductors while shedding workers and holding raises to a minimum. ..."
"... t's often overlooked that although profits grow in line with GDP, which by the way, is now expanding a lot more slowly than two decades ago, earnings per share ..."
"... The reason is dilution. Companies are constantly issuing new shares, for everything from expensive acquisitions to stock option redemptions to secondary offerings. New enterprises are also challenging incumbents, raising the number of shares that divide up an industry's profits faster than those profits are increasing. Since total earnings grow with GDP, and the share count grows faster than profits, it's mathematically impossible for EPS growth to consistently rise in double digits, although it does over brief periods––followed by intervals of zero or minuscule increases. ..."
"... The huge gap between the official PE of 19 and the CAPE at 30 signals that unsustainably high profits are artificially depressing the former. and that profits are bound to stagnate at best, and more likely decline. ..."
"... In an investing world dominated by hype, the CAPE is a rare truth-teller ..."
Feb 15, 2019 | finance.yahoo.com

For the past half-decade, a controversial yardstick called the CAPE has been flashing red, warning that stock prices are extremely rich, and vulnerable to a sharp correction. And over the same period, the Wall Street bulls and a number of academics led by Jeremy Siegel of the Wharton School, have been claiming that CAPE is a kind of fun house mirror that makes reasonable valuations appear grotesquely stretched.

CAPE, an acronym "Cyclically-adjusted price-to-earnings ratio," was developed by economist Robert Shiller of Yale to correct for a flaw in judging where stock prices stand on the continuum from dirt cheap to highly expensive based on the current P/E ratio. The problem: Reported earnings careen from lofty peaks to deep troughs, so that when they're in a funk, multiples jump so high that shares appear overpriced when they're really reasonable, and when profits explode, they can skew the P/E by creating the false signal that they're a great buy.

The CAPE aims to correct for those distortions. It smooths the denominator by using not current profits, but a ten-year average, of S&P 500 earnings-per-share, adjusted for inflation. Today, the CAPE for the 500 reads 29.7. It's only been that high in two previous periods: Before the crash of 1929, and during the tech bubble from 1998 to 2001, suggesting that when stocks are this expensive, a downturn may be at hand.

The CAPE's critics argue that its adjusted PE is highly inflated, because the past decade includes a portion of the financial crisis that decimated earnings. That period was so unusual, their thinking goes, that it makes the ten-year average denominator much too low, producing what looks like a dangerous number when valuations are actually reasonable by historical norms. They point to the traditional P/E based on 12-month trailing, GAAP profits. By that yardstick today's multiple is 19.7, a touch above the 20-year average of 19, though exceeding the century-long norm of around 16.

I've run some numbers, and my analysis indicates that the CAPE doesn't suffer from those alleged shortcoming, and presents a much truer picture than today's seemingly reassuring P/E. Here's why. Contrary to its opponents' assertions, the CAPE's earnings number is not artificially depressed. I calculated ten year average of real profits for six decade-long periods starting in February of 1959 and ending today, (the last one running from 2/2009 to 2/2019). On average, the adjusted earnings number rose 22% from one period to the next. The biggest leap came from 1999 to 2009, when the 10-year average of real earnings advanced 42%.

So did profits since then languish to the point where the current CAPE figure is unrealistically big? Not at all. The Shiller profit number of $91 per share is 36.1% higher than the reading for the 1999 to 2009 period, when it had surged a record 40%-plus over the preceding decade. If anything, today's denominator looks high, meaning the CAPE of almost 30 is at least reasonable, and if anything overstates what today's investors will reap from each dollar they've invested in stocks.

Indeed, in the latest ten-year span, adjusted profits have waxed at a 3.2% annual pace, slightly below the 3.6% from 1999 to 2009, but far above the average of 1.6% from 1959 to 1999.

Here's the problem that the CAPE highlights. Earnings in the past two decades have been far outpacing GDP; in the current decade, they've beaten growth in national income by 1.2 points (3.2% versus 2%). That's a reversal of long-term trends. Over our entire 60 year period, GDP rose at 3.3% annually, and profits trailed by 1.3 points, advancing at just 2%. So the rationale that P/Es are modest is based on the assumption that today's earnings aren't unusually high at all, and should continue growing from here, on a trajectory that outstrips national income.

It won't happen. It's true that total corporate profits follow GDP over the long term, though they fluctuate above and below that benchmark along the way. Right now, earnings constitute an unusually higher share of national income. That's because record-low interest rates have restrained cost of borrowing for the past several years, and companies have managed to produce more cars, steel and semiconductors while shedding workers and holding raises to a minimum.

Now, rates are rising and so it pay and employment, forces that will crimp profits. I t's often overlooked that although profits grow in line with GDP, which by the way, is now expanding a lot more slowly than two decades ago, earnings per share grow a lot slower, as I've shown, lagging by 1.3 points over the past six decades.

An influential study from 2003 by Rob Arnott, founder of Research Affiliates, and co-author William J. Bernstein, found that EPS typically trails overall profit and economic growth by even more, an estimated 2 points a year.

The reason is dilution. Companies are constantly issuing new shares, for everything from expensive acquisitions to stock option redemptions to secondary offerings. New enterprises are also challenging incumbents, raising the number of shares that divide up an industry's profits faster than those profits are increasing. Since total earnings grow with GDP, and the share count grows faster than profits, it's mathematically impossible for EPS growth to consistently rise in double digits, although it does over brief periods––followed by intervals of zero or minuscule increases.

The huge gap between the official PE of 19 and the CAPE at 30 signals that unsustainably high profits are artificially depressing the former. and that profits are bound to stagnate at best, and more likely decline. The retreat appears to have already started. The Wall Street "consensus" Wall Street earnings forecast compiled by FactSet calls for an EPS decline of 1.7% for the first quarter of 2017, and zero inflation-adjusted gains for the first nine months of the year.

In an investing world dominated by hype, the CAPE is a rare truth-teller .

[Feb 15, 2019] Oil Rises as Aramco Said to Cut Output at Biggest Offshore Field

KSA and Russia together can drive oil price to anywhere they wish... Wall street sharks can do nothing with those giants if they cut oil output.
Notable quotes:
"... Russia plans to accelerate the output cuts it agreed to with OPEC+. ..."
Feb 15, 2019 | finance.yahoo.com

Oil climbed as Saudi Arabia was said to curtail some output from its Safaniyah offshore oil field, the largest in the world.

Futures in New York rose as much as 2.2 percent Friday, pushing toward its biggest weekly gain in a month. Saudi Arabia was said to trim supply from Safaniyah to repair a damaged power cable, while Russia plans to accelerate the output cuts it agreed to with OPEC+.

... ... ...

Saudi Arabian Oil Co.'s Safaniyah field has the capacity to pump 1.2 million to 1.5 million barrels of crude a day, and is a major component of the Arab Heavy grade. The cable was damaged in an accident about two weeks ago and repairs are expected to be completed by early March, people with knowledge of the matter said.

[Feb 14, 2019] Pension vs. 401(k) Comparing Retirement Plans

Feb 14, 2019 | finance.yahoo.com

2 hours ago The biggest difference is that employers on average contribute 1/3 to your 401K that they contributed on your behalf for your pension.

[Feb 13, 2019] Condensate can't replace heavy oil

IEA is one-half EU marketing agency with the explisit goal to keep oil price low, and one half a research organization. In different reports one role can be prevalent.
The U.S. Energy Information Administration (EIA) estimates that margins for U.S. Gulf Coast refiners have declined to the lowest levels since late 2014, based on recent price trends in certain grades of crude oil and petroleum products. https://www.eia.gov/petroleum/weekly/
Comment on Yahoo are absolutly idiotic. I have dount only a couple more or less reasonable comment in the first 48. This level of incompetence and brainwashing is simply amazing.
Feb 13, 2019 | news.yahoo.com

The "call" on OPEC crude is now forecast at 30.7 million bpd in 2019, down from the IEA's last estimate of 31.6 million bpd in January.

U.S. sanctions on Iran and Venezuela have choked off supply of the heavier, more sour crude that tends to yield larger volumes of higher-value distillates, as opposed to gasoline. The move has created disruption for some refiners, but has not led to a dramatic increase in the oil price in 2019.

"In terms of crude oil quantity, markets may be able to adjust after initial logistical dislocations (from Venezuela sanctions)", the Paris-based IEA said.

"Stocks in most markets are currently ample and ... there is more spare production capacity available."

Venezuela's production has almost halved in two years to 1.17 million bpd, as an economic crisis decimated its energy industry and U.S. sanctions have now crippled its exports.

Brent crude futures have risen 20 percent in 2019 to around $63 a barrel, but most of that increase took place in early January. The price has largely plateaued since then, in spite of the subsequent imposition of U.S. sanctions.

"Oil prices have not increased alarmingly because the market is still working off the surpluses built up in the second half of 2018," the IEA said.

"In quantity terms, in 2019, the U.S. alone will grow its crude oil production by more than Venezuela's current output. In quality terms, it is more complicated. Quality matters."

dlider909, 7 hours ago Story will change in 30 days.

Robert, 7 hours ago ... ... ...

What this report fails to do is to pay the appropriate homage to American oilfield roughnecks...

ralf

7 hours ago Nonsense. I see military action against Venezuela soon, just because of our thirst for oil.
Talk about shale is like talk about Moon conquests, not supported by hard facts.

[Feb 13, 2019] A Study in Professional Power Why Do the Big 4 Accountants Survive by Richard Murphy

Notable quotes:
"... By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an "anti-poverty campaigner and tax expert". He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics . He is a member of the Progressive Economy Forum. Originally published at Tax Research UK ..."
"... Like much of political economy, this is a story of power. In the first instance this was professional power. The big firms did, as professional institutes developed, have the means to dominate them. They were in the capital cities where those institutes were usually based. They had the means to release partner time to manage those institutes' affairs. They had the motive to do so. That was ring-fencing their profit. The big firms, then, used their power to set the rules for their professions. ..."
"... Have been reading The Billion-Dollar Whale about the 1MDB mega-heist, facilitated by auditors and bank compliance officers at every step as the Malaysian people were fleeced of billions to pay for sickening rounds of parties, yachts, champagne baths, jewelry, gambling, and garish mansions. "Odious debt" if ever there were. ..."
"... Good topic to cover. The accounting firms are right up there with the ratings agencies as 'high priests' of capital whose blessing is required if your are to be welcome into the halls of power. ..."
Feb 12, 2019 | www.nakedcapitalism.com

A Study in Professional Power: Why Do the Big 4 Accountants Survive? Posted on February 13, 2019 by Yves Smith Yves here. While many people go into "my eyes glaze over" mode when the topic of accountants comes up, you ignore them at your peril. In the US, boards and executives escape liability if they can say they were acting on the advice of professionals. Lawyers are the main liability shields for corporate bigwigs, but pliant accountants are also very helpful.

And why don't shareholders who've been hurt due to professionals signing off on crooked corporate conduct sue? They can't. As we wrote in ECONNED:

Legislators also need to restore secondary liability. Attentive readers may recall that a Supreme Court decision in 1994 disallowed suits against advisors like accountants and lawyers for aiding and abetting frauds. In other words, a plaintiff could only file a claim against the party that had fleeced him; he could not seek recourse against those who had made the fraud possible, say, accounting firms that prepared misleading financial statements. That 1994 decision flew in the face of sixty years of court decisions, practices in criminal law (the guy who drives the car for a bank robber is an accessory), and common sense. Reinstituting secondary liability would make it more difficult to engage in shoddy practices.

In other words, the only party that can sue an accounting firm for engaging in fraudulent conduct is his immediate client .who almost certainly is in on the con. Lovely.

By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an "anti-poverty campaigner and tax expert". He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics . He is a member of the Progressive Economy Forum. Originally published at Tax Research UK

I was asked very recently why it was that the big 4 firms of accountants survive. This is an issue I have been considering with Len Seabrooke and Saila Stausholm at Copenhagen Business School. The academic paper on the subject is in progress. Let me offer a plain English perspective for now.

Like much of political economy, this is a story of power. In the first instance this was professional power. The big firms did, as professional institutes developed, have the means to dominate them. They were in the capital cities where those institutes were usually based. They had the means to release partner time to manage those institutes' affairs. They had the motive to do so. That was ring-fencing their profit. The big firms, then, used their power to set the rules for their professions.

Leading the way at a technical level as well, in a profession lead from these firms and not by either government or academia, these firms also innovated in ways that ring fenced their market. I suspect that this may have provided the strongest incentive for the creation of consolidated accounts – which were not a universal requirement for group companies until the 1940s. When consolidated accounts required that multinational groups be treated as single entities their auditors, who I strongly suspect sold its benefit to governments who then made it a legal requirement, could in turn demand that they were the sole group auditor. The global spread of a select few firms was guaranteed. The rise of the global firm was the consequence.

These firms succeeded. The firms then sold consultancy advising other companies to copy the success of their global company clients by also becoming global using a structure that guaranteed market growth in auditing for the big accountants. The market for the big audit firms was reinforced.

As this was happening in the 50s and 60s another phenomena was growing, which was the tax haven. Slowly at first, but steadily as the British empire (in particular) receded, the opportunity to hide nefarious activity, as well as profits and so tax bills in such places, grew. Did the big firms go there before their clients? Or did they have to go because some clients had already gone? It's a question to be answered. But if the firms were to maintain their demand that they must be sole auditor, worldwide, at least in name, then if the global entities they were helping spawn moved to tax havens then they too had to go there.

And they did not miss the opportunity. Already used to lobbying and forming opinion on legislation in the countries from which they originated, and well aware of the coercive power this gave them over their clients, the governments of new tax havens must have seemed easy pickings to the big accountants of the day. And so they were. Whole rafts of legislation were influenced by such firms as they peddled in tax havens the secrecy that opposed the transparency they sold elsewhere. The opportunities must have seemed unlimited.

But the timeline has now reached the 70s, and life was not so good for accountants. Airlines failed back then, with people noticing that their accounts gave no hint that they owned or used planes. In contrast, aeroplane engine makers were claiming that they had value when the products they were developing at enormous cost for the time were unlikely to push anything into the sky. Accounts were not providing a true and fair view.

In the face of significant threats to the profession from an outraged public (well, at least those parts losing money as a result of these failings) the big firms reclaimed the initiative. Accounting standards – supposedly written in the public interest and for the benefit of all stakeholders – were created and governments that were too trusting by half gave them the force of law. The power of the big accountants was reinforced, rather than diminished, by the accounting debacles of that era. Now they could write the rules; say they had the power of law; force them onto their clients and the rest of the profession; and in the process pull themselves ahead of the competing pack. They could do that by advising on the very rules they had created; by claiming to be the only people who could audit them; and by making sure that because some only applied to larger enterprises the knowledge of their use did not trickle down into the profession as a whole.

And they exploited this to the full. The era of capital market liberalisation and globalisation simply provided greater opportunity to do this, whilst the new and more relaxed ethics of this period promoted the use of tax havens in ways previously unforeseen, and the firms jumped with both feet into this market as well, producing tax avoidance schemes by the bucket load.

And things only got better. Although the accountants failed miserably to deliver what they promised when accounting standards were first developed, because they entirely ignored the needs of almost all users of accounts, their capture of the process was so complete that when the European Union was looking for a set of single accounting standards they adopted the Big 4 created International Financial Reporting Standards as quasi law, which has now led to their adoption in more than a hundred countries worldwide, with a parallel process taking place in the USA, Japan and other influential markets. The ability of these firms to control the world's view of capitalism appeared complete, and they reaped the rewards.

And then some cracks appeared. There was a global financial crisis, which accounts had not anticipated. And there was a global loss of tax revenue, which accountants appear to have facilitated through tax havens. And rather annoying people pointed out both failings. You would have thought that the fundamental failure of their product, in the form of accounting standards, and the fundamental failure of their ethics, evidenced by their use of tax havens and sale of tax avoidance products, would have done for these firms. Nothing, however, could be further from the truth, hence the question I was asked. How are they surviving?

Let me reiterate how we got here, because the clue is in the process.

The result is that the big four are now integral to company law, auditing law, accounting law, the law of many tax havens, the structure of the accounting profession and the structure of many of its clients. Their desire to protect their ability to make supernormal profit has created a situation where the entire process of law surrounding companies has been captured for their benefit, and the behaviour of whole markets has been distorted in their favour as a result.

But what they did to achieve this result was display an ability to innovate. Whenever under criticism, they delivered an alternative. When their ethics were questioned, they produced a supposed new standard. When the market demand that they change, for example post Enron, that's what they appeared to do, enough to keep people at bay. And all the time, chameleon like, they emerged from each threat with their power reinforced because they are so integral to the process of corporate regulation that government has effectively abandoned to them.

That is how they have survived. But that also suggests how the process is changed. Government has to reclaim this process.

And it has to determine who will write the alternatives. None of that will be easy. But with adequate investment it is entirely possible. These firms have captured significant parts of the processes of capitalism for their own ends. If we are to still have mixed economies, and I think we should, then this process of capture has to be disrupted, in the public interest. It is only by doing so that the power of the Big 4 will be challenged. Nothing else will change it.

That's the issue we face. And since there is no challenge right now the Big 4 will go on. And on. Which is right now just as they want it.

timotheus , February 13, 2019 at 5:30 am

Have been reading The Billion-Dollar Whale about the 1MDB mega-heist, facilitated by auditors and bank compliance officers at every step as the Malaysian people were fleeced of billions to pay for sickening rounds of parties, yachts, champagne baths, jewelry, gambling, and garish mansions. "Odious debt" if ever there were.

Colonel Smithers , February 13, 2019 at 5:53 am

Thank you, Yves.

"In the process they captured the tax havens and their legislatures, and used them for their own purposes." That is certainly the case in Mauritius where the former deputy PM and finance minister, Xavier-Luc Duval, worked for KPMG in London and Port-Louis. In the UK, Patricia Hewitt left the cabinet and Commons to head public policy and affairs for one of the Big Four.

It's not just the legislatures, the former CFO to the royal family, Sir Michael Peat,was senior partner at KPMG. So was his great grandfather, a scion of the Barclay banking family and founder of Peat Marwick. Former KPMG employees hold and have held senior regulatory positions in the UK. KPMG seems to be the go to firm.

Thuto , February 13, 2019 at 8:32 am

Thank You Colonel Smithers.

Meanwhile, down in SA:

1. VBS Mutual Bank looted into curatorship.

2. Cape Town HQD and dual listed in Frankfurt and Joburg, retailer Steinhoff International has shed over 90% of its market value due to an "accounting scandal" (with ordinary pensioners losing billions in the process).

3. The Guptas, through their companies and aided by their man Jacob Zuma as state president, brazenly looted state coffers on a massive scale.

As the enablers-in-chief, KPMG is woven into the common thread running across all these scandals. Not to worry though, they've thrown a few executives under the bus and are currently on a charm offensive reminding the public just how ethical a bunch they all are in spite of providing cover for these nefarious activities and will surely emerge from this with their "power reinforced".

PS: Steinhoff has set up an "ethics hotline" run by who? KPMG, wonders truly never cease

Colonel Smithers , February 13, 2019 at 9:12 am

Thank you, Thuto.

I know Steinhoff well from my time at HSBC in Johannesburg and London, 2003 – 6. It had yet to become the plaything of Wiese.

KPMG is similar woven into UK scandals.

You are right to use the term "enabler in chief". It's the entire professional services industry. Law firms, too. The UK Big Four are now setting up legal, advertising and corporate finance practices.

I was at the Blue Eagle, soon to be ABSA red in the rest of Africa, from 2014 – 6. A friend was fired from the nest after querying why one of the Big Four was hired to manage its client on boarding remediation at a higher cost and on a longer timescale than her team could do. The management wanted the Big Four as a firewall. Ironically, she joined one of the Big Four a few months later. Her settlement, which included a gagging order, precluded her from working for six months.

Thuto , February 13, 2019 at 11:11 am

"It's the entire professional services industry". Amen to that

vlade , February 13, 2019 at 6:11 am

This is a topic that gets raised now and them (more often recently) in the UK – that auditors/accountants should bear responsibility for fraud etc., and should not be just mindless box tickers.

The Rev Kev , February 13, 2019 at 6:45 am

A question for those of us not in the know. With Neoliberalism you can say that it has an intellectual back-office with places like the Chicago school of economics. Is there an intellectual back-office of sorts for accountancy that enable these Big Four to justify their accountancy rules as well? Or do they get to make it up as they go along?

Independent Accountant , February 13, 2019 at 9:02 am

Having the government do audits will make things worse. In the US, the PCAOB is the Big Four's cartel enforcer. The PCAOB should be dissolved and the law changed to facilitate suits against CPAs. Let the plaintiff's bar discipline the CPA profession.
Uncle Sam had the FED create stress tests. Why? To convince the public the FED had things under control and the banking system is sound. Why would government audits be better than the stress tests?
Uncle Sam could break up the Big Four into the not so sweet 16. Will it? Or does the Big Four do exactly what Uncle Sam wants? Are the "problems" we see, feature or bug?

whine country , February 13, 2019 at 9:24 am

Yes, the plaintiffs bar worked very well in my early days as a CPA. Particularly because CPAs, like other professionals, had PERSONAL liability and could not hide behind the corporate wall. This is one of those things that worked very well in real life but someone (if it wasn't economists it was persons of the same ilk) proved it was theoretically impossible. Hence, all professionals are now corporations where before they weren't even allowed to be called a business. From the perspective of a professional accountant with years of watching how the system works we are, ironically, failing because of accountability. We have a smoothly functioning form of capitalism that manifests in "Heads I win, tails you lose". That fundamental principal has been ignored from the late '70s to today at our extreme peril culminating in the GFC where it was taken to the extreme of "Heads I win, tails I win more and you lose more.

johnnygl , February 13, 2019 at 9:13 am

Good topic to cover. The accounting firms are right up there with the ratings agencies as 'high priests' of capital whose blessing is required if your are to be welcome into the halls of power.

whine country , February 13, 2019 at 9:35 am

Yet they're no better than Moody's or Fitch's ratings – bought and paid for. We know that they are, we're just haggling about the price.

whine country , February 13, 2019 at 9:33 am

For anyone interested, NN Taleb writes eloquently about two subjects which are germane: experts and skin in the game, for the same reasons as the author of this piece. The Big Four are so-called experts and they have no skin in the game. This as Taleb, makes us all fools who have been hoodwinked because failure to understand that abuses of these two issues is what has ruined capitalism in our lifetimes. Like the frog put in a pot of water which is slowly heated, I watched this happen over my career. It is our formerly functioning capitalist system that is the frog in the water.

lyman alpha blob , February 13, 2019 at 1:18 pm

Thanks for this. There have always been some accounting practices that were supposedly "Generally Accepted" that made me scratch my head as they didn't seem to lead to any greater transparency, and in fact often quite the opposite.

[Feb 13, 2019] Oil gains 2 percent as Saudi Arabia readies more supply cuts

Feb 13, 2019 | finance.yahoo.com

Saudi Arabia planning to drop March crude output by more than a half a million barrels per day below its initial pledge.

... ... ...

OPEC said on Tuesday it had reduced oil production almost 800,000 bpd in January to 30.81 million bpd under its voluntary global supply pact.

Saudi Arabia Energy Minister Khalid al-Falih told the Financial Times that the kingdom would reduce cut production to about 9.8 million bpd in March to bolster oil prices.

[Feb 12, 2019] Bill Gates suggests Ocasio-Cortez's tax plan a 'misfocus' by Brittany De Lea

Feb 12, 2019 | finance.yahoo.com

Microsoft co-founder Bill Gates does not think the way to increase U.S. tax revenue is through policies like raising the tax rate on the wealthy to 70 percent – as has been floated by some Democratic lawmakers like New York Rep. Alexandria Ocasio-Cortez.

During a podcast interview with The Verge , Gates responded to a question about whether raising the top rate to 70 percent in order to fund social programs – like infrastructure initiatives – appeals to him by saying government can be more effective in running social programs, but that's not the best way to raise revenue.

"You finally have some politicians who are so extreme that I'd say, 'No, that's even beyond,'" Gates said. "You do start to create tax dodging and disincentives, and an incentive to have the income show up in other countries and things."

Gates added that the country's richest people often don't pay the highest rate because their wealth doesn't always show up as income, it can be in the value of their stock, for example.

"So it's a misfocus," he added. "If you focus on that, you're missing the picture."

The billionaire businessman, however, does believe there are ways to make the current tax code more progressive. Some of those ways include more progressive policies regarding the estate tax, the tax on capital, or reforming FICA and Social Security taxes. Independent Vermont Sen. Bernie Sanders recently released a proposal to expand the estate tax to a rate of 77 percent for those passing on assets in excess of $1 billion.

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Bill Gates also called modern monetary theory (MMT) – which asserts that because the government controls its own currency, there is no need to worry about balancing the budget – "some crazy talk." Ocasio-Cortez recently indicated she was open to supporting MMT.

Gates is one of the richest people in the world. He has said, despite the fact that he has paid more in taxes than most, he should be paying more .

[Feb 12, 2019] Oil gains 2 percent

Feb 12, 2019 | finance.yahoo.com

Rising oil prices help Venezuela more than it helps the rest of OPEC because Venezuela needs the money more.

[Feb 12, 2019] Sanctions, OPEC cuts push Asia's heavy crude oil prices above Brent

Feb 12, 2019 | finance.yahoo.com

Middle East oil benchmarks Dubai and DME Oman have nudged above prices for Brent crude, an unusual move as U.S. sanctions on Venezuela and Iran along with output cuts by OPEC tighten supply of medium to heavy oil, traders and analysts said.

Heavier grades, mainly produced in the Middle East, Canada and Latin America, typically have a high sulphur content and are usually cheaper than Brent, the benchmark for lighter oil in the Atlantic Basin.

[Feb 07, 2019] Saudi Arabia cuts oil output by about 400,000 bpd in January sources

Feb 07, 2019 | finance.yahoo.com

DUBAI/LONDON (Reuters) - Saudi Arabia, the world's top oil exporter, cut its crude output in January by about 400,000 barrels per day (bpd), two OPEC sources said, as the kingdom follows through on its pledge to reduce production to prevent a supply glut.

Riyadh told OPEC that the kingdom pumped 10.24 million bpd in January, the sources said. That's down from 10.643 million bpd in December, representing a cut that was 70,000 bpd deeper than targeted under the OPEC-led pact to balance the market and support prices.

The Organisation of the Petroleum Exporting Countries, Russia and other non-OPEC producers - an alliance known as OPEC+ - agreed in December to reduce supply by 1.2 million bpd from Jan. 1.

The agreement stipulated that Saudi Arabia should cut output to 10.311 million bpd, but energy minister Khalid al-Falih has said it will exceed the required reduction to demonstrate its commitment.

[Feb 07, 2019] OPEC's Oil Exports to U.S. Fall to Five-Year Low in January

Feb 07, 2019 | finance.yahoo.com

Crude shipments to the U.S. from OPEC and its partners fell to 1.41 million barrels a day in January, the lowest in five years, according to data from cargo-tracking and intelligence company Kpler. Shrinking Iraqi imports and deep output cuts by Saudi Arabia fueled the decline

[Feb 05, 2019] Italy Guns For Glass-Steagall-Type Law to Break Up Banks, Cut Bailout Costs for Taxpayers

Looks like pendulum moved in opposite direction and neoliberals (and first of all financial oligarchy) might be crashed by the return of the New Deal style regulations as well as higher taxes on incomes. the latter measure is popular even in the USA.
Notable quotes:
"... By Don Quijones of Spain, Mexico, and the UK, and an editor at Wolf Street. Originally published at Wolf Street ..."
"... The bill will face stiff opposition from the domestic banking sector as well as the European Commission, which in 2017, under pressure from Europe's banking lobbies, abandoned its own pledge to break-up too-big-to-fail lenders. ..."
"... Since the global financial crisis, big banks on both sides of the Atlantic have been fighting tooth and nail all regulatory attempts to split their deposit-taking commercial units from their riskier investment banking units. ..."
Feb 05, 2019 | www.nakedcapitalism.com
By Don Quijones of Spain, Mexico, and the UK, and an editor at Wolf Street. Originally published at Wolf Street

On Friday, Italy's coalition government unveiled new banking regulations that it hopes to pass in the coming months, including a rule that would separate banks' commercial and investment arms. It would be the Italian equivalent of the Glass-Steagall Act, the 1933 U.S. law that separated commercial banks that took deposits, made loans, and processed transaction, from riskier investment banking activities. The law was designed to protect deposits. Its repeal in 1999 led to the consolidation of the U.S. banking sector, unfettered risk-taking by deposit-taking banks, and arguably the Financial Crisis just eight years later.

... ... ...

The bill will face stiff opposition from the domestic banking sector as well as the European Commission, which in 2017, under pressure from Europe's banking lobbies, abandoned its own pledge to break-up too-big-to-fail lenders.

Since the global financial crisis, big banks on both sides of the Atlantic have been fighting tooth and nail all regulatory attempts to split their deposit-taking commercial units from their riskier investment banking units. Such legislation would would make each entity smaller. And that is not in the interests of the big banks, nor the ECB, which hopes to breathe life into a new generation of trans-European super-banks by serving as matchmaker to Europe's largest domestic lenders.

[Feb 05, 2019] Consuming Pagan Fires

Feb 05, 2019 | jessescrossroadscafe.blogspot.com

Consuming Pagan Fires

"And you could say in some respects this 'shadow behind the power' that makes money off war, period, no matter who's the belligerent, makes money off that volatility now, especially with computers that are able to assist them in doing so, like currency manipulation, for example, or just general speculation. And they don't care about what they're doing to the real economy, because they're raking in the dough."

Lawrence Wilkerson, former chief of staff to Colin Powell

"There are those contentious and disorderly people, who engage in useless speculation and deceptive talk, and focus on divisive points of dispute... All things are good to the pure of heart, but to these corrupt and disbelieving controversialists nothing can be good, since both their minds and and their hearts are corrupted. They may say that they know God, but by their actions they deny Him, being corrupt and disobedient, and of no use for any good purpose."

Titus 1:10,15-16

It is enlightening to see that even in the earliest of times there were those who made a trade out of controversy, and of spreading hatred and fear. There are those now who seek to inflame controversy, for their own purposes and those of their paymasters. Nowhere is this more apparent now than in our polarized political landscape, and most social discourse in the mainstream and on that modern public forum, the Internet.

Even those who think of themselves as good can get caught up in it. It is one of the greatest of ironies, that we become what we hate, because that is where we place our attention, and thereby our hearts..

There are sites and places that one can go to and be almost certain of a type of hateful and divisive focus, of easily provoked anger, and contempt for others, of incivility and almost childlike tantrums, with sweeping generalizations, conclusions and condemnations. They are 'playing to the mob' and venting their own disquiet hearts.

This is not the same as reform, or of the calling out of injustice to the light. This is the madness that makes a fog in the minds and the hearts, which serves one to escape the pain of thinking.

Why do we go to these sites, and listen to them, and repeat their deceptive assertions, if not for the thrill of a temporary distraction? And so often we excuse our participation, saying we only wish to 'inform' others, while poisoning the minds of our friends and our children.

The weather started getting rough...
But if we are honest, we know that there is no good in this, no good fruits, because there is no love in them. It is difficult to see at times, because deceit can be cleverly phrased and our emotions are powerfully engaging.

When in doubt always step back and ask, if not of yourself then of the Lord, where is the love in this, where is the fruitfulness of good works? Is this serving good, or passionate anger of the self and its wrath?

By their actions they show what they are. And these produce nothing good, but only add to the destruction and confusion, for money, or for the sick release of their own disturbed and disordered minds and hearts, with which they infect many.

Speaking of infections, the Fed's turn to dovishness has reignited the animal spirits of the Bubbleonians™.

Stocks continued moving hired, fueled by a renewed optimism of the 'Fed Put' which is another term for the official backstopping of speculation in financial assets.

[Feb 04, 2019] Cuomo Blames Trump Tax Plan for Reduced New York Tax Collections

Feb 04, 2019 | finance.yahoo.com

New York collected $2.3 billion less income-tax revenue than predicted for December and January, a development that Governor Andrew Cuomo blamed on wealthy residents leaving for second homes in Florida and other states that received more favorable treatment in the tax law enacted by President Donald Trump and the Republican Congress.

The shortfall will require a new look at the $175 billion budget Cuomo submitted to the legislature last month, he said. If the trend continues, the governor said it would affect spending on high-expense items such as health, education, infrastructure and a planned middle-class tax cut.

"There is no doubt that the budget we put forward is not supported by the revenue," the Democratic governor said during a news conference in Albany. "If even a small number of high-income taxpayers leave, it has a great effect on this tax base. You are relying on a very small number of people for the vast amount of your tax dollars."

While acknowledging that stock market volatility is among several factors that may have suppressed income-tax revenue in the past two months, the governor placed most of the blame on Trump and the Republican-dominated Congress of 2017, which enacted a tax plan limiting federal deductions on real estate and other local taxes.

Related: New York's Income-Tax Revenue Falls 'Abruptly' Under Forecast

"It was politically diabolical and also highly effective," Cuomo said. "And if your goal is to help Republican states and hurt Democratic states this is the way to do it."

[Feb 04, 2019] Citi expects Brent crude to continue rising into the mid-$60 range and hit $70 before year end

Feb 04, 2019 | finance.yahoo.com

The bank expects oil supply to tighten in the first quarter as top exporter Saudi Arabia cuts production , but Citi's Ed Morse also forecasts a soft spot for demand in the opening months of 2019. Further complicating matters are a series of geopolitical and market dramas that will play out through the beginning of May.

This follows a three-month period that saw oil prices spike to nearly four-year highs as the market braced for U.S. sanctions on Iran. Prices then tumbled more then 40 percent to 18-month lows, blowing up long-held trading strategies and forcing drillers to rethink their 2019 budgets.

"The volatility every year is a good $20 to $25 a barrel between low and high," Morse said. "December was kind of the nightmare for the world where the swings were $50 at a low, $86 at a high and $68 for the average of Brent."

... ... ...

Citi expects Brent crude to continue rising into the mid-$60 range and hit $70 before year end. That will be enough to keep in play another wild card: surging U.S. oil production.

[Feb 04, 2019] Absolute control over people and resources is the ultimate goal of financial oligarchy

Financial industry has inherent trend toward parasitism and gangsterism and as such should be as tightly regulated as gambling. Probably even more. But under neoliberalism where financial oligarchy a the ruling class this is a pipe dream. I do not see any significant countervailing force other the far right nationalism. Far right nationalism has power to brake bankers spine, but usually they allied with them (fascism)
Feb 04, 2019 | www.zerohedge.com
Authored by Tom Chatham via Project Chesapeake blog,

Those that have been following events for several years know they are under attack by an enemy that has no face and means to do them great harm. Nothing less than their sovereignty and freedom is at stake.

Absolute control over people and resources is the ultimate goal.

Davidduke2000 , 9 minutes ago link

On his deathbed, Andrew Jackson said " I beat the bank".

Davidduke2000 , 9 minutes ago link

On his deathbed, Andrew Jackson said " I beat the bank".

freedommusic , 2 hours ago link

...the bankers want to show up after the population has lost everything in a collapse, to be their savior and gain control of everyone by offering resources in exchange for compliance.

In the end these bankers are just people . They yield NO power other than a cheap magi c trick called money. They are simply losers pulling levers behind the curtain . They are terrified of real people. They are terrified of being exposed. They are worthless conjurers of useless paper. Their power is a cheap spell. They always have known that once people are aware of the trick, they are done. They are afraid of elevated souls. They are afraid of the awakened. They are terrified of the big red pill that is coming for the masses. Game over.

SickDollar , 2 hours ago link

Uncle Shmuel (the Neocon's version of Uncle Sam)

new term BITCHEZ

Uncle Sam is dead

[Feb 03, 2019] Neoliberalism and Christianity

Highly recommended!
Money quote: " neoliberalism is the fight of finance to subdue society at large, and to make the bankers and creditors today in the position that the landlords were under feudalism."
Notable quotes:
"... ... if you take the Bible literally, it's the fight in almost all of the early books of the Old Testament, the Jewish Bible, all about the fight over indebtedness and debt cancellation. ..."
"... neoliberalism is the fight of finance to subdue society at large,and to make the bankers and creditors today in the position that the landlords were under feudalism. ..."
"... They call themselves free marketers, but they realize that you cannot have neoliberalism unless you're willing to murder and assassinate everyone who promotes an alternative ..."
"... Just so long as you remember that most of the strongest and most moving condemnations of greed and money in the ancient and (today) western world are also Jewish--i.e. Isaiah, Jeremiah, Micah, the Gospels, Letter of James, etc. ..."
"... The history of Jewish banking after the fall or Rome is inextricable from cultural anti-judaism of Christian west and east and de facto marginalization/ghettoization of Jews from most aspects of social life. The Jewish lending of money on interest to gentiles was both necessary for early mercantilist trade and yet usury was prohibited by the church. So Jewish money lenders were essential to and yet ostracized within European economies for centuries. ..."
"... Now Christianity has itself long given up on the tradition teaching against usury of course. ..."
"... In John, for instance most of the references to what in English is translated as "the Jews" are in Greek clearly references to "the Judaeans"--and especially to the ruling elite among the southern tribe in bed with the Romans. ..."
May 02, 2018 | www.moonofalabama.org

karlof1 , May 1, 2018 2:27:06 PM | 13

Just finished reading the fascinating Michael Hudson interview I linked to on previous thread; but since we're discussing Jews and their religion in a tangential manner, I think it appropriate to post here since the history Hudson explains is 100% key to the ongoing pain us humans feel and inflict. My apologies in advance, but it will take this long excerpt to explain what I mean:

"Tribes: When does the concept of a general debt cancellation disappear historically?

"Michael: I guess in about the second or third century AD it was downplayed in the Bible. After Jesus died, you had, first of all, St Paul taking over, and basically Christianity was created by one of the most evil men in history, the anti-Semite Cyril of Alexandria. He gained power by murdering his rivals, the Nestorians, by convening a congress of bishops and killing his enemies. Cyril was really the Stalin figure of Christianity, killing everybody who was an enemy, organizing pogroms against the Jews in Alexandria where he ruled.

"It was Cyril that really introduced into Christianity the idea of the Trinity. That's what the whole fight was about in the third and fourth centuries AD. Was Jesus a human, was he a god? And essentially you had the Isis-Osiris figure from Egypt, put into Christianity. The Christians were still trying to drive the Jews out of Christianity. And Cyril knew the one thing the Jewish population was not going to accept would be the Isis figure and the Mariolatry that the church became. And as soon as the Christian church became the establishment rulership church, the last thing it wanted in the West was debt cancellation.

"You had a continuation of the original Christianity in the Greek Orthodox Church, or the Orthodox Church, all the way through Byzantium. And in my book And Forgive Them Their Debts, the last two chapters are on the Byzantine echo of the original debt cancellations, where one ruler after another would cancel the debts. And they gave very explicit reason for it: if we don't cancel the debts, we're not going to be able to field an army, we're not going to be able to collect taxes, because the oligarchy is going to take over. They were very explicit, with references to the Bible, references to the jubilee year. So you had Christianity survive in the Byzantine Empire. But in the West it ended in Margaret Thatcher. And Father Coughlin.

"Tribes: He was the '30s figure here in the States.

"Michael: Yes: anti-Semite, right-wing, pro-war, anti-labor. So the irony is that you have the people who call themselves fundamentalist Christians being against everything that Jesus was fighting for, and everything that original Christianity was all about."

Hudson says debt forgiveness was one of the central tenets of Judaism: " ... if you take the Bible literally, it's the fight in almost all of the early books of the Old Testament, the Jewish Bible, all about the fight over indebtedness and debt cancellation. "

Looks like I'll be purchasing Hudson's book as he's essentially unveiling a whole new, potentially revolutionary, historical interpretation.

psychohistorian , May 1, 2018 3:31:50 PM | 26
@ karlof1 with the Michale Hudson link....thanks!!

Here is the quote that I really like from that interview
"
Michael: No. You asked what is the fight about? The fight is whether the state will be taken over, essentially to be an extension of Wall Street if you do not have government planning. Every economy is planned. Ever since the Neolithic (era), you've had to have (a form of) planning. If you don't have a public authority doing the planning, then the financial authority becomes the planners. So globalism is in the financial interest –Wall Street and the City of London, doing the planning, not governments. They will do the planning in their own interest. So neoliberalism is the fight of finance to subdue society at large,and to make the bankers and creditors today in the position that the landlords were under feudalism.
"

karlof1, please email me as I would like to read the book as well and maybe we can share a copy.

And yes, it is relevant to Netanyahoo and his ongoing passel of lies because humanity has been told and been living these lives for centuries...it is time to stop this shit and grow up/evolve

james , May 1, 2018 10:30:01 PM | 96
@13 / 78 karlof1... thanks very much for the links to michael hudson, alastair crooke and the bruno maraces articles...

they were all good for different reasons, but although hudson is being criticized for glossing over some of his talking points, i think the main thrust of his article is very worthwhile for others to read! the quote to end his article is quite good "The question is, who do you want to run the economy? The 1% and the financial sector, or the 99% through politics? The fight has to be in the political sphere, because there's no other sphere that the financial interests cannot crush you on."

it seems to me that the usa has worked hard to bad mouth or get rid of government and the concept of government being involved in anything.. of course everything has to be run by a 'private corp' - ie corporations must run everything.. they call them oligarchs when talking about russia, lol - but they are corporations when they are in the usa.. slight rant..

another quote i especially liked from hudson.. " They call themselves free marketers, but they realize that you cannot have neoliberalism unless you're willing to murder and assassinate everyone who promotes an alternative ." that sounds about right...

@ 84 juliania.. aside from your comments on hudsons characterization of st paul "the anti-Semite Cyril of Alexandria" further down hudson basically does the same with father coughlin - https://en.wikipedia.org/wiki/Charles_Coughlin.. he gets the anti-semite tag as well.. i don't know much about either characters, so it's mostly greek to me, but i do find some of hudsons views especially appealing - debt forgiveness being central to the whole article as i read it...

it is interesting my own view on how money is so central to the world and how often times I am incapable of avoiding the observation of the disproportionate number of Jewish people in banking.. I guess that makes me anti-semite too, but i don't think of myself that way.. I think the obsession with money is killing the planet.. I don't care who is responsible for keeping it going, it is killing us...

WJ | May 1, 2018 10:48:58 PM | 100

James @96,

Just so long as you remember that most of the strongest and most moving condemnations of greed and money in the ancient and (today) western world are also Jewish--i.e. Isaiah, Jeremiah, Micah, the Gospels, Letter of James, etc.

The history of Jewish banking after the fall or Rome is inextricable from cultural anti-judaism of Christian west and east and de facto marginalization/ghettoization of Jews from most aspects of social life. The Jewish lending of money on interest to gentiles was both necessary for early mercantilist trade and yet usury was prohibited by the church. So Jewish money lenders were essential to and yet ostracized within European economies for centuries.

Now Christianity has itself long given up on the tradition teaching against usury of course.

WJ , May 1, 2018 8:23:40 PM | 88
Juliana @84,

I too greatly admire the work of Hudson but he consistently errs and oversimplifies whenever discussing the beliefs of and the development of beliefs among preNicene followers of the way (as Acts puts is) or Christians (as they came to be known in Antioch within roughly eight or nine decades after Jesus' death.) Palestinian Judaism in the time of Jesus was much more variegated than scholars even twenty years ago had recognized. The gradual reception and interpretation of the Dead Sea Scrolls in tandem with renewed research into Phili of Alexandria, the Essenes, the so-called Sons of Zadok, contemporary Galilean zealot movements styles after the earlier Maccabean resistance, the apocalyptism of post exilic texts like Daniel and (presumably) parts of Enoch--all paint a picture of a highly diverse group of alternatives to the state-Church once known as Second Temple Judaism that has been mistaken as undisputed Jewish "orthodoxy" since the advent of historical criticism.

The Gospel of John, for example, which dates from betweeen 80-120 and is the record of a much earlier oral tradition, is already explicitly binitarian, and possibly already trinitarian depending on how one understands the relationship between the Spirit or Advocate and the Son. (Most ante-Nicene Christians understood the Spirit to be *Christ's* own spirit in distributed form, and they did so by appeal to a well-developed but still largely under recognized strand in Jewish angelology.)

The "theological" development of Christianity occurred much sooner that it has been thought because it emerged from an already highly theologized strand or strands of Jewish teaching that, like Christianity itself, privileged the Abrahamic covenant over the Mosaic Law, the testament of grace over that of works, and the universal scope of revelation and salvation as opposed to any political or ethnic reading of the "Kingdom."

None of these groups were part of the ruling class of Judaean priests and levites and their hangers on the Pharisees.

In John, for instance most of the references to what in English is translated as "the Jews" are in Greek clearly references to "the Judaeans"--and especially to the ruling elite among the southern tribe in bed with the Romans.

So the anti-Judaism/Semiti of John's Gispel largely rests on a mistranslation. In any event, everything is much more complex than Hudson makes it out to be. Christian economic radicalism is alive and well in the thought of Gregory of Nysa and Basil the Great, who also happened to be Cappadocian fathers highly influential in the development of "orthodox" Trinitarianism in the fourth century.

I still think that Hudson's big picture critique of the direction later Christianity took is helpful and necessary, but this doesn't change the fact that he simplifies the origins, development, and arguably devolution of this movement whenever he tries to get specific. It is a worthwhile danger given the quality of his work in historical economics, but still one has to be aware of.

[Feb 02, 2019] The US has a secret weapon in the trade war

Technological superiority is a weapon and the USA know how to use it.
Notable quotes:
"... Made in China 2025 is the Chinese government's 10-year plan to update the country's 10 high-tech manufacturing industries, which include information technology, robotics, aerospace, rail transport, and new-energy vehicles, among others. ..."
"... Without U.S. semis, China will not be able to process the technology necessary to push forward the Made in China 2025 program. "American chips in many ways form the backbone of China's tech economy," Shah said. ..."
"... The Trump Administration's tariffs on Chinese goods were intended to severely disrupt the Chinese tech-advancement initiative. But Shah says that making U.S. chips more expensive for China could have consequences for the U.S. as well. ..."
"... "Over 50% of Chinese semiconductor consumption is supplied by U.S. firms In 2017, China consumed $138bn in integrated circuits (ICs), of which it only produced $18.5bn domestically, implying China imported $120bn of semis in 2017, up from $98bn in 2016 and $73bn in 2012." ..."
"... If the two leaders are unable to come to some sort of trade resolution at the meeting, U.S. tariffs on over $200 billion worth of Chinese goods will increase from 10% to 25% on January 1, 2019. ..."
"... While US has the upper hand on semis, a trade embargo on semis will (1) slows down China's move towards achieving Made in China 2025, (2) at the same time give China the impetus to rush ahead will all resources available to achieve the originally omitted goal of being self-sufficient in tech skills and technology, and (3) seriously hurt companies like Intel, AMD, Micron, and Qualcom as a huge percentage of their businesses are with China, and with that portion of their business gone, all these companies will end up in a loss and without the needed financial resources to invest into new technology in the near future. ..."
Nov 30, 2018 | www.yahoo.com

https://platform.twitter.com/widgets/follow_button.html?screen_name=heidi_chung&show_screen_name=false&show_count=false

Heidi Chung Reporter , Yahoo Finance November 28, 2018

As trade tensions run hot between the U.S. and China, President Trump might have one key advantage in the trade war, according to Nomura.

Analyst Romit Shah explained that China's dependence on U.S.-made advanced microchips could give Trump the upper hand.

"We believe that as China-U.S. tensions escalate, U.S. semiconductors give Washington a strong hand because the core components of Made in China 2025 (AI, smart factories, 5G, bigdata and full self-driving electric vehicles) can't happen without advanced microchips from the U.S.," Shah said in a note to clients.

BEIJING, CHINA – NOVEMBER 9, 2017: US President Donald Trump (L) and China's President Xi Jinping shake hands at a press conference following their meeting at the Great Hall of the People in Beijing. Artyom Ivanov/TASS (Photo by Artyom Ivanov\TASS via Getty Images)

Made in China 2025 is the Chinese government's 10-year plan to update the country's 10 high-tech manufacturing industries, which include information technology, robotics, aerospace, rail transport, and new-energy vehicles, among others.

One of Made in China 2025's main goals is to become semiconductor self sufficient. China hopes that at least 40% of the semiconductors used in China will be made locally by 2020, and at least 70% by 2025. "Made in China 2025 made abundantly clear China's commitment to semiconductor self-sufficiency. Made in China 2025 will upgrade multiple facets of the Chinese economy," Shah said.

According to Nomura's estimates, China is currently about 3 to 5 years behind the U.S. in dynamic random-access memory (DRAM) chip production. However, Shah explained that if the trade war persists, the consequences could set Chinese chip production behind by 5 to 15 years.

Without U.S. semis, China will not be able to process the technology necessary to push forward the Made in China 2025 program. "American chips in many ways form the backbone of China's tech economy," Shah said.

Consequences for U.S.

The Trump Administration's tariffs on Chinese goods were intended to severely disrupt the Chinese tech-advancement initiative. But Shah says that making U.S. chips more expensive for China could have consequences for the U.S. as well.

One concern centers around intellectual property theft. The Department of Justice (DOJ) has been working hard to punish China for allegedly attempting to commit espionage. For example, the DOJ believes China was attempting to spy on the U.S. through Huawei and asked U.S. allies to drop the Chinese tech equipment maker.

However, while many U.S. chipmakers, such as Advanced Micro Devices ( AMD ), Qualcomm ( QCOM ) and Micron ( MU ), expressed gratitude that the DOJ was intervening to prevent intellectual property theft, the companies are also concerned that it could spark retaliation from their Chinese business partners and result in loss of access to the Chinese market. "Joint ventures, IP sharing agreements and manufacturing partnerships are the price of admission into China, and thus far, companies are playing ball," Shah explained.

Shah essentially calls the Chinese tariffs a double-edged sword. While tariffs will hurt the Chinese if they can't have access to freely source U.S. chips, it could also hurt U.S. chipmakers if they lose their business in China. According to Shah's research, "Over 50% of Chinese semiconductor consumption is supplied by U.S. firms In 2017, China consumed $138bn in integrated circuits (ICs), of which it only produced $18.5bn domestically, implying China imported $120bn of semis in 2017, up from $98bn in 2016 and $73bn in 2012."

Trump and China's President Xi Jinping are scheduled to meet at the G20 summit in Buenos Aires, Argentina, on Thursday for a two-day meeting. If the two leaders are unable to come to some sort of trade resolution at the meeting, U.S. tariffs on over $200 billion worth of Chinese goods will increase from 10% to 25% on January 1, 2019.

"China could source equipment from Europe and Japan; however, we believe there are certain mission-critical tools that can only be purchased from the U.S. We believe that U.S.-China trade is the biggest theme for U.S. semis and equipment stocks in 2019. Made in China 2025 can't happen without U.S. semis, and U.S. semis can't grow without China. We hope this backdrop drives resolution," Shah said.

Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung .

R

[Feb 02, 2019] As goes January, so goes the year Old Wall Street indicator puts odds of 2019 gain at more than 80% by Patti Domm

This is a classic, textbook example of financial astrology... You probably should read it in full to appreciate the depth of junk science here. But this is financial casino my friends, and they try to entice you with naked girls and drinks...
Feb 01, 2019 | finance.yahoo.com

Stocks had their best January gains in more than 30 years, and that should mean 2019 will be a pretty good year for the market.

That's what the widely watched January barometer tells you - as goes January, so goes the year. According to Stock Trader's Almanac, going back to 1950, that metric of January's performance predicting the year has worked 87 percent of the time with only nine major errors, through 2017. In the years January was positive, going back to 1945, the market ended higher 83 percent of the time, according to CFRA.

But the indicator also signaled a positive year last year, and the market suffered an unusual late-year sell-off, wiping out all of the gains. The S&P 500 ended 2018 down 6.6 percent, despite rising 5.6 percent in January. But the S&P also defied history with a terrible December decline of 9.6 percent , the biggest loss for the final month of the year since 1931.

This January, the S&P 500 was up 7.9 percent. The best January performance since 1987, when it rose 13.2 percent. It was its best overall month since October 2015.

Some market pros worry the sharp snapback in stocks since the late December low means January could be stealing the gains from the rest of the year. Some also believe there could be another test at lower levels in the not too distant future. Yet, Wall Street forecasters have a median target of 2,950 for the S&P 500 at year end, a big leap from the current 2,704.

"I'm still struck between the contrast of a year ago and now," said James Paulsen, chief investment strategist at Leuthhold Group. "We came in last year with nothing but optimism. At this point last year, we had synchronized global growth, confidence had spiked to record post-war highs, and everyone knew we had this steroid-induced earnings boost coming. The thought was how could stocks lose, and of course they did."

The market has sprung back from December's low, with the S&P gaining 15 percent since Dec. 26.

"This year, we came in with nothing but bad news - the economy was slowing down. ... The rest of the world is slowing. We have trade wars. We have the shutdown, and analysts are revising earnings lower," Paulsen added. "We're worried about a recession and a bear market. It's strikingly different, and yet it's kind of like how can stocks win, but they are and I think they will."

Strategists also point to the differences in the way the market traded in each January. This January has been full of volatile swings, with ultimately larger gains than losses. Last year, the market was at the end of a long smooth glide path higher.

Last year didn't work

Stocks did well through most of January 2018, but by the end of the month, a correction started. "On January 30, in 2018, it was the first 1 percent decline in 112 days. That was basically the start of the fall off the cliff. In terms of percent gains, this January is similar to last, but in terms of where we've come from, it's very different. That was one of the calmest advances in history," said Frank Cappelleri, executive director at Instinet.

Cappelleri said it's important to put this year's market move in context, when considering the January barometer. "You have one of the biggest snapbacks after a very bad December, so the odds were in the market's favor to do better than that. I think maybe you have to look where we are now. You're up 15, 20 percent from the low depending on where you look. Are we going to go up that much more for the rest of the year?" he said.

Paulsen sees the gains continuing, after a possible pause. "I think it's going to continue to be a fairly good year, and I think we probably go up and get close to the highs or 3,000 on the S&P, and I'm not expecting hardly anything on the economy, and earnings are going to be weak, if not flat or maybe down," Paulsen said.

He said the slowing economy and a potential U.S.-China trade deal could push the dollar down and that would be a positive for stocks. At the same time, the Fed has paused in interest rate hikes and may even stop its balance sheet unwind.

Jeff Hirsch, editor-in-chief of the Stock Trader's Almanac, said there's another set of statistics that are in the market's favor for a positive 2019, though they also failed last year. He said for the years when the S&P 500 was positive in the first five days of the year, plus gained during the Santa rally period, and was up for the month of January, the S&P 500 had a positive year 27 out of 30 times. It also had an average gain of 17.1 percent in those years, since 1950.

Nick 29 minutes ago

Job growth is solid. Unemployment remains near all time lows even while labor force participation increases. Wage growth outpaced inflation last year. The economy is humming right along...its just the liberal media wants to bombard us with articles claiming the Trump recession is imminent.

I'm surprised they actually published an article sayings its going to be a good year.

[Feb 02, 2019] Wall Street s 2019 S P 500 forecasts

Parade of eminent astrologists ;-) Those financial prostitutes of casino capitlism, aka financial analysts most often are wrong year after year, but still have a solid coverage by the neoliberal media due to the shire wieght of the companies they represent. This bets are not connected with some kind of possible financial loss so they just talking up this firms portfolio, which of course is heavily tilted in favor of stocks. God even Vanguard retirement 2015 fund has 40% in stock, while formula 100-age would give you less then 35%. If this is bullish bias I do not know what is. Of course, they play with "other people money" and commissions are everything...
Notable quotes:
"... Their guesses about a great market in 2018 was kind of a miss. But they only had like 340 days so far. They still have 25 days left to turn in around. ..."
"... These guys are seldom right. I've been tracking these predictions more closely since 2014, usually 12-15 of the large financial institutions. Last year's average consensus was the SP at 2874. We closed Tuesday (Dec 4) at 2700. ..."
"... The average of the figures cited in the article is 3068. I think that is wishful thinking considering the slow downs in many sectors, slowing GDP and a flattening yield curve. ..."
"... With regard to upside potential, these all sound wildly optimistic to me. Ten years of printing money out of thin air and exploding deficits does not a future robust economy make, IMO. ..."
"... They cannot say 2500 cause people will not invest (and no commissions); they have to say equal or higher than today. To me it is screaming between the lines the index will hit 2500. ..."
"... So all of them predict the S&P will be higher then it is today even though many are saying we are already in a Bear Market...these people only make money if the market goes up so don't trust them! ..."
Feb 02, 2019 | finance.yahoo.com

[Feb 02, 2019] Former AOL exec Jean Case faults tech giants for trying to 'own the world'

Notable quotes:
"... Big tech companies have bullied competitors and outrun ethical standards in an effort to "own the world," Jean Case, the CEO of the Case Foundation and a former senior executive at AOL, told Yahoo Finance this week. "Many of those big companies are crowding out new innovations of young upstarts. That's not healthy," she said, in response to a question about Google and Facebook. ..."
Feb 02, 2019 | finance.yahoo.com

Big tech companies have bullied competitors and outrun ethical standards in an effort to "own the world," Jean Case, the CEO of the Case Foundation and a former senior executive at AOL, told Yahoo Finance this week. "Many of those big companies are crowding out new innovations of young upstarts. That's not healthy," she said, in response to a question about Google and Facebook.

"On the technology side, look, things have changed so fast," Case said. "I think we just haven't kept pace with some of the ethics policies and frameworks that we need to put around this stuff...used by millions of millions before thought is given to implications."

Case made the comments in a conversation that aired on Yahoo Finance on Thursday at 5 p.m. EST in an episode of " Influencers with Andy Serwer ," a weekly interview series with leaders in business, politics, and entertainment. In addition to her comments on big tech, Case explained why a woman can be elected president, what National Geographic has done to thrive amid media industry tumult, and how it felt at AOL in the heady early days of the internet.

... ... ...

[Jan 29, 2019] Bloodbath In Oil Gas Stocks Could Continue by Nick Cunningham

Notable quotes:
"... In the meantime, the strategy for oil and gas executives to appease investors is to focus on "quick cash, quarterly payouts and fast talk," Sanzillo says. "Either way the stocks lack a long-term value rationale." ..."
"... Meanwhile, the Wall Street Journal reports that the U.S. shale industry has been over-hyping the production potential from their wells. The WSJ compared well-productivity estimates from shale companies to those from third parties. After looking at the production data at thousands of wells and how much oil and gas those wells were on track to produce over the course of their lifespans, the WSJ found that company forecasts seemed to be misleading. ..."
"... Schlumberger, for instance, has reported that secondary shale wells near older wells in West Texas have been 30 percent less productive than the initial wells, the WSJ found. Also, many shale companies used data from their best wells and extrapolated forward, projecting enormous growth numbers that have not panned out. ..."
Jan 04, 2019 | finance.yahoo.com

Of course, that is largely just a reflection of the sharp decline in oil prices. But the share prices of most oil and gas companies are also largely based on oil price movements. So, the steep slide in oil prices in the final two months of 2018 led to disaster for investors in energy stocks.

"The stock market went to hell in December. And when it got there, it found that the energy sector had already moved in, signed a lease and decorated the place," Tom Sanzillo, Director of Finance at the Institute for Energy Economics and Financial Analysis (IEEFA), wrote in a commentary .

The energy sector was at or near the bottom of the S&P 500 for the second year in a row, Sanzillo pointed out. And that was true even within segments of the oil and gas industry. For instance, companies specializing in hydraulic fracturing fell by 30 percent, while oil and gas supply companies lost 40 percent. "The fracking boom has produced a lot of oil and gas, but not much profit," Sanzillo argued.

Looking forward, there are even larger hurdles, especially in the medium- to long-term. Oil demand growth is flat in developed countries and slowing beginning to slow in China and elsewhere. The EV revolution is just getting started.

The last great hope for the oil industry is to pile into petrochemicals , as oil demand for transportation is headed for a peak. But profits in that sector could also prove elusive. "The industry's rush to invest in petrochemicals to maintain demand for oil and gas is likely to continue, but the profit potential in this sector is more limited than oil and gas exploration, and is likely to keep the energy sector at or near the bottom of the S&P 500," Sanzillo concluded.

In the meantime, the strategy for oil and gas executives to appease investors is to focus on "quick cash, quarterly payouts and fast talk," Sanzillo says. "Either way the stocks lack a long-term value rationale."

Meanwhile, the Wall Street Journal reports that the U.S. shale industry has been over-hyping the production potential from their wells. The WSJ compared well-productivity estimates from shale companies to those from third parties. After looking at the production data at thousands of wells and how much oil and gas those wells were on track to produce over the course of their lifespans, the WSJ found that company forecasts seemed to be misleading.

Related: 2019 Could Make Or Break OPEC

"Two-thirds of projections made by the fracking companies between 2014 and 2017 in America's four hottest drilling regions appear to have been overly optimistic, according to the analysis of some 16,000 wells operated by 29 of the biggest producers in oil basins in Texas and North Dakota," reporters for the WSJ wrote . "Collectively, the companies that made projections are on track to pump nearly 10% less oil and gas than they forecast for those areas, according to the analysis of data from Rystad Energy AS, an energy consulting firm."

Schlumberger, for instance, has reported that secondary shale wells near older wells in West Texas have been 30 percent less productive than the initial wells, the WSJ found. Also, many shale companies used data from their best wells and extrapolated forward, projecting enormous growth numbers that have not panned out.

The upshot is that shale companies will have to step up spending in order to hit the promised production targets. However, so many of them have struggled to turn a profit, and the recent downturn in oil prices has put even more pressure on them to rein in costs.

That raises questions about the production potential not just from individual shale companies, but also from the U.S. as a whole.

By Nick Cunningham of Oilprice.com

[Jan 29, 2019] Bilderberg 2015: where criminals mingle with ministers by Charlie Skelton

Notable quotes:
"... The Bilderberg set call people like you either their "dogs" (if you are in politics or the military) or the "dead." ..."
"... What do you mean "where criminals mingle with ministers". That is assuming that ministers are not criminals. Considering that there will be ministers from the USA, Canada, France, Germany, Italy, Japan and the UK, I'd suggest that there is a near 100% certainty that some, if not all, the ministers there are criminals. ..."
"... That one group of almost-certainly-criminals meets another group of almost-certainly-criminals is hardly surprising. That the whole shebang is protected by the host's police force is even less so ..."
Jun 12, 2015 | The Guardian
Convicted criminals. Such as disgraced former CIA boss, David Petraeus, who's just been handed a $100,000 (£64,000) fine and two years' probation for leaking classified information.

Petraeus now works for the vulturous private equity firm KKR, run by Henry Kravis, who does arguably Bilderberg's best impression of Gordon Gecko out of Wall Street. Which he cleverly combines with a pretty good impression of an actual gecko.

... ... ...

"Can I go now?" Another no. So I continued my list of criminals. I moved on to someone closer to home: René Benko, the Austrian real estate baron, who had a conviction for bribery upheld recently by the supreme court. Which didn't stop him making the cut for this year's conference. "You know Benko?" The cop nodded. It wasn't easy to see in the glare of the searchlight, but he looked a little ashamed.

... ... ...

I decided to reward their vigilance with a chat about HSBC. The chairman of the troubled banking giant, Douglas Flint, is a regular attendee at Bilderberg, and he's heading here again this year, along with a member of the bank's board of directors, Rona Fairhead. Perhaps most tellingly, Flint is finding room in his Mercedes for the bank's busiest employee: its chief legal officer, Stuart Levey.

A Guardian editorial this week branded HSBC "a bank beyond shame" after it announced plans to cut 8,000 jobs in the UK, while at the same time threatening to shift its headquarters to Hong Kong. And having just been forced to pay £28m in fines to Swiss regulators investigating money-laundering claims. The big question, of course, is how will the chancellor of the exchequer, George Osborne, respond to all this? Easy – he'll go along to a luxury Austrian hotel and hole up with three senior members of HSBC in private. For three days.

High up on this year's conference agenda is "current economic issues", and without a doubt, one of the biggest economic issues for Osborne at the moment is the future and finances of Europe's largest bank. Luckily, the chancellor will have plenty of time at Bilderberg to chat all this through through with Flint, Levey and Fairhead. And the senior Swiss financial affairs official, Pierre Maudet, a member of the Geneva state council in charge of the department of security and the economy. It's all so incredibly convenient.

... ... ...

Related: The Guardian view on HSBC: a bank beyond shame | Editorial

consumersunite -> MickGJ 12 Jun 2015 15:23

Let's see, maybe because we have read over their leaked documents from the 1950s in which they discussed currency manipulation and GATT. Everything they have discussed in their meetings over the past decades has almost come to fruition. There are elected officials meeting with criminals such as HSBC. Did you even read the article? If you did, and you are not het up or whatever you call it, then you are of a peasant mentality, and there is no use talking to you.

The Bilderberg set call people like you either their "dogs" (if you are in politics or the military) or the "dead." I won't be looking for your response because you have confirmed that you do not matter.

Carpasia -> MickGJ 12 Jun 2015 10:52

Thank you for your comment, my good man. Hatred is human, and helps us all to avoid pain, for pain, especially unnecessary pain, is allowed to be hated by the agreement of all, if nothing else is. I would hate to be beaten by Nazis. Thus, I would avoid going to a place where that could occur. That is how hatred works for me. It is the only way it can work, and not be pernicious to the self and others.

I distrust the international order as it is the means, harnessed by money, whether corporate or state or individual or monarchical, by which this world is being destroyed. Could things have been better? Jesus is on one end of the spectrum, and Lord Acton on the other, of the spectrums of viewpoints from which that could be properly assessed.

If the corruption at the heart of the international order is not regulated properly, this world will come to an end, not the end of the world itself, but the end of the world as we know it. This is happening now. The world is finite.

I am not a xenophobe. In my experience, the people that are most likely to hurt me, and thus deserve fear, are those closest. Perhaps that is a cynical way of describing it, but anyone who thinks honestly about it would accede to the notion that it is the people who "love" us that hurt us the most, for we agree too be vulnerable to them. It is the matrix of love.

As for Austria and Bavaria, I have visited both places and they were, both, the cleanest locales I have ever seen, with Switzerland having to be mentioned in the same breath, of course.

I take a certain liberty in writing. I am not damning the human race, or strangers to me. If I did not entertain, but caused offence, I apologize to you. I do not possess omniscience, and my words will have to speak for themselves.

Thank you, again.

DemonicWarlordSlayer 12 Jun 2015 08:02

"How Geo Bush's Grandfather Helped Hitler's Rise to Power" in the UK Guardian >

"Did Geo H W Bush Coordinate a JFK Hit Team" at Veterans Today >

"9/11 Conspiracy Solved, Names, Connections, Details" on youtube....dot-to-dot of the

Demonic Warlord's Crimes Against Humanity....end feudalism.


Carpasia 12 Jun 2015 07:09

Excellent article.

I visited Austria once, and I know of what he speaks. It was the one place I have ever visited that I thought I would be jailed if I littered. I was wandering at the time, but I tentatively had a meal of chicken and departed henceforth.

Austrians are an interesting lot, to be sure. That they are perfect goes without saying. Their main virtue is that they do not travel, and that strangers, which we call tourists these days, are not welcomed. If only we were all like that, the world would be a far better place.

Austrians do everything well, including crime. Some of the greatest crimes in the world have been committed by Austrians, but their crimes did not include not having their papers.

During World War 2, and I pass over Hitler, the German machine of death had an unusually high proportion of Austrians in commanding roles assisting it. It can not be explained away by saying they were some kind of faux Germans, and so it matters not. Indeed, if anything, Germans are faux Austrians, looked at in the broad brush of history. Men of many nations joined the Germans and adorned themselves with the Death's Head, but many Austrians might as well have tattooed it onto their foreheads. I know of what I speak, for I read on it, and will justify if questioned.

Reinhard Heydrich is an epitome of this, in the true sense of the word. Kurt Waldheim was another, too young too rise too far before the Ragnarok of May of 1945, but government of the world was not out of his reach, a man who had materially assisted the transportation of the Jews of Thessaloniki to the gas chambers of Auschwitz and, when challenged, was unrepentant, not as a racist, but as something worse even, as a man whose great virtue was that he followed orders. It is order that the Austrians value over everything. Even crime is ordered.

In the common-law west we think criminals are disordered beasts to be locked up. We do not give them papers. They are registered only to warn us of their existence, and we do not like to let them travel, as much as we could benefit by their absence, because we think they flee to license, and we think it wrong to inflict them upon innocents abroad. In Austria, the criminal is the man with no papers. If he has papers, all is well, and he is no criminal, whatever he has done.

colingorton 12 Jun 2015 03:19

What do you mean "where criminals mingle with ministers". That is assuming that ministers are not criminals. Considering that there will be ministers from the USA, Canada, France, Germany, Italy, Japan and the UK, I'd suggest that there is a near 100% certainty that some, if not all, the ministers there are criminals.

That one group of almost-certainly-criminals meets another group of almost-certainly-criminals is hardly surprising. That the whole shebang is protected by the host's police force is even less so.

How far can all this mutual back scratching go? It seems that the only alternative left is far too drastic, but there really seems to be no place for a legal alternative, does there?

[Jan 29, 2019] The Religious Fanaticism of Silicon Valley Elites by Paul Ingrassia

Highly recommended!
Notable quotes:
"... As our society rushes toward technological ataraxia , it may do us some good to ponder the costs of what has become Silicon Valley's new religious covenant. For the enlightened technocrat and the venture capitalist, God is long dead and buried, democracy sundered, the American dream lost. These beliefs they keep hush-hushed, out of earshot of their consumer base. Best not to run afoul of the millions of middle-class Americans who have developed slavish devotions to their smartphones and tablets and Echo Dots, pouring billions into the coffers of the ballooning technocracy. ..."
"... The problem with Silicon Valley elites is a bit simpler than that. They are all very smart, but their knowledge is limited. They know everything about electronics, computers, and coding, but know little of history, philosophy, or the human condition. Hence they see everything as an engineering problem, something with an optimal, measurable solution. ..."
"... As Tucker Carlson is realizing, Artificial Intelligence eliminating around 55% of all jobs (as the Future of Employment study found) so that wealthy people can have more disposable income to demand other services also provided by robots is madness. This is religious devotion either to defacto anarcho-capitalism, transhumanism, or both. ..."
"... @TheSnark -- valid observation: The Silicon Valley elites " know everything about electronics, computers, and coding, but know little of history, philosophy, or the human condition." Religion is not an engineering issue. Knowing a little about history, philosophy, human condition would help them to understand that humans need something for their soul. And the human soul is not described by boolean "1"s or "0"s ..."
"... Zuckerberg's comment about the Roman Empire is bizzare.to say the least. Augustus didn't create "200 years of peace". The Roman Empire was constantly conquering its neighbors. And of the first 5 Roman Emperors, Augustus was the only one who defintly died of natural causes ..."
"... This time period was an extremely violent time period. The fact that Zuckerberg doesn't realize this, indicates to me that while he is smart at creating a business, he is basically a pseudo-intellectual ..."
Jan 10, 2019 | www.theamericanconservative.com

They've rejected God and tradition in favor of an egoistic radicalism that sees their fellow man as expendable.

As our society rushes toward technological ataraxia , it may do us some good to ponder the costs of what has become Silicon Valley's new religious covenant. For the enlightened technocrat and the venture capitalist, God is long dead and buried, democracy sundered, the American dream lost. These beliefs they keep hush-hushed, out of earshot of their consumer base. Best not to run afoul of the millions of middle-class Americans who have developed slavish devotions to their smartphones and tablets and Echo Dots, pouring billions into the coffers of the ballooning technocracy.

While Silicon Valley types delay giving their own children screens, knowing full well their deleterious effects on cognitive and social development (not to mention their addictive qualities), they hardly bat an eye when handing these gadgets to our middle class. Some of our Silicon oligarchs have gone so far as to call these products "demonic," yet on they go ushering them into schools, ruthlessly agnostic as to whatever reckoning this might have for future generations.

As they do this, their political views seem to become more radical by the day. They as a class represent the junction of meritocracy and the soft nihilism that has infiltrated almost every major institution in contemporary society. By day they inveigh against guns and walls and inequality; by night they decamp into multimillion-dollar bunkers, safeguarded against the rest of the world, shamelessly indifferent to their blatant hypocrisy. This cognitive dissonance results in a plundering worldview, one whose consequences are not yet fully understood but are certainly catastrophic. Its early casualties already include some of the most fundamental elements of American civil society: privacy, freedom of thought, even truth itself.

​Hence a recent New York Times profile of Silicon Valley's anointed guru, Yuval Harari. Harari is an Israeli futurist-philosopher whose apocalyptic forecasts, made in books like Homo Deus: A Brief History of Tomorrow , have tantalized some of the biggest names on the political and business scenes, including Barack Obama, Bill Gates, and Mark Zuckerberg. The Times portrays Harari as gloomy about the modern world and especially its embrace of technology:

Part of the reason might be that Silicon Valley, at a certain level, is not optimistic on the future of democracy. The more of a mess Washington becomes, the more interested the tech world is in creating something else, and it might not look like elected representation. Rank-and-file coders have long been wary of regulation and curious about alternative forms of government. A separatist streak runs through the place: Venture capitalists periodically call for California to secede or shatter, or for the creation of corporate nation-states. And this summer, Mark Zuckerberg, who has recommended Mr. Harari to his book club, acknowledged a fixation with the autocrat Caesar Augustus. "Basically," Mr. Zuckerberg told The New Yorker, "through a really harsh approach, he established 200 years of world peace."

Harari understands that liberal democracy is in peril, and he's taken it upon himself to act as a foil to the anxieties of the elite class. In return, they regale him with lavish dinner parties and treat him like their maharishi. Yet from reading the article, one gets the impression that, at least in Harari's view, this is but a facade, or what psychologists call "reaction formation." In other words, by paying lip service to Harari, who is skeptical of their designs, our elites hope to spare themselves from incurring any moral responsibility for the costs of their social engineering. And "social engineering" is not a farfetched term to use. A portion of the Times article interrogates the premise of Aldous Huxley's dystopian 1932 novel Brave New World , which tells the story of a totalitarian regime that has anesthetized a docile underclass into blind submission:

As we boarded the black gull-wing Tesla Mr. Harari had rented for his visit, he brought up Aldous Huxley. Generations have been horrified by his novel "Brave New World," which depicts a regime of emotion control and painless consumption. Readers who encounter the book today, Mr. Harari said, often think it sounds great. "Everything is so nice, and in that way it is an intellectually disturbing book because you're really hard-pressed to explain what's wrong with it," he said. "And you do get today a vision coming out of some people in Silicon Valley which goes in that direction."

Here, Harari divulges with brutal frankness the indisputable link between private atheism and political thought. Lacking an immutable ontology, man is left in the desert, unmoored from anything to keep his insatiable passions in check. His pride entices him into playing the role of God.

Big Government Isn't the Way to Fix Big Tech The Tech Giants Must Be Stopped

At one point in the article, Harari wonders why we should even maintain a low-skilled "useless" class, whose work is doomed to disappear over the next several decades, replaced by artificial intelligence. "You're totally expendable," Harari tells his audience. This is why, the Times says, the Silicon elites recommend social engineering solutions like universal income to try and mitigate the more unpleasant effects of that "useless" class. They seem unaware (or at least they're incapable of admitting) that human nature is imperfect, sinful, and can never be perfected from on high. Since many of the Silicon breed reject the possibility of a timeless, intelligent metaphysics (to say nothing of Christianity), such truisms about our natures go over their heads. Metaphysics aside, the fact that our elites are even thinking this way to begin with -- that technology may render an entire underclass "expendable" -- is in itself cause for concern. (As Keynes once quipped, "In the long run we are all dead.")

Harari seems to have a vendetta against traditions -- which can be extrapolated to the tradition of Western civilization writ large -- for long considering homosexuality aberrant. He is quoted as saying, "If society got this thing wrong, who guarantees it didn't get everything else wrong as well?" Thus do the Silicon elites have the audacity to shirk their entire Western birthright, handed down to them across generations, in the name of creating a utopia oriented around a modern, hyper-individualistic view of man.

When man abandons God, he begins to channel his religious desire, more devouring than even his sexual instinct, into other worldly outlets. Thus has modern liberalism evolved from a political school of thought into an out-and-out ecclesiology, one that perverts elements of Christian dogma into technocratic channels. (Of course, one can debate whether this was liberalism's intent in the first place.) Our elites have crafted for themselves a new religion. Humility to them is nothing more than a vice.

The reason the elites are entertaining alternatives to democracy is because they know that so long as we adhere to constitutional government -- our American system, even in its severely compromised form -- we are bound to the utterly natural constraints hardwired by our framers (who, by the way, revered Aristotle and Jesus). Realizing this, they seek alternative forms in Silicon Valley social engineering projects, hoping to create a regime that will conform to their megalomaniacal fancies.

If there is a silver lining in all this, it's that in the real word, any such attempt to base a political regime on naked ego is bound to fail. Such things have been tried before, in our lifetimes, no less, and they have never worked because they cannot work. Man should never be made the center of the universe because, per impossible, there is already a natural order that cannot be breached. May he come to realize this sooner rather than later. And may Mr. Harari's wildest nightmares never come to fruition.

Paul Ingrassia is a co-host of the Right on Point podcast. To listen to his podcast, click here .


Fran Macadam , January 10, 2019 at 2:58 am

"in the real word, any such attempt to base a political regime on naked ego is bound to fail. Such things have been tried before, in our lifetimes, no less, and they have never worked because they cannot work."

But they can create hells on earth for many decades, in which millions are consumed, until played out.

George Crosley , , January 10, 2019 at 7:47 am
As Kipling so aptly put it, in the final stanzas of a poem:

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!

madge , , January 10, 2019 at 9:03 am
"The reason the elites are entertaining alternatives to democracy is because they know that so long as we adhere to constitutional government -- our American system, even in its severely compromised form -- we are bound to the utterly natural constraints hardwired by our framers (who, by the way, revered Aristotle and Jesus)."

Um, you do know that one of the gravest dangers the founders feared was democracy? And the bulwarks they put in place are all meant to constraint majority rule? Now, if the argument you are making that the elites have so corrupted the hoi polloi that only rule by a minority of REAL AMERICANS can save us, say so, don't do the idiotic dodge of invoking democratic arguments while obviously advocating minority rule.

TheSnark , , January 10, 2019 at 10:23 am
The problem with Silicon Valley elites is a bit simpler than that. They are all very smart, but their knowledge is limited. They know everything about electronics, computers, and coding, but know little of history, philosophy, or the human condition. Hence they see everything as an engineering problem, something with an optimal, measurable solution.

As a result, they do not even understand the systems they have built; witness Zuckerberg struggling to get Facebook under control.

If they go the way the author fears it will be by accident, not design. Despite their smarts, they really don't know what they are doing in terms of society.

CLW , , January 10, 2019 at 3:07 pm
This is an interesting topic meriting serous thought and analysis; instead, we get corny, hyperbolic alarmism. You can do better than this, TAC.
Sisera , , January 10, 2019 at 8:05 pm

As Tucker Carlson is realizing, Artificial Intelligence eliminating around 55% of all jobs (as the Future of Employment study found) so that wealthy people can have more disposable income to demand other services also provided by robots is madness. This is religious devotion either to defacto anarcho-capitalism, transhumanism, or both.

They're literally selling out human existence for their own myopic short-term gain, yet have a moral superiority complex. I suppose the consensus is that the useless class gets welfare depending on their social credit score. Maybe sterilization will lead to a higher social credits score. Dark days are coming.

Great article.

peterc , , January 11, 2019 at 12:33 pm
@TheSnark -- valid observation: The Silicon Valley elites " know everything about electronics, computers, and coding, but know little of history, philosophy, or the human condition." Religion is not an engineering issue. Knowing a little about history, philosophy, human condition would help them to understand that humans need something for their soul. And the human soul is not described by boolean "1"s or "0"s
R Henry , , January 11, 2019 at 2:14 pm
Western Culture is struggling to adapt to the new communication technologies that inhabit the Internet. That the developers of these technologies see themselves as gods of a sort is entirely consistent with human history and nature.

The best historical example of how new communication technology can change society occurred about 500 years ago, when the printing press was developed in Europe. A theologian and professor named Martin Luther (Perhaps you have heard of him?) composed a list of 95 discussion questions regarding the then-current activities of The Church. That list, known as the "95 Theses" was posted on the chapel door in Wittenburg, Germany. Before long, the list was transcribed and published. The list, and many responses, were distributed throughout Europe. The Protestant Reformation was sparked.

The Press and Protestant Reformation it launched remains a primary foundation of today's Western Culture. It has initiated much violence, much dissension, war with millions of deaths, The Enlightenment, and much else. The printing press ushered in the modern era.

Just as the printing press enabled profound change in the world 500 years ago, The Internet is prompting similar disruption today. I think we are in the early stages, and estimate that our great great grandchildren will be among the first to fully appreciate what has been gained and lost as a result of this technology.

grumpy realist , , January 11, 2019 at 4:12 pm
So the arrogance of religious believers convinced that they know "the TRUTH!", are the only ones to do so, and are justified in forcing non-believers to act as "God says!" is to be completely ignored?

Methinks we're seeing a huge case of projection here .

Frederick , , January 12, 2019 at 12:03 am
The problem is also that once those religious foundations are gone, they don't come back easily. How can you talk to an atheist/muslim/buddhist who doesn't even believe that lying is always sin? People in the west have started to think that all our nice freedoms and comfort have magically come from the heart of humans, that we are all somehow equal and want the same things but the bible tells us the real story: The heart is deceitful above all things, and desperately wicked.

Then we have religions who fundamentally do not even view death as a problem. Now this is where we enter the danger zone. In the west we have lived on such a good, superior Christian foundation we seem to have forgotten how truly horrible and inferior the alternatives are. Suddenly you get people who endorse cannibalism and child sacrifice again, I have seen this myself. How do you even explain to somebody that this is wrong when he fundamentally disagrees on the morality of killing?

People don't understand that Christian morality was hard fought for, they refuse to understand that human beings do not have a magical switch that makes them disapprove of murder.

Thousands were burned alive in England just for wanting to read the bible. It is like a technological innovation. We found a trick in the human condition, we discovered the truth about humanity. Now these coddled silicon valley people who have grown up in a Christian society with Christian morality and protections in their arrogance think that Christian behavior is the base of human morality anyway and needs no protection. Thanks to them in no small part the entire world is currently doing its utmost to reject the reality of the bible. We see insane propositions that say we should not judge people. Or that everyone is equal. Of course the bible never says that with the meaning they imply, but it was coopted beautifully for their own evil agenda. Yes evil, did I mention that our technocratic genius overlords don't believe in that either?

How can you talk with somebody that has rejected the most base truths of human life. How can you say a murderer is equal to a non-criminal? You must understand that these new age fake Christians truly think like this, they truly believe that everyone is equal. You can't allow yourself to think that 'oh they just mean we are all equal like.. on a human level, in our humanity'. Nono, I made the mistake to be too charitable with them. They actually think we are all equal no matter what. I found it hard to believe that we have degenerated so much, I have been in a quasi state of shock for a long time over this.

Pete from Baltimore , , January 12, 2019 at 8:57 am
Zuckerberg's comment about the Roman Empire is bizzare.to say the least. Augustus didn't create "200 years of peace". The Roman Empire was constantly conquering its neighbors. And of the first 5 Roman Emperors, Augustus was the only one who defintly died of natural causes

This time period was an extremely violent time period. The fact that Zuckerberg doesn't realize this, indicates to me that while he is smart at creating a business, he is basically a pseudo-intellectual

Connecticut Farmer , , January 12, 2019 at 10:09 am
" one of the gravest dangers the founders feared was democracy?"

Wrong! They didn't fear democracy per se', only democracy run amok, hence the checks and balances

[Jan 29, 2019] Why Trump's $1.5 Trillion Tax Cut Hasn't Sparked Hiring or Investment

Notable quotes:
"... The Trump administration's $1.5 trillion in tax cuts appears to have not made any major impact on businesses' capital investment or hiring plans, according to a new survey. ..."
"... "A large majority of respondents, 84%, indicate that one year after its passage, the corporate tax reform has not caused their firms to change hiring or investment plans," NABE President Kevin Swift said in a release. "Fewer firms increased capital spending compared to the October survey responses, but the cutback appeared to be concentrated more in structures than in information and communication technology investments." ..."
"... The lower tax rates did have an impact in the goods-producing sector, NABE found, with 50% of respondents reporting increased investments at their companies, and 20% saying they redirected hiring and investments to the US from abroad. ..."
Jan 29, 2019 | finance.yahoo.com

The Trump administration's $1.5 trillion in tax cuts appears to have not made any major impact on businesses' capital investment or hiring plans, according to a new survey.

A quarterly poll from the National Association for Business Economics published Monday found that some companies reported accelerating investments because of lower corporate taxes, but a whopping 84% of respondents said they had not changed their plans. That's up slightly from 81% in the previous survey published in October, Reuters reports.

The White House had said the massive stimulus package, which cut the corporate tax rate to 21% from 35%, would boost business spending and job growth. The tax cuts that came into effect in January 2018 were the biggest overhaul of the U.S. tax code in more than 30 years.

"A large majority of respondents, 84%, indicate that one year after its passage, the corporate tax reform has not caused their firms to change hiring or investment plans," NABE President Kevin Swift said in a release. "Fewer firms increased capital spending compared to the October survey responses, but the cutback appeared to be concentrated more in structures than in information and communication technology investments."

The lower tax rates did have an impact in the goods-producing sector, NABE found, with 50% of respondents reporting increased investments at their companies, and 20% saying they redirected hiring and investments to the US from abroad.

An analysis of how S&P 500 firms were reacting to the tax cut by researchers at the University of Michigan found that 4% of the sample said in Q1 of 2018 they would pay some of their tax savings back to workers, and 22% mentioned in earnings conference calls they would increase investment because of the tax cuts.

Though for small businesses, a new survey from the National Federation of Independent Business released earlier this month found 61% of owners reported making capital investments, unchanged from last month but 5 points higher than in August. In December, 35% of small-business owners reported increasing employee compensation and 24% reported planned increases in the next few months.

[Jan 24, 2019] Your retirement questions answered Social Security, buying service credits and Medicare

Jan 24, 2019 | finance.yahoo.com

Q: I am 62. Last year, I got a Social Security calculation showing that when I am 66-plus-years-old, I will receive $400-plus in Social Security benefits per month. Because of my health, I started to work only three days a week. Will this reduce the amount of my benefits? If l decide to quit my job, but not apply for my Social Security benefits until I'm 66-plus, will it reduce my monthly Social Security benefits?

A: Social Security calculates your monthly benefit by taking your highest 35 years of earnings and your age, says Rick Fingerman, a managing partner with Financial Planning Solutions. "So, if you stop working before your full retirement age or FRA, as you suggest, you could see a lower benefit if you do not have 35 years of higher earnings already."

The same answer applies if you quit your job altogether at 62 and wait until 66 to collect, he says.

One option, says Fingerman, could be if you were going to wait until your FRA and you have a spouse that is already collecting on their own benefit. "You might receive a higher monthly benefit on their record as you would get 50% of what they are receiving, which could be more than the $400 a month under your own benefit," he says.

[Jan 24, 2019] Claiming Social Security Early vs. Delaying Pros and Cons

Jan 24, 2019 | finance.yahoo.com

Of course, nobody can predict exactly how long they'll live -- the average man and woman turning 65 today can expect to live until age 84 and 86, respectively, according to the Social Security Administration. However, if you're facing health issues and don't expect to live that long, it may be wiser to claim as early as possible rather than waiting until you have only a few years left to enjoy your benefits.

... ... ...

Your full retirement age (FRA) is the age at which you'll receive 100% of the benefits to which you're entitled. So if your FRA is 67, and you wait until then to claim, you'd receive $1,300 per month. If you claim at 62, your benefits will be cut by 30% -- leaving you with just $910 per month.

... ... ...

If you wait until your FRA to claim, you'll receive 100% of your entitled benefits. But if you wait beyond that age, you'll receive a bonus on top of your full amount to make up for all the months you weren't receiving benefits at all. If your FRA is, say, 67 and you wait to claim benefits until 70, you'll receive a 24% bonus over your full amount. So if you would have received $1,300 per month by claiming at 67, you'd receive $1,612 by waiting until 70. (Keep in mind, too, that this bonus maxes out at age 70, so there's no additional benefit to waiting to claim until after that age.)

This can be a lifesaver for those who are seriously behind on saving for retirement . If you're going to rely on Social Security to make ends meet, it's in your best interest to maximize those benefits.

The amount you receive in benefits will be locked in once you claim. If you delay and receive that boost, you'll continue receiving that boost for the rest of your life. Likewise, if you claim early and your benefits are reduced, you'll receive those smaller checks for life. So delaying can play out in your favor if you spend several decades in retirement -- the longer you live, the more you will receive over your lifetime.

While delaying claiming benefits by a few years will result in bigger checks, you may not actually receive more over a lifetime than you would if you had claimed earlier. Although you're receiving more each month, that's just to make up for the years you weren't receiving any benefits at all. If you don't reach your "break even age" -- or the age at which you've received more over a lifetime by waiting to claim than you would have received by claiming early -- it may not be worth it to wait.

For example, say your FRA is 67. If you claim early at 62, you'd receive $910 per month (or $10,920 per year), and if you delay until 70, you'd receive $1,612 per month ($19,344 per year). Here's how much you'd have received in total benefits at different ages:

Age at Death Total Lifetime Benefits When Claiming at 62 Total Lifetime Benefits When Claiming at 70
70 $87,360 N/A
75 $141,960 $96,720
80 $196,560 $193,440
85 $251,160 $290,160

Source: Author's calculations

So in this scenario, you'll have to live past age 80 in order to "break even" and earn more in lifetime benefits by delaying rather than claiming early. That can be a good thing if you expect to live a long time, but if you don't expect to live past 80, it may be more advantageous to claim earlier rather than later.

[Jan 24, 2019] Robert Shiller interviewed by Andy Serwer at Davos 2019

[Video] He views housing prices as a leading indicator, but he is not ready to forecast slowdown yet. Yes Home Sales Sank 6.4% in December . No, a recession isn't about to hit. The International Monetary Fund still thinks the global economy will grow a respectable 3.5% this year . By with the recent downgrade risks are higher and probably highest since 2010.
As for 2019 he said we are always at risk entering the recession. He thinks that as in June there will be the longest recession, that might be time for a recession including in housing market. Inverted curve is a sign of such comes are coming.
Housing market is closing down and that can lead to recession, but he is not giving it probability higher that 50 for this year. He also mentions that real interest rate of short end there are not much above inflation.
Jan 24, 2019 | finance.yahoo.com

Yale Economics Professor and Nobel Laureate Robert Shiller spoke with Yahoo Finance at Davos, telling Editor-in-Chief Andy Serwer: "People are starting to think housing is expensive, and that could lead to a turnaround and a drop in home prices. But I'm not ready to forecast that yet."

[Jan 24, 2019] Rubenstein predicts near-term resolutions on U.S.-China trade 'dispute' govt. shutdown

[Video]
Interesting discussion... He said tariff might not work as expected. He does not think recession in probable in 2018 but later it might became inveitable
14% are functionally illiterate. Those people are at he bottom and will stay at the bottom.
Jan 23, 2019 | finance.yahoo.com

David Rubenstein, Co-Founder and Co-Executive Chairman of The Carlyle Group, sits down for a one on one with Yahoo Finance editor-in-chief Andy Serwer at the World Economic Forum's annual meeting in Davos, Switzerland. They discuss U.S.-China relations, Alexandria Ocasio-Cortez, income inequality, the government shutdown, and more.

[Jan 24, 2019] Davos 2019 the thing that scares hedge fund titan Ray Dalio the most

Jan 24, 2019 | finance.yahoo.com

Speaking at a panel discussion on the first day of the World Economic Forum (WEF) , Dalio said: "The US, Europe, China – all of those will experience a greater level of slowing, probably a greater level of disappointment.

"I think there's a reasonable chance that by end of that, monetary policy and fiscal policy will have to become easier relative to what is now discounted in the markets.

He added: " What scares me the most longer-term is that we have limitations to monetary policy, which is our most valuable tool, at the same time as we have greater political and social antagonism.

"So the next downturn worries me the most. There are a lot of parallels with the late 1930s.

READ MORE: Ray Dalio's three-step formula for anyone to start investing

"In 1929-1932 we had a debt crisis, and interest rates hit zero. Then there was a lot of printing of money and purchases of financial assets which drives financial assets higher.

"It creates also a polarity, a populism and an antagonism. We also had at that time the phenomenon of a rising power, like China, dealing with conflict with an existing power.

"These types of political issues are now very connected to economic issues in policy."

Asked at the summit in Switzerland about increasing debt levels and signs of a global slowdown, Dalio said the world economy was in the later stages of a short-term debt cycle.

READ MORE: What is Davos? The 2019 World Economic Forum explained

He said there had been an "inappropriate, mistaken desire to tighten monetary policy at a level that was faster than what the capital markets could handle."

The renowned 69-year-old investor, who authored a free book called ' Principles for Navigating Big Debt Crises', also offered his take on corporate debt levels.

He said: "W hen we cut corporate taxes and made interest rates low enough that it was attractive enough to buy financial assets, particularly by companies having mergers and acquisitions, that caused a lot of growth in corporate debt. And that growth in corporate debt was used to finance the purchases. That is going to be less."

He suggested a slowdown could increase the link between politics and economic policy, and predicted increased debate over a 70% income tax rate next year.

[Jan 23, 2019] Another sign of collapse of neoliberal ideology: discussion of 70% tax rate on income over 10 million is no longer viewed as anathema

Jan 23, 2019 | finance.yahoo.com

Billionaire Michael Dell, chief executive officer of the eponymous technology giant, rejected a suggestion by U.S. Representative Alexandria Ocasio-Cortez of a 70-percent marginal tax rate on the wealthiest Americans.

"No, I'm not supportive of that," Dell said at a Davos panel on making digital globalization inclusive. "And I don't think it will help the growth of the U.S. economy. Name a country where that's worked."

She may not be in Davos, but the New York representative's influence is being felt on the slopes of the Swiss Alps. Three weeks after Ocasio-Cortez floated the idea in an interview on "60 Minutes" to raise the top marginal tax rate on Americans' income of more than $10 million to 70 percent, it was a hot topic at the gathering of the global financial and political elite.

... ... ...

"My wife and I set up a foundation about 20 years ago and we would've contributed quite a bit more than a 70 percent tax rate on my annual income," Dell said. "I feel much more comfortable with our ability as a private foundation to allocate those funds than I do giving them to the government."

Erik Brynjolfsson, a professor at the Massachusetts Institute of Technology who was on the panel with Dell, said such a rate worked in the U.S. after World War II. But other executives were opposed, including Salesforce.com Inc. Co-Chief Executive Officer Keith Block.

... ... ...

Billionaire investor Ray Dalio suggested that the idea may have legs in the run-up to the U.S. presidential election. Discussing the outlook for a slowing world economy Tuesday, Dalio said that next year will see "the beginning of thinking about politics and how that might affect economic policy beyond. Something like the talk of the 70 percent income tax, for example, will play a bigger role." He didn't mention Ocasio-Cortez by name.

Currently in the U.S., the top marginal tax rate is 37 percent, which takes effect on income of more than $510,300 for individuals and $612,350 for married couples, according to the Tax Foundation.

The fortunes of a dozen attendees at the World Economic Forum in 2009 have soared by a combined $175 billion, a Bloomberg analysis found. The same cannot be said for people on the other end of the social spectrum: A report from Oxfam on Monday revealed that the poorest half of the world saw their wealth fall by 11 percent last year.

[Jan 22, 2019] The elite at Davos may have just destroyed the 2019 stock market rally

Jan 22, 2019 | finance.yahoo.com

Meanwhile, the International Monetary Fund slashed its global growth outlook for 2019 and 2020 the day before the WEF kicked off. Its growth forecasts for China in 2019 and 2020 -- 6.2% -- is lower than most top minds on Wall Street have modeled.

Credit Suisse came out today with a doozy of a 90-page "study" looking at global debt levels. A shout out like this in the report does nothing to engender confidence in risk assets: "Defaults are likely to rise in segments of the corporate debt markets once economic growth weakens more markedly or if monetary policy tightens further; in such a situation, an unwinding of positions could generate significant market stress due to illiquidity."

Credit Suisse Chairman Urs Rohner suggests on the first page of the report that a full-scale global debt blowup is unlikely. But the overall scope of the report is bearish to stocks, trust this writer who read the study in its entirety.

[Jan 22, 2019] The International Monetary Fund serves up depressing new outlook on the world for investors to ponder

Notable quotes:
"... Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter ..."
Jan 22, 2019 | finance.yahoo.com

The International Monetary Fund just uncorked a sobering outlook on the global economy and asset markets for the elite billionaires huddled up in Davos, Switzerland for the World Economic Forum to ponder.

In its latest World Economic Update report, the IMF said Monday the global economy is projected to grow at a meager 3.5% this year and only accelerate to 3.6% in 2020. The outlooks for 2019 and 2020 are 0.2 percentage point and 0.1 percentage point below the IMF's projections issued in October.

Hat tips to the ongoing U.S. trade war with China, tightening financial conditions globally and more volatile risk asset markets.

The finer points: The IMF pretty much had nothing good to say on the outlooks for developed and emerging markets. Although that is nothing unusual for the IMF -- who often takes a cautious stance on its outlooks for economies and financial markets -- it may give many investors a wake up call amid a somewhat hot start to the stock market in 2019.

Of note, U.S. growth is seen slowing to 2.5% in 2019 and dipping to 1.9% in 2020 at the hands of the unwinding of fiscal stimulus (see Trump tax cuts), higher interest rates and the U.S. trade war with China. The IMF tossed the U.S. a bone by noting the pace of expansion is above the country's estimated potential growth in both years.

As for Europe, the IMF is now more bearish on growth compared to its October outlook. Growth for emerging and developing Europe in 2019 is forecast to cool to 0.7% (from 3.8% in 2018) and then bounce to 2.4% in 2020. Previously, the IMF was looking for growth of 2% and 2.8% in 2019 and 2020, respectively. Lackluster growth in Italy, France and Germany as well as policy tightening in Turkey are the main culprits for the IMF's European growth downgrade.

Growth in emerging and developing Asia is expected to drop from 6.5% in 2018 to 6.3% in 2019 and reach 6.4% in 2020, said the IMF. The IMF expects growth in China to be 6.2% both in 2019 and 2020 versus 6.6% in 2018.

Interestingly, the IMF incorporates the impact of continued tariffs by the U.S. on China and vice versa in its baseline forecast. In other words, the organization does not expect there to be a trade truce between the countries on their self-imposed March 1 deadline.

For the investors out there: For those bulls that have returned to beaten up stocks in January, the IMF does its best to squash the hopium infiltrating your brains. "A range of catalyzing events in key systemic economies could spark a broader deterioration in investor sentiment and a sudden, sharp repricing of assets amid elevated debt burdens. Global growth would likely fall short of the baseline projection if any such events were to materialize and trigger a generalized risk-off episode," cautioned the IMF.

China's growth slowdown is also a risk that the IMF suggests investors don't fully appreciate.

"As seen in 2015–16, concerns about the health of China's economy can trigger abrupt, wide reaching sell-offs in financial and commodity markets that place its trading partners, commodity exporters, and other emerging markets under pressure," the IMF pointed out.

The bottom line: The IMF isn't exactly super plugged into global asset markets in the same vein as forecasters at Goldman Sachs and Morgan Stanley. But their latest assessment of the global economy and risk markets offers up a good counterbalance to the enthusiasm that has begun to creep back into financial markets after the October 2017 through December 2018 rout.

Happy trading, folks.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter

[Jan 21, 2019] The Money Mafia,

Jan 21, 2019 | www.unz.com

Robert Snefjella says: January 20, 2019 at 4:21 pm GMT 200 Words @Erebus Going from memory, in Hellyer's book The Money Mafia, his impression was that Bouey's decision was taken without real political understanding or guidance. Noteworthy was an attempt in recent years to restore that Bank of Canada fund-emission function via the court system. The attempt failed. The lawyer representing the group making the effort, Rocco Galati, indicated that the media in Canada had received pressure not to cover the story. The government of Canada at the time the court case was initiated was under Harper Conservative rule.

As to how astute Trudeau was, or how much practical influence he had when it came to national financial matters, I don't know. There was a lot of economic flux at the time involving the US dollar, oil, high inflation and gold. There was a big jump in Canadian interest rates around 1974. In any case, the emission of funds directly for productive purpose, without taxation and borrowing, is a beneficent unacknowledged elephant in the economic policy-options room.

[Jan 19, 2019] Stock Rebound Will Collapse as Recession Risk Rises Morgan Stanley

Jan 19, 2019 | finance.yahoo.com

The stock market has staged a rebound in January, but Morgan Stanley sees a number of bearish indicators. Indeed, they estimate that odds of the U.S. economy slipping into a recession are now the highest since the financial crisis of 2008, and they project that the S&P 500 Index (SPX) ultimately will settle back to a value of 2,400 in 2019, revisiting the recent lows seen in December and more than 18% below the record high set in September 2018. "We expect upcoming negative data will prove 2600-2650 [on the S&P 500] to be a good sale before a proper retest of the December lows," Morgan Stanley says in the latest Weekly Warm-Up report from their U.S. equity strategy team headed by Michael Wilson.

[Jan 17, 2019] The financial struggles of unplanned retirement

People who are kicked out of their IT jobs around 55 now has difficulties to find even full-time McJobs... Only part time jobs are available. With the current round of layoff and job freezes, neoliberalism in the USA is entering terminal phase, I think.
Jan 17, 2019 | finance.yahoo.com

A survey by Transamerica Center for Retirement Studies found on average Americans are retiring at age 63, with more than half indicating they retired sooner than they had planned. Among them, most retired for health or employment-related reasons.

... ... ...

On April 3, 2018, Linda LaBarbera received the phone call that changed her life forever. "We are outsourcing your work to India and your services are no longer needed, effective today," the voice on the other end of the phone line said.

... ... ...

"It's not like we are starving or don't have a home or anything like that," she says. "But we did have other plans for before we retired and setting ourselves up a little better while we both still had jobs."

... ... ...

Linda hasn't needed to dip into her 401(k) yet. She plans to start collecting Social Security when she turns 70, which will give her the maximum benefit. To earn money and keep busy, Linda has taken short-term contract editing jobs. She says she will only withdraw money from her savings if something catastrophic happens. Her husband's salary is their main source of income.

"I am used to going out and spending money on other people," she says. "We are very generous with our family and friends who are not as well off as we are. So we take care of a lot of people. We can't do that anymore. I can't go out and be frivolous anymore. I do have to look at what we spend - what I spend."

Vogelbacher says cutting costs is essential when living in retirement, especially for those on a fixed income. He suggests moving to a tax-friendly location if possible. Kiplinger ranks Alaska, Wyoming, South Dakota, Mississippi, and Florida as the top five tax-friendly states for retirees. If their health allows, Vogelbacher recommends getting a part-time job. For those who own a home, he says paying off the mortgage is a smart financial move.

... ... ...

Monica is one of the 44 percent of unmarried persons who rely on Social Security for 90 percent or more of their income. At the beginning of 2019, Monica and more than 62 million Americans received a 2.8 percent cost of living adjustment from Social Security. The increase is the largest since 2012.

With the Social Security hike, Monica's monthly check climbed $33. Unfortunately, the new year also brought her a slight increase in what she pays for Medicare; along with a $500 property tax bill and the usual laundry list of monthly expenses.

"If you don't have much, the (Social Security) raise doesn't represent anything," she says with a dry laugh. "But it's good to get it."

[Jan 17, 2019] Jamie Dimon Next US recession won't look like 07

Notable quotes:
"... On Tuesday, Dimon and JPMorgan CFO Marianne Lake said they think the current outlook for growth is positive considering the consumer is still strong and healthy. ..."
Jan 17, 2019 | finance.yahoo.com

During an interview with FOX Business earlier this month, Dimon told FOX Business' Maria Bartiromo that while it didn't look like a recession was imminent, there will eventually be a meaningful slowdown.

"There will be a recession one day. So when people say, 'Is there going to be a recession?' Yeah, I don't know when it's going to be, but there will be one and something will trigger it and it will be a little bit different than the last one," he said.

On Tuesday, Dimon and JPMorgan CFO Marianne Lake said they think the current outlook for growth is positive considering the consumer is still strong and healthy.

For the fourth quarter, the largest U.S. bank by assets reported lower-than-expected profit despite gains from higher interest rates and a bump within its loan sector. Losses were driven by market volatility, global growth worries and an ongoing trade war between the U.S. and China.


Ryan S 8 hours ago

Yes the pending recession will cause many debt bubbles to burst and not just isolated primarily to banking and housing sector.

Think of what happens to the college/university system when student can no longer get loans for subsidized rates. A house or vehicle can serve as an asset to be used as collateral to control rate ceilings. However, there is no collateral in Billy and Genie's BA History degree. Good luck to all these ivory tower universities when your funding dries up and nobody can afford your way overpriced programs. Anubis 9 hours ago I have read Americans hold over 50 trillion in debt yet over half the population has only $1,000 in savings.

Bob 9 hours ago

Why is the US increasing deficit spending doing a good economy???? Reply
s 8 hours ago
Why does no one ask....why does higher education cost so much compared to other costs? The rate of increases in higher education is never challenged by anyone. It is automatically assumed good. People are so blind and accepting.
Bart 7 hours ago
"At some point in the future we will have a recession and it will be a little bit different from the last recession." He is paid $28,500,000.00 a year and sounds like my car mechanic.
buddhist 8 hours ago
Same like it was in 2007. Everything in the world was fine until Lehmann declared bankruptcy and hell started to break. May be this time around it's Deutsche bank's turn.
Sam 5 hours ago
Signs of the economy slowing are everywhere. Company earnings are down and layoffs are increasingly more common. Min wage jobs might be plentiful right now, but that will change in less than a year. Better hold on and you better keep your job. Next recession will eliminate a lot of jobs. Those over 40 - forget it.
Chinas Love 8 hours ago
The next recession will occur when the US government hit over $25 Trillion in debt thus surpassing out total GDP thus making the US bankrupt or Trump enacts the remaining $600 billion of the $820 Billion in tariffs on China and the rest of the world because China trade deficit has grown under his watch to historic levels each each!

[Jan 14, 2019] Mr. Market: "Fear of algorithm trading is really just the fear of the unknown"

Notable quotes:
"... Blame it on the robots if you must -- it's an easy out for those struggling to understand what's happened already, and what's going to happen next. The trouble is, it's not very useful for everyone else. ..."
Jan 14, 2019 | qz.com

"The funny thing is, we've always been quite bad at knowing how to attribute market volatility, which long predates algorithm trading.

The start of a much-shared satirical Wall Street Journal article from the 1990s sums it up: 'The market rallied early this morning for reasons nobody understands and nobody predicted.

CNBC analysts confidently asserted it had something to do with the Senegalese money supply, but others pointed to revised monthly figures showing a poor tuna haul off the Peruvian coast.'

A separate question, of course, is whether all this market volatility can or should be ascribed to algorithm training as it has been.

Despite recent relative placidity, markets have always been volatile.

The last three months' ups-and-downs may have been choppy, but they're by no means historic. It may also be true that we're simply talking more about the most minute market moves.

Blame it on the robots if you must -- it's an easy out for those struggling to understand what's happened already, and what's going to happen next. The trouble is, it's not very useful for everyone else."

[Jan 13, 2019] This is Main Street versus Wall Street. This is honest books versus dirty books by Greg Hunter

Notable quotes:
"... I watched Greg Hunter's show on this. Very disturbing because of it's currency. This backdoor off-the-books financing of whatever they want is as she says, the introduction of free fascism in the US. ..."
"... Deep State is REAL: https://www.youtube.com/watch?v=LLTzpDFGWjI ..."
Jan 13, 2019 | www.zerohedge.com

Via Greg Hunter's USAWatchdog.com,

originally from: Secret Money For Private Armies Austin Fitts Exposes America's Open Running Bailout

Investment advisor and former Assistant Secretary of Housing Catherine Austin Fitts says it looks like a "global recession is coming."

Is that going to cause the debt reset we've been hearing about for years? Fitts says, " Make no mistake about it, there is no reason for the federal government to default or monkey with any debt because they can literally print the currency..."

" The question is how do they make sure whatever they are printing really holds any kind of store of value. I think the reason you are seeing them reengineer the federal bureaucracy and financial transactions infrastructure is because they want much greater and tighter control to do whatever they do, and that includes to continue to debase the currency. They could do this (reset) entirely by debasing the currency...

What we are watching . . . is essentially a coup. We had a financial coup, and now we are watching a legal coup to consolidate that financial coup. I would keep my eye on the fundamental governance structure of the U.S. The important thing is not what they do. The important thing is who controls no matter what they do. Now, we have created a mechanism for them to control entirely in secret and create policies entirely in secret, including around the back of a U.S. President... It's pirating by the 'just do it' method. I said to someone the other day, what is it about secret money for secret private armies that you don 't understand? "

$21 trillion in "missing money" at the DOD and HUD that was discovered by Dr. Mark Skidmore and Catherine Austin Fitts in 2017 has now become a national security issue.

The federal government is not talking or answering questions, even though the DOD recently failed its first ever audit. Fitts says, "This is basically an open running bailout..."

"Under this structure, you can transfer assets out of the federal government into private ownership, and nobody will know and nobody can stop it. There is no oversight whatsoever. You can't even know who is doing it. I'm telling you they just took the United States government, they just changed the governance model by accounting policy to a fascist government. If you are an investor, you don't know who owns those assets, and there is no evidence that you do...

If the law says you have to produce audited financial statements and you refuse to do so for 20 years, and then when somebody calls you on it, you proceed to change the accounting laws that say you can now run secret books for all the agencies and over 100 related entities ."

In closing, Fitts says, "We cannot sit around and passively depend on a guy we elected President..."

"The President cannot fix this. We need to fix this...

This is Main Street versus Wall Street. This is honest books versus dirty books. If you want the United States in 10 years to resemble anything what it looked like 20 years ago, you are going to have to do it, and there is no one else who can do it. You have to first get the intelligence to know what is happening."

Join Greg Hunter as he goes One-on-One with Catherine Austin Fitts, Publisher of "The Solari Report."

https://www.youtube.com/embed/Mi6S4zrFjPg

To Donate to USAWatchdog.com


Withdrawn Sanction , 15 minutes ago link

"If the law says you have to produce audited financial statements and you refuse to do so for 20 years, and then when somebody calls you on it, you proceed to change the accounting laws that say you can now run secret books for all the agencies and over 100 related entities ."

She's referring to FASB standards, but those dont sound like a Constitutional Amendment to me.

Article i, Section 9, paragraph 7: "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time."

Perhaps when $20+ trillion are involved, the Constitution be damned, I suppose. Or perhaps the govt boys will claim the $20T didn't come from an appropriation but instead from their own "industrious" activities...you know, like drug and gun running, and human trafficking perhaps?

DjangoCat , 21 minutes ago link

I watched Greg Hunter's show on this. Very disturbing because of it's currency. This backdoor off-the-books financing of whatever they want is as she says, the introduction of free fascism in the US.

Is the Donald on this case? Sure hope so.

JBlount123 , 22 minutes ago link

Deep State is REAL: https://www.youtube.com/watch?v=LLTzpDFGWjI

Duc888 , 24 minutes ago link

One of the smartest women out there. Huge fan here. She almost got snuffed for blowing the whistle at HUD (two sets of books and all). It's only recently that she's come out and said that there's no such thing as the "money being lost". It's digital and 100% traceable.

Arrowflinger , 15 minutes ago link

Fitts is correct and her approach is sound. Money flows are traceable. The problem is more complicated, though. As Enron proved and the Parmalat scandal cemented, the CRONY CUT is fatal. The Auditors gave up fiduciary duties for FIDOCIARIES riches. They rolled over and played dead.

Duc888 , 12 minutes ago link

They've already tried to off her. They broke her financially and she bounced back. She made a lot of enemies but luckily she has some good friends in high places too. Watch a few Vids about what they did to her after she blew the whistle at HUD. She's lucky to be above ground.

Her extensive studies and reports that follow crack cocaine being dumped into various areas the subsequent drug related violence and BS "WOD" response and then what happened to the real estate, as in, WHO WINDS UP BUYING block after block after block of blighted buildings is absolutely fascinating . She should have gotten more recognition for those exhaustive studies.

There's a VERY LARGE HAND at work there...for profit.

[Jan 13, 2019] More Americans fleeing high-tax states

Jan 13, 2019 | finance.yahoo.com

Last year, these were the ten highest income tax states, according to TurboTax (*These rates do not include local taxes.):

[Jan 13, 2019] There is no free market! It's all crooked by financial oligarchy!

Highly recommended!
Free market is possible only under strict government regulation. Without government regulation free market quickly deteriorates into the law of jungles. Such a paradox ;-)
And if financial oligarchy gets to power as they got via coup d'état in the USA in late 7th, it is only a matter of time before the society collapses. They are very destructive to the society at large. Probably more so then organized crime. But wait. They actually can be viewed as special type of organized prime as is "The best way to rob the bank is to own it".
Notable quotes:
"... Idiots on here are always going on about how we don't got capitalism, if we only had capitalism, we don't got free markets, if only we had free markets, then everything would be hunky-dory. Without any proof, of course, because there never was and never will be a "free" "market." The US has plenty capitalism. And everything sucks. And they want more. Confused, stupid, disingenuous liars. ..."
"... Free markets are crookedness factories. As a PhD from Chicago Business School told me, "Free markets?! What free markets?! There is no free market! It's all crooked!" ..."
Jan 13, 2019 | www.unz.com

obwandiyag , says: January 13, 2019 at 6:37 am GMT

Idiots on here are always going on about how we don't got capitalism, if we only had capitalism, we don't got free markets, if only we had free markets, then everything would be hunky-dory. Without any proof, of course, because there never was and never will be a "free" "market." The US has plenty capitalism. And everything sucks. And they want more. Confused, stupid, disingenuous liars.
obwandiyag , says: January 13, 2019 at 6:42 am GMT
Look, what you call "capitalism" and "free markets" just means scams to make rich people richer. You read some simple-minded description of some pie-in-the-sky theory of some perfect world where rational actors make the best possible decisions in their own interest without any outside interference, and you actually think you are reading a description of something real.

I'll tell you what's real. Crookedness. Free markets are crookedness factories. As a PhD from Chicago Business School told me, "Free markets?! What free markets?! There is no free market! It's all crooked!"

[Jan 13, 2019] Goldman Sachs Says Markets Indicate a 50% Chance of a Recession

Notable quotes:
"... However, despite the signs, Goldman Sachs assumes the indicators are wrong and that "recession risk remains fairly low, in the neighborhood of 15% over the next year." The bank has predicted that the S&P 500 will finish 2019 at 3,000, up from the current value just below 2,600. ..."
Jan 13, 2019 | finance.yahoo.com

Confidence in continued economic growth has been waning. A huge majority of chief financial officers around the world say a recession will happen by the end of 2020. Most voters think one will hit by the end of this year.

Now the Goldman Sachs economic research team says that the market shows a roughly 50% chance of a recession over the next year, according to Axios.

Goldman Sachs looked at two different measures: the yield curve slope and credit spreads. The former refers to a graph of government bond interest rates versus the years attaining maturity requires. In a growing economy, interest rates are higher the longer the investment because investors have confidence in the future. A frequent sign of a recession is the inversion of the slope, when investors are uncertain about the future, so are less willing to bet on it.

Credit spreads compare the interest paid by government bonds, which are considered the safest. Corporate bonds, which are riskier, of the same maturity have to offer higher interest rates. As a recession approaches, credit spreads tend to expand, as investors are more worried about companies defaulting on their debt.

However, despite the signs, Goldman Sachs assumes the indicators are wrong and that "recession risk remains fairly low, in the neighborhood of 15% over the next year." The bank has predicted that the S&P 500 will finish 2019 at 3,000, up from the current value just below 2,600.

[Jan 13, 2019] What Will Cause the Next US Recession by J. Bradford DeLong - Project Syndicate

Everything is broken in government statistics. Financial industries should be subtracted from GDP. Unemployment should be U6 only.
Brad is die-in-the wool neoliberal and as such he is victim of his own delusions like any cult member.
Jan 13, 2019 | www.project-syndicate.org

The other three recessions were each caused by derangements in financial markets. After the savings-and-loan crisis of 1991-1992 came the bursting of the dot-com bubble in 2000-2002, followed by the collapse of the subprime mortgage market in 2007, which triggered the global financial crisis the following year.

... ... ...

At the same time, the gap between short and long-term interest rates on safe assets, represented by the so-called yield curve, is unusually small, and short-term nominal interest rates are unusually low. As a general rule of thumb, an inverted yield curve – when the yields on long-term bonds are lower than those on short-term bonds – is considered a strong predictor of a recession. Moreover, after the recent stock-market turmoil, forecasts based on John Campbell and Robert J. Shiller's cyclically adjusted price-earnings (CAPE) ratio put long-run real (inflation-adjusted) buy-and-hold stock returns at around 4% per year, which is still higher than the average over the past four decades.

... ... ...

Needless to say, the particular nature and form of the next financial shock will be unanticipated. Investors, speculators, and financial institutions are generally hedged against the foreseeable shocks, but there will always be other contingencies that have been missed. For example, the death blow to the global economy in 2008-2009 came not from the collapse of the mid-2000s housing bubble, but from the concentration of ownership of mortgage-backed securities.

Likewise, the stubbornly long downturn of the early 1990s was not directly due to the deflation of the late-1980s commercial real-estate bubble. Rather, it was the result of failed regulatory oversight, which allowed insolvent savings and loan associations to continue speculating in financial markets. Similarly, it was not the deflation of the dot-com bubble, but rather the magnitude of overstated earnings in the tech and communications sector that triggered the recession in the early 2000s.

[Jan 13, 2019] If fiscal policy is not the main answer to the next recession, what is?

Jan 13, 2019 | economistsview.typepad.com

point , January 08, 2019 at 06:01 AM

Rogoff wants to reform central banks:

"If fiscal policy is not the main answer to the next recession, what is?"

https://www.project-syndicate.org/commentary/countercyclical-fiscal-policy-no-cure-in-next-recession-by-kenneth-rogoff-2019-01

having just ruled out what could very well be the only solution, all in the cause of independence.

"One can appreciate why central bankers don't want to get gamed into some of the nuttier monetary policies that have been proposed, for example "helicopter money" (or more targeted "drone money") whereby the central bank prints currency and hands it out to people. Such a policy is, of course, fiscal policy in disguise, and the day any central bank starts doing it heavily is the day it loses any semblance of independence. Others have argued for raising inflation targets, but this raises a raft of problems, not least that it undermines decades of efforts by central banks to establish the credibility of roughly 2% inflation."

I am reminded of Paul's advice to the day care coop, that they could not trade chits for hours simply because they didn't have enough chits to allow for savings, so make more and distribute them. At least, that's how I remember it.


JohnH -> point... , January 08, 2019 at 03:12 PM
The Fed failed to get growth going after the last recession...despite a long stream of rosy forecasts. So what do elites propose for the next recession? More Fed action...and why not? Low interest rates goose the markets, lining the pockets of the banksters who own the Fed.

Like Vietnam, Iraq, Afghanistan and the other pointless and futile military adventures, when the going gets tough, you can count on elites to double down with failed economic policies (that just happen to enrich them.)

Darrell in Phoenix said in reply to JohnH... , January 09, 2019 at 08:19 AM
At some point, policy simply becomes to "hold it together".

What do you think the goals of the policy in Iraq, Afghanistan are?

Oh sure, Bush Jr went in thinking we could set a pro-west democracy, ignoring the experts that said it would be impossible since the people don't want pro-west. If they have democracy, they are going to vote to disband the democracy and hand power to the theocracy.

Since then, the policy has simply been to prevent giving Iran and Russia free rein to set up anti-west theocracies as puppets of Russia and Iran.

As for the Fed not getting growth, same principal... at least they have prevented the house of cards that is the massive household and business debt from cascade defaulting into global depression.

Back in Bernanke's day, every Fed speech included comments on "structural imbalances that need to be addressed with fiscal policy", and every time he was dismissed as "the rich that fund the political campaigns will never allow it".

Going back to Point's OP. Once they have taken away the screw driver, the hammer becomes the only way to put in a screw.

JohnH -> Darrell in Phoenix... , January 09, 2019 at 11:31 AM
"What do you think the goals of the policy in Iraq, Afghanistan are?"

Answer: 1) Avoid admitting defeat. 2) Enrich the military/security oligopolies.

Kind of like the Fed's policy of pushing the wet noodle to reinvigorate the economy.

JohnH -> JohnH... , January 09, 2019 at 11:36 AM
BTW nobody knows the terms of the deal Big Oil negotiated with Iraqi leaders to get a lock on cheap oil in southern Iraq. It was so bad that the Iraqi parliament never approved it. I assume that Big Oil pays $5/barrel or less to Iraqi leaders' bank account in tax havens.

IOW...total corruption embraced by Republicans and Democrats alike.

Darrell in Phoenix said in reply to JohnH... , January 10, 2019 at 07:33 AM
"Answer: 1) Avoid admitting defeat. 2) Enrich the military/security oligopolies."

Nope.

To prevent Iran, with Russian aid, from advancing their goal of unifying the Islamic world.

The goal is to keep the middle east divided and fighting itself so that it can't unify against the west.

We can argue whether or not that is "good policy" or "moral policy", but that is the policy.

Our friends in the region, like Saudi Arabia and Turkey are the countries that are content to keep the middle east divided.

Iraq too, under Saddam Hussein... right up until he saw the collapse of the USSR and a weakened Iran as an opportunity to unite the middle east under his control. Once he decided to try to "unite the middle east" instead of being a tool for keeping it divided, he became just another part of the problem.

JohnH -> Darrell in Phoenix... , January 10, 2019 at 10:41 AM
Ridiculous. Total lack of understanding: Islamic world will never unite behind Iran. Iran is Shi'a.

Of course, the knuckleheads running American foreign policy didn't understand that in 2003...and probably still don't understand, so I'll cut Darrell in Phoenix a little slack, because his ignorance is shared by many elites.

ilsm -> Darrell in Phoenix... , January 10, 2019 at 01:49 PM
Are you a Wm Kristol devotee?

Just how will Iran, who was the safest Islamic country until US and Saudis got mad at them and stirred up Baluch and MEK terrorism, unify the Salafists who are Sunni supported by GCC emirs and royals?

Stop making up motives that make no sense at all:

"Since then, the policy has simply been to prevent giving Iran and Russia free rein to set up anti-west theocracies as puppets of Russia and Iran."

Note Russia has its own issues with Chechen and other Islamist terror!

Your excuses are almost as wild as the things Feith and Cheney made up about Iraq in 2002!

[Jan 13, 2019] UAE energy minister says average oil price in 2018 was $70 a barrel

Jan 13, 2019 | finance.yahoo.com

ABU DHABI (Reuters) - United Arab Emirates Energy Minister Suhail al-Mazrouei said on Saturday the average oil price in 2018 was $70 a barrel.

The Organization of the Petroleum Exporting Countries and other leading global oil producers led by Russia agreed in December to cut their combined oil output by 1.2 million barrels per day to balance the oil market starting from January.

"Today we look at an average year of around $70 for Brent," Mazrouei told an industry news conference in Abu Dhabi, adding that this level would help encourage global oil investments. An energy ministry spokesman said the minister was referring to the average oil price in 2018.

[Jan 13, 2019] Canada's Crude Oil Production Cuts Are Unsustainable by Haley Zaremba

I especially like the phase "This directive was particularly surprising in the context of Canada's free market economy" That's really deep understanding of the situation ;-) . It is so difficult to understand that Canada as a large oil producer, needs higher oil prices and it does not make sense from the point of market economy to pollute the environment and at the same time lose money in the process ?
Notable quotes:
"... Alberta's oil production has been cut 8.7 percent according to the mandate set by the province's government under Rachel Notley with the objective of cutting out around 325,000 barrels per day from the Canadian market. ..."
"... So far, the government-imposed productive caps have been extremely successful. In October Canadian oil prices were so depressed that the Canadian benchmark oil Western Canadian Select (WCS) was trading at a whopping $50 per barrel less than United States benchmark oil West Texas Intermediate (WTI). now, in the wake of production cuts, the price gap between WCS and WTI has diminished by a dramatic margin to a difference of just under $13 per barrel. ..."
"... The current production caps in Canada are only intended to last through the middle of this year, at which point Canadian oil companies will be permitted to decrease their cutbacks to just 95,000 barrels per day fewer than the numbers from November 2018's production rates. ..."
Jan 13, 2019 | finance.yahoo.com

In an attempt to combat a ballooning oil glut and dramatically plummeting prices, the premier of Alberta Rachel Notley introduced an unprecedented measure at the beginning of December when she is mandating that oil companies in her province cut production. This directive was particularly surprising in the context of Canada's free market economy, where oil production is rarely so directly regulated.

Canada's recent oil glut woes are not due to a lack of demand, but rather a severe lack of pipeline infrastructure. There is plenty of demand, and more than enough supply, but no way to get the oil flowing where it needs to go. Canada's pipelines are running at maximum capacity, storage facilities are filled to bursting, and the pipeline bottleneck has only continued to worsen . Now, in an effort to alleviate the struggling industry, Alberta's oil production has been cut 8.7 percent according to the mandate set by the province's government under Rachel Notley with the objective of cutting out around 325,000 barrels per day from the Canadian market.

Even before the government stepped in, some private oil companies had already self-imposed production caps in order to combat the ever-expanding glut and bottomed-out oil prices. Cenovus Energy, Canadian Natural Resource, Devon Energy, Athabasca Oil, and others announced curtailments that totaled around 140,000 barrels a day and Cenovus Energy, one of Canada's major producers, even went so far as to plead with the government to impose production caps late last year.

So far, the government-imposed productive caps have been extremely successful. In October Canadian oil prices were so depressed that the Canadian benchmark oil Western Canadian Select (WCS) was trading at a whopping $50 per barrel less than United States benchmark oil West Texas Intermediate (WTI). now, in the wake of production cuts, the price gap between WCS and WTI has diminished by a dramatic margin to a difference of just under $13 per barrel.

Related: The Natural Gas Crash Isn't Over

While on the surface this would seem to be a roundly glowing review of the production caps in Alberta, production cuts are not a long-term solution for Canada's oil glut woes. The current production caps in Canada are only intended to last through the middle of this year, at which point Canadian oil companies will be permitted to decrease their cutbacks to just 95,000 barrels per day fewer than the numbers from November 2018's production rates. The cuts are a just a treatment, not a cure, for oversupply in Alberta. The problem needs to be addressed at its source--the pipelines.

Unfortunately, the pipeline shortage in Alberta has no quick and easy fix. While there are multiple major pipeline projects underway, the two largest, the Keystone XL pipeline and the Trans Mountain pipeline, are stalled indefinitely thanks to legal woes and seemingly endless litigation. The Enbridge Line 3 pipeline, intended to replace one of the region's already existing pipelines, is currently under construction and projected to be up and running by the end of the year, but will not go a long way toward fixing the bottleneck.

Even if the Albertan government re-evaluates the present mid-2019 expiration date for the current stricter production cuts, extending the production caps could have enduring negative consequences in the region's oil industry. Keeping a long-term cap on production in Alberta would potentially discourage investment in future production as well as in the infrastructure the local industry so sorely needs. According to some reporting , the cuts will not be able to control the gap between Canadian and U.S. oil for much longer anyway, just another downside to drawing out what should be a short-term solution. The government will need to weigh the possible outcomes very carefully as the expiration date approaches, when the and the pipeline shortage is still a long way from being solved and the price of oil remains dangerously variable.

By Haley Zaremba for Oilprice.com

[Jan 12, 2019] Gundlach Warns U.S. Economy Is Floating on 'an Ocean of Debt'

Jan 12, 2019 | finance.yahoo.com

(Bloomberg) -- Jeffrey Gundlach said yet again that the U.S. economy is gorging on debt.

Echoing many of the themes from his annual "Just Markets" webcast on Tuesday, Gundlach took part in a round-table of 10 of Wall Street's smartest investors for Barron's. He highlighted the dangers especially posed by the U.S. corporate bond market.

Prolific sales of junk bonds and significant growth in investment grade corporate debt, coupled with the Federal Reserve weaning the market off quantitative easing, have resulted in what the DoubleLine Capital LP boss called "an ocean of debt."

The investment manager countered President Donald Trump's claim that he's presiding over the strongest economy ever. The growth is debt-based, he said.

Gundlach's forecast for real GDP expansion this year is just 0.5 percent. Citing numbers spinning out of the USDebtClock.org website, he pointed out that the U.S.'s unfunded liabilities are $122 trillion -- or six times GDP.

"I'm not looking for a terrible economy, but an artificially strong one, due to stimulus spending," Gundlach told the panel. "We have floated incremental debt when we should be doing the opposite if the economy is so strong."

Stock Bear

Gundlach is coming off another year in which his Total Return Bond Fund outperformed its fixed-income peers. It returned 1.8 percent in 2018, the best performance among the 10 largest actively managed U.S. bond funds, according to data compiled by Bloomberg.

Gundlach expects further declines in the U.S. stock market, which recently have steadied after reeling for most of December since the Great Depression. Equities will be weak early in the year and strengthen later in 2019, effectively a reversal of what happened last year, he said.

"So now we are in a bear market, which isn't defined by me as stocks being down 20 percent. A bear market is determined by the way stocks are acting," he said.

Rupal Bhansali, chief investment officer of International & Global Equities at Ariel Investments, picked up on Gundlach's debt theme in the Barron's cover story. Citing General Electric's woes, she urged investors to focus more on balance-sheet risk rather than whether a company could beat or miss earnings. Companies with net cash are worth looking at, she said.

To contact the reporters on this story: James Ludden in New York at [email protected];Hailey Waller in New York at [email protected]

To contact the editors responsible for this story: Matthew G. Miller at [email protected], Ros Krasny

For more articles like this, please visit us at bloomberg.com

[Jan 12, 2019] These US companies employ the most H-1B visa holders

Jan 12, 2019 | finance.yahoo.com

One of the most sought-after visa programs in the U.S., the H-1B, could see some significant changes in 2019, according to President Trump , including a potential path to citizenship for recipients of the non-immigrant visa.

The H-1B visa program allows U.S. employers to hire graduate-level workers in specialty occupations, like IT, finance, accounting, architecture, engineering, science and medicine. Any job that requires workers to have at least a bachelor's degree falls under the H-1B for specialty occupations.

Each year, the U.S. Citizenship and Immigration Services (USCIS) allots about 85,000 of the H-1B visas -- 65,000 for applicants with a bachelor's degree or equivalent, and 20,000 for those with a master's degree or higher.

As of April 2017, when Trump signed an executive order -- "Buy American and Hire American" -- it's become more difficult for U.S. companies to hire people via H-1B. It directs the Department of Homeland Security to only grant the visas to the "most-skilled or highest-paid beneficiaries."

Here's a look at the American companies (and industries) that benefited the most from the program in 2017.

Cognizant: The IT services business had a whopping 3,194 H-1B initial petitions approved in 2017, the most of any U.S. company by almost 600.

Amazon: In 2017, the e-commerce behemoth hired 2,515 employees via the H-1B visa program, according to data compiled by the National Foundation for American Policy . That was about a 78 percent increase from 2016, or 1,099 more employees.

Microsoft: Microsoft hired 1,479 workers through H-1B in 2017, the second most of U.S. companies -- an increase in 334 employees from the year prior, or close to 29 percent.

IBM: In 2017, IBM employed about 1,231 workers through the H-1B visa program.

Intel: The California-based company employed 1,230 workers through H-1B in 2017, 200 more workers -- or a 19 percent increase -- compared to 2016.

Google: The search engine giant had 1,213 H-1B initial petitions approved for fiscal year 2017, a 31 percent increase of about 289 from 2016.

[Jan 11, 2019] How Shocking Was Shock Therapy

Highly recommended!
Notable quotes:
"... You should have come here in the 90's to see a shock of the Doctrine to face social trauma of "PGR"(Huge National Farms) workers (it's the electorate of PiS (Law and Justice)), Miners near Wałbrzych, workers of textile industry near łódź bereft of everything from day to day (literally). Even the contemporary visit might ensure you quite a thrill if you knew where to look. Most of the firms that would easily survive if given some protectionism were hostily taken over by a foreigner capital and shut down with their production instantly replaced by imported goods. ..."
"... I do remember his speeches well. Form the spectrum offered by the Chicago boys he chosen the hardest option. It was Michnik and Kuroń who opted for less "Chicago" direction. But they were in minority. The prevailing Zeitgeist of the period caused words "social", "common" to be treated as a curse and socially stigmatizing. ..."
"... For a better understanding what went wrong you may take example of railroad privatization and compare it to the Czech way. ..."
"... the global elite perspective is that a quick way to rid the globe of the problems we face is to kill off enough people so that the problem dissipates -- war, fraud, nationalism/racism used to point the finger at the other (making it easier for people to harm one another or look the other way (Arendt). ..."
"... Efficiency requires a variety of gains, returns, profits and fairness. Otherwise it is simply theft. And when all is accounted for there might not be any profit to be had in the real world. Only in the minds of the neoliberals. Efficiency is something that should be accounted for carefully so that no vital systems are harmed. ..."
Jan 11, 2019 | www.nakedcapitalism.com

likbez , January 11, 2019 at 1:33 am

The level of the naivety of Barkley Rosser is astounding.

Poland was a political project, the showcase for the neoliberal project in Eastern Europe and the USSR. EU was pressed to provide large subsidies, and that marionette complied. The commenter ilpalazzo (above) is right that there has been " a tremendous development in real estate and infrastructure mostly funded by the EU that has been a serious engine of growth." Like in Baltics and Ukraine, German, French, Swedish and other Western buyers were most interested in opening market for their products and getting rid of local and xUSSR competitors (and this supported and promoted Russophobia). With very few exceptions. University education system also was partially destroyed, but still fared better than most manufacturing industries.

I remember talking to one of the Polish professors of economics when I was in Poland around 1992. He said that no matter how things will develop, the Polish economy will never be allowed to fail as the USA is interested in propelling it at all costs. Still, they lost quite a bit of manufacturing: for example all shipbuilding, which is ironic as Lech Wałęsa and Solidarity emerged in this industry.

Eventually, Poland emerged as the major US agent of influence within the EU (along with GB) with the adamant anti-Russian stance. Which taking into account the real state of Polish manufacturing deprived of the major market is very questionable. Later by joining sanctions, they lost Russian agricultural market (including all apple market in which they have a prominent position).

But they have a large gas pipeline on their territory, so I suspect that like Ukraine they make a lot of money via transit fees simply due to geographic. So they parochially live off rent -- that why they bark so much at North Stream 2.

Polish elite is a real horror show, almost beyond redemption, and not only in economics. I do not remember, but I think it was Churchill who said " Poland is a greedy hyena of Europe." This is as true now as it was before WWII.

Jura , January 11, 2019 at 4:54 am

Gosh! I used to actively fight the commies here in the 80's. But then with Balcerowicz I almost regretted it. as to your words:

"Balcerowicz himself at one point advocated something pretty much like what came to pass, a gradual privatization and maintaining most of the sociaal safety net while advocating shock monetary policies to bring inflation under control." – They derail.

You should have come here in the 90's to see a shock of the Doctrine to face social trauma of "PGR"(Huge National Farms) workers (it's the electorate of PiS (Law and Justice)), Miners near Wałbrzych, workers of textile industry near łódź bereft of everything from day to day (literally). Even the contemporary visit might ensure you quite a thrill if you knew where to look. Most of the firms that would easily survive if given some protectionism were hostily taken over by a foreigner capital and shut down with their production instantly replaced by imported goods.

I do remember his speeches well. Form the spectrum offered by the Chicago boys he chosen the hardest option. It was Michnik and Kuroń who opted for less "Chicago" direction. But they were in minority. The prevailing Zeitgeist of the period caused words "social", "common" to be treated as a curse and socially stigmatizing.

For a better understanding what went wrong you may take example of railroad privatization and compare it to the Czech way.

Don't believe the official statistics, we have a huge part of our working poors here. Their voice will never be heard as they live in a subsistence economy and the've got neither time nor power to shout struggling to survive..

John Mc , January 11, 2019 at 11:28 am

One wonders why there is a need to revisit Klein's thesis to debunk parts of it in this moment?

And the point is so small in this article about Poland, that one wonders why a James Madison prof of econ does not have more time to look at significant problems everywhere instead of parse the progressive beast?

In my lifetime, I have not witnessed a time where more of the political machinery has drifted to the right -- caught in the headlights of what Chris Hedges calls the illusion of democracy in the decay of capitalism.

Its important to not forget Gina Haspel's contribution here and torture -- how torture (economic, physical, and social shock) is implicated, vaulting her to the head of our top Spy agency --

It reminds me of a recent article from Arundhati Roy's, that the global elite perspective is that a quick way to rid the globe of the problems we face is to kill off enough people so that the problem dissipates -- war, fraud, nationalism/racism used to point the finger at the other (making it easier for people to harm one another or look the other way (Arendt).

Susan the Other , January 11, 2019 at 1:21 pm

China is wisely looking at the efficiency of state owned enterprises with a reluctance to privatize them. It will become very clear now that everyone is sobering up from the collapse of the USSR that neoliberal capitalist efficiency (profits) can only be made by socializing costs and externalizing everything that reduces their bottom line with answers like "That ain't mine."

If even the doofuses at Davos are looking at various forms of "capital" (social, political, civil, environmental, etc.) they have begun to mitigate their global catastrophe.

Efficiency requires a variety of gains, returns, profits and fairness. Otherwise it is simply theft. And when all is accounted for there might not be any profit to be had in the real world. Only in the minds of the neoliberals. Efficiency is something that should be accounted for carefully so that no vital systems are harmed.

bruce wilder , January 11, 2019 at 2:17 pm

Barkley insists on a left-right split for his analysis of political parties and their attachment to vague policy tendencies and that insistence makes a mess of the central issue: why the rise of right-wing populism in a "successful" economy?

Naomi Klein's book is about how and why centrist neoliberals got control of policy. The rise of right-wing populism is often supposed (see Mark Blyth) to be about the dissatisfaction bred by the long-term shortcomings of or blowback from neoliberal policy.

Barkley Rosser treats neoliberal policy as implicitly successful and, therefore, the reaction from the populist right appears mysterious, something to investigate. His thesis regarding neoliberal success in Poland is predicated on policy being less severe, less "shocky".

In his left-right division of Polish politics, the centrist neoliberals -- in the 21st century, Civic Platform -- seem to disappear into the background even though I think they are still the second largest Party in Parliament, though some seem to think they will sink in elections this year.

Electoral participation is another factor that receives little attention in this analysis. Politics is shaped in part by the people who do NOT show up. And, in Poland that has sometimes been a lot of people, indeed.

Finally, there's the matter of the neoliberal straitjacket -- the flip-side of the shock in the one-two punch of "there's no alternative". What the policy options for a Party representing the interests of the angry and dissatisfied? If you make policy impossible for a party of the left, of course that breeds parties of the right. duh.

Likbez,

Bruce,

Blowback from the neoliberal policy is coming. I would consider the current situation in the USA as the starting point of this "slow-motion collapse of the neoliberal garbage truck against the wall." Neoliberalism like Bolshevism in 1945 has no future, only the past. That does not mean that will not limp forward in zombie (and pretty bloodthirsty ) stage for another 50 years. But it is doomed, notwithstanding recently staged revenge in countries like Ukraine, Argentina, and Brazil.

Excessive financialization is the Achilles' heel of neoliberalism. It inevitably distorts everything, blows the asset bubble, which then pops. With each pop, the level of political support of neoliberalism shrinks. Hillary defeat would have been impossible without 2008 events.

At least half of Americans now hate soft neoliberals of Democratic Party (Clinton wing of Bought by Wall Street technocrats), as well as hard neoliberal of Republican Party, which created the " crisis of confidence" toward governing neoliberal elite in countries like the USA, GB, and France. And that probably why the intelligence agencies became the prominent political players and staged the color revolution against Trump (aka Russiagate ) in the USA.

The situation with the support of neoliberalism now is very different than in 1994 when Bill Clinton came to power. Of course, as Otto von Bismarck once quipped "God has a special providence for fools, drunkards, and the United States of America." and another turn of the technological spiral might well save the USA. But the danger of never-ending secular stagnation is substantial and growing. This fact was admitted even by such dyed-in-the-wool neoliberals as Summers.

This illusion that advances in statistics gave neoliberal access to such fine-grained and timely economic data, that now it is possible to regulated economy indirectly, by strictly monetary means is pure religious hubris. Milton Friedman would now be laughed out the room if he tried to repeat his monetarist junk science now. Actually he himself discarded his monetarist illusions before he died.

We probably need to the return of strong direct investments in the economy by the state and nationalization of some assets, if we want to survive and compete with China. Australian politicians are already openly discussing this, we still lagging because of "walking dead" neoliberals in Congress like Pelosi, Schumer, and company.

But we have another huge problem, which Australia and other countries (other than GB) do not have: neoliberalism in the USA is a state religion which completely displaced Christianity (and is hostile to Christianity), so it might be that the lemming will go off the cliff. I hope not.

The only thing that still keeps neoliberalism from being thrown out to the garbage bin of history is that it is unclear what would the alternative. And that means that like in 1920th far-right nationalism and fascism have a fighting chance against decadent neoliberal oligarchy.

Previously financial oligarchy was in many minds associated with Jewish bankers. Now people are more educated and probably can hang from the lampposts Anglo-Saxon and bankers of other nationalities as well ;-)

I think that in some countries neoliberal oligarchs might soon feel very uncomfortable, much like Soros in Hungary.

As far as I understood the level of animosity and suppressed anger toward financial oligarchy and their stooges including some professors in economics departments of the major universities might soon be approaching the level which existed in the Weimar Republic. And as Lenin noted, " the ideas could become a material force." This true about anger as well.

[Jan 08, 2019] The smaller the financial sector is the more real wealth there is for the rest of society to enjoy. The bigger the financial sector becomes the more money it siphons off from the productive sectors

Highly recommended!
There is probably an optimum size of financial sector after which it easily go out of control and start grabbing political power. So it is important to prohibit banksters to participate in political activity of any kind or in lobbing. Lobbing by financial sector should be criminalized. They also should be prohibited from hired any for government employee for 10 years after he/she left this/her position in government (revolving door style of corruption).
The other interesting point is that taxes can server as powerful inhibitor of destructive behaviour of financial sector. So the fight for the level of taxation of particular social groups is the most important political fight in modern society.
Also some actions of banksters sho</blockquote>uld be criminalized with high duration of jail term, just to create negative incentives for certain types of behavior. For example selling insurance without adequate capital to cover loses. Also important is to criminalize changing more then a minimum fees (say, 0.25% a year) in 401K accounts as well as provided insufficiently diversified 401k portfolios.
Jan 08, 2019 | neweconomicperspectives.org
Ben | March 18, 2014 at 5:32 pm

This was a fascinating piece, very readable for those of us with minimal financial education. However, since this is such a good explainer for the layman, I think it would be very beneficial to explain how big a difference 1% in fees makes for an investor over a lifetime. I know personally when I used to compare funds the difference between 1 and 2% in fees seemed negligible. But then I saw that fantastic PBS Frontline on this topic and saw how much that 1% could cost me over a lifetime! I now have everything that I personally manage in index funds!

Doc | March 19, 2014 at 5:26 am

You can't really argue with what has been said, and all (of us) involved in the sector know it is massive rip off.

While a free market advocate, I think a first step would be to introduce meaningful fee caps on all state promoted or mandated saving arrangements (eg ISAS, and Pensions), on the grounds that the market is skewed by the government intervention that creates the glut of forced buyers, and so to correct that imbalance the market (i.e. consumers) need protection through fee caps. I'd say no more than 20 – 25bps should be permitted for all ISAS and pension savings (DC or DB). Individual wealthy investors (investments of more than say £5m?) can pay what they like.

Paul | March 28, 2014 at 4:18 pm

Ben,

>>The job of the finance sector is simply to manage existing resources. It creates nothing.

This is a dubious assertion, but you clearly believe it. How then, can you in good conscience, charge 1.25% (plus indirect costs for the funds you hold in client portfolios) to manage people's money when you yourself admit you are adding no value?
(source: http://strubelim.com/wp/our-funds/ar-fund/ )

golfer1john | March 30, 2014 at 11:23 pm

Semantics.

There are 6000 publicly traded companies. Some of them will have rising stock prices, some falling. If a money manager can steer you to the rising ones, he is doing something of value. It doesn't mean he created anything physical that didn't exist before. He's doing a service for you that would otherwise have taken you some time and effort to do, and that's what you pay for.

Briana | March 31, 2014 at 10:22 am

Yes, it's a different definition of value. The growth of financial services has been outpacing the growth of other sectors to a monstrous scale, and that makes this distinction important. It signals a kind of corruption that can only mean high inflation and decoupling money from economic output.

golfer1john | April 1, 2014 at 12:05 am

I don't follow. How is financial services different from any other kind of services, in the impact on inflation? Why not also actors, barbers, or any other service profession?

The growth of the financial sector might be explained by the fact that it is the industry most able to exploit computers, and the first to do so on a large scale.

The corruption is, I think, a separate issue that is present whenever other people's money is involved. Financial services and government are simply more involved that way than most other industries, and have been all along, dating to long before the recent growth. Corruption is not impossible in any industry, just more attractive when the numbers are larger.

Jim Shannon | April 1, 2014 at 9:20 am

Corruption is never a separate in ANY corporate activity. The TAX CODE treats the wealth of the .01% radically different than Income from Labor, because all Taxes on Capital Gains are deferred until taken and are not TAXED as ordinary income. The TAX CODE is responsible for the corruption of our government because it has put real POWER, the Power of Wealth in the hands of the .01%, to buy whatever it wants, while labor and the poor spend everything they earn or are given , every single year to survive in a economic culture designed for the benefit of the .01%, something no one will write about!

Change the TAX CODE and the Corruption of Society will end!

Briana | April 1, 2014 at 7:23 pm

Barbers and actors being paid for their labor do not have the same impact on inflation as a bank giving out loans and consumer credit at interest. It's not equivalent at all.

Corruption in financial industries is what this article is discussing. If it's a separate issue, I'm confused as to the point of talking about this at all!

golfer1john | April 2, 2014 at 1:50 pm

No, I wasn't, though I have heard that. My theory of markets, and human group behavior in general, is a statistical approach. There are averages, distributions, and temporary equilibriums, but the interesting parts are the outliers. I guess that is more of a quantum flavor than Newtonian. Over time, economies behave cyclically. Much of nature and human group behavior is cyclical.

Paul | April 11, 2014 at 11:48 am

"This argument hinges on everyone that purchases these services knowing their true value."

In a literal sense, you are correct, it is an imperfect measure of value. However, I think it is far and away the most reliable one we have as value is extremely subjective. I don't think it is right or prudent for third, non cost bearing parties to preempt decisions made by consenting adults, rather, I would accord them the dignity of free choice. There are many things that consumers purchase that I do not understand, why anyone would pay a premium for a fast car seems like a waste of money to me, for example. Why anyone would pay money to golf, not to mention the huge cost in terms of time it takes to get through 18 holes, seems like a waste of money to me. These are things that make no sense to me because I do not see the value there. But, I recognize that people have various tastes and preferences, and I respect that and presume that individuals know themselves and their own tastes and preferences better than I (or someone else) does. Therefore, when someone values something that I do not understand, I tend to believe it is a result of a difference in preference, rather than they are too dumb to figure out what they like, or that they are "tricked" into buying something and hence need protection delivered by those who fancy themselves as enlightened enough to see the real truth. Nothing about this is unique to the financial industry, by the way.

"Countless services and products we rely on were funded by taxes to make them profitable. They are "worthwhile" but apparently not "profitable" enough to invest in. Making money and creating value aren't the same thing. Ideally, everyone decides what is worthwhile."

Apparently not enough people decided these services and products were worthwhile, so politicians decided they were worthwhile and used the force and power of government to get them done. Substituting preferences of politicians, spending other people's money for those of millions of individuals spending their own money does not seem like an efficient way to allocate resources.

[Jan 08, 2019] Rewriting Economic Thought - Michael Hudson

Highly recommended!
Notable quotes:
"... The following is a transcript of CounterPunch Radio – Episode 19 (originally aired September 21, 2015). Eric Draitser interviews Michael Hudson. ..."
"... The Troika and IMF doctrine of austerity and privatization ..."
Oct 05, 2015 | michael-hudson.com

The following is a transcript of CounterPunch Radio – Episode 19 (originally aired September 21, 2015). Eric Draitser interviews Michael Hudson.

Eric Draitser: Today I have the privilege of introducing Michael Hudson to the program. Doctor Hudson is the author of the new book Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy , available in print on Amazon and an e-version on CounterPunch. Michael Hudson, welcome to CounterPunch Radio.

Michael Hudson: It's good to be here.

ED: Thanks so much for coming on. As I mentioned already, the title of your book – Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy – is an apt metaphor. So parasitic finance capital is really what you're writing about. You explain that it essentially survives by feeding off what we might call the real economy. Could you draw out that analogy a little bit? What does that mean? How does finance behave like a parasite toward the rest of the economy?

MH: Economists for the last 50 years have used the term "host economy" for a country that lets in foreign investment. This term appears in most mainstream textbooks. A host implies a parasite. The term parasitism has been applied to finance by Martin Luther and others, but usually in the sense that you just talked about: simply taking something from the host.

But that's not how biological parasites work in nature. Biological parasitism is more complex, and precisely for that reason it's a better and more sophisticated metaphor for economics. The key is how a parasite takes over a host. It has enzymes that numb the host's nervous system and brain. So if it stings or gets its claws into it, there's a soporific anesthetic to block the host from realizing that it's being taken over. Then the parasite sends enzymes into the brain. A parasite cannot take anything from the host unless it takes over the brain.

The brain in modern economies is the government, the educational system, and the way that governments and societies make their economic policy models of how to behave. In nature, the parasite makes the host think that the free rider, the parasite, is its baby, part of its body, to convince the host actually to protect the parasite over itself.

That's how the financial sector has taken over the economy. Its lobbyists and academic advocates have persuaded governments and voters that they need to protect banks, and even need to bail them out when they become overly predatory and face collapse. Governments and politicians are persuaded to save banks instead of saving the economy, as if the economy can't function without banks being left in private hands to do whatever they want, free of serious regulation and even from prosecution when they commit fraud. This means saving creditors – the One Percent – not the indebted 99 Percent.

It was not always this way. A century ago, two centuries ago, three centuries ago and all the way back to the Bronze Age, almost every society has realized that the great destabilizing force is finance – that is, debt. Debt grows exponentially, enabling creditors ultimately to foreclose on the assets of debtors. Creditors end up reducing societies to debt bondage, as when the Roman Empire ended in serfdom.

About a hundred years ago in America, John Bates Clark and other pro-financial ideologues argued that finance is not external to the economy. It's not extraneous, it's part of the economy, just like landlords are part of the economy. This means that if the financial sector takes more revenue out of the economy as interest, fees or monopoly charges, it's because finance is an inherent and vital part of the economy, adding to GDP, not merely siphoning it off from producers to pay Wall Street and the One Percent. So our economic policy protects finance as if it helps us grow, not siphons off our growth.

A year or two ago, Lloyd Blankfein of Goldman Sachs said that the reason Goldman Sachs' managers are paid more than anybody else is because they're so productive. The question is, productive of what? The National Income and Product Accounts (NIPA) say that everybody is productive in proportion to the amount of money they make/take. It doesn't matter whether it's extractive income or productive income. It doesn't matter whether it's by manufacturing products or simply taking money from people, or simply by the fraud that Goldman Sachs, Citigroup, Bank of America and others paid tens of millions of dollars in fines for committing. Any way of earning income is considered to be as productive as any other way. This is a parasite-friendly mentality, because it denies that there's any such thing as unearned income. It denies that there's a free lunch. Milton Friedman got famous for promoting the idea that there's no such thing as a free lunch, when Wall Street knows quite well that this is what the economy is all about. It's all about how to get a free lunch, with risks picked up by the government. No wonder they back economists who deny that there's any such thing!

ED: To get to the root of the issue, what's interesting to me about this analogy that we're talking about is that we hear the term neoliberalism all the time. It is an ideology I that's used to promote the environment within which this parasitic sort of finance capital can operate. So could you talk a bit about the relationship between finance capital and neoliberalism as its ideology.

MH: Today's vocabulary is what Orwell would call DoubleThink. If you're going to call something anti-liberal and against what Adam Smith and John Stuart Mill and other classical economists described as free markets, you pretend to be neoliberal. The focus of Smith, Mill, Quesnay and the whole of 19th-century classical economics was to draw a distinction between productive and unproductive labor – that is, between people who earn wages and profits, and rentiers who, as Mill said, "get rich in their sleep." That is how he described landowners receiving groundrent. It also describes the financial sector receiving interest and "capital" gains.

The first thing the neoliberal Chicago School did when they took over Chile was to close down every economics department in the country except the one they controlled at the Catholic University. They started an assassination program of left wing professors, labor leaders and politicians, and imposed neoliberalism by gunpoint. Their idea is you cannot have anti-labor, deregulated "free markets" stripping away social protections and benefits unless you have totalitarian control. You have to censor any idea that there's ever been an alternative, by rewriting economic history to deny the progressive tax and regulatory reforms that Smith, Mill, and other classical economists urged to free industrial capitalism from the surviving feudal privileges of landlords and predatory finance.

This rewriting of the history of economic thought involves inverting the common vocabulary that people use. So, the idea of the parasitism is to replace the meaning of everyday words and vocabulary with their opposite. It's DoubleThink.

Democratic vs. oligarchic government and their respective economic doctrines
ED: I don't want to go too far off on a tangent, but you mentioned the example of Chile's 1973 coup and the assassination of Allende to impose the Pinochet dictatorship. That was a Kissinger/Nixon operation as we know, but what's interesting about that is Chile was transformed into a sort of experimental laboratory to impose the Chicago school economic model of what we now would call neoliberalism. Later in our conversation I want to talk a bit about some recent laboratories we have seen in Eastern Europe, and now in Southern Europe as well. The important point about neoliberalism is the relationship between totalitarian government and this form of economics.

MH: That's right. Neoliberals say they're against government, but what they're really against is democratic government. The kind of governments they support are pre-referendum Greece or post-coup Ukraine. As Germany's Wolfgang Schäuble said, "democracy doesn't count." Neoliberals want the kind of government that will create gains for the banks, not necessarily for se the economy at large. Such governments basically are oligarchic. Once high finance takes over governments as a means of exploiting the 99 Percent, it's all for active government policy – for itself.

Aristotle talked about this more than 2,000 years ago. He said that democracy is the stage immediately proceeding oligarchy. All economies go through three stages repeating a cycle: from democracy into oligarchy, and then the oligarchs make themselves hereditary. Today, Jeb Bush wants to abolish the estate tax to help the emerging power elite make itself into a hereditary aristocracy. Then, some of the aristocratic families will fight among themselves, and take the public into their camp and promote democracy, so you have the cycle going all over again. That's the kind of cycle we're having now, just as in ancient Athens. It's a transition from democracy to oligarchy on its way to becoming an aristocracy of the power elite.

ED: I want to return to the book in a second but I have to interject that one particular economist hasn't been mentioned yet: Karl Marx. It's an inversion of Marx as well, because Marx's labor theory of value was that that value ultimately is derived from labor. Parasitic finance capital is the opposite of that. It may increase prices without value.

MH: Correct, but I should point out that there's often a misinterpretation of the context in which the labor theory of value was formulated and refined. The reason why Marx and the other classical economists – William Petty, Smith, Mill and the others – talked about the labor theory of value was to isolate that part of price that wasn't value. Their purpose was to define economic rent as something that was not value. It was extraneous to production, and was a free lunch – the element of price that is charged to consumers and others that has no basis in labor, no basis in real cost, but is purely a monopoly price or return to privilege. This was mainly a survival of the feudal epoch, above all of the landed aristocracy who were the heirs of the military conquers, and also the financial sector of banking families and their heirs.

The aim of the labor theory of value was to divide the economy between excessive price gouging and labor. The objective of the classical economists was to bring prices in line with value to prevent a free ride, to prevent monopolies, to prevent an absentee landlord class so as to free society from the legacy of feudalism and the military conquests that carved up Europe's land a thousand years ago and that still underlies our property relations.

The concept and theory of economic rent
ED: That's a great point, and it leads me into the next issue that I want to touch on. You've mentioned the term already a number of times: the concept of economic rent. We all know rent in terms of what we have to pay every month to the landlord, but we might not think about what it means conceptually. It's one of the fabrics with which you've woven this book together. One of the running themes, rent extraction, and its role in the development of what we've now termed this parasitic relationship. So, explain for laymen what this means – rent extraction – and how this concept evolved.

MH: To put the concept of economic rent in perspective, I should point out when I went to get my PhD over a half a century ago, every university offering a graduate economics degree taught the history of economic thought. That has now been erased from the curriculum. People get mathematics instead, so they're unexposed to the concept of economic rent as unearned income. It's a concept that has been turned on its head by "free market" ideologues who use "rent seeking" mainly to characterize government bureaucrats taxing the private sector to enhance their authority – not free lunchers seeking to untax their unearned income. Or, neoclassical economists define rent as "imperfect competition" (as if their myth of "perfect competition" really existed) stemming from "insufficient knowledge of the market," patents and so forth.

Most rent theory was developed in England, and also in France. English practice is more complex than America. The military conquers imposed a pure groundrent fee on the land, as distinct from the building and improvements. So if you buy a house from a seller in England, somebody else may own the land underneath it. You have to pay a separate rent for the land. The landlord doesn't do anything at all to collect land rent, that's why they call them rentiers or coupon clippers. In New York City, for example, Columbia University long owned the land underneath Rockefeller Center. Finally they sold it to the Japanese, who lost their shirt. This practice is a carry-over from the Norman Conquest and its absentee landlord class.

The word "rent" originally was French, for a government bond (rente). Owners received a regular income every quarter or every year. A lot of bonds used to have coupons, and you would clip off the coupon and collect your interest. It's passively earned income, that is, income not actually earned by your own labor or enterprise. It's just a claim that society has to pay, whether you're a government bond holder or whether you own land.

This concept of income without labor – but simply from privileges that had been made hereditary – was extended to the ideas of monopolies like the East India Company and other trade monopolies. They could produce or buy goods for, let's say, a dollar a unit, and sell them for whatever the market will bear – say, $4.00. The markup is "empty pricing." It's pure price gouging by a natural monopoly, like today's drug companies.

To prevent such price gouging and to keep economies competitive with low costs of living and doing business, European kept the most important natural monopolies in the public domain: the post office, the BBC and other state broadcasting companies, roads and basic transportation, as well as early national airlines. European governments prevented monopoly rent by providing basic infrastructure services at cost, or even at subsidized prices or freely in the case of roads. The guiding idea is for public infrastructure – which you should think of as a factor of production along with labor and capital – was to lower the cost of living and doing business.

But since Margaret Thatcher led Britain down the road to debt peonage and rent serfdom by privatizing this infrastructure, she and her emulators other countries turned them into tollbooth economies. The resulting economic rent takes the form of a rise in prices to cover interest, stock options, soaring executive salaries and underwriting fees. The economy ends up being turned into a collection of tollbooths instead of factories. So, you can think of rent as the "right" or special legal privilege to erect a tollbooth and say, "You can't get television over your cable channel unless you pay us, and what we charge you is anything we can get from you."

This price doesn't have any relation to what it costs to produce what they sell. Such extortionate pricing is now sponsored by U.S. diplomacy, the World Bank, and what's called the Washington Consensus forcing governments to privatize the public domain and create such rent-extracting opportunities.

In Mexico, when they told it to be more "efficient" and privatize its telephone monopoly, the government sold it to Carlos Slim, who became one of the richest people in the world by making Mexico's phones among the highest priced in the world. The government provided an opportunity for price gouging. Similar high-priced privatized phone systems plague the neoliberalized post-Soviet economies. Classical economists viewed this as a kind of theft. The French novelist Balzac wrote about this more clearly than most economists when he said that every family fortune originates in a great theft. He added that this not only was undiscovered, but has come taken for granted so naturally that it just doesn't matter.

If you look at the Forbes 100 or 500 lists of each nation's richest people, most made their fortunes through insider dealing to obtain land, mineral rights or monopolies. If you look at American history, early real estate fortunes were made by insiders bribing the British Colonial governors. The railroad barrens bribed Congressmen and other public officials to let them privatize the railroads and rip off the country. Frank Norris's The Octopus is a great novel about this, and many Hollywood movies describe the kind of real estate and banking rip-offs that made America what it is. The nation's power elite basically begun as robber barons, as they did in England, France and other countries.

The difference, of course, is that in past centuries this was viewed as corrupt and a crime. Today, neoliberal economists recommend it as the way to raise "productivity" and make countries wealthier, as if it were not the road to neofeudal serfdom.

The Austrian School vs. government regulation and pro-labor policies
ED: I don't want to go too far off on a tangent because we have a lot to cover specific to your book. But I heard an interesting story when I was doing a bit of my own research throughout the years about the evolution of economic thought, and specifically the origins of the so-called Austrian School of Economics – people like von Mises and von Hayek. In the early 20th century they were essentially, as far as I could tell, creating an ideological framework in which they could make theoretical arguments to justify exorbitant rent and make it seem almost like a product of natural law – something akin to a phenomenon of nature.

MH: The key to the Austrian School is their hatred of labor and socialism. It saw the danger of democratic government spreading to the Habsburg Empire, and it said, "The one thing we have to stop is democracy. Their idea of a free market was one free of democracy and of democratic government regulating and taxing wealthy rentiers. It was a short step to fighting in the streets, using murder as a "persuader" for the particular kind of "free markets" they wanted – a privatized Thatcherite deregulated kind. To the rentiers they said: "It's either our freedom or that of labor."

Kari Polanyi-Levitt has recently written about how her father, Karl Polanyi, was confronted with these right-wing Viennese. His doctrine was designed to rescue economics from this school, which makes up a fake history of how economics and civilization originated.

One of the first Austrian's was Carl Menger in the 1870s. His "individualistic" theory about the origins of money – without any role played by temples, palaces or other public institutions – still governs Austrian economics. Just as Margaret Thatcher said, "There's no such thing as society," the Austrians developed a picture of the economy without any positive role for government. It was as if money were created by producers and merchants bartering their output. This is a travesty of history. All ancient money was issued by temples or public mints so as to guarantee standards of purity and weight. You can read Biblical and Babylonian denunciation of merchants using false weights and measures so see why money had to be public. The major trading areas were agora spaces in front of temples, which kept the official weights and measures. And much exchange was between the community's families and the public institutions.

Most important, money was brought into being not for trade (which was conducted mainly on credit), but for paying debts. And most debts were owed to the temples and palaces for pubic services or tribute. But to the Austrians, the idea was that anything the government does to protect labor, consumers and society from rentiers and grabbers is deadweight overhead.

Above all, they opposed governments creating their own money, e.g. as the United States did with its greenbacks in the Civil War. They wanted to privatize money creation in the hands of commercial banks, so that they could receive interest on their privilege of credit creation and also to determine the allocation of resources.

Today's neoliberals follow this Austrian tradition of viewing government as a burden, instead of producing infrastructure free of rent extraction. As we just said in the previous discussion, the greatest fortunes of our time have come from privatizing the public domain. Obviously the government isn't just deadweight. But it is becoming prey to the financial interests and the smashers and grabbers they have chosen to back.

ED: You're right, I agree 100%. You encounter this ideology even in the political sociological realm like Joseph Schumpeter, or through the quasi-economic realm like von Hayek in The Road to Serfdom.

MH: Its policy conclusion actually advocates neo-serfdom. Real serfdom was when families had to pay all their income to the landlords as rent. Centuries of classical economists backed democratic political reform of parliaments to roll back the landlords' power (and that of bankers). But Hayek claimed that this rollback was the road to serfdom, not away from it. He said democratic regulation and taxation of rentiers is serfdom. In reality, of course, it's the antidote.

ED: It's the inversion you were talking about earlier. We're going to go into a break here in a minute but before we do I want to touch on one other point that is important in the book, again the book, Killing the Host: How Financial Parasites and Debt Bondage Destroyed the Global Economy, available from CounterPunch – very important that people pick up this book.

MH: And from Amazon! You can get a hard copy for those who don't want to read on computers.

Finance as the new mode of warfare
ED: Yes, and on amazon as well, thank you. This issue that I want to touch on before we go to the break is debt. On this program a couple of months ago I had the journalist John Pilger. He and I touched on debt specifically as a weapon, and how it is used as a weapon. You can see this in the form of debt enslavement, if you want to call it that, in postcolonial Africa. You see the same thing in Latin America where, Michael, I know you have a lot of experience in Latin America in the last couple of decades. So let's talk a little bit, if we could, before we go to the break, about debt as a weapon, because I think this is an important concept for understanding what's happening now in Greece, and is really the framework through which we have to understand what we would call 21st-century austerity.

MH: If you treat debt as a weapon, the basic idea is that finance is the new mode of warfare. That's one of my chapters in the book. In the past, in order to take over a country's land and its public domain, its basic infrastructure and its mineral resources, you had to have a military invasion. But that's very expensive. And politically, almost no modern democracy can afford a military invasion anymore.

So the objectives of the financial sector – of Wall Street, the City of London or Frankfurt in Germany – is to obtain the land. You can look at what's happening in Greece. What its creditors, the IMF and European Central Bank (ECB) want are the Greek islands, and they want the gas rights in the Aegean Sea. They want whatever buildings and property there is, including the museums.

Matters are not so much different in the private sector. If you can get a company or individual into debt, you can strip away the assets they have when they can't pay. A Hayek-style government would block society from protecting itself against such asset stripping. Defending "property rights" of creditors, such "free market" ideology deprives the rest of the economy – businesses, individuals and public agencies. It treats debt writedowns as the road to serfdom, not the road away from debt dependency.

In antiquity, private individuals obtained labor services by making loans to families in need, and obliging their servant girls, children or even wives to work off the loan in the form of labor service. My Harvard-based archaeological group has published a series of five books that I co-edited, most recently Labor in the Ancient World . Creditors (often palace infrastructure managers or collectors) would get people into bondage. When new Bronze Age rulers started their first full year on the throne, it was customary to declare an amnesty to free bond servants and return them to their families, and annul personal debts as well as to return whatever lands were forfeited. So in the Bronze Age, debt serfdom and debt bondage was only temporary. The biblical Jubilee law was a literal translation of Babylonian practice that went back two thousand years.

In America, in colonial times, sharpies (especially from Britain) would lend farmers money that they knew the farmer couldn't pay, then they would foreclose just before the crops came in. Right now you have corporate raiders, who are raiding whole companies by forcing them into debt, and then smashing and grabbing. You now have the IMF, European Central Bank and Washington Consensus taking over whole countries like Ukraine. The tactic is to purposely lend them the money that clearly cannot be repaid, and say, "Oh you cannot pay? Well, we're not going to take a loss. We have a solution." The solution is to sell off public enterprises, land and natural resources. In Greece's case, 50 billion euros of its property, everything that it has in the public sector. The country is to be sold off to foreigners (including domestic oligarchs working out of their offshore accounts). Debt leverage is thus the way to achieve what it took armies to win in times past.

ED: Exactly. One last point on that as well. I want to get your comment on and we see this in post-colonial Africa, especially when the French and the British had to nominally give up control of their colonies. You saw debt become an important tool to maintain hegemony within their spheres of influence. Of course, asset stripping and seizing control, smashing and grabbing was part of that. But also it is the debt servicing payments, it is the cycle of debt repayment and taking new loans on top of original loans to service the original loans – this process this cycle is also really an example of this debt servitude or debt bondage.

MH: That's correct, and mainstream economics denies any of this. It began with Ricardo, who's brothers were major bankers at the time, and he himself was the major bank lobbyist in England. Right after Greece won its independence from Turkey, the Ricardo brothers made a rack-renting loan to Greece at far below par (that is, below the face value that Greece committed itself to pay). Greece tried to pay over the next century, but the terms of the loan ended up stripping and keeping it on the edge of bankruptcy well into the 20th century.

But Ricardo testified before Parliament that there could be no debt-servicing problem. Any country, he said, could repay the debts automatically, because there is an automatic stabilization mechanism that enables every country to be able to pay. This is the theory that underlines Milton Friedman and the Chicago School of monetarism: the misleading idea that debt cannot be a problem.

That's what's taught now in international trade and financial textbooks. It's false pleading. It draws a fictitious "What If" picture of the world. When criticized, the authors of these textbooks, like Paul Samuelson, say that it doesn't matter whether economic theory is realistic or not. The judgment of whether an economic theory is scientific is simply whether it is internally consistent. So you have these fictitious economists given Nobel Prizes for promoting an inside out, upside down version of how the global economy actually works.

ED: One other thing that they no longer teach is what used to be called political economy. The influence of the Chicago School, neoliberalism and monetarism has removed classical political economy from academia, from the Canon if you will. Instead, as you said, it's all about mathematics and formulas that treat economics like a natural science, when in fact it really should be more of a historically grounded social science.

MH: The formulas that they teach don't have government in them,. If you have a theory that everything is just an exchange, a trade, and that there isn't any government, then you have a theory that has nothing to do with the real world. And if you assume that the environment remains constant instead of using economics to guide public and national policy, you're using economics for the opposite of what the classical economists did. Adam Smith, Mill, Marx, Veblen – they all developed their economic theory to reform the world. The classical economists were reformers. They wanted to free society from the legacy of feudalism – to get rid of land rent, to take money creation and credit creation into the public domain. Whatever their views, whether they were right wingers or left wingers, whether they were Christian socialists, Ricardian socialists or Marxian socialists, all the capitalist theorists of the 19th century called themselves socialists, because they saw capitalism as evolving into socialism.

But what you now have, since World War I, is a reaction against this, stripping away of the idea that governments have a productive role to play. If government is not the director and planner of the economy, then who is? It's the financial sector. It's Wall Street. So the essence of neoliberalism that you were mentioning before, is indeed a doctrine of central planning. It states that the central planning should be done by Wall Street, by the financial sector.

The problem is, what is the objective of central planning by Wall Street? It's not to raise living standards, and it's not to increase employment. It is to smash and grab. That is the society we're in now.

A number of chapters of my book (I think five), describe how the Obama administration has implemented this smash and grab, doing the exact opposite of what he promised voters. Obama has implemented the Rubin-omics [Robert Rubin] doctrine of Wall Street to force America into what looks like a chronic debt depression.

ED: Exactly right. I couldn't agree more. Let's take a short break and we'll continue the discussion. Again, I'm chatting with Michael Hudson about his new book, Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

The case of Latvia: Is it a success story, or a neoliberal disaster?
ED: I want to go back to some of the important issues that we introduced or alluded to in the first part of our discussion. As I was mentioning to you off-air, a couple years ago I twice interviewed your colleague Jeffrey Sommers, with whom you've worked and co-published a number of papers. We talked a lot about many of the same issues that you and I are touching on. Specifically Sommers – and I know you as well – did a lot of work in Latvia, a country in the former Soviet space in Eastern Europe on the Baltic Sea. Your book has a whole chapter on it, as well as references throughout the book.

So let's talk about how Latvia serves as a template for understanding the austerity model. It is touted by technocrats of the financial elite as a major success story – how austerity can work. I find it absurd on so many different levels. So tell us what happened in Latvia, what the real costs were, and why neoliberals claim it as a success story.

MH: Latvia is the disaster story of the last two decades. That's why I took it as an object lesson. You're right, it was Jeff Sommers who first brought me over to Latvia. I then became Director of Economic Research and Professor of Economics at the Riga Graduate School of Law.

When Latvia was given its independence when the Soviet Union broke up in 1991, a number of former Latvians had studied at George Washington University, and they brought neoliberalism over there – the most extreme grabitization and de-industrialization of any country I know. Latvians, Russians and other post-Soviet countries were under the impression that U.S. advisors would help them become modernized like the U.S. economy – with high living and consumption standards. But what they got was advice to emulate American experience. It got something just the opposite – how to enable foreign investors and bankers to carve it up, dismantle its industry and become a bizarre neoliberal experiment.

You may remember the Republican presidential candidate Steve Forbes, who in 2008 proposed a flat tax to replace progressive taxation. The idea never could have won in the United States, but Latvia was another story. The Americans set the flat tax at an amazingly low 12 percent of income – and no significant property tax on real estate or capital gains. It was a financial and real estate dream, and created a classic housing and financial bubble.

Jeff and I visited the head of the tax authority, who told us that she was appointed because she had done her PhD dissertation on Latvia's last land value assessment – which was in 1917. They hadn't increased the assessments since then, because the Soviet economy didn't have private land ownership and didn't even have a concept of rent-of-location for planning purposes. (Neither did Russia.)

Latvia emerged from the Soviet Union without any debt, and also with a lot of real estate and a highly educated population. But its political insiders turned over most of the government enterprises to themselves. Latvia had been a computer center and also the money-laundering center of the Soviet leadership already in the late 1980s (largely as a byproduct of Russian oil exports through Ventspils), and Riga remains the money-laundering city for today's Russia.

Privatizing housing and other property led to soaring real estate prices. But this bubble wasn't financed by domestic banks. The Soviet Union didn't have private banks, because the government had simply created the credit to fund the economy as needed. The main banks in a position to lend to Latvia were Swedish and other Scandinavian banks. They pounce on the lending opportunities to opened up by an entire nation whose real estate had almost no tax on it. The result was the biggest real estate bubble in the world, along with Russia's. Latvians found that in order to buy housing of their own, they had to go deeply into debt. Assets were only given to insiders, not to the people.

A few years ago there was a reform movement in Latvia to stop the economic bleeding. Jeff and I brought over American property appraisers and economists. We visited the leading bank, regulatory agencies. Latvia was going broke because its population had to pay so much for real estate. And it was under foreign-exchange pressure because debt service on its mortgage loans was being paid to the Swedish and foreign banks. The bank regulator told us that her problem was that her agency's clients are the banks, not the population. So the regulators thought of themselves as working for the banks, even though they were foreign-owned. She acknowledged that the banks were lending much more money than property actually was worth. But her regulatory agency had a solution: It was to have not only the buyer be obligated to pay the mortgage, but also the parents, uncles or aunts. Get the whole family involved, so that if the first signer couldn't pay the cosigners would be obligated.

That is how Latvia stabilized its banking system. But it did so by destabilizing the economy. The result is that Latvia has lost 20 percent of its population over the past decade or so. For much the same reasons that Greece has lost 20 percent of its population, with Ireland in a similar condition. The Latvians have a joke "Will the last person who leaves in 2020 please turn off the lights at the airport."

The population is shrinking because the economy is being run by looters, domestic and foreign. I was shown an island in the middle of the Daugava river that runs to the middle of Latvia, and was sold for half a million dollars. Our appraisers said that it's worth half a billion dollars, potentially. There are no plans to raise the property tax to recapture these gains for the country – so that it can lower its heaviest labor taxes in the world, nearly half each paycheck for income tax and "social security" spending so that finance and real estate won't be taxed.

A few years ago, I was at the only meeting of INET (George Soros's group) that I was invited to, and in the morning one of the lead talks was on how Latvia was a model that all countries could follow to balance the budget. Latvia has balanced the budget by cutting back public spending, reducing employment and lowering wage levels while indebting its population and forcing to immigrate. The neoliberal strategy is to balance by selling off whatever remains in the public domain. Soros funded a foundation there (like similar ones he started in other post-Soviet countries) to get a part of the loot.

These giveaways at insider prices have created a kleptocracy obviously loyal to neoliberal economics. I go into the details in my chapter. It's hard to talk about it without losing my temper, so I'm trying to be reasonable but it's a country that was destroyed and smashed. That was the U.S. neoliberal model alternative to post-Stalinism. It wasn't a new American economy. It was a travesty.

Why then does the population continue to vote for these neoliberals? The answer is, the neoliberals say, the alternative is Stalinism. To Latvians, this means exile, deportations and memories of the old pro-Russian policy. The Russian-speaking parties are the main people backers of a social democracy party. But neoliberals have merged with Latvian nationalists. They are not only making the election over resentment against the Russian-speaking population, but the fact that many are Jewish.

I find it amazing to see someone who is Jewish, like George Soros, allying with anti-Semitic and even neo-Nazi movements in Latvia, Estonia, and most recently, of course, Ukraine. It's an irony that you could not have anticipated deductively. If you had written this plot in a futuristic novel twenty years ago, no one would have believed that politics could turn more on national and linguistic identity politics than economic self-interest. The issue is whether you are Latvian or are Russian-Jewish, not whether you want to untax yourself and make? Voting is along ethnic lines, not whether Latvians really want to be forced to emigrate to find work instead of making Latvia what it could have been: an successful economy free of debt. Everybody could have gotten their homes free instead of giving real estate only to the kleptocrats.

The government could have taxed the land's rental value rather than letting real estate valuation be pledged to pay banks – and foreign banks at that. It could have been a low-cost economy with high living standards, but neoliberals turned in into a smash and grab exercise. They now call it an idea for other nations to follow. Hence, the U.S.-Soros strategy re Ukraine.

ED: That's an excellent point. It's a more extreme case for a number of reasons in Ukraine – the same tendency. They talk about, "Putin and his gaggle of Jews." That's the idea, that Putin and the Jews will come in and steal everything – while neoliberals plan to appropriate Ukraine's land and other resources themselves. In this intersection between economics and politics, Latvia, Lithuania, Estonia – the Baltic States of the former Soviet Union – are really the front lines of NATO expansion. They were some of the first and most pivotal countries brought into the NATO orbit. It is the threat of "Russian aggression" via the enclave at Kaliningrad, or just Russia in general. That is the threat they use to justify the NATO umbrella, and simultaneously to justify continuing these economic policies. So in many ways Russia serves as this convenient villain on a political, military and economic level.

MH: It's amazing how the popular press doesn't report what's going on. Primakov, who died a few months ago, said during the last crisis a few years ago that Russia has no need to invade Latvia, because it owns the oil export terminals and other key points. Russia has learned to play the Western game of taking countries over financially and acquiring ownership. Russia doesn't need to invade to control Latvia any more than America needs to invade to control Saudi Arabia or the Near East. If it controls exports or access to markets, what motive would it have to invade? As things stand, Russia uses Latvia it as a money laundering center.

The same logic applies to Ukraine today. The idea is that Russia is expansionary in a world where no one can afford to be militarily expansionary. After Russia's disaster in Afghanistan, no country in the world that's subject to democratic checks, whether it's America after the Vietnam War or Russia or Europe, no democratic country can invade another country. All they can do is drop bombs. This can't capture a country. For that you need major troop commitments.

In the trips that I've taken to Russia and China, they're in a purely defensive mode. They're wondering why America is forcing all this. Why is it destroying the Near East, creating a refugee problem and then telling Europe to clean up the mess it's created? The question is why Europe is willing to keep doing this. Why is Europe part of NATO fighting in the Near East? When America tells Europe, "Let's you and Russia fight over Ukraine," that puts Europe in the first line of fire. Why would it have an interest in taking this risk, instead of trying to build a mutual economic relationship with Russia as seemed to be developing in the 19th century?

ED: That's the ultimate strategy that the United States has used – driving a wedge between Russia and Europe. This is the argument that Putin and the Russians have made for a long time. You can see tangible examples of that sort of a relationship even right now if you look at the Nord Stream pipeline connecting Russian energy to German industrial output – that is a tangible example of the economic relationship, that is only just beginning between Russia and Europe. That's really what I think the United States wanted to put the brakes on, in order to be able to maintain hegemony. The number one way it does that is through NATO.

MH: It's not only put the brakes on, it has created a new iron curtain. Two years ago, Greece was supposed to privatize 5 billion euros of its public domain. Half of this, 2.5 billion, was to be the sale of its gas pipeline. But the largest bidder was Gazprom, and America said, "No, you can't accept the highest bidder if its Russian." Same thing in Ukraine. It has just been smashed economically, and the U.S. says, "No Ukrainian or Russian can buy into the Ukrainian assets to be sold off. Only George Soros and his fellow Americans can buy into this." This shows that the neoliberalism of free markets, of "let's everybody pay the highest price," is only patter talk. If the winner in the rigged market is not the United States, it sends in ISIS or Al Qaeda and the assassination teams, or backs the neo-Nazis as in Ukraine.

So, we're in a New Cold War. Its first victims, apart from Southern Europe, will be the rest of Europe. You can imagine how this is just beginning to tear European politics apart, with Germany's Die Linke and similar parties making a resurgence.

The Troika and IMF doctrine of austerity and privatization
ED: I want to return us back to the book and some other key issues that you bring up that I think are most important. One that we hear in the news all the time, and you write extensively about it in the book, is the Troika. That's the IMF, the European Central Bank (ECB) and the European Commission. It could be characterized as the political arm of finance capital in Europe, one that imposes and manages austerity in the interest of the ruling class of finance capital, as I guess we could call them. These are technocrats, not academically trained economists primarily (maybe with a few exceptions), but I want you to talk a bit about how the Troika functions and why it's so important in what we could call this crisis stage of neoliberal finance capitalism.

MH: Basically, the Troika is run by Frankfurt bankers as foreclosure and collection agents. If you read recently what former Greek finance minister Yanis Varoufakis has written, and his advisor James Galbraith, they said that when Syriza was elected in January, they tried to reason with the IMF. But it said that it could only do what the European Central Bank said, and that it would approve whatever they decided to do. The European Central Bank said that its role wasn't to negotiate democracy. Its negotiators were not economists. They were lawyers. "All we can say is, here's what you have to pay, here's how to do it. We're not here to talk about whether this is going to bankrupt Greece. We're just interested in in how you're going to pay the banks what they're owe. Your electric companies and other industry will have to go to German companies, the other infrastructure to other investors – but not from Russia."

It's much like England and France divided up the Near East after World War I. There's a kind of a gentlemen's agreement as to how the creditor economies will divide up Greece, carving it up much like neighboring Yugoslavia to the north.

In 2001 the IMF made a big loan to Argentina (I have a chapter on Argentina too), and it went bad after a year. So the IMF passed a rule, called the No More Argentinas rule, stating that the Fund was not going to participate in a loan where the government obviously can not pay.

A decade later came the Greek crisis of 2011. The staff found that Greece could not possibly pay a loan large enough to bail out the French, German and other creditors. So there has to be a debt write-down of the principal. The staff said that, and the IMF's board members agreed. But its Managing Director, Strauss-Kahn wanted to run for the presidency of France, and most of the Greek bonds were held by French banks. French President Sarkozy said "Well you can't win political office in France if you stiff the French banks." And German Chancellor Merkel said that Greece had to pay the German banks. Then, to top matters, President Obama came over to the G-20 meetings and they said that the American banks had made such big default insurance contracts and casino gambles betting that Greece would pay, that if it didn't, if the Europeans and IMF did not bail out Greece, then the American banks might go under. The implicit threat was that the U.S. would make sure that Europe's financial system would be torn to pieces.

ED: And Michael, I just want to clarify, I guess it's sort of a question: about what you're talking about here in terms of Geithner and Obama coming in: These would be credit default swaps and collateralized debt obligations?

MH: Yes. U.S. officials said that Wall Street had made so many gambles that if the French and German banks were not paid, they would turn to their Wall Street insurers. The Wall Street casino would go under, bringing Europe's banking system down with it. This prompted the European Central Bank to say that it didn't want the IMF to be a part of the Troika unless it agreed to take a subordinate role and to support the ECB bailout. It didn't matter whether Greece later could pay or not. In that case, creditors would smash and grab. This lead the some of the IMF European staff to resign, most notably Susan Schadler, and later to act as whistle blowers to write up what happened.

The same thing happened again earlier this year in Greece. Lagarde said that the IMF doesn't do debt reduction, but would give them a little longer to pay. Not a penny, not a euro will be written down, but the debt will be stretched out and perhaps the interest rate will be lowered – as long as Greece permits foreigners to grab its infrastructure, land and natural resources.

The staff once again leaked a report to the Financial Times (and maybe also the Wall Street Journal) that said that Greece couldn't pay, there's no way it can later sell off the IMF loan to private bondholders, so any bailout would be against the IMF's own rules. Lagarde was embarrassed, and tried to save face by saying that Germany has to agree to stretch out the payments on the debt – as if that somehow would enable it to pay, while its assets pass into foreign hands, which will remit their profits back home and subject Greece to even steeper deflation.

Then, a few weeks ago, you have the Ukraine crisis and the IMF is not allowed to make loans to countries that cannot pay. But now the whole purpose is to make loans to countries who can't pay, so that creditors can turn around and demand that they pay by selling off their public domain – and implicitly, force their population to emigrate.

ED: Also, technically they're not supposed to be making loans to countries that are at war, and they're ignoring that rule as well.

MH: That's the second violation of IMF rules. At least in the earlier Greek bailout, Strauss Kahn got around the "No More Argentinas" rule by having a new IMF policy that if a country is systemically important, the IMF can lend it the money even if it can't pay, even though it's not credit-worthy, if its default would cause a problem in the global financial system (meaning a loss by Wall Street or other bankers). But Ukraine is not systemically important. It's part of the Russian system, not the western system. Most of its trade is with Russia.

As you just pointed out, when Lagarde made the IMF's last Ukrainian loan, she said that she hoped its economy would stabilize instead of fighting more war in its eastern export region. The next day, President Poroshenko said that now that it had got the loan, it could go to war against the Donbass, the Russian speaking region. Some $1.5 billion of the IMF loan was given to banks run by Kolomoisky, one of the kleptocrats who fields his own army. His banks send the IMF's gift abroad to his own foreign banks, using his domestic Ukrainian money to pay his own army, allied with Ukrainian nationalists flying the old Nazi SS insignia fighting against the Russian speakers. So in effect, the IMF is serving as an am of the U.S. military and State Department, just as the World Bank has long been.

ED: I want to interject two points here for listeners who haven't followed it as closely. Number one is the private army that you're talking about – the Right Sector which is essentially a mercenary force of Nazis in the employ of Kolomoisky. They're also part of what's now called the Ukrainian National Guard. This paramilitary organization that is being paid directly by Kolomoisky. Number two – and this relates back to something that you were saying earlier, Michael – that IMF loan went to pay for a lot of the military equipment that Kiev has now used to obliterate the economic and industrial infrastructure of Donbass, which was Ukraine's industrial heartland. So from the western perspective it's killing two birds with one stone. If they can't strip the assets and capitalize on them, at least they can destroy them, because the number one customer was Russia.

MH: Russia had made much of its military hardware in Ukraine, including its liftoff engines for satellites. The West doesn't want that to continue. What it wants for its own investors is Ukraine's land, the gas rights in the Black Sea, electric and other public utilities, because these are the major tollbooths to extract economic rent from the economy. Basically, US/NATO strategists want to make sure, by destroying Ukraine's eastern export industry, that Ukraine will be chronically bankrupt and will have to settle its balance-of-payments deficit by selling off its private domain to American, German and other foreign buyers.

ED: Yes, that's Monsanto, and that's Hunter Biden on the Burisma board (the gas company). It's like you said earlier, you wouldn't even believe it if someone would have made it up. It's so transparent, what they're doing in Ukraine.

Financialization of pension plans and retirement savings
I want to switch gears a bit in the short time we have remaining, because I have two more things I want to talk about. Referring back to this parasitical relationship on the real economy, one aspect that's rarely mentioned is the way in which many regular working people get swindled. One example that comes to my mind is the mutual funds and other money managers that control what pension funds and lots of retirees invest in. Much of their savings are tied up in heavily leveraged junk bonds and in places like Greece, but also recently in Puerto Rico which is going through a very similar scenario right now. So in many ways, US taxpayers and pensioners are funding the looting and exploitation of these countries and they're then financially invested in continuing the destruction of these countries. It's almost like these pensioners are human shields for Wall Street.

MH: This actually is the main theme of my book – financialization. Mutual funds are not pension funds. They're different. But half a century ago a new term was coined: pension fund capitalism, sometimes called pension fund socialism. Then we got back to Orwellian doublethink when Pinochet came to power behind the natural alliance of the Chicago School with Kissinger at the State Department. They immediately organized what they called labor capitalism. n labor capitalism labor is the victim, not the beneficiary. The first thing they did was compulsory setting aside of wages in the form of ostensible pension funds controlled by the employers. The employers could do whatever they wanted with it. Ultimately they invested their corporate pension funds in their own stocks or turned them over to the banks, around which their grupo conglomerates were organized. They then simply drove the businesses with employee pension funds under, wiping out the pension fund liabilities – after moving the assets into their captive banks. Businesses were left as empty corporate shells.

Something similar happened in America a few years ago with the Chicago Tribune. Real estate developer Sam Zell borrowed money, bought the Tribune, using the Employee Stock Ownership Plan (ESOP) essentially to pay off the bondholders. He then drove/looted the Tribune into bankruptcy and wiped out the stockholders. Employees brought a fraudulent conveyance suit.

Already fifty years ago, critics noted that about half of the ESOPs are wiped out, because they're invested by the employers, often in their own stock. Managers give themselves stock options, which are given value by employee purchases. Something similar occurs with pension funds in general. Employee wages are paid into pension funds, which bid up the stock prices in general. On an economy-wide basis, employees are buying the stock that managers give themselves. That's pension fund capitalism.

The underlying problem with this kind of financialization of pensions and retirement savings is that modern American industry is being run basically for financial purposes, not for industrial purposes. The major industrial firms have been financialized. For many years General Motors made most of its profits from its financial arm, General Motors Acceptance Corporation. Likewise General Electric. When I was going to school 50 years ago, Macy's made most of its money not by selling products, but by getting customers to use its credit cards. In effect, it used its store to get people to use its credit cards.
Last year, 92% of the earnings of the Fortune 100 companies were used for stock buy-backs -- corporations buying back their stock to support its price – or for dividend payouts, also to increase the stock's price (and thus management bonuses and stock options). The purpose of running a company in today's financialized world is to increase the price of the stock, not to expand the business. And who do they sell the stock to? Essentially, pension funds.

There's a lot of money coming in. I don't know if you remember, but George W. Bush wanted to privatize Social Security. The idea was to spend all of its contributions – the 15+% that FICA withholds from workers paychecks every month – into the stock market. This would fuel a giant stock market boom. Money management companies, the big banks, would get an enormous flow of commissions, and speculators would get rich off the inflow. It would make billionaires into hundred-billionaires. All this would soar like the South Sea Bubble, until the American population began to age – or, more likely, begin to be unemployed. At that point the funds would begin to sell the stocks to pay retirees. This would withdraw money from the stock market. Prices would crash as speculators and insiders sold out, wiping out the savings that workers had put into the scheme.

The basic idea is that when Wall Street plays finance, the casino wins. When employees and pension funds play the financial game, they lose and the casino wins.

ED: Right, and just as an example for listeners – to make what Michael was just talking about it even more real – if we think back to 2009 and the collapse of General Motors, it was not General Motors automotive manufacturing that was collapsing. It was GMAC, their finance arm, which was leveraged on credit default swaps, collateralized debt obligations and similar financial derivatives – what they call exotic instruments. So when Obama comes in and claimed that he "saved General Motors," it wasn't really that. He came in for the Wall Street arm of General Motors.

Obama's demagogic role as Wall Street shill for the Rubinomics gang
MH: That's correct. He was the Wall Street candidate, promoted by Robert Rubin, who was Clinton's Treasury Secretary. Basically, American economic policies can run by a combination of Goldman Sachs and Citigroup, often interchangeably.

ED: This was demonstrated very clearly in the first days of Obama taking office. Who does he meet with to talk about the financial crisis? He invites the CEOs of Goldman Sachs and JP Morgan, Bank of America, Citi and all of the rest of them. They're the ones who come to the White House. It's been written about in books, in the New Yorker and elsewhere. Obama basically says, "Don't worry guys, I got this."

MH: Ron Suskind wrote this. He said that Obama said, "I'm the only guy standing between you and the pitchforks. Listen to me: I can basically fool them." (I give the actual quote in my book.) The interesting thing is that the signs of this meeting were all erased from the White House website, but Suskind has it in his book. Obama emerges as one of the great demagogues of the century. He may be even worse than Andrew Jackson.

ED: So much of it is based on obvious policies and his actions. The moment he came to power was a critical moment when action was needed. Not only did he not take the right action, he did exactly what Wall Street wanted. In many ways we can look back to 2008 when he was championing the TARP, the bailout, and all the rest of that. None of that would have been possible without Obama. That's something that Democrats like to avoid in their conversations.

MH: That's exactly the point. It was Orwellian rhetoric. He ran as the candidate of Hope and Change, but his real role was to smash hope and prevent change. By keeping the debts in place instead of writing them down as he had promised, he oversaw the wrecking of the American economy.

He had done something similar in Chicago, when he worked as a community organizer for the big real estate interests to tear up the poorer neighborhoods where the lower income Blacks lived. His role was to gentrify them and jack up property prices to move in higher-income Blacks. This made billions for the Pritzker family. So Penny Pritzker introduced him to Robert Rubin. Obama evidently promised to let Rubin appoint his cabinet, so they appointed the vicious anti-labor Rahm Emanuel, now Chicago's mayor, as his Chief of Staff to drive any Democrat to the left of Herbert Hoover out of the party. Obama essentially pushed the Democrats to the right, as the Republicans gave him plenty of room to move rightward and still be the "lesser evil."

So now you have people like Donald Trump saying that he's for what Dennis Kucinich was for: a single payer healthcare program. Obama fought against this, and backed the lobbyists of the pharmaceutical and health insurance sectors. His genius is being able to make most voters believe that he's on their side when he's actually defending the Wall Street special interests that were his major campaign contributors.

ED: That's true. You can see that in literally every arena in which Obama has taken action. From championing so-called Obamacare, which is really a boon for the insurance industry, to the charter schools to privatize public education and also become a major boon for Wall Street, for Pearson and all these major education corporations. In terms of real estate, in the gentrification, all the rest. Literally every perspective, every angle from which you look at Obama, he is a servant of finance capital of investors, not of the people. And that's what the Democratic Party has become, delivering its constituency to Wall Street.

A left-wing economic alternative
MH: So here's the problem: How do we get the left to realize this? How do we get it to talk about economics instead of ethnic identity and sexual identity and culture alone? How do we get the left to do what they were talking about a century ago – economic reform and how to take the side of labor, consumers and debtors? How do we tell the Blacks that it's more important to get a well paying job? That's the way to gain power. I think Deng said: "Black cat, white cat, it doesn't matter as long as it catches mice." How do we say "Black president, white president, it doesn't matter, as long as they give jobs for us and help our community economically?"

ED: I think that's important and I want to close with this issue: solutions. One of the things I appreciate in reading your book is that it is broken up into sections. The final section, I think, is really important. You titled it: "There Is An Alternative." That is of course a reference to Margaret Thatcher's TINA (There Is No Alternative). That ideology and mindset took over the left, or at least the nominally left-wing parties. So you're saying that there is an alternative. In that section you propose a number of important reforms. You argue that they would restore industrial prosperity. Now, I'm not asking you to name all of them, to run down the list, but maybe touch on a little bit of what you included, and why that's important for beginning to build this alternative.

MH: There are two main aims that classical economists had 200 years ago. One was to free society from debt. You didn't want people to have to spend their lives working off the debt, whether for a home, for living or to get an education. Second, you wanted to fund industry, not by debt but by equity. That is what the Saint-Simonians and France did. It's what German banking was famous for before World War I. There was a debate in the English speaking countries, especially in England saying that maybe England and the Allies might lose World War I because the banks are running everything, and finance should be subordinated to fund industry. It can be used to help the economy grow, not be parasitic.

But instead, our tax laws make debt service tax deductible. If a company pays $2 billion a year in dividends, a corporate raider can buy it on credit and, if there's a 50% stock rate, he can pay $4 billion to bondholders instead of $2 billion to stockholders. Over the past twenty years the American stock market has become a vehicle for corporate raiding, replacing equity with debt. That makes break-even costs much higher.

The other point I'm making concerns economic rent. The guiding idea of an economic and tax system should be to lower the cost of living and doing business. I show what the average American wage earner has to pay. Under the most recent federal housing authority laws, the government guarantees mortgage loans that absorb up to 43% of family income. Suppose you pay this 43% of income for your home mortgage, after the 15% of your wages set aside for Social Security under FICA.

Instead of funding Social Security out of the general budget and hence out of what is still progressive taxation, Congress has said that the rich shouldn't pay for Social Security; only blue-collar workers should pay. So if you make over $115,000, you don't have to pay anything. In addition to that 15% wage tax, about 20% ends up being paid for other taxes – sales taxes, income taxes, and various other taxes that fall on consumers. And perhaps another 10% goes for bank loans besides mortgages – credit card loans, student loans and other debts.

That leaves only about 25% of what American families earn to be spent on goods and services – unless they borrow to maintain their living standards. This means that if you would give wage earners all of their food, all their transportation, all their clothing for nothing, they still could not compete with foreign economies, because so much of the budget has to go for finance, insurance and real estate (FIRE). That's why our employment is not going to recover. That's why our living standards are not going to recover.

Even if wages do go up for some workers, they're going to have to pay it to the bank for education loans, mortgage loans (or rent), bank debt and credit card debt, and now also for our amazingly expensive and rent-extracting medical insurance and health care and medications. The result is that if they try to join the middle class by getting higher education and buying a home, they will spend the rest of their lives paying the banks. They don't end up keeping their higher wages. They pay them to the banks.

ED: You don't have to tell me. I'm living that reality. Interestingly, in that final section of your book you talk about alternatives, like a public banking option that many people have discussed. You talk about the Social Security cap that you were just mentioning, and focus on taxing economic rent. Some critics would suggest that these sorts of reforms are not going to be able to salvage the capitalist model that is so ensconced in the United States. So I want to give you a chance to sort of present that argument or maybe rebut it.

MH: I won't rebut that criticism, because it's right. Marx thought that it was the task of industrial capitalism to free economies from the economic legacies of feudalism. He saw that the bourgeois parties wanted to get rid of the "excrescences" of the industrial capitalist marketplace. They wanted to get rid of the parasites, the landowners and usurious creditors. Marx said that even if you get rid of the parasites, even if you socialize finance and land that he dealt with in volume II and III of Capital, you're still going to have the Volume I problem. You're still going to have the exploitation problem between employers and employees – the labor/capital problem.

My point is that most academic Marxists and the left in general have focused so much on the fight of workers and labor unions against employers that they tend to overlook that there's this huge FIRE sector – Finance, Insurance, and Real Estate – tsunami is swamping the economy. Finance is wrecking industry and government, along with labor. The reforms that Marx expected the bourgeois parties to enact against rentiers haven't occurred. Marx was overly optimistic about the role of industrial capitalism and industrialized banking to prepare the ground for socialism.

This means that until you complete the task of freeing of society from feudalism – corrosive banking and economic rent as unearned income – you can't solve the industrial problems that Marx dealt with in Volume I. And of course even when you do solve them, these problems of labor exploitation and markets will still exist.

ED: Yes, absolutely. Well we're out of time. I want to thank you for coming onto the program. Listeners, you heard it. There's so much information to digest here. The book is really brilliant, I think essential reading, required reading – Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy, available through CounterPunch, as well as on Amazon. Michael Hudson professor of economics at University of Missouri Kansas City, his work is all over the place. Find it regularly on CounterPunch, as well as on his website michael-hudson.com. Michael Hudson thanks so much for coming on CounterPunch Radio.

MH: It's great to be here. It's been a wonderful discussion.

ED: Thank you

[Jan 08, 2019] The Financial Sector Is the Greatest Parasite in Human History by Ben Strubel

Highly recommended!
The key point is that financial industry needs to be strictly regulated and suppressed, because after a cirtain point it stage coup d'état, banksters come to power and turn the industry into cancer for the society with it uncontrolled parasitic growth.
Notable quotes:
"... In economics, the financial sector is typically lumped in with the insurance sector and real estate (the financial portion of the real estate sector, not construction) sector. Together, the sectors are often abbreviated and called the FIRE sector. In this article I will talk mainly about the finance portion of the FIRE sector since it is by far the largest, most visible, and most corrupt. ..."
"... The job of the finance sector is simply to manage existing resources . It creates nothing. Therefore, the smaller the financial sector is the more real wealth there is for the rest of society to enjoy. The bigger the financial sector becomes the more money it siphons off from the productive sectors. ..."
"... Neither of these two friendly fellows actually does much, if anything, in the way of actual investing. Sure, they learn the lingo, dress sharply, and probably know more than the average Joe, but they don't call the shots. That happens at Big Bank HQ. ..."
"... Somewhere in the belly of the beast there is a gaggle of highly paid, largely worthless economists and market technicians. Using some combination of tea leaves, voodoo, crystal balls, and tarot cards, these guys come up with the selection of one-size-fits-most, happy-meal portfolios that clients will be invested in. Actually, scratch that. Portfolios aren't assembled using all kinds of mystical methods; they are assembled using cold hard cash. (It's the finance sector. Did you think they spoke a language other than green?) See, various mutual fund companies pay marketing fees and other dubiously legal payments to the advisory firms to get them to sell their funds. In 2010, mutual fund companies paid $3.5B in perfectly legal "pay to play" schemes to get their funds featured in various investment lineups. ..."
"... One significant source of profit for the financial sector has been exploiting public, taxpayer-owned infrastructure. It should be blatantly obvious that these deals are bad for citizens, as the fees charged to citizens for use of the asset must not only cover servicing costs and maintenance capital expenditures but must also generate profit for the firms buying the assets. ..."
"... As the financial sector funnels more and more resources into lobbying and bribes (let's face it, campaign contributions are nothing more than legal bribery), it has been able to strip an ever-greater amount of state-owned assets from the public. Public asset strip mining is one of the chief causes of the increasing profitability of the financial sector. ..."
March 13, 2014

Before I begin this article want to make the point that what I'm about to say doesn't apply to everyone in the industry. While the average mutual fund, broker, wealth manager, and hedge fund charges high fees and delivers poor results it doesn't apply to everyone. I know lots of good, honest hedge fund managers that charge reasonable fees. I know lots of wealth managers that act in their client's best interest and don't gouge them on fees. Unfortunately these are the exceptions rather than the rule.

Over the past year or so, the issue of rising income inequality in the United States (and even worldwide) has come front and center. Most of what I've read has focused on wages, union membership, unemployment, taxation, government subsidy, and executive pay issues.

There is one issue whose role I think is overlooked in the mainstream media: the role the financial sector plays in exacerbating income inequality. In fact, I believe the financial sector is one of the prime causes, and at its current point is perhaps the greatest parasite in human history. It is sucking wealth from the productive sectors of the economy at an unprecedented rate.

Before we go any further, I want to define the term "income inequality." When I use that term, I am referring to the fact that, on average, the incomes and standard of living of American workers is not keeping pace with productivity. I'm also using the term, in part, to explain why workers and executives in some parts of the economy are overpaid in relation to the benefits they provide. What I am not doing is making a blanket statement that money should be taken away from successful, hardworking people and given or "redistributed" to the lazy.

The Role of the Financial Sector

In economics, the financial sector is typically lumped in with the insurance sector and real estate (the financial portion of the real estate sector, not construction) sector. Together, the sectors are often abbreviated and called the FIRE sector. In this article I will talk mainly about the finance portion of the FIRE sector since it is by far the largest, most visible, and most corrupt.

The problem is that the financial, insurance, and real estate (FIRE) sectors do not actually produce any goods or services. If you go on Google Finance you'll see it divides the economy into ten sectors: energy, basic materials, industrials, cyclical consumer goods, non-cyclical consumer goods, financials, healthcare, technology, telecommunications, and utilities.

The nine nonfinancial sectors all produce goods or services. For example, the energy sector companies drill for our oil and refine it into gasoline (e.g., ExxonMobil); the basic materials sector mines our iron (BHP Billiton) and refines it into steel (Nucor); the industrial sector produces the mining equipment (Caterpillar) used by the previously mentioned sectors; the cyclical consumer goods sector produces our cars (Ford) or sells our everyday items (Wal-Mart); the non-cyclical consumer goods sector sells the things we need no matter what, such as groceries (Safeway); the healthcare sector provides the medicines that heal us (Johnson & Johnson); the technology sector gives us the computers and software we use (Apple); the telecommunications sector gives us the ability to communicate (Verizon); and the utility sector gives us the power to run our homes and businesses (Duke Energy).

The financial sector? Well, according to Harvard professor Greg Mankiw, chief academic apologist for the financial sector, this is what it's supposed to do:

Those who work in banking, venture capital, and other financial firms are in charge of allocating the economy's investment resources. They decide, in a decentralized and competitive way, which companies and industries will shrink and which will grow.

The job of the finance sector is simply to manage existing resources . It creates nothing. Therefore, the smaller the financial sector is the more real wealth there is for the rest of society to enjoy. The bigger the financial sector becomes the more money it siphons off from the productive sectors.

The graph below shows how the financial sector has grown since 1960. The figures are shown as a percentage of investment (using both gross and net investment).

Graphic source: Jacobin Magazine

Graphic source: Jacobin Magazine

As you can see, the financial sector has almost doubled or tripled in size since 1960. That means it is extracting double or triple the amount of money from the real economy!

Just how much?

I want to go through several areas of the economy to show you how the financial sector is extracting money and offering no benefit.

The Grift in Your Retirement Plan

I want to start with the industry I work in, wealth management. When I started my business, I was cognizant of how investors were ill served by the traditional model of wealth management and vowed to run my business differently. Unfortunately, a vast majority of the financial industry has built an unrivaled apparatus for extracting huge sums of money from retirees and mom-and-pop investors.

Say, you're sitting on your couch, watching TV and thinking about retirement. You just got part of your inheritance and think investing it for the future would be a sensible idea. Imagine you haven't the slightest idea how to get started. Then a commercial comes on with Tommy Lee Jones telling you how trustworthy Ameriprise is. Maybe you hear the reassuring voice of John Houseman pitching Smith Barney, or you might see the iconic bull charging across the desert for Merrill Lynch.

Say you decide to go down to your local brokerage and meet with a financial advisor. His (or her) pitch sounds good, so you decide to become a client.

The first problem is the guy you met. Remember how he told you he has his finger on the pulse of the market, he has access to the best investment research, he is always taking continuing education classes, and he is always monitoring your portfolio? He isn't. He could be a complete moron. He got hired (and survived and thrived) because he is a good salesman. Nothing less and nothing more. He takes his orders on what to sell from the top -- the gaggle of people with their fingers in your retirement pie, helping themselves to regular bites.

The first person behind the scenes telling our hapless salesman what to do is some sort of office, district, or regional manager. This is manager is just like the salesman but with more ambition. Almost all of these guys were promoted from sales, and their job is do an impersonation of Alec Baldwin from Glengarry Glen Ross, yelling at the underperformers ("Coffee is for closers!") to get out there and sell the turd of the month. ("XYZ Mutual Fund Company just paid our firm $200M," this manager says, "so get out there and sell their funds! And, Jones, if you don't gross $20,000 by the end of this month you're fired! Meeting adjourned.")

Neither of these two friendly fellows actually does much, if anything, in the way of actual investing. Sure, they learn the lingo, dress sharply, and probably know more than the average Joe, but they don't call the shots. That happens at Big Bank HQ.

Somewhere in the belly of the beast there is a gaggle of highly paid, largely worthless economists and market technicians. Using some combination of tea leaves, voodoo, crystal balls, and tarot cards, these guys come up with the selection of one-size-fits-most, happy-meal portfolios that clients will be invested in. Actually, scratch that. Portfolios aren't assembled using all kinds of mystical methods; they are assembled using cold hard cash. (It's the finance sector. Did you think they spoke a language other than green?) See, various mutual fund companies pay marketing fees and other dubiously legal payments to the advisory firms to get them to sell their funds. In 2010, mutual fund companies paid $3.5B in perfectly legal "pay to play" schemes to get their funds featured in various investment lineups.

You, the investor, are usually charged somewhere around 1% to 1.5% of assets annually for this "service." I've seen clients charged as much as 1.65% and I've come across firms advertising fees as high as 2% per year for clients with small account balances. For large portfolios (typically $1M or more) the fees start going down and I've seen rates as low as .5% or less. These fees are split up between your advisor, the district manager, and the firm itself. Keep in mind that these are fees before any investments have been made!

So who actually makes the investments in stocks and bonds? It's the portfolio managers at the mutual fund companies. According to the Investment Company Institute 2011 Fact Book (the ICI is a pro-mutual fund organization), the average mutual fund in 2010 charged 1.47% of assets annually. That's in addition to an average up-front sales charge of 1%.

Why so expensive? Well, the funds are towing a lot of dead weight. According to the ICI 2013 Fact Book, only 42% of mutual fund employees were employed in fund management positions or fund administrative positions. The rest, 58%, were employed in either investor servicing (34%) or sales and distribution (24%) job functions.

Like any good infomercial says, "But wait! There's more!" When you buy a stock or bond, you can't just go grab it off the shelf like you are shopping at Wal-Mart. You need to go through a brokerage. A 1999 study by Chalmers, Edelen, and Kadlec found that the average mutual fund incurs trading expenses of .78% per annum. A newer study in 2004 by Karceski, Livingston, and O'Neal found brokerage commissions cost funds around .38% per annum, or .58% if you account for the effect trading large blocks of stock has on the bid-ask spread.

But wait! There's more! Mutual funds and your average retail investor are relatively unsophisticated, so a new industry has popped up to take advantage of them. It's called "high frequency trading" or HFT for short. These are powerful computers programmed to take advantage of "dumb" traders in the market. These HFT firms place their computers physically next to the stock exchange computers in the datacenters and buy access to market quotes milliseconds before they are made public. They use these and other advantages to skim profits from other legitimate investors (that is, people buying stocks because they want to own part of the underlying company).

All told, it's not uncommon to see investors incurring annual expenses of 2%, all the way up to 4% per year.

Institutions and the Rich Have the Same Problem

The problem isn't just limited to Joe Six-pack Retiree. Large institutional investors, such as pension funds, and "sophisticated" rich investors get taken to the cleaners too.

Once upon a time someone came up with a great idea: Since an all-stock portfolio is volatile, why not "hedge" the portfolio and sell some stocks short? If you bet that good stocks will go up (buying stocks in the good companies or going long) and bad stocks will go down (selling the stock short) then you could limit volatility and maybe make some extra money. (You'd make money both when the good stocks went up and the bad stocks went down). It was and is a pretty good idea when done correctly. Unfortunately, the term "hedge fund," like the term "mutual fund," has lost its original meaning. The term hedge fund is now used to refer to any type of pooled investment vehicle that is limited to select clients (usually rich, sophisticated investors and institutions, although the rules vary worldwide).

The rule of thumb is that hedge funds charge a 2% per year management fee and keep 20% of all profits, the proverbial "2 and 20" compensation. According to a WSJ article , this old adage isn't too far off; the average hedge fund charges 1.6% per year and keeps 18% of profits.

In 2012, hedge funds removed $50.5B from their investors' pockets. In fact, according to an article in Jacobin Magazine, the top 25 hedge fund managers make more money than the CEOs of all S&P 500 companies combined. Combined!

Have they earned it? Well, the answer seems to be no. I pulled the last four years of return data for two hedge fund indices: the Barclays Hedge Fund Index and the Credit Suisse AllHedge Index. These two indices track thousands of hedge funds across the globe. I compared them with the returns of the Vanguard Total World Stock Index Fund and the Vanguard Total World Bond Market Index Fund as well as a 50/50 portfolio of the two Vanguard Funds. All returns shown are net of fees.

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The Vanguard stock fund trounced both hedge fund indices, and the Credit Suisse index managed only to beat the returns of bonds by .01%.

Right about now you will hear the howls of the "hedgies" complaining. I wasn't quite fair to the hedge funds. A lot, but not all, of them are hedged so returns in down markets will be better and four years isn't a terribly long time to look at.

The two graphs below show the returns for the Credit Suisse index since 2004 and the maximum drawdowns (losses) since 2004.

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First, over 10 years the returns for hedge funds are atrocious, only about 25% in total. They do have a point that the draw downs are lower. The maximum losses experienced during the downturn only averaged about 25%. Fine, but the Vanguard Total Bond Market Index had barely any draw downs during the crisis and returned over 50% during a similar time period.

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Unfortunately, Vanguard does not have return data for any of its World Stock funds for a complete 2008 calendar year so I was unable to get exact data for my 50/50 portfolio. But I'd be willing to bet it beats the hedge fund indices on a risk adjusted basis.

When you hear about underfunded pension plans, part of the blame lies with pension investment committees and their investments in hedge funds. These funds, in aggregate, have not earned the fees they charge and have instead funneled the money of retirees into the hands of a wealthy few.

I'm not alone in reaching this conclusion. Pension funds are slowly starting to see the light and reducing their allocations to "alternative" investments, such as hedge funds, and reallocating the capital to indexed products or negotiating with the funds for lower fees.

It's not just the traditional investment arena where the financial sector has run wild. Its unending quest for siphoning money from the economy has spilled out into other areas.

Speculation in Commodities Costs Main Street Billions

Speculation by the financial sector in the commodities market is impacting the entire world. The passage of the Commodities Futures Modernization Act (CFMA) has allowed big banks to engage in almost limitless speculation in the commodities market. Wall Street has convinced everyone from individual investors to pension funds and endowments that they need to include commodities in their portfolios for deworsification, I mean, diversification purposes. Between investors plowing more than $350B into the commodities market and what appears to be outright manipulation of commodities prices, the financial sector has increased the costs of everything from wheat to heating oil and aluminum to gasoline.

An executive for MillerCoors testified that manipulation of the aluminum market cost manufacturers over $3B. The World Bank estimated that in 2010, 44 million people worldwide were pushed into poverty because of high food prices. The chief cause? More than 100 studies agree the cause is speculation in the commodities market. (Goldman Sachs made $440M in 2012 from food market speculation.) For Americans who love their cars (and SUVs), the biggest impact might be felt at the gas pump where experts estimate that financial speculation has added anywhere from $1 to $1.50 to gas prices.

For more information on speculation in the commodities, I recommend Matt Taibbi's excellent pieces, in-depth information at Better Markets , or some of my articles on commodities.

If you think it's bad enough that Wall Street is raising the price of your food, heating oil, gasoline, and Pepsi, then wait until you get a load of one of the Street's other ingenious ideas for helping themselves to more of your money.

Corruption of Public Infrastructure

One significant source of profit for the financial sector has been exploiting public, taxpayer-owned infrastructure. It should be blatantly obvious that these deals are bad for citizens, as the fees charged to citizens for use of the asset must not only cover servicing costs and maintenance capital expenditures but must also generate profit for the firms buying the assets.

The first and most obvious examples of this type of fraud (I choose to use the term "fraud" because I believe that is exactly what these deals are) are government entities selling public, taxpayer-owned infrastructure, such as road, bridges, parking facilities, and ports, to the private sector so that they can extract rent from the users. The deals are usually touted as saving taxpayers money and letting the "more efficient" private sector better manage the asset. This is false. Many studies show private ownership of public goods does not lead to any cost savings. A comprehensive econometric study done in 2010 of all available public vs. private studies by Germa Bel, Xavier Fageda, Mildred E. Warner at the University of Barcelona found no cost saving in privatizing public water or solid waste management services and infrastructure.

The case is no different when it comes to public roads. A 2007 paper by US PIRG found that privatizing roads never benefits citizens. Financial firms were typically able to buy the assets on the cheap and then raise toll rates while usually sneaking language into the agreements that prevented governments from building competing infrastructure. The paper presented evidence that the Indiana Toll Road lease will cost taxpayers at least $7.5B.

One of the most egregious examples of the financial sector extracting rent is the 2009 sale of Chicago's parking meters to a consortium led by Morgan Stanley. Shortly after the lease was finalized, rates at many parking meters increased (in some case by quadruple the amount). The Chicago Inspector General found that the city was underpaid by almost $1B for the lease. Meanwhile, in 2010 Morgan Stanley banked $58 million in profits from the parking meters. With no way out of the deal , the citizens of Chicago are now paying Morgan Stanley for the right to use assets they used to own!

The second way in which taxpayers are exploited by the financial sector is so-called public-private partnerships (also referred to as PPP or P 3 ). There is no set definition for what constitutes a PPP arrangement, and it is possible some might be beneficial in limited circumstances. I want to focus on one specific type of PPP that enriches the financial sector: when public projects are privately financed. There is absolutely no reason for any government project to ever require paying "rent" to the financial sector in the form of financing.

The United States federal government is the monopoly supplier of US dollars. It can add them to the economy at will through deficit spending or remove them via taxation. There is no earthly reason for a public entity to be forced to depend on the private sector to provide any type of financing. The only constraint on whether or not money should be spent is whether the economy is at full capacity (full employment and full industrial capacity utilization) where the additional deficit spending may cause inflation.

State and local governments are unable to issue currency and therefore must depend on revenue raised via taxation, distributions from the federal government, or money raised through bond issuance. Even then, studies have shown that PPPs are more expensive compared to the state or local entity securing financing through the municipal bond market.

As the financial sector funnels more and more resources into lobbying and bribes (let's face it, campaign contributions are nothing more than legal bribery), it has been able to strip an ever-greater amount of state-owned assets from the public. Public asset strip mining is one of the chief causes of the increasing profitability of the financial sector.

So far we've dealt with examples that are pretty easy to see. Everyone who owns a car knows that gas prices have been rising too fast and food is more expensive. The citizens of Chicago know they are getting shafted on the parking meter deal since parking rates have quadrupled. But there are hidden areas of the economy where the financial sector is ripping off the public too.

Interest Rate Manipulation

Do you know what LIBOR is? And what it's used for? A lot of financial types read my newsletters, so I'm sure some of you do. But the average man or woman on the street likely does not.

LIBOR stands for London Interbank Offered Rate and is the average interest rate banks in London estimate that they would be charged if they borrowed from other banks. This rate is used worldwide by mortgage lenders, credit card agencies, banks, and other financial institutions to set interest rates. By some estimates, more than $350T in financial products, derivatives, and contracts are tied to LIBOR.

In 2012, it was discovered that, since 1991, banks were falsely inflating or deflating the interest rates they reported. (Remember banks essentially make up their own interest rates and report them with the results being essentially averaged and reported as LIBOR.) The banks did this in order to profit from trades or to make themselves look more creditworthy than they were.

The Macquarie Group estimated that the manipulation of LIBOR cost investors $176B. (Keep in mind this is an estimate coming from a financial firm, so it would be prudent to assume it's on the low end.)

Andrew Lo, a finance professor at MIT, said the fraud "dwarfs by orders of magnitude any financial scam in the history of the markets."

Food Stamps (SNAP) and Welfare (TANF)
I highly doubt any of my clients or readers are beneficiaries of the SNAP or "food stamps" program and are probably not very familiar with it. While it is nominally a government program it has been corrupted by the big banks. Benefits are provided electronically via debit cards (EBT cards). JP Morgan has made over $500M from 2004 to 2012 providing EBT benefits to 18 states. The banks then are free to reap fees from users for such things as cash withdraws for TANF benefits, out of network ATM fees, lost card replacement fees, and even customer service calls.

I believe you can judge how profitable a service is to a company how much it spends on lobbying. In the case of JPMorgan, its bribes, I mean campaign contributions to Agriculture Committee (SNAP is part of the Department of Agriculture) members increased sharply after it entered the EBT market in 2004.

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(Graphic source: GAI via data from CRP) Summary

A bloated and out-of-control financial sector does not add any value to society. Society benefits when the financial sector is kept as small as possible.

The financial sector is a parasite that depends on its host organism, the productive sector of the economy, to fuel its profits. The larger the financial sector grows, the more wealth it extracts from the productive sectors of the economy. With all due respect to Matt Taibbi, Goldman Sachs isn't a vampire squid; the entire financial sector is the vampire squid with its tentacles reaching into the pockets of citizens everywhere and sucking out money.


Brian | March 13, 2014 at 9:44 am

Quite a damning critique, and if I may step away from the main point I have to ask: why is it that some guys involved with finance, Strubel as well as Auerback, Mosler and Ritholtz, talk like this while so many in the field do not? Does everyone involved "know" all this but most simply choose to put on blinders?

Jim Shannon | March 13, 2014 at 9:57 am

Great Article about the .01% "Taker Class". This can all end by the 99% demanding a change to the TAX CODE! Yet another clear indication of the manipulation of the "Giver Class" by government!

Jonathan | March 13, 2014 at 11:00 am

Its truly frightening to see how the public has been blindsided/mislead about the root causes of rapid income inequality. As a social worker I am somwhat familiar with the SNAP benefit program Depressing to think JP Morgan Chase skimmed at least 500m over an eight year period for SNAP and welfare benefits. I suppose this is the new age enclosure movement where Wall Street is picking up public assets for pennies on the dollar and charging enormous rents..

The questions is.. what happens when it is used up?? A scorched wasteland of dysfunctional infrastruture/gated communites housing a tiny elite protected from beggars, street criminals, and gang bandits??

Zane Zodrow | March 13, 2014 at 2:07 pm

Excellent article. Easy for a layperson to understand and covers a good portion of the pervasive, ongoing, worldwide financial system theft. I worked for a stock brokerage firm years ago while studying for the series 7. Once I figured out they were all just well-dressed telemarketers, I quit and found a more productive job. Remember 'dogs of the Dow' ?

Dale Pierce | March 13, 2014 at 2:11 pm

A very well-written and eye-opening post – thanks, Ben. I think the formulation of this central point may be a little skewed, though: " the smaller the financial sector is the more real wealth there is for the rest of society to enjoy. The bigger the financial sector becomes the more money it siphons off from the productive sectors."

I think this formulation may be somewhat muddling the real-vs.-financial dichotomy that MMT revolves around. Sort of by definition, the financial sector is 100 percent nominal – even when it posits ownership of real assets, it is really just money-valuing them, applying the unit-of-account property of money. The ownership is an abstraction. The owner of a share of stock or a gold ETF has no concrete interaction with the company or commodity in question. So, contrasting the total size of the financial sector to the totality of real wealth available – for those members of society who do *not* receive income from the financial sector – leaves me scratching my head. I'm not clear what is being measured. I know that profits flowing to the financial sector have exploded from around two percent of total corporate profits in the 1950s to around forty percent now. This means it is over-charging for its so-called services, but I think the real-economy effects are non-linear, and more complex than this.

Regarding the financial sector's growing tendency to siphon off money from the productive sectors – yes, they do this. But it is up to the state, with its currency-issuing and taxing powers, to regulate how far this process goes and what happens next. In a recent post, J.D. Alt took note of the ephemeral nature of the financial sector's nominal money-wealth. It is "fictitious capital". Electronic poker chips. Just zeros and ones, really. As long as the plutocrats simply hoard them – use them to keep score – the state can just replace them by increasing spending. I also tend to think that the consumption spending of the .01 percent is rather inelastic. They already have everything they want. Keynes' attitude was to let them live it up, up to a point, and then tax the excess back when they die.

For me, the most important part of your post is the section on commodity speculation and infrastructure privatization. This truly is a huge deal, a clear interaction with the real economy and a terrible crime, actually. Again, though, it is up to the state to permit these outrages or ban them – we used to ban them but we stopped. So. One more big thank-you to the Big Dog, I guess. To think – before Clinton, America actually based aid to poor children on their ages and their poverty rather than the supposed moral imperfections of their parents. We even had no-fee food stamps.

Obviously, the other reason we can't just let the one percent play their casino games is that they eventually blow up the real economy, as a totality, through financial crises and destabilization. And, due to all the fabulist monetary propaganda out there, there is now a big reservoir of public opinion and political will *in favor* of financial collapse. The libertarians and other Paul-Partiers think it would do us all good. And bring back the gold standard. And "End the Fed", and all the rest of that good 19th Century stuff. I'm not a ready-for-Hillary kind of guy in general, but is it possible to imagine a scarier idea than President Rand?

Thanks again, Ben – great post.

golfer1john | March 13, 2014 at 4:44 pm

While most of your specific criticisms are quite valid, I think your brush is a bit too broad. "The problem is that the financial, insurance, and real estate (FIRE) sectors do not actually produce any goods or services. "

This is obviously false. I have many times used services provided by banks, credit unions, insurance companies, and real estate brokers and agents. It would be practically impossible to find the right house to buy, to sell it for a fair price, to get the loan necessary to buy it, or to protect myself and my family from a catastrophic loss without their services.

It is undoubtedly true that most of the volatility of the FIRE sector since 1990 is due to speculation and parasitical activities, but there is undoubtedly also some growth of useful services that has facilitated growth of the other sectors, not detracted from it. Thus it is not always true that "the smaller the financial sector is the more real wealth there is for the rest of society to enjoy".

Bottom line, you have a good point. Excessively broad statements might be more dramatic, but if they are not true they don't help your cause.

golfer1john | March 18, 2014 at 10:04 am

I have gotten real value from real estate brokers. Did you ever try to sell a house without one? Qualify the serious buyers and deal with the lookie-loos? And the government paperwork!! I've always gotten my money's worth.

No, the fire doesn't care if you have insurance, but the insurance company will advise you on how to prevent fires and minimize the damage. Paying an insurance company has protected me from paying the unaffordable high cost of the insured risks. The service provided by insurance is not incident prevention, it is management of financial risk, and it does that very well. My claims have been handled quickly and fairly. I had one unusual case where I thought the insurance company should have paid me more than their original offer (the nation-wide blue book value of the car didn't reflect the unique situation in my State), and after discussion they agreed with me and paid. I've been with them for over 40 years and I'm very happy with their services.

If you want your bank to create wealth for you, you're looking in the wrong place. Banks are good for storing and protecting your money, and many will do that for you without fees, and even pay you interest. They'll let you use their computers to pay your creditors, also without charge. They'll even give you short-term interest-free loans, and pay you cash rebates, if you use their credit cards. I like my banks' services, too. And, of course, if you want to borrow money they will lend it to you and if your payment is late they don't break your legs. They will make a profit, though. That's why they do it. You don't have to participate if you don't want to.

Not every bank is Goldman Sachs, and not every insurance company is AIG. Those are good examples of companies that often serve no useful purpose, but there are many others who do provide useful services at a reasonable cost.

zak | March 17, 2014 at 8:25 pm

Although I can be sympathetic of the no-value creation thesis in the financial industry, comparing the performance of hedge funds with the recent performance of bonds is a no big no-no, because it assumes a negative correlation between equities and bonds. If one look at the world markets in the last 100 years, that has been the exception rather than the rule.

And you forgot to mention the important roles of capital markets in deploying capital and financing companies through IPOs, bond offers, etc.

FSK | March 17, 2014 at 10:05 pm

You missed another big point, negative real interest rates. The Fed Funds Rate is currently 0%-0.25%, while real inflation is much higher. (The CPI is not an accurate measure of inflation.) Big banks can profit by borrowing at 0% and buying stuff (bonds, stocks, commodities, real estate, politicians, whatever).

On LIBOR, here's another interesting bit. Cities and states lost a TON of money on interest rate swaps with banks. What was sold as a "hedge" wound up blowing up and costing a fortune.

http://www.realfreemarket.org/blog/2012/07/10/banksters-rob-cities-via-interest-rate-swaps-and-libor-rate-manipulation/

Ben | March 18, 2014 at 5:32 pm

This was a fascinating piece, very readable for those of us with minimal financial education. However, since this is such a good explainer for the layman, I think it would be very beneficial to explain how big a difference 1% in fees makes for an investor over a lifetime. I know personally when I used to compare funds the difference between 1 and 2% in fees seemed negligible. But then I saw that fantastic PBS Frontline on this topic and saw how much that 1% could cost me over a lifetime! I now have everything that I personally manage in index funds!

Doc | March 19, 2014 at 5:26 am

You can't really argue with what has been said, and all (of us) involved in the sector know it is massive rip off.

While a free market advocate, I think a first step would be to introduce meaningful fee caps on all state promoted or mandated saving arrangements (eg ISAS, and Pensions), on the grounds that the market is skewed by the government intervention that creates the glut of forced buyers, and so to correct that imbalance the market (i.e. consumers) need protection through fee caps. I'd say no more than 20 – 25bps should be permitted for all ISAS and pension savings (DC or DB). Individual wealthy investors (investments of more than say £5m?) can pay what they like.

Paul | March 28, 2014 at 4:18 pm

Ben,

>>The job of the finance sector is simply to manage existing resources. It creates nothing.

This is a dubious assertion, but you clearly believe it. How then, can you in good conscience, charge 1.25% (plus indirect costs for the funds you hold in client portfolios) to manage people's money when you yourself admit you are adding no value?

(source: http://strubelim.com/wp/our-funds/ar-fund/ )

Briana | March 30, 2014 at 8:32 pm

Hi Paul,

I know this was for Ben, but there's a pretty simple answer to that question: They don't charge 1.25% because they create value, they're charging a fee to access the profit created by companies they invest in. Say I told you that I knew a guy named Jimmy who was going to make three bucks for every buck he gets, and I asked if you'd lend me a dollar to give to Jimmy with the promise that he'd give me 1.50 cents of it. I'd want to keep 25 cents but you can have 1.25, and so you agree. I didn't create the 2 extra dollars of value -- Jimmy did -- but I feel justified in asking for a cut because I gave you the tip about Jimmy's value creation ability.

At least, that is my understanding of Ben's statement.

golfer1john | March 30, 2014 at 11:23 pm

Semantics.

There are 6000 publicly traded companies. Some of them will have rising stock prices, some falling. If a money manager can steer you to the rising ones, he is doing something of value. It doesn't mean he created anything physical that didn't exist before. He's doing a service for you that would otherwise have taken you some time and effort to do, and that's what you pay for.

Briana | March 31, 2014 at 10:22 am

Yes, it's a different definition of value. The growth of financial services has been outpacing the growth of other sectors to a monstrous scale, and that makes this distinction important. It signals a kind of corruption that can only mean high inflation and decoupling money from economic output.

golfer1john | April 1, 2014 at 12:05 am

I don't follow. How is financial services different from any other kind of services, in the impact on inflation? Why not also actors, barbers, or any other service profession? The growth of the financial sector might be explained by the fact that it is the industry most able to exploit computers, and the first to do so on a large scale.

The corruption is, I think, a separate issue that is present whenever other people's money is involved. Financial services and government are simply more involved that way than most other industries, and have been all along, dating to long before the recent growth. Corruption is not impossible in any industry, just more attractive when the numbers are larger.

Jim Shannon | April 1, 2014 at 9:20 am

Corruption is never a separate in ANY corporate activity. The TAX CODE treats the wealth of the .01% radically different than Income from Labor, because all Taxes on Capital Gains are deferred until taken and are not TAXED as ordinary income. The TAX CODE is responsible for the corruption of our government because it has put real POWER, the Power of Wealth in the hands of the .01%, to buy whatever it wants, while labor and the poor spend everything they earn or are given , every single year to survive in a economic culture designed for the benefit of the .01%, something no one will write about!

Change the TAX CODE and the Corruption of Society will end!

Briana | April 1, 2014 at 7:23 pm

Barbers and actors being paid for their labor do not have the same impact on inflation as a bank giving out loans and consumer credit at interest. It's not equivalent at all.

Corruption in financial industries is what this article is discussing. If it's a separate issue, I'm confused as to the point of talking about this at all!

Paul | April 1, 2014 at 9:41 am

Briana,

I don't think your explanation is correct. Why wouldn't I go directly to Jimmy in that case and cut out the middle man since he is offering no value add? The fact is, the middle man, Ben, in this case, believes that he can identify superior companies to invest his clients money in and earn a greater return. This is Ben's value add and why he charges 1.25%.

Golfer John is correct and that point, essentially, blows a hole in Ben's thesis here that the financial sector adds no value because they only manage "existing resources". Steering capital to the good ideas that improve consumer wealth and generate a return is a value add and the fact that millions of transactions like this happen voluntarily between consenting adults further supports this.

Physics tells us that matter cannot be created or destroyed, so the same resources that are on this earth today are the same ones that were here 10,000 years ago. So, in that sense, Apple is simply managing "existing resources" when they build the iphone, Toyota simply managing "existing resources" when they build a car, and UPS and US Mail are merely moving "existing resources" from one location to another when they make deliveries, must be no value add there right?

Asserting that the financial sector only manages existing resources, and then citing that as proof of no value add is simply a non sequiter.

golfer1john | April 2, 2014 at 1:50 pm

No, I wasn't, though I have heard that. My theory of markets, and human group behavior in general, is a statistical approach. There are averages, distributions, and temporary equilibriums, but the interesting parts are the outliers. I guess that is more of a quantum flavor than Newtonian. Over time, economies behave cyclically. Much of nature and human group behavior is cyclical.

Briana | April 1, 2014 at 6:21 pm

Paul -- That's true, and a good analogy, except you're getting a bit reductive with the term "existing resources". I agree that "no value" is a bit extreme, which is why I became more interested in the -type- of value.

Paul | April 3, 2014 at 11:44 am

John – My physics is flawed to the extent that the law of conservation of matter is flawed, this I admit. I am much more economist than physicist though so better that I get my physics wrong and econ right! I see a lot of similarities between the two, as well as crucial differences, but I don't want to get too off topic.

Briana – "No Value is a bit extreme"

I agree, and as the absurdly hyperbolic title* of this article states, the author takes it to an even greater extreme – namely that the financial sector is actually a systematic destroyer of value (parasite) that is created by all of the other industries. The crux of his assertion rests on that they only "manage existing resources" and also calling Greg Mankiw an apologist, neither strikes me as an intellectually rigorous argument.

And interestingly, on his own firm's website, the author apparently contradicts the thesis of this article when advertising his financial services and the fees he charges for his own value add. I can think of several explanations for this, none of which are particularly flattering, others can draw their own conclusions.

*a worse parasite than all of the murderous dictatorial regimes in human history that have institutionalized the slaughter and torture of millions? Really? I note this because it is so obviously false that it makes the rest of the content seem unserious and shallow even if valid points exist. Acidic comments tend to preach to the already converted, but perhaps that is the goal here.

Briana | April 4, 2014 at 7:02 pm

Yeah, ok. I should know better, Paul. My brain tried to rationalize the argument by making it less extreme. The goal probably was to mobilize the choir to go Occupy Wall Street for a few more months, haha.

Those valid points shouldn't be ignored because of the poorly handled hyperbole, though. The financial sector does have a great capacity to act as a parasite by overvaluing their services and squandering wealth generated by other industries instead of reinvesting it in worthwhile, valuable enterprises; or using that wealth to essentially 'gamble' or invent money that is not attached to any real value (i.e. shorting or credit default swaps). As the fruits of these behaviors are becoming obvious, it gets harder to justify policies that allow them to happen.

Paul | April 9, 2014 at 10:51 am

In many ways that is my point. You found those "valid points" obviously correct before reading the article, so it rang true despite the extreme hyperbole. I did not find those points self-evidently true so this poorly constructed argument relying on clearly false assumptions struck me as uncompelling.

For example, how does one "overvalue their services"? If one charges too much, no one is forced to buy. I may find Ben's management fee of 1.25% to be overvaluing himself, but I have the option of not paying and instead going to less expensive alternatives.

Why wouldn't the financial industry invest in "worthwhile valuable enterprises" if they provide a worthwhile return? After all, aren't they driven by an insatiable desire for profit? Who determines what enterprises are worthwhile?

I do not see anything inherently wrong with short selling. Indeed, the ability to short a stock is simply expressing a view about its value, and leads to greater and more accurate price discovery. What is wrong with shorting a stock if one believes it is overpriced relative to its instrinsic value? Is it not preferable that prices reflect underlying economic fundamentals rather than being disconnected from such? Shorting puts downward pressure on prices, and helps prevent overvaluation.

Credit Default Swaps are nothing more than insurance against a bond default. There is nothing inherently wrong with insurance.

I'm not suggesting that you, here in the comments, need to write a paper elaborating on those, just that this article did a poor job of pursuading, though again, I am coming to the realization that I am likely not the intended audience.

This discussion in the comments has actually been more fruitful than the article itself.

(Sorry for the late response, I've been away for a few days.)

Briana | April 9, 2014 at 10:43 pm

Hi Paul,

"For example, how does one "overvalue their services"?"

This argument hinges on everyone that purchases these services knowing their true value. It's very simplistic to say that if someone purchases it, that is the real value. It gets complicated when you take into account the psychological pressures of purchasing behavior, such as "middle-price" preferences, "money you don't see is money you don't miss" and other tricks that are employed to get people to pay higher prices.

"Why wouldn't the financial industry invest in "worthwhile valuable enterprises" if they provide a worthwhile return? After all, aren't they driven by an insatiable desire for profit? Who determines what enterprises are worthwhile?"

Countless services and products we rely on were funded by taxes to make them profitable. They are "worthwhile" but apparently not "profitable" enough to invest in. Making money and creating value aren't the same thing. Ideally, everyone decides what is worthwhile.

"I do not see anything inherently wrong with short selling."

Shorting is basically a bucket shop in disguise.

"Credit Default Swaps are nothing more than insurance against a bond default. There is nothing inherently wrong with insurance."

There is when it's considered "money creation" http://www.usdebtclock.org/

"This discussion in the comments has actually been more fruitful than the article itself."

Agreed. And I could write a paper elaborating on this!

Paul | April 11, 2014 at 11:48 am

"This argument hinges on everyone that purchases these services knowing their true value."

In a literal sense, you are correct, it is an imperfect measure of value. However, I think it is far and away the most reliable one we have as value is extremely subjective. I don't think it is right or prudent for third, non cost bearing parties to preempt decisions made by consenting adults, rather, I would accord them the dignity of free choice. There are many things that consumers purchase that I do not understand, why anyone would pay a premium for a fast car seems like a waste of money to me, for example. Why anyone would pay money to golf, not to mention the huge cost in terms of time it takes to get through 18 holes, seems like a waste of money to me. These are things that make no sense to me because I do not see the value there. But, I recognize that people have various tastes and preferences, and I respect that and presume that individuals know themselves and their own tastes and preferences better than I (or someone else) does. Therefore, when someone values something that I do not understand, I tend to believe it is a result of a difference in preference, rather than they are too dumb to figure out what they like, or that they are "tricked" into buying something and hence need protection delivered by those who fancy themselves as enlightened enough to see the real truth. Nothing about this is unique to the financial industry, by the way.

"Countless services and products we rely on were funded by taxes to make them profitable. They are "worthwhile" but apparently not "profitable" enough to invest in. Making money and creating value aren't the same thing. Ideally, everyone decides what is worthwhile."

Apparently not enough people decided these services and products were worthwhile, so politicians decided they were worthwhile and used the force and power of government to get them done. Substituting preferences of politicians, spending other people's money for those of millions of individuals spending their own money does not seem like an efficient way to allocate resources.

Briana | April 11, 2014 at 7:50 pm

Paul –

I agree with you on purchasing decisions. People should be free to determine value. I'm not saying people are always dumb, but I do think they are manipulated. If you want to believe they are not, that is up to you, but apparently you've never seen advertising. The financial industry advertises itself heavily, especially in consumer credit markets and insurance. But if we're going to gauge something as nebulous as "true value", it requires a level of conscientiousness from everyone, and accepting whatever people purchase as reflecting it's actual value is a quick way to guarantee abuse, especially when you have something like consumer credit. If people are free to determine value, they should also be held to the consequences of their choices, which is currently not the case in the financial industry and increasingly in the general population.

"Apparently not enough people decided these services and products were worthwhile, so politicians decided they were worthwhile and used the force and power of government to get them done. Substituting preferences of politicians, spending other people's money for those of millions of individuals spending their own money does not seem like an efficient way to allocate resources."

You mean like electricity, phone services, railroads, airlines, fortified wheat, water treatment, the internet, satellites, healthcare.. the list could go on and on. It is less efficient (a word that really needs to be defined clearly, but I'll assume I know what you mean!), and it happens because otherwise it wouldn't be possible, and yet it becomes widely adopted and lauded none-the-less; progress, they say. Like I said, worthwhile and profitable are not 1-to-1 correlation, just as willingness to purchase doesn't necessarily indicate true value.

I thought you might have some interesting opinion on the CDS as money creation I'm still trying to figure that one out!

[Jan 08, 2019] No, wealth isn t created at the top. It is merely devoured there by Rutger Bregman

Highly recommended!
Financialization is a new type of racket...
Notable quotes:
"... Bankers, pharmaceutical giants, Google, Facebook ... a new breed of rentiers are at the very top of the pyramid and they're sucking the rest of us dry @rcbregman ..."
"... 'A big part of the modern banking sector is essentially a giant tapeworm gorging on a sick body' ..."
"... This piece is about one of the biggest taboos of our times. About a truth that is seldom acknowledged, and yet – on reflection – cannot be denied. The truth that we are living in an inverse welfare state. These days, politicians from the left to the right assume that most wealth is created at the top. By the visionaries, by the job creators, and by the people who have "made it". By the go-getters oozing talent and entrepreneurialism that are helping to advance the whole world. ..."
"... To understand why, we need to recognise that there are two ways of making money. The first is what most of us do: work. That means tapping into our knowledge and know-how (our "human capital" in economic terms) to create something new, whether that's a takeout app, a wedding cake, a stylish updo, or a perfectly poured pint. To work is to create. Ergo, to work is to create new wealth. ..."
"... But there is also a second way to make money. That's the rentier way : by leveraging control over something that already exists, such as land, knowledge, or money, to increase your wealth. You produce nothing, yet profit nonetheless. By definition, the rentier makes his living at others' expense, using his power to claim economic benefit. ..."
"... For those who know their history, the term "rentier" conjures associations with heirs to estates, such as the 19th century's large class of useless rentiers, well-described by the French economist Thomas Piketty . These days, that class is making a comeback. (Ironically, however, conservative politicians adamantly defend the rentier's right to lounge around, deeming inheritance tax to be the height of unfairness.) But there are also other ways of rent-seeking. From Wall Street to Silicon Valley , from big pharma to the lobby machines in Washington and Westminster, zoom in and you'll see rentiers everywhere. ..."
"... It may take quite a mental leap to see our economy as a system that shows solidarity with the rich rather than the poor. So I'll start with the clearest illustration of modern freeloaders at the top: bankers. Studies conducted by the International Monetary Fund and the Bank for International Settlements – not exactly leftist thinktanks – have revealed that much of the financial sector has become downright parasitic. How instead of creating wealth, they gobble it up whole. ..."
"... In other words, a big part of the modern banking sector is essentially a giant tapeworm gorging on a sick body. It's not creating anything new, merely sucking others dry. Bankers have found a hundred and one ways to accomplish this. The basic mechanism, however, is always the same: offer loans like it's going out of style, which in turn inflates the price of things like houses and shares, then earn a tidy percentage off those overblown prices (in the form of interest, commissions, brokerage fees, or what have you), and if the shit hits the fan, let Uncle Sam mop it up. ..."
"... Bankers are the most obvious class of closet freeloaders, but they are certainly not alone. Many a lawyer and an accountant wields a similar revenue model. Take tax evasion . Untold hardworking, academically degreed professionals make a good living at the expense of the populations of other countries. Or take the tide of privatisations over the past three decades, which have been all but a carte blanche for rentiers. One of the richest people in the world, Carlos Slim , earned his millions by obtaining a monopoly of the Mexican telecom market and then hiking prices sky high. The same goes for the Russian oligarchs who rose after the Berlin Wall fell , who bought up valuable state-owned assets for song to live off the rent. ..."
"... Even paragons of modern progress like Apple, Amazon, Google , Facebook, Uber and Airbnb are woven from the fabric of rentierism. Firstly, because they owe their existence to government discoveries and inventions (every sliver of fundamental technology in the iPhone, from the internet to batteries and from touchscreens to voice recognition, was invented by researchers on the government payroll). And second, because they tie themselves into knots to avoid paying taxes, retaining countless bankers, lawyers, and lobbyists for this very purpose. ..."
"... Even more important, many of these companies function as "natural monopolies", operating in a positive feedback loop of increasing growth and value as more and more people contribute free content to their platforms. Companies like this are incredibly difficult to compete with, because as they grow bigger, they only get stronger. ..."
"... Most of Mark Zuckerberg's income is just rent collected off the millions of picture and video posts that we give away daily for free. And sure, we have fun doing it. But we also have no alternative – after all, everybody is on Facebook these days. Zuckerberg has a website that advertisers are clamouring to get onto, and that doesn't come cheap. Don't be fooled by endearing pilots with free internet in Zambia. Stripped down to essentials, it's an ordinary ad agency. In fact, in 2015 Google and Facebook pocketed an astounding 64% of all online ad revenue in the US. ..."
"... Rentierism is, in essence, a question of power. That the Sun King Louis XIV was able to exploit millions was purely because he had the biggest army in Europe. It's no different for the modern rentier. He's got the law, politicians and journalists squarely in his court. That's why bankers get fined peanuts for preposterous fraud, while a mother on government assistance gets penalised within an inch of her life if she checks the wrong box. ..."
"... The biggest tragedy of all, however, is that the rentier economy is gobbling up society's best and brightest. Where once upon a time Ivy League graduates chose careers in science, public service or education, these days they are more likely to opt for banks, law firms, or trumped up ad agencies like Google and Facebook. When you think about it, it's insane. We are forking over billions in taxes to help our brightest minds on and up the corporate ladder so they can learn how to score ever more outrageous handouts. ..."
"... One thing is certain: countries where rentiers gain the upper hand gradually fall into decline. Just look at the Roman Empire. Or Venice in the 15th century. Look at the Dutch Republic in the 18th century. Like a parasite stunts a child's growth, so the rentier drains a country of its vitality. ..."
Mar 30, 2017 | www.theguardian.com

Rutger Bregman

Bankers, pharmaceutical giants, Google, Facebook ... a new breed of rentiers are at the very top of the pyramid and they're sucking the rest of us dry @rcbregman

Comments 890

'A big part of the modern banking sector is essentially a giant tapeworm gorging on a sick body'.

This piece is about one of the biggest taboos of our times. About a truth that is seldom acknowledged, and yet – on reflection – cannot be denied. The truth that we are living in an inverse welfare state. These days, politicians from the left to the right assume that most wealth is created at the top. By the visionaries, by the job creators, and by the people who have "made it". By the go-getters oozing talent and entrepreneurialism that are helping to advance the whole world.

Now, we may disagree about the extent to which success deserves to be rewarded – the philosophy of the left is that the strongest shoulders should bear the heaviest burden, while the right fears high taxes will blunt enterprise – but across the spectrum virtually all agree that wealth is created primarily at the top.

So entrenched is this assumption that it's even embedded in our language. When economists talk about "productivity", what they really mean is the size of your paycheck. And when we use terms like " welfare state ", "redistribution" and "solidarity", we're implicitly subscribing to the view that there are two strata: the makers and the takers, the producers and the couch potatoes, the hardworking citizens – and everybody else.

In reality, it is precisely the other way around. In reality, it is the waste collectors, the nurses, and the cleaners whose shoulders are supporting the apex of the pyramid. They are the true mechanism of social solidarity. Meanwhile, a growing share of those we hail as "successful" and "innovative" are earning their wealth at the expense of others. The people getting the biggest handouts are not down around the bottom, but at the very top. Yet their perilous dependence on others goes unseen. Almost no one talks about it. Even for politicians on the left, it's a non-issue.

To understand why, we need to recognise that there are two ways of making money. The first is what most of us do: work. That means tapping into our knowledge and know-how (our "human capital" in economic terms) to create something new, whether that's a takeout app, a wedding cake, a stylish updo, or a perfectly poured pint. To work is to create. Ergo, to work is to create new wealth.

But there is also a second way to make money. That's the rentier way : by leveraging control over something that already exists, such as land, knowledge, or money, to increase your wealth. You produce nothing, yet profit nonetheless. By definition, the rentier makes his living at others' expense, using his power to claim economic benefit.

'From Wall Street to Silicon Valley, zoom in and you'll see rentiers everywhere.'

For those who know their history, the term "rentier" conjures associations with heirs to estates, such as the 19th century's large class of useless rentiers, well-described by the French economist Thomas Piketty . These days, that class is making a comeback. (Ironically, however, conservative politicians adamantly defend the rentier's right to lounge around, deeming inheritance tax to be the height of unfairness.) But there are also other ways of rent-seeking. From Wall Street to Silicon Valley , from big pharma to the lobby machines in Washington and Westminster, zoom in and you'll see rentiers everywhere.

There is no longer a sharp dividing line between working and rentiering. In fact, the modern-day rentier often works damn hard. Countless people in the financial sector, for example, apply great ingenuity and effort to amass "rent" on their wealth. Even the big innovations of our age – businesses like Facebook and Uber – are interested mainly in expanding the rentier economy. The problem with most rich people therefore is not that they are coach potatoes. Many a CEO toils 80 hours a week to multiply his allowance. It's hardly surprising, then, that they feel wholly entitled to their wealth.

It may take quite a mental leap to see our economy as a system that shows solidarity with the rich rather than the poor. So I'll start with the clearest illustration of modern freeloaders at the top: bankers. Studies conducted by the International Monetary Fund and the Bank for International Settlements – not exactly leftist thinktanks – have revealed that much of the financial sector has become downright parasitic. How instead of creating wealth, they gobble it up whole.

Don't get me wrong. Banks can help to gauge risks and get money where it is needed, both of which are vital to a well-functioning economy. But consider this: economists tell us that the optimum level of total private-sector debt is 100% of GDP. Based on this equation, if the financial sector only grows, it won't equal more wealth, but less. So here's the bad news. In the United Kingdom, private-sector debt is now at 157.5% . In the United States, the figure is 188.8% .

In other words, a big part of the modern banking sector is essentially a giant tapeworm gorging on a sick body. It's not creating anything new, merely sucking others dry. Bankers have found a hundred and one ways to accomplish this. The basic mechanism, however, is always the same: offer loans like it's going out of style, which in turn inflates the price of things like houses and shares, then earn a tidy percentage off those overblown prices (in the form of interest, commissions, brokerage fees, or what have you), and if the shit hits the fan, let Uncle Sam mop it up.

The financial innovation concocted by all the math whizzes working in modern banking (instead of at universities or companies that contribute to real prosperity) basically boils down to maximizing the total amount of debt. And debt, of course, is a means of earning rent. So for those who believe that pay ought to be proportionate to the value of work, the conclusion we have to draw is that many bankers should be earning a negative salary; a fine, if you will, for destroying more wealth than they create.

Bankers are the most obvious class of closet freeloaders, but they are certainly not alone. Many a lawyer and an accountant wields a similar revenue model. Take tax evasion . Untold hardworking, academically degreed professionals make a good living at the expense of the populations of other countries. Or take the tide of privatisations over the past three decades, which have been all but a carte blanche for rentiers. One of the richest people in the world, Carlos Slim , earned his millions by obtaining a monopoly of the Mexican telecom market and then hiking prices sky high. The same goes for the Russian oligarchs who rose after the Berlin Wall fell , who bought up valuable state-owned assets for song to live off the rent.

But here comes the rub. Most rentiers are not as easily identified as the greedy banker or manager. Many are disguised. On the face of it, they look like industrious folks, because for part of the time they really are doing something worthwhile. Precisely that makes us overlook their massive rent-seeking.

Take the pharmaceutical industry. Companies like GlaxoSmithKline and Pfizer regularly unveil new drugs, yet most real medical breakthroughs are made quietly at government-subsidised labs. Private companies mostly manufacture medications that resemble what we've already got. They get it patented and, with a hefty dose of marketing, a legion of lawyers, and a strong lobby, can live off the profits for years. In other words, the vast revenues of the pharmaceutical industry are the result of a tiny pinch of innovation and fistfuls of rent.

Even paragons of modern progress like Apple, Amazon, Google , Facebook, Uber and Airbnb are woven from the fabric of rentierism. Firstly, because they owe their existence to government discoveries and inventions (every sliver of fundamental technology in the iPhone, from the internet to batteries and from touchscreens to voice recognition, was invented by researchers on the government payroll). And second, because they tie themselves into knots to avoid paying taxes, retaining countless bankers, lawyers, and lobbyists for this very purpose.

Even more important, many of these companies function as "natural monopolies", operating in a positive feedback loop of increasing growth and value as more and more people contribute free content to their platforms. Companies like this are incredibly difficult to compete with, because as they grow bigger, they only get stronger.

Aptly characterising this "platform capitalism" in an article, Tom Goodwin writes : "Uber, the world's largest taxi company, owns no vehicles. Facebook, the world's most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world's largest accommodation provider, owns no real estate."

Facebook Twitter Pinterest 'Every sliver of fundamental technology in the iPhone, from the internet to batteries and from touchscreens to voice recognition, was invented by researchers on the government payroll.' Photograph: Regis Duvignau/Reuters

So what do these companies own? A platform. A platform that lots and lots of people want to use. Why? First and foremost, because they're cool and they're fun – and in that respect, they do offer something of value. However, the main reason why we're all happy to hand over free content to Facebook is because all of our friends are on Facebook too, because their friends are on Facebook because their friends are on Facebook.

Most of Mark Zuckerberg's income is just rent collected off the millions of picture and video posts that we give away daily for free. And sure, we have fun doing it. But we also have no alternative – after all, everybody is on Facebook these days. Zuckerberg has a website that advertisers are clamouring to get onto, and that doesn't come cheap. Don't be fooled by endearing pilots with free internet in Zambia. Stripped down to essentials, it's an ordinary ad agency. In fact, in 2015 Google and Facebook pocketed an astounding 64% of all online ad revenue in the US.

But don't Google and Facebook make anything useful at all? Sure they do. The irony, however, is that their best innovations only make the rentier economy even bigger. They employ scores of programmers to create new algorithms so that we'll all click on more and more ads. Uber has usurped the whole taxi sector just as Airbnb has upended the hotel industry and Amazon has overrun the book trade. The bigger such platforms grow the more powerful they become, enabling the lords of these digital feudalities to demand more and more rent.

Think back a minute to the definition of a rentier: someone who uses their control over something that already exists in order to increase their own wealth. The feudal lord of medieval times did that by building a tollgate along a road and making everybody who passed by pay. Today's tech giants are doing basically the same thing, but transposed to the digital highway. Using technology funded by taxpayers, they build tollgates between you and other people's free content and all the while pay almost no tax on their earnings.

This is the so-called innovation that has Silicon Valley gurus in raptures: ever bigger platforms that claim ever bigger handouts. So why do we accept this? Why does most of the population work itself to the bone to support these rentiers?

I think there are two answers. Firstly, the modern rentier knows to keep a low profile. There was a time when everybody knew who was freeloading. The king, the church, and the aristocrats controlled almost all the land and made peasants pay dearly to farm it. But in the modern economy, making rentierism work is a great deal more complicated. How many people can explain a credit default swap , or a collateralised debt obligation ? Or the revenue model behind those cute Google Doodles? And don't the folks on Wall Street and in Silicon Valley work themselves to the bone, too? Well then, they must be doing something useful, right?

Maybe not. The typical workday of Goldman Sachs' CEO may be worlds away from that of King Louis XIV, but their revenue models both essentially revolve around obtaining the biggest possible handouts. "The world's most powerful investment bank," wrote the journalist Matt Taibbi about Goldman Sachs , "is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

But far from squids and vampires, the average rich freeloader manages to masquerade quite successfully as a decent hard worker. He goes to great lengths to present himself as a "job creator" and an "investor" who "earns" his income by virtue of his high "productivity". Most economists, journalists, and politicians from left to right are quite happy to swallow this story. Time and again language is twisted around to cloak funneling and exploitation as creation and generation.

However, it would be wrong to think that all this is part of some ingenious conspiracy. Many modern rentiers have convinced even themselves that they are bona fide value creators. When current Goldman Sachs CEO Lloyd Blankfein was asked about the purpose of his job, his straight-faced answer was that he is " doing God's work ". The Sun King would have approved.

The second thing that keeps rentiers safe is even more insidious. We're all wannabe rentiers. They have made millions of people complicit in their revenue model. Consider this: What are our financial sector's two biggest cash cows? Answer: the housing market and pensions. Both are markets in which many of us are deeply invested.

Recent decades have seen more and more people contract debts to buy a home, and naturally it's in their interest if house prices continue to scale new heights (read: burst bubble upon bubble). The same goes for pensions. Over the past few decades we've all scrimped and saved up a mountainous pension piggy bank. Now pension funds are under immense pressure to ally with the biggest exploiters in order to ensure they pay out enough to please their investors.

The fact of the matter is that feudalism has been democratised. To a lesser or greater extent, we are all depending on handouts. En masse, we have been made complicit in this exploitation by the rentier elite, resulting in a political covenant between the rich rent-seekers and the homeowners and retirees.

Don't get me wrong, most homeowners and retirees are not benefiting from this situation. On the contrary, the banks are bleeding them far beyond the extent to which they themselves profit from their houses and pensions. Still, it's hard to point fingers at a kleptomaniac when you have sticky fingers too.

So why is this happening? The answer can be summed up in three little words: Because it can.

Rentierism is, in essence, a question of power. That the Sun King Louis XIV was able to exploit millions was purely because he had the biggest army in Europe. It's no different for the modern rentier. He's got the law, politicians and journalists squarely in his court. That's why bankers get fined peanuts for preposterous fraud, while a mother on government assistance gets penalised within an inch of her life if she checks the wrong box.

The biggest tragedy of all, however, is that the rentier economy is gobbling up society's best and brightest. Where once upon a time Ivy League graduates chose careers in science, public service or education, these days they are more likely to opt for banks, law firms, or trumped up ad agencies like Google and Facebook. When you think about it, it's insane. We are forking over billions in taxes to help our brightest minds on and up the corporate ladder so they can learn how to score ever more outrageous handouts.

One thing is certain: countries where rentiers gain the upper hand gradually fall into decline. Just look at the Roman Empire. Or Venice in the 15th century. Look at the Dutch Republic in the 18th century. Like a parasite stunts a child's growth, so the rentier drains a country of its vitality.

What innovation remains in a rentier economy is mostly just concerned with further bolstering that very same economy. This may explain why the big dreams of the 1970s, like flying cars, curing cancer, and colonising Mars, have yet to be realised, while bankers and ad-makers have at their fingertips technologies a thousand times more powerful.

Yet it doesn't have to be this way. Tollgates can be torn down, financial products can be banned, tax havens dismantled, lobbies tamed, and patents rejected. Higher taxes on the ultra-rich can make rentierism less attractive, precisely because society's biggest freeloaders are at the very top of the pyramid. And we can more fairly distribute our earnings on land, oil, and innovation through a system of, say, employee shares, or a universal basic income .

But such a revolution will require a wholly different narrative about the origins of our wealth. It will require ditching the old-fashioned faith in "solidarity" with a miserable underclass that deserves to be borne aloft on the market-level salaried shoulders of society's strongest. All we need to do is to give real hard-working people what they deserve.

And, yes, by that I mean the waste collectors, the nurses, the cleaners – theirs are the shoulders that carry us all.

• Pre-order Utopia for Realists and How Can We Get There by Rutger Bregman

• Translated from the original Dutch by Elizabeth Manton

See also:

[Jan 07, 2019] The 1920's were marked by a credit expansion, a significant growth in consumer debt, the creation of asset bubbles, and the proliferation of financial instruments and leveraged investments. Now we have exactly the same trends

Highly recommended!
This article published 10 years ago looks like it was written yesterday. The more things change in the USA casino capitalism the more they stay the same
Now Trump tariffs will cause drop in consumption. What will follow it not very clear.
Hypertrophied growth of financial system is cancer. It is a parasitic institution much like cancer cells in human body.
Notable quotes:
"... The Federal Reserve made tragic policy errors most certainly with regard to interest rates. They were hampered by a lack of coordinated effort because of the official US policy focus on liquidation and non-interference, along with mass bank failures which rendered their attempts to reflate the money supply as largely futile. ..."
"... But good policies applied with vigor during a period of economic illness may be like forcing patients seriously ill with pneumonia to swim laps and run in marathons because you think such physical activity is inherently good and beneficial in itself at all times. ..."
"... Today it seems to us that the Fed and Treasury are trying to cure our current problems by filling the banks full of liquidity with the idea that it will eventually trickle down to the real economy through their toll gates. ..."
"... We believe this will not work. The financial system is rotten, and not only in its toxic and fraudulent assets. It is a weakened, rotten timber that will provide scant leverage for the rescue attempts. ..."
Oct 31, 2008 | jessescrossroadscafe.blogspot.com

The 1920's were marked by a credit expansion, a significant growth in consumer debt, the creation of asset bubbles, and the proliferation of financial instruments and leveraged investments. The Federal Reserve expanded the money supply and the Republican government pursued a laissez-faire approach to business.

This helped to create a greater wealth disparity, and saddled a good part of the public with debts on consumables that were vulnerable to an economic contraction.

The bursting of the credit bubble triggered the stock market Crash of 1929. The Hoover administration's response was guided by Secretary of the Treasury Andrew Mellon. As noted by Herbert Hoover in his memoirs, "Mellon had only one formula: 'Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.'"

Indeed, the collapse of consumption and credit, and the ensuing 'do nothing' policy of liquidation by the government crippled the economy and drove unemployment up to the incredible 24% level at the climax of the liquidation and deleveraging.

Although some assets fared better than others, virtually everything was caught up in the cycle of liquidation and everything was sold: stocks, bonds, farms, even long dated US Treasuries, all of them collapsing into the bottom in late 1932.

The Federal Reserve made tragic policy errors most certainly with regard to interest rates. They were hampered by a lack of coordinated effort because of the official US policy focus on liquidation and non-interference, along with mass bank failures which rendered their attempts to reflate the money supply as largely futile.

Thrifty management of the credit and monetary levels when the economy is balanced in the manufacturing, service, export-import, and consumption distribution levels is a good policy to follow.

But good policies applied with vigor during a period of economic illness may be like forcing patients seriously ill with pneumonia to swim laps and run in marathons because you think such physical activity is inherently good and beneficial in itself at all times.

Additionally, monetary expansion alone also does not work, as can be seen in the early attempts by the Fed to expand the monetary base without policy initiatives to support expansion and consumption. Hoover's administration raised the income tax and cut spending for a balanced budget.

A combined monetary and government bias to stimulating consumption while restoring balance and correcting the errors that fostered the credit bubble is the more effective course of action.

Today it seems to us that the Fed and Treasury are trying to cure our current problems by filling the banks full of liquidity with the idea that it will eventually trickle down to the real economy through their toll gates.

We believe this will not work. The financial system is rotten, and not only in its toxic and fraudulent assets. It is a weakened, rotten timber that will provide scant leverage for the rescue attempts.

Better to cauterize the bleeds in the financial system and assume a 'trickle up' approach by reaching the econmy through the individual rather than the individual through the banks.

Provide secure FDIC insurance to everyone to a generous degree , and let those banks who must fail, fail. You will encourage reform and savings, we guarantee it. Stimulate work and wages, and then consumption, and the financial system will follow.

While the financial system as it is constituted today remains the centerpiece of our economy, we cannot sustainably recover since it is a source of recurring infection.

Globalists like to cite the introduction of the Smoot-Hawley tariffs as a major factor in the development of the Great Depression. This appears to be largely unsubstantiated, and attributable to a dogmatic bias to international trade as a panacea for failing domestic demand.

In fact, before Smoot-Hawley both exports and imports were in a steep decline as consumption collapsed around the world. If the US had declared itself open for free trade, to whom would they sell, and who in the US would buy? Consumption was in a general collapse around the world. Smoot Hawley did not help, but it also did not hurt because it was largely irrelevant.

It is a lesser discussed topic, but the US held the majority of the gold in the world in 1930 as the aftermath of their position as an industrial power in World War I and the expansion that followed. Since the majority of the countries were on some version of the gold standard, one could make a case that the US had an undue influence on the 'reserve currency of the world' at that time, and its mistaken policies were transmitted via the gold standard to the rest of the world.

The nations that exited the Great Depression the soonest, those who recovered more quickly and experienced a shallower economic downturn, were those who stimulated domestic consumption via public works and industrial policies: Japan, Germany, Italy, Sweden.

As a final point, we like to show this chart to draw a very strong line under the fact that the liquidationist policy of the Hoover Administration caused most assets to suffer precipitous declines. Certainly some fared better than others, such as gold which was pegged, and silver which declined but not nearly as much as industrial metals and certainly financial instruments like stocks which declined 89% from peak to trough.

FDR devalued the dollar by 40%, but he never followed Britain off the gold standard, maintaining fictitious support by outlawing domestic ownership. As the government stepped away from its liquidationist approach the economy gradually recovered and the money supply reinflated, despite the carnage delivered to the US economy and the world, provoking the rise of militarism and statist regimes in many of the developed nations.

There is a fiction that the economy never really recovered, and FDR's policies failed and only a World War caused the recovery. In fact, if one cares to look at the situation more closely, the recession of 1937 was a result of the aggressive military buildup for war in the world, the diversion of capital and resources to non-productive goods and services, and of course the general reversal of the New Deal by the US Supreme Court and the Republican minority in Congress.

As an aside, it is interesting to read about the efforts of some US industrialists to foster a fascist solution here in the US, as their counterparts and some of them had done in Europe.

What finally put the world on the permanent road to recovery was the savings forced by the lack of consumer goods during World War II and the rebuilding of Europe and Asia, devastated by war, significantly aided by the policies of the Allied powers.

A Depression following a Crash caused by an asset bubble collapse is a terrible thing indeed. But it does not have to be a prolonged ordeal.

Governments can and do make policy errors that prolong the period of adjustment, most notably instituting an industrial policy that discourages domestic consumption and money supply growth in a desire to obtain foreign reserves through exports.

From what we have seen thus far, we believe that the Russian experience in the 1990's is going to be closer to what lies ahead for the US. Unless the US adopts an export driven, low domestic consumption, high savings policy bias, non-productive military buildup and public works, and discourages population growth we don't believe the Japanese experience will be repeated.

Preventing the banking system from collapsing is a worthy objective. Perpetuating the symptom of fraud and abuse and 'overreach' that was becoming pervasive in the system before the collapse is not sustainable, instead leading to more frequent and larger collapses.

Balance will be restored, and a reversion to the means will occur, one way or the other. It would be most practical to accomplish this in a peaceful, sustainable manner, with justice and toleration.

[Jan 07, 2019] The Fed IS the Ugly Truth

Notable quotes:
"... "The entire US economy today is about the quick buck." ..."
"... " When market tumbled in 2015 and 2016, global central banks embarked on the largest combined intervention effort in history giving us a grand total of over $15 trillion." ..."
The Automatic Earth
... ... ...

Central banks are founded for one reason only: to save [private] banks from bankruptcy, invariably at the cost of society at large. They'll bring down markets and societies just to make sure banks don't go under. They'll also, and even, do that when these banks have taken insane risks. It's a battle societies can't possibly win as long as central banks can raise unlimited amounts of 'money' and shove it into private banks. Ergo: societies can't survive the existence of a central bank that serves the interests of its private banks.

Henrich:

Stock-Market Investors, It's Time To Hear The Ugly Truth

For years critics of U.S. central-bank policy have been dismissed as Negative Nellies, but the ugly truth is staring us in the face: Stock-market advances remain a game of artificial liquidity and central-bank jawboning, not organic growth. And now the jig is up. As I've been saying for a long time: There is zero evidence that markets can make or sustain new highs without some sort of intervention on the side of central banks. None. Zero. Zilch. And don't think this is hyperbole on my part. I will, of course, present evidence.

In March 2009 markets bottomed on the expansion of QE1 (quantitative easing, part one), which was introduced following the initial announcement in November 2008. Every major correction since then has been met with major central-bank interventions: QE2, Twist, QE3 and so on. When market tumbled in 2015 and 2016, global central banks embarked on the largest combined intervention effort in history. The sum: More than $5 trillion between 2016 and 2017, giving us a grand total of over $15 trillion, courtesy of the U.S. Federal Reserve, the European Central Bank and the Bank of Japan:

When did global central-bank balance sheets peak? Early 2018. When did global markets peak? January 2018. And don't think the Fed was not still active in the jawboning business despite QE3 ending. After all, their official language remained "accommodative" and their interest-rate increase schedule was the slowest in history, cautious and tinkering so as not to upset the markets.

With tax cuts coming into the U.S. economy in early 2018, along with record buybacks, the markets at first ignored the beginning of QT (quantitative tightening), but then it all changed. And guess what changed? Two things. In September 2018, for the first time in 10 years, the U.S. central bank's Federal Open Market Committee (FOMC) removed one little word from its policy stance: "accommodative." And the Fed increased its QT program. When did U.S. markets peak? September 2018.

[..] don't mistake this rally for anything but for what it really is: Central banks again coming to the rescue of stressed markets. Their action and words matter in heavily oversold markets. But the reality remains, artificial liquidity is coming out of these markets. [..] What's the larger message here? Free-market price discovery would require a full accounting of market bubbles and the realities of structural problems, which remain unresolved. Central banks exist to prevent the consequences of excess to come to fruition and give license to politicians to avoid addressing structural problems.

is it $15 trillion, or is it 20, or 30? How much did China add to the total? And for what? How much of it has been invested in productivity? I bet you it's not even 10%. The rest has just been wasted on a facade of a functioning economy. Those facades tend to get terribly expensive.

Western economies would have shrunk into negative GDP growth if not for the $15-20 trillion their central banks injected over the past decade. And that is seen, or rather presented, as something so terrible you got to do anything to prevent it from happening. As if it's completely natural, and desirable, for an economy to grow forever.

It isn't and it won't happen, but keeping the illusion alive serves to allow the rich to put their riches in a safe place, to increase inequality and to prepare those who need it least to save most to ride out the storm they themselves are creating and deepening. And everyone else can go stuff themselves.

And sure, perhaps a central bank could have some function that benefits society. It's just that none of them ever do, do they? Central banks benefit private banks, and since the latter have for some braindead reason been gifted with the power to issue our money, while we could have just as well done that ourselves, the circle is round and we ain't in it.

No, the Fed doesn't hide the ugly truth. The Fed is that ugly truth. And if we don't get rid of it, it will get a lot uglier still before the entire edifice falls to pieces. This is not complicated stuff, that's just what you're made to believe. Nobody needs the Fed who doesn't want to pervert markets and society, it is that simple.

zerosum #44732

The word your looking for "abyss" definition -- a catastrophic situation seen as likely to occur to the people with wealth that is built upon "leverage."

https://www.investopedia.com/terms/l/leverage.asp

Leverage results from using borrowed capital as a funding source when investing to expand the firm's asset base and generate returns on risk capital. Leverage is an investment strategy of using borrowed money -- specifically, the use of various financial instruments or borrowed capital -- to increase the potential return of an investment. Leverage can also refer to the amount of debt a firm uses to finance assets. When one refers to a company, property or investment as "highly leveraged," it means that item has more debt than equity.

... ... ...

Doc Robinson January 7, 2019 at 4:06 am #44737

"The entire US economy today is about the quick buck."

Even the stock market these days seems to be about the quick buck. In the US, the average holding period for stocks has dropped from 8 years (1960), to 5 years (1970), to 2 years (1990), to 4 months (in the past few years).

https://www.politifact.com/virginia/statements/2016/jul/06/mark-warner/mark-warner-says-average-holding-time-stocks-has-f/

The policies of the Fed (as well as the Board of Directors of the companies) are evidently geared towards the short-term benefits of the owners who will be leaving in a few months. The long-term health of the companies, the economy, and the overall society (mostly non-owners) is evidently not so important to the Fed and the CEOs.

" When market tumbled in 2015 and 2016, global central banks embarked on the largest combined intervention effort in history giving us a grand total of over $15 trillion."

Those $15 trillion in assets being held by the central banks propped the global stock market capitalization up to around $75 trillion. Short term thinking that gives short-term benefits. Take away the props and of course that sucker is going to fall.

What were they thinking, the overweight patient with all of those systemic problems is going to be able to walk just fine when the crutches are taken away?

[Jan 07, 2019] Junk Economics and the Parasites of Global Finance by MICHAEL HUDSON

Notable quotes:
"... At least in nature, "smart" parasites may perform helpful functions, such as helping their host find food. But as the host weakens, the parasite lays eggs, which hatch and devour the host, killing it. That is what predatory finance is doing to today's economies. It's stripping assets, not permitting growth or even letting the economy replenish itself. ..."
"... MH: The financial sector is a rentier sector – external to the "real" economy of production and consumption, and therefore a form of overhead. As overhead, it should be a subtracted from GDP. ..."
"... In the name of saving "the market," the Fed and ECB therefore overruled the market. Today, over 80 percent of U.S. home mortgages are guaranteed by the Federal Housing Authority. Banks won't make loans without the government picking up the risk of non-payment. So bankers just pretend to be free market. That's for their victims. ..."
"... The "flight to security" is a move out of the stock and bond markets into government debt. Stocks and bonds may go down in price, some companies may go bankrupt, but national governments can always print the money to pay their bondholders. Investors are mainly concerned about keeping whatthey have – security of principal. They are willing to be paid less income in exchange for preserving what they have taken. ..."
"... But the way Wall Street administrators at the Treasury and Fed plan the crisis is for small savers to lose out to the large institutional investors. So the bottom line that I see is a slow crash. ..."
"... U.S. diplomats radically changed IMF lending rules as part of their economic sanctions imposed on Russia as result of the coup d'état by the Right Sector, Svoboda and their neo-Nazi allies in Kiev. The ease with which the U.S. changed these rules to support the military coup shows how the IMF is simply a tool of President Obama's New Cold War policy. ..."
"... The main financial innovation by Apple has been to set up a branch office in Ireland and pretend that the money it makes in the Untied States and elsewhere is made in Ireland – which has only a 15 percent income-tax rate ..."
"... It would seem to be an anomaly to borrow from banks and pay dividends. But that is the "cannibalism" stage of modern finance capitalism, U.S.-style. For the stock market as a whole, some 92 percent of earnings recently were used to pay dividends or for stock buybacks. ..."
Mar 23, 2016 | www.counterpunch.org

Justin Ritchie: In your book, Killing the Host: How Financial Parasites and Debt Bondage Destroy the Local Economy , you draw this metaphor of parasites and global finance? Could you explain what you mean by this?

Michael Hudson: The financial sector today is decoupled from industrialization. Its main interface with industry is to provide credit to corporate raiders. Their objective isasset stripping, They use earnings to repay financial backers (usually junk-bond holders), not to increase production. The effect is to suck income from the company and from the economy to pay financial elites.

These elites play the role today that landlords played under feudalism. They levy interest and financial fees that are like a tax, to support what the classical economists called "unproductive activity." That is what I mean by "parasitic."

If loans are not used to finance production and increase the economic surplus, then interest has to be paid out of other income. It is what economists call a zero-sum activity. Such interest is a "transfer payment," because it that does not play a directly productive function. Credit may be a precondition for production to take place, but it is not a factor of production as such.

The situation is most notorious in the international sphere, especially in loans to governments that already are running trade and balance-of-payments deficits. Power tends to pass into the hands of lenders, so they lose control – and become less democratic.

To return to my use of the word parasite, any exploitation or "free lunch" implies a host. In this respect finance is a form of war, domestically as well as internationally.

At least in nature, "smart" parasites may perform helpful functions, such as helping their host find food. But as the host weakens, the parasite lays eggs, which hatch and devour the host, killing it. That is what predatory finance is doing to today's economies. It's stripping assets, not permitting growth or even letting the economy replenish itself.

The most important aspect of parasitism that I emphasize is the need of parasites to control the host's brain. In nature, a parasite first dulls the host's awareness that it is being attacked. Then, the free luncher produces enzymes that control the host's brain and make it think that it should protect the parasite – that the outsider is part of its own body, even like a baby to be specially protected.

The financial sector does something similar by pretending to be part of the industrial production-and-consumption economy. The National Income and Product Accounts treat the interest, profits and other revenue that Wall Street extracts – along with that of the rentier sectors it backs (real estate landlordship, natural resource extraction and monopolies) – as if these activities add to Gross Domestic Product. The reality is that they are a subtrahend, a transfer payment from the "real" economy to the Finance, Insurance and Real Estate Sector. I therefore focus on this FIRE sector as the main form of economic overhead that financialized economies have to carry.

What this means in the most general economic terms is that finance and property ownership claims are not "factors of production." They are external to the production process. But they extract income from the "real" economy.

They also extract property ownership. In the sphere of public infrastructure – roads, bridges and so forth – finance is moving into the foreclosure phase. Creditors are trying to privatize what remains in the public domains of debtor economies. Buyers of these assets – usually on credit – build interest and high monopoly rents into the prices they charge.

JR: What is your vision for the next few decades of the global economy?

MH: The financial overhead has grown so large that paying interest, amortization and fees shrinks the economy. So we are in for years of debt deflation. That means that people have to pay so much debt service for mortgages, credit cards, student loans, bank loans and other obligations that they have less to spend on goods and services. So markets shrink. New investment and employment fall off, and the economy is falls into a downward spiral.

My book therefore devotes a chapter to describing how debt deflation works. The result is a slow crash. The economy just gets poorer and poorer. More debtors default, and their property is transferred to creditors. This happens not only with homeowners who fall into arrears, but also corporations and even governments. Ireland and Greece are examples of the kind of future in store for us.

Financialized economies tend to polarize between creditors and debtors. This is the dynamic that Thomas Piketty leaves out of his book, but his statistics show that all growth in income and nearly all growth in wealth or net worth has accrued to the One Percent, almost nothing for the 99 Percent.

Basically, you can think of the economy as the One Percent getting the 99 Percent increasingly into debt, and siphoning off as interest payments and other financial charges whatever labor or business earns. The more a family earns, for instance, the more it can borrow to buy a nicer home in a better neighborhood – on mortgage. The rising price of housing ends up being paid to the bank – and over the course of a 30-year mortgage, the banker receives more in interest than the seller gets.

Economic polarization is also occurring between creditor and debtor nations. This issplitting the eurozone between Germany, France and the Netherlands in the creditor camp, against Greece, Spain, Portugal, Ireland and Italy (the PIIGS) falling deeper into debt, unemployment and austerity – followed by emigration and capital flight.

This domestic and international polarization will continue until there is a political fight to resist the creditors. Debtors will seek to cancel their debts. Creditors will try to collect, and the more they succeed, the more they will impoverish the economy.

Background

JR: Let's talk about your history, why did you become an economist?

MH: I started out wanting to be a musician – a composer and conductor. I wasn't very good at either, but I was a very good interpreter, thanks to working with Oswald Jonas in Chicago studying the musical theories of Heinrich Schenker. I got my sense of aesthetics from music theory, and also the idea of modulation from one key to another. It is dissonance that drives music forward, to resolve in a higher key or overtone.

When I was introduced to economics by the father of a schoolmate, I found it as aesthetic as music, in the sense of a self-transforming dynamic through history by challenge and response or resolution. I went to work for banks on Wall Street, and was fortunate enough to learn about how central mortgage lending and real estate were for the economy. Then, I became Chase Manhattan's balance-of-payments economist in 1964, and got entranced with tracing how the surplus was buried in the statistics – who got it, and what they used it for. Mainly the banks got it, and used it to make new loans.

I viewed the economy as modulating from one phase to the next. A good interpretation would explain history. But the way the economy worked was nothing like what I was taught in school getting my PhD in economics at New York University. So I must say, I enjoyed contrasting reality with what I now call Junk Economics.

In mainstream textbooks there is no exploitation. Even fraudulent banks, landlords and monopolists are reported as "earning" whatever they take – as if they are contributing to GDP. So I found the economics discipline ripe for a revolution.

JR: What is the difference between how economics is taught vs. what you learned in your job?

MH: For starters, when I studied economics in the 1960s there was still an emphasis on the history of economic thought, and also on economic history. That's gone now.

One can easily see why. Adam Smith, John Stuart Mill and other classical economists sought to free their societies from the legacy of feudalism: landlordism and predatory finance, as well as from the monopolies that bondholders had demanded that governments create as a means of paying their war debts.

Back in the 1960s, just like today, university courses did not give any training in actual statistics. My work on Wall Street involved National Income and Product Accounts and the balance-of-payments statisticspublished by the Commerce Department every three months, as well as IMF andFederal Reserve statistics. Academic courses didn't even make reference to accounting – so there was no conceptualization of "money," for instance, in terms of the liabilities side of the balance sheet.

New York University's money and banking course was a travesty. It was about helicopters dropping money down – to be spent on goods and services, increasing prices. There was no understanding that the Federal Reserve's helicopter only flies over Wall Street, or that banks create money on its own computers. It was not even recognized that banks lend to customers mainly to buy real estate, or speculate in stocks and bonds, or raid companies.

Economics is taught like English literature. Teachers explain the principle of "suspension of disbelief." Readers of novels are supposed to accept the author's characters and setting. In economics, students are told to accept just-pretend parallel universe assumptions, and then treat economic theory as a purely logical exercise, without any reference to the world.

The switch from fiction to reality occurs by taking the policy conclusions of these unrealistic assumptions as if they do apply to the real world: austerity, trickle-down economics shifting taxes off the wealthy, and treating government spending as "deadweight" even when it is on infrastructure.

The most fictitious assumption is that Wall Street and the FIRE sector add to output, rather than extracting revenue from the rest of the economy.

JR: What did you learn in your work on the US oil industry?

MH: For starters, I learned how the oil industry became tax-exempt. Not only by the notorious depletion allowance, but by offshoring profits in "flags of convenience" countries, in Liberia and Panama. These are not real countries. They do not have their own currency, but use U.S. dollars. And they don't have an income tax.

The international oil companies sold crude oil at low prices from the Near East or Venezuela to Panamanian or Liberian companies – telling the producing countries that oil was not that profitable. These shipping affiliates owned tankers, and charged very high prices to refineries and distributors in Europe or the Americas. The prices were so high that these refineries and other "downstream" operations marketing gas to consumers did not show a profit either. So they didn't have to pay European or U.S. taxes. Panama and Liberia had no income tax. So the global revenue of the oil companies was tax-free.

I also learned the difference between a branch and an affiliate. Oil wells and oil fields are treated as "branches," meaning that their statistics are consolidated with the head office in the United States. This enabled the companies to take a depletion allowance for emptying out oil fields abroad as well as in the United States.

My statistics showed that the average dollar invested by the U.S. oil industry was returned to the United States via balance-of-payments flows in just 18 months. (This was not a profit rate, but a balance-of-payments flow.) That finding helped the oil industry get exempted from President Lyndon Johnson's "voluntary" balance-of-payments controls imposed in 1965 when the Vietnam War accounted for the entire U.S. payments deficit. Gold was flowering out to France, Germany and other countries running payments surpluses.

The balance-of-payments accounting format I designed for this study led me to go to work for an accounting firm, Arthur Andersen, to look at the overall U.S. balance of payments. I found that the entire deficit was military spending abroad, not foreign aid or trade.

Junk Economics

JR: Why do you think there is a disconnect between academic economic theory and the way that international trade and finance really works?

MH: The aim of academic trade theory is to tell students, "Look at the model, not at how nations actually develop." So of all the branches of economic theory, trade theory is the most wrongheaded.

For lead nations, the objective of free trade theory is to persuade other countries not to protect their own markets. That means not developing in the way that Britain did under its mercantilist policies thatmade it the first home of the Industrial Revolution. It means not protecting domestic industry, as the United States and Germany did in order to catch up with British industry in the 19 th century and overtake it in theearly 20 th century.

Trade theorists start with a conclusion: either free trade or (in times past) protectionism. Free trade theory as expounded by Paul Samuelson and others starts by telling students to assume a parallel universe – one that doesn't really exist. The conclusion they start with is that free trade makes everyone's income distribution between capital and labor similar. And because the world has a common price for raw materials and dollar credit, as well as for machinery, the similar proportions turn out to mean equality. All the subsequent assumptions are designed to lead to this unrealistic conclusion.

But if you start with the real world instead of academic assumptions, you see that the world economy is polarizing. Academic trade theory can't explain this. In fact, it denies that today's reality can be happening at all!

A major reason why the world is polarizing is because of financial dynamics between creditor and debtor economies. But trade theory starts by assuming a world of barter. Finally, when the transition from trade theory to international finance is made, the assumption is that countries running trade deficits can "stabilize" by imposing austerity, by lowering wages, wiping out pension funds and joining the class war against labor.

All these assumptions were repudiated already in the 18 th century, when Britain sought to build up its empire by pursuing mercantilist policies. The protectionist American School of Economics in the 19 th century put forth the Economy of High Wages doctrine to counter free-trade theory. None of this historical background appears in today's mainstream textbooks. (I provide a historical survey in Trade, Development and Foreign Debt , new ed., 2002. That book summarizes my course in international trade and finance that I taught at the New School from 1969 to 1972.)

In the 1920s, free-trade theory was used to insist that Germany could pay reparations far beyond its ability to earn foreign exchange. Keynes, Harold Moulton and other economists controverted that theory. In fact, already in 1844, John Stuart Mill described how paying foreign debts lowered the exchange rate. When that happens, what is lowered is basically wages. So what passes for today's mainstream trade theory is basically an argument for reducing wages and fighting a class war against labor.

You can see this quite clearly in the eurozone, above all in the austerity imposed on Greece. The austerity programs that the IMF imposed on Third World debtors from the 1960s onward. It looks like a dress rehearsal to provide a cover story for the same kind of "equilibrium economics" we may see in the United States.

JR: Can the US pay its debts permanently? Does the amount of federal debt, $18 or $19 trillion even matter? Should we pay down the national debt?

MH: It is mainly anti-labor austerity advocates who urge balancing the budget, and even to run surpluses to pay down the national debt. The effect must be austerity.

A false parallel is drawn with private saving. Of course individuals should get out of debt by saving what they can. But governments are different. Governments create money and spend it into the economy by running budget deficits. The paper currency in your pocket is technically a government debt. It appears on the liabilities side of the public balance sheet.

When President Clinton ran a budget surplus in the late 1990s, that sucked revenue out of the U.S. economy. When governments do not run deficits, the economy is obliged to rely on banks – which charge interest for providing credit. Governments can create money on their own computers just as well. They can do this without having to pay bondholders or banks.

That is the essence of Modern Monetary Theory (MMT). It is elaborated mainly at the University of Missouri at Kansas City (UMKC), especially by Randy Wray – who has just published a number of books on money – and Stephanie Kelton, whom Bernie Sanders appointed as head of the Senate Democratic Budget Committee.

If the government were to pay off its debts permanently, there would be no money – except for what banks create. That has never been the case in history, going all the way back to ancient Mesopotamia. All money is a government debt, accepted in payment of taxes

This government money creation does not mean that governments can pay foreign debts. The danger comes when debts are owed in a foreign currency. Governments are unable to tax foreigners. Paying foreign debts puts downward pressure on exchange rates. This leads to crises, which often end by relinquishing political control to the IMF and foreign banks. They demand "conditionalities" in the form of anti-labor legislation and privatization.

In cases where national economies cannot pay foreign debts out of current balance-of-payments revenue, debts should be written down, not paid off. If they are not written down, you have the kind of austerity that is tearing Greece apart today.

JR: You say that mainstream economic theory and academic study is pro-creditor? Why is this the case?

MH: Thorstein Veblen pointed out that vested interests are the main endowers and backers of the higher learning in America. Hardly by surprise, they promote a bankers'-eye view of the world. Imperialists promote a similar self-serving worldview.

Economic theory, like history, is written by the winners. In today's world that means the financial sector. They depict banks as playing a productive role, as if loans are made to help borrowers earn the money to pay interest and still keep something for themselves. The pretense is that banks finance industrial capital formation, not asset stripping.

What else would you expect banks to promote? The classical distinction between productive and unproductive (that is, extractive) loans is not taught. The result has been to turn mainstream economics as a public-relations advertisement for the status quo, which meanwhile becomes more and more inequitable and polarizes the economy.

JR: What can be learned by studying the history of economic thought? What did Adam Smith and the people in his era and those which followed him understand that would be useful to us now?

MH: If you read Adam Smith and subsequent classical economists, you see that their main concern was to distinguish between productive and unproductive economic activity. They wanted to isolate unproductive rentier income, and unproductive spending and credit.

To do this, they developed the labor theory of value to distinguish value from price – with "economic rent" being the excess of price over socially necessary costs of production. They wanted tofree industrial capitalism from the legacy of feudalism: tax-like groundrent paid to a hereditary landed aristocracy. They also opposed the monopolies that bondholders had insisted that governments create to sell off to pay the public debt. That was why the East India Company and the South Sea Company were created with their special privileges.

Smith and his followers are applauded as the founding fathers of "free market" economics. But they defined free markets in a diametrically opposite way from today's self-proclaimed neoliberals. Smith and other classical economists urged markets free from economic rent.

These classical reformers realized that progressive taxation to stop favoring rentiers required a government strong enough to take on society's most powerful and entrenched vested interests. The 19 th -century drive for Parliamentary reform in Britain aimed at enabling the House of Commons to override the House of Lords and tax the landlords. (This rule finally passed in 1910 after a constitutional crisis.) Now there has been a fight by creditors to nullify democratic politics, most notoriously in Greece.

Today's neoliberals define free markets as those free for rent-seekers and predatory bankers from government regulation and taxes.

No wonder the history of economic thought has been stripped away from the curriculum. Reading the great classical economists would show how the Enlightenment's reform program has been inverted. The world is now racing down a road to the Counter-Enlightenment, a neo- rentier economy that is bringing economic growth to a halt.

JR: Why does economic thought minimize the role of debt? I.e. I read Paul Krugman and he says the total amount of debtisn't a problem, for example you can't find the internet bust in GDP or the 1987 crash?

MH: When economists speak of money, they neglect that all money and credit is debt. That is the essence of bookkeeping and accounting. There are always two sides to the balance sheet. And one party's money or savings is another party's debt.

Mainstream economic models describe a world that operates on barter, not on credit. The basic characteristic of credit and debt is that it bears interest. Any rate of interest can be thought of as a doubling time. Already in Babylonia c. 1900 BC, scribes were taught to c alculate compound interest, and how long it took a sum to double (5 years) quadruple (10 years) or multiply 64 times (30 years). Martin Luther called usury Cacus, the monster that absorbs everything. And in Volume III of Capital and also his Theories of Surplus Value , Marx collected the classical writings about how debts mount up at interest by purely mathematical laws, without regard for the economy's ability to pay.

The problem with debt is not only interest. Shylock's loan against a pound of flesh was a zero-interest loan. When crops fail, farmers cannot even pay the principal. They then may lose their land, which is their livelihood. Forfeiture is a key part of the credit/debt dynamic. But the motto of mainstream neoliberal economics is, "If the eye offends thee, pluck it out." Discussing the unpayability of debt is offensive to creditors.

Anyone who sets out to calculate the ability pay quickly recognizes that the overall volume of debts cannot be paid. Keynes that made point in the 1920s regarding Germany's inability to pay reparations.

Needless to say, banks and bondholders do not want to promote any arguments explaining the limits to how much can be paid without pushing economies into depression. That is what my Killing the Host is about. It is the direction in which the eurozone is now going, and the United States also issuffering debt deflation.

Turning to the second part of your question, Krugman and others say that debt doesn't matter because "we owe it to ourselves." But the "we" who owe it are the 99 Percent; the people who are "ourselves" are the One Percent. So the 99 Percent Owe the One Percent. And they owe more and more,thanks to the "magic of compound interest."

Krugman has a blind spot when it comes to understanding money. In his famous debate with Steve Keen, he denied that banks create money or credit. He insists that commercial banks only lend out deposits. But Keen and the Modern Monetary Theory (MMT) school show that loans create deposits , not the other way around. When a banker writes a loan on his computer keyboard, he creates a deposit as the counterpart.

Endogenous money is easily created electronically. That privilege enables banks to charge interest. Governments could just as easily create money on their own computers. Neoliberal privatizers want to block governments from doing this, so that economies will have to rely on commercial banks for the money and credit they need to grow.

The mathematics of compound interest means that economies can only pay their debts by creating a financial bubble – more and more credit to bid up asset prices for real estate, stocks and bonds, enabling banks to make larger loans. Today's economies are obliged to develop into Ponzi schemes to keep going – until they collapses\ in a crash.

JR: The models of the macroeconomy to forecast the future and to develop policy at institutions like the IMF, often consider finance and banking as just another sector of industry, like construction or manufacturing. How do these institutions consider their model of the financial sector?

MH: The IMF acts as the collection agent for global bondholders. Its projections begin by assuming that all debts can be paid, if economies will cut wages and wiping out pension funds so as to pay banks and bondholders.

As long as creditors remain in control, they are quite willing to sacrifice the 99 Percent to pay the One Percent. When IMF "stabilization" programs end up destabilizing their hapless victims, mainstream media blame the collapse on the debtor country for not shedding enough blood to impose even more austerity.

Economists often define their discipline as "the allocation of scarce resources among competing ends." But when resources or money really become scarce, economists call it a crisis and say that it's a question for politicians, not their own department. Economic models are only marginal – meaning, small changes, not structural.

The only trend that does grow inexorably is that of debt. The more it grows, the more it slows the "real" economy of production and consumption. So something must give: either the economy, or creditor claims. And that does indeed change the structure of the economy. It is a political as well as an economic change.

Regarding the second part of your question – how creditor institutions model the financial sector – when they look at prices they only consider wages and consumer prices, not asset prices. Yet most bank credit is tied to asset prices, because loans are made to buy homes or commercial real estate, stocks or bonds, not bread and butter.

Not looking at what is obviously important requires a great effort of tunnel vision. But as Upton Sinclair noted, there are some jobs – like being a central banker, or a New York Times editorial writer – that require the applicant not to understand the topic they are assigned to study. Hence, you have Paul Krugman on money and banking, the IMF on economic stabilization, and Rubinomics politicians on bailing out the banks instead of saving the economy.

If I can add a technical answer: The IMF does not recognize that the "budget problem" – squeezing domestic currency out of the economy by taxing wages and industry – is quite different from the "transfer problem" of converting this money into foreign exchange. That distinction was the essence of the German reparations debate in the 1920s. It is a focus of my history of theories of Trade, Development and Foreign Debt .

Drawing this distinction shows why austerity programs do not help countries pay their foreign debt, but tears them apart and induces emigration and capital flight.

JR: Does the financial sector add to GDP?

MH: The financial sector is a rentier sector – external to the "real" economy of production and consumption, and therefore a form of overhead. As overhead, it should be a subtracted from GDP.

JR: In the way that oil industry funded junk science on global warming denial, Wall Street funds and endows junk economics and equilibrium thinking?

Falling on your face is a state of equilibrium. So is death – and each moment of dying. Equilibrium is simply a cross section in time. Water levels 20 or 30 feet higher would be another form of equilibrium. But to the oil industry, "equilibrium" means their earnings continuing to grow at the present rate, year after year. This involves selling more and more oil, even if this raises sea levels and floods continents. That is simply ignored as not relevant to earnings. By the time that flooding occurs, today's executives will have taken their bonuses and capital gains and retired.

That kind of short-termism is the essence of junk economics. It is tunnel-visioned.

What also makes economics junky is assuming that any "disturbance" sets in motion countervailing forces that return the economy to its "original" state – as if this were stable, not moving down the road to debt peonage and similar economic polarization.

The reality is what systems analysts call positive feedback: When an economy gets out of balance, especially as a result of financial predators, the feedback and self-reinforcing tendencies push it further and further out of balance.

My trade theory book traced the history of economists who recognize this. Once a class or economy falls into debt, the debt overhead tends to grow steadily until it stifles market demand and subjects the economy to debt deflation. Income is sucked upward to the creditors, who then foreclose on the assets of debtors. This shrinks tax revenue, forcing public budgets into deficit. And when governments are indebted, they becomemore subject to pressure to privatization of public enterprise. Assets are turned over to monopolists, who further shrink the economy by predatory rent seeking.

An economy going bankrupt such as Greece and having to sell off its land, gas rights, ports and public utilities is "in equilibrium" at any given moment that its working-age population is emigrating, people are losing their pensions and suffering.

When economists treat depressions merely as self-curing "business downturns," they are really saying that no government action is required from "outside" "the market" to rectify matters and put the economy back on track to prosperity. So equilibrium thinking isbasically anti-government libertarian theory.

But when banks are subjected to "equilibrium" by writing down debts in keeping with the ability of borrowers to pay, WallStreet's pet politicians and economic journalists call this a crisis and insist that the banks and bondholders must be saved or there will be a crisis. This is not a solution. It makes the problem worse and worse.

There is an alternative, of course. That is to understand the dynamics at work transforming economic and socialstructures. That's what classical economics was about.

The post-classical revolution was marginalist. That means that economists only look at small changes, not structural changes. That isanother way of saying that reforms are not necessary – because reforms change structures, not merely redistribute a little bit of income as a bandage.

What used to be "political economy" gave way to just plain "economics" by World War I. As it became increasingly abstract and mathematical, students who studied the subject because they wanted to make the world better were driven out, into other disciplines. That was my experience teaching at the New School already nearly half a century ago. The discipline has become much more tunnel-visioned since then.

Present state of financial world

JR: We see around the world something like 25% of all national debt is now has a yield priced in negative interest rates? What does this mean? Do you see this continuing?

MH: On the one hand, negative interest rates reflect a flight to security by investors. They worry that the debts can't be paid and that there are going to be defaults.

They also see that the United States and Europe are in a state of debt deflation, where people and businesses have to pay banks instead of spending their income on goods and services. So markets shrink, sales and profits fall, and the stock market turns down.

This decline was offset by the Federal Reserve and the European Central Bank trying to re-inflate the Bubble Economy by Quantitative Easing – providing reserves to the banks in exchange for their portfolio of mortgages and other loans. Otherwise, the banks would have had to sell these loans in "the market" at falling prices.

In the name of saving "the market," the Fed and ECB therefore overruled the market. Today, over 80 percent of U.S. home mortgages are guaranteed by the Federal Housing Authority. Banks won't make loans without the government picking up the risk of non-payment. So bankers just pretend to be free market. That's for their victims.

The "flight to security" is a move out of the stock and bond markets into government debt. Stocks and bonds may go down in price, some companies may go bankrupt, but national governments can always print the money to pay their bondholders. Investors are mainly concerned about keeping whatthey have – security of principal. They are willing to be paid less income in exchange for preserving what they have taken.

Here's the corner that the economy has backed itself into. The solution to most problems creates new problems – blowback or backlash, which often turn out to be even bigger problems. Negative interest rates mean that pension funds cannot invest in securities that yield enough for them to pay what they have promised their contributors. Insurance companies can't earn the money to pay their policyholders. So something has to give.

There will be breaks in the chain of payments. But the way Wall Street administrators at the Treasury and Fed plan the crisis is for small savers to lose out to the large institutional investors. So the bottom line that I see is a slow crash.

JR: Could there be a more symbiotic relationship with global financial institutions? For money to have value, doesn't it need a functioning economy, rather than an entirelyfinancialized one?

MH: Money is debt. It is a claim on some debtor. Government money is a claim by its holder on the government, settled by the government accepting it as payment for tax debts.

Being a claim on a debtor, money does not necessarily need a functioning economy. It can be part of a foreclosure process, transferring property to creditors. A financialized economy tends to strip the economy of money, by sucking up to the creditor One Percent on top. That is what happened in Rome, and the result was the Dark Age.

JR: In 2007/2008 we had a subprime crash and since 2014 we've had a commodities crash where oil prices are low, is this because of what's going on in emerging market economies? Are emerging market economies and China the next subprime?

MH: The current U.S. and Eurozone depression isn't because of China. It's because of domestic debt deflation. Commodity prices and consumer spending are falling, mainly because consumers have to pay most of their wages to the FIRE sector for rent or mortgage payments, student loans, bank and credit card debt, plus over 15 percent FICA wage withholding for Social Security and Medicare (actually, to enable the government to cut taxes on the higher income brackets), as well income and sales taxes. After all this is paid, consumers don't have that much left to spend on commodities. So of course commodity prices are crashing.

Oil is a special case. Saudi Arabia is trying to drive U.S. fracking rivals out of business, while also hurting Russia. This lowers gas prices for U.S. and Eurozone consumers, but not by enough to spur economic recovery.

JR: You've written that we're entering a financial cold war – the IMF and the US have been very strict on debt repayment for loans from debtor nations, but in Ukraine they've made an exception regarding Russia, could you discuss your recent writing on that?

MH: U.S. diplomats radically changed IMF lending rules as part of their economic sanctions imposed on Russia as result of the coup d'état by the Right Sector, Svoboda and their neo-Nazi allies in Kiev. The ease with which the U.S. changed these rules to support the military coup shows how the IMF is simply a tool of President Obama's New Cold War policy.

The aim was to enable the IMF to keep lending to the military junta even though Ukraine is in default of its $3 billion debt to Russia, even though it refuses to negotiate payment, and even though IMF money has been used to fund kleptocrats such as Kolomoisky to field his own army against Russian speakers in Donbas. Ukraine has no foreseeablemeans of paying off the IMF and other creditors, given its destruction of its export industry in the East. My articles on this are on my website, michael-hudson.com .

JR: Today's economy has some truly amazing technology from companies like Apple, but Apple is also example of financial engineering, you outline this in your book, what financial innovations havebeen associated with the story of Apple's stock?

MH: The main financial innovation by Apple has been to set up a branch office in Ireland and pretend that the money it makes in the Untied States and elsewhere is made in Ireland – which has only a 15 percent income-tax rate

The problem is that if Apple remits this income back to the United States, it will have to pay U.S. income tax. It wants to avoid this – unless Wall Street can convince politicians to declare a "tax holiday" would let tax avoiders bring all their foreign money back to the United States "tax free." That would be a tax amnesty only for the very wealthy, not for the 99 Percent.

JR: This tax angle explains why Apple, almost the wealthiest company in the world, has been urged by activist shareholders to borrow. Why should the richest company have to go into debt?

MH: The answer is that Apple can borrow from U.S. banks at a low interest rate to pay dividends on its stock, instead of paying these dividends by bringing its income back home and paying the taxes that are due.

It would seem to be an anomaly to borrow from banks and pay dividends. But that is the "cannibalism" stage of modern finance capitalism, U.S.-style. For the stock market as a whole, some 92 percent of earnings recently were used to pay dividends or for stock buybacks.

JR: What is the eventual outcome of all theses corporate buybacks to pump up share prices?

MH: The problem with a company using its revenue simply to buy its own shares to support their price (and hence, enable CEOs to increase their salaries and bonuses, and make more capital gains on their stock options) is that the price fillip is temporary. Last year saw the largest volume of U.S. stock buybacks on record. But since January 1, the market has fallen by about 20 percent. The debts that companies took on to buy stocks remain in place; and the earnings that companies used to buy these stocks are now gone.

Corporations did not use their income to invest in long-term expansion. The financial time frame always has been short-term. Projects with long-term paybacks are cut back, because CEOs and financial managers simply want to take their money and run. That is the financial mentality.

JR: What is the outcome of all theses corporate buybacks to pump up share prices?

MH: When the dust settles, companies financialized in this way are left as debt-leveraged shells. CEOs then go to their labor unions and threaten to declare bankruptcy if the unions don't scale back their pension demands. So there is a deliberate tactic to force companies into debt for short-term earnings and stock-price gains in the short term, and a more intensive class war against present and past employees and pensioners as a longer-term policy.

JR: Why do business schools endorse of financialization? Reversing short-termism?

MH: The financial sector is the major endower of business schools. They have become training grounds for Chief Financial Officers. AtHarvard, Prof. Jensen reasoned that managers should aim at serving stockholders, not the company as such. The result was an "incentive" system tying management bonuses to the stock price. So naturally, CFOs used corporate earnings for stock buybacks and dividend payouts that provided a short-term jump in the stock price.

The ideological foundation of today's business schools is that economic control should be shifted out of government hands into those of financial managers – that is, Wall Street. That is their idea of freeenterprise. Its inevitable tendency is to end in more centralized planning by Wall Street than in Washington.

The aim of this financial planning is quite different from that of governments. As I wrote in Killing the Host : "The euro and the ECB were designed in a way that blocks government money creation for any purpose other than to support the banks and bondholders. The financial sector takes over the role of economic planner, putting its technicians in charge of monetary and fiscal policy without democratic voice or referendums over debt and tax policies."

Financial planning always has been short-term. That is why planning should not be consigned to banks and bondholders. Their mentality is extractive, and that ends up hit-and-run. What passes for mainstream financial analysis is simply to add up how much is owed and demand payment, not help the economy grow. To financial managers, economic prosperity and unemployment is an "externality" – that is, not part of the equation that they are concerned with.

Future

JR: The story of Greece in recent years is relevant to our discussion because the political party Syriza took over with ideas that were traditionally representing the left? Does the body of traditional left ideas have the ability to solve some of the challenges regarding financial warfare?

MH: The left and former Social Democratic or Labour parties have dome to focus on political and cultural issues, not the economic policy that led to their original creation. What is lacking is a focus on rent theory and financial analysis. Part of the explanation probably is covert U.S. funding and sponsorship of Blair-type neoliberals.

The eurozone threatened Greece with domestic destabilization if it did not surrender to the Troika's demands. Syriza's leaders worried that the ensuing turmoil would bring a right-wing neo-Nazi group such as Golden Dawn into power, or a military dictatorship as a client oligarchy for U.S. and German neoliberals.

So the political choice today is much like the 1930s, when the global economy also broke down. The choice is between nationalism and populism on the right, or socialism reviving what used to be left-wing politics.

JR: Could there be a debt write down? Isn't someone's debts another person's savings, i.e. pension funds, 401k, retirement funds?

MH: The problem is indeed that one party's debt finds its counterpart in some other party's savings. Not paying debts therefore involves annulling some other party's financial claims on the debtor. What happens to the savings on the other side of the savings/debt balance sheet?

JR: The political question is, who will lose first?

MH: The answer is, the least politically protected. The end game is "Big fish eat little fish." Pension funds are in the front line of sacrifice, while government bondholders are the most secure. Greek pensionsalready have been written down, and the savings of U.S. pension funds, Social Security and other social programs are the first to be annulled.

The only way to achieve a fair debt cancellation is to write down the debts of the wealthiest, not the most needy. That is the opposite of how matters are being resolved today. That is why southern Europe is being radicalized over the debt issue.

JR: Will financialized economies implode? Leaving the non-financialized ones?

MH: The One Percent who hold most of the economy's savings are quite willing to plunge society into depression to collect on their savings claims. Their greed is why we are in an economic war much like Rome's Conflict of the Orders that shaped the Republic, and its century of civil war between creditors and debtors, 133-29 BC.

Argentina has been imploding, just as Third World debtors were obliged to do when they accepted IMF austerity programs and "conditionalities" for loans to keep their currencies from depreciating. To avoid being forced to adopt such self-defeating and anti-democratic policies, it looks like countries will have to move out of the U.S. and Eurozone orbit into that of the BRICS. That is why today's financial crisis is leading to a New Cold War. It is as much financial as it is military.

JR: How would you advise a politician to restore prosperity in the future?

MH: The problem is who to give advice to. Most politicians today – at least in the United States – are proxies for their campaign contributors. President Obama is basically a lobbyist for his Wall Street in the Democratic Party's Robert Rubin gang. That kind of demagogue wouldn't pay any attention to policies that I or other economists would make. Their job is not to make the economy better, but to defend their campaign contributors among the One Percent at the economy's expense.

But when I go to China or Russia, here's what I advise (without much success so far, I admit):

First, tax land rent and other economic rent. Make it the tax base. Otherwise, this rental value will end up being pledged to banks as interest on credit borrowed to buy rent-yielding assets.

Second, make banks into public utilities. Credit creation is like land or air: a monopoly created by society. As organs of public policy they would not play the derivatives casino, or make corporatetakeover loans to raiders, or falsify mortgage documents.

Third, do not privatize basic utilities. Public ownership enables basic services to be provided at cost, on a subsidized basis, or freely. That will make the economy more competitive. The cost of upgrading public infrastructure can be defrayed by basing the tax system on economic rent, not wages.

Does it have to be this way ?

The Eurozone die is cast. Countries must withdraw from the euro so that governments can create their own money once again, and resist creditor demands to carve up and privatize their public domain.

For the United States, I don't see a concerted alternative to neoliberalism squeezing more and more interest and rent out of the economy, making the present slump even deeper in debt.

How won't debts be paid?

There are two ways not to pay debts: either by annulling or repudiating them, or by foreclosure when creditors take or demand property in lieu of monetary payment.

The first way not to pay is to default or proclaim a Clean Slate. The most successful example in modern times is the German Economic Miracle – the Allied Monetary Reform of 1948. That cancelled Germany's internal debts except for wages owed by employers, and minimum working balances.

The United States Government has fought against creation of an international court to adjudicate the ability of national economies to pay debts. If such a court is not created, the global economy will fracture. That is occurring in what looks like a New Cold War pitting the United States and its NATO satellites against the BRICS (China, Russia, South Africa, Brazil and India) along with Iran and other debtors.

The US preferred policy is for countries to sell off whatever is in their public domain when they lack the money to pay their debts. This is the "foreclosure" stage.

Short of these two ways of not paying debts, economies are submitting to debt deflation. That strips income from producers and consumers, businesses and governments to pay creditors. As the debtor economy weakens, the debt arrears mount up – often at rising interest rates to reflect the risk of non-payment as creditors realize that there is no "business as usual' way in which the debts can be paid.

Debtor countries may postpone the inevitable by borrowing from the IMF or U.S. Treasury to buy out bondholders. This saves the latter from taking a loss – leaving the debtor country with debts that are even harder to annul, because they are to foreign governments and international institutions. That is why it is a very bad policy for countries to move from owing money to private bondholders to owing the IMF or European Central Bank, whose demands are unforgiving.

In the long term, debts won't be paid in the way that Rome's debts were not paid. The money economy itself was stripped, and the empire fell into a prolonged Dark Age. That is the fate that will befall the West if it continues to support the "rights" of creditors over the right of nations and economies to survive.

This is a transcript from an interview on the XE Podcast conducted by Justin Ritchie.

[Jan 04, 2019] Cramer sees an Apple bottom of $120 per share, 16% below Thursday's open

While Cramer is a clown, I see some analogy in his dance with dot-com bubble. So deflation of dot-com bubble 2 might be coming.
Jan 04, 2019 | finance.yahoo.com

[Jan 04, 2019] Shale still vulnerable if OPEC gets nasty

Jan 04, 2019 | finance.yahoo.com

America is now the largest producer of oil in the world. For the U.S., this is great news as the dream of energy independence grows and maybe one day we can tell OPEC to go take a hike.

However, while the shale oil revolution has helped change the energy landscape forever, we cannot take shale for granted. We can't just assume that the industry can withstand any price and that production can keep rising despite the market conditions. We can't assume that shale oil producers can match OPEC production cuts barrel for barrel.

We also can't assume OPEC, weakened by falling prices of late, won't strike back like they did in 2014. That's when OPEC declared a production war on U.S. shale producers. The then de facto head of the OPEC Cartel Ali al-Naimi spoke about market share rivalry with the United States and said that they wanted a battle with the U.S. There were no winners in that production war. Ali al-Naimi was sacked as he almost bankrupted Saudi Arabia. It took its toll on U.S. producers as well, as many were forced into bankruptcy despite making significant progress on efficiency and cost cutting.

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With 2019 underway, OPEC, along with Russia, agreed to remove 1.2 million barrels per day off the market for the first six months of the year. Early reports on OPEC compliance to the agreed upon production cuts is overwhelming at a time when there are new questions about how shale oil producers are faring after this recent oil price drop.

Private forecasters are showing that there are major cuts in Saudi exports and even signs that OPEC production is falling sharply. Bloomberg News confirmed that by reporting "observed crude exports from Saudi Arabia fell to 7.253 million barrels per day in December on lower flows to the U.S. and China." Furthermore, other private trackers believe that the drop may be the biggest in exports since Bloomberg began tracking shipments in early 2017. Oil saw another boost after Bloomberg reported that OPEC oil production had the biggest monthly drop in two years falling by 530,000 barrels a day to 32.6 million a day last month. It's the sharpest pullback since January 2017.

Rewind to 2017, there was talk that shale oil producers would make up the difference and the cut would not matter, but that was proven wrong. This time expect the same because it is likely that shale oil producers may have to cut back as the sharp price drop has put them in a bad position. The Wall Street Journal pointed out that, even now, some shale oil wells are not producing as much oil as expected. This coupled with a large declining production rate in shale swells means that they need capital to keep drilling to keep those record production numbers moving higher. "Two-thirds of projections made by the fracking companies between 2014 and 2017 in America's four hottest drilling regions appear to have been overly optimistic, according to the analysis of some 16,000 wells operated by 29 of the biggest producers in oil basins in Texas and North Dakota. Collectively, the companies that made projections are on track to pump nearly 10% less oil and gas than they forecast for those areas, according to the analysis of data from Rystad Energy AS, an energy consulting firm. That is the equivalent of almost one billion barrels of oil and gas over 30 years, worth more than $30 billion at current prices. Some companies are off track by more than 50% in certain regions" the Journal reported.

"While U.S. output rose to an all-time high of 11.5 million barrels a day, shaking up the geopolitical balance by putting U.S. production on par with Saudi Arabia and Russia. The Journal's findings suggest current production levels may be hard to sustain without greater spending, because operators will have to drill more wells to meet growth targets. Yet shale drillers, most of whom have yet to consistently make money, are under pressure to cut spending in the face of a 40% crude-oil price decline since October."

Of course, none of this matters if we see a prolonged slowdown in the global economy, Demand may indeed turn out to be the great equalizer. Yet if growth comes back, say if we get a China trade deal or if they ever reopen the U.S. government, we will most likely see a very tight market in the new year. The OPEC cuts will lead to a big drawdown in supply and shale oil producers will find it hard to match OPEC and demand growth barrel for barrel.

[Jan 04, 2019] This Is Not the Time to Be Initiating New Positions in Equities

Jan 04, 2019 | finance.yahoo.com

While Apple's profit warning was truly a shocker -- the first time in 16.5 years the company had issued such a guidance release, according to Bespoke Research -- the forces pressuring global equity markets today are more macro than micro. To put it simply: the yield curve looks horrible. The table at the bottom of this report contains the details, but with a near-inversion of the 12-month/10-year Treasury yield spread the market's demand for stocks is understandably pressured.

[Jan 03, 2019] Is Warren Buffett Sending a Signal About the Bond Market

Notable quotes:
"... The 30-year U.S. yield fell to 2.91 percent on Thursday, the lowest since January 2018 ..."
"... The other interpretation is that the company chose to refinance with long-term fixed-rate debt because it sees the big drop in 30-year yields as unsustainable ..."
Jan 03, 2019 | finance.yahoo.com

Berkshire, with the third-highest credit rating from both Moody's Investors Service and S&P Global Ratings, is expected to price the debt on Thursday with a spread of 150 to 155 basis points above benchmark Treasuries. The 30-year U.S. yield fell to 2.91 percent on Thursday, the lowest since January 2018.

The other interpretation is that the company chose to refinance with long-term fixed-rate debt because it sees the big drop in 30-year yields as unsustainable. After all, if a borrower expects interest rates to rise in the future, it would prefer to lock in a fixed rate now rather than face higher payments down the road.

[Jan 03, 2019] Oil drops on concerns of economic downturn, but OPEC cuts support by Henning Gloystein

Jan 03, 2019 | finance.yahoo.com

OPEC oil supply fell by 460,000 barrels per day (bpd) between November and December, to 32.68 million bpd, a Reuters survey found on Thursday, as top exporter Saudi Arabia made an early start to a supply-limiting accord, while Iran and Libya posted involuntary declines.

OPEC, Russia and other non-members - an alliance known as OPEC+ - agreed last December to reduce supply by 1.2 million bpd in 2019 versus October 2018 levels. OPEC's share of that cut is 800,000 bpd.

"If OPEC is faithful to its agreed output cut together with non-OPEC partners, it would take 3-4 months to mop up the excess inventories," energy consultancy FGE said.

[Jan 03, 2019] The Rise of the Trader

Jan 03, 2019 | www.amazon.com

No sooner did you pass the fake fireplace than you heard an ungodly roar, like the roar of a mob ... It was the sound of well-educated young white men baying for money on the bond market.

TOM WOLFE, The Bonfire of the Vanities. 1987

We are Wall Street. It's our job to make money. Whether it's a commodity, stock, bond, or some hypothetical piece of fake paper, it doesn't matter. We would trade baseball cards if it were profitable. ...

We get up at 5am & work till 10pm or later. We're used to not getting up to pee when we have a position. We don't take an hour or more for a lunch break. We don't demand a union. We don't retire at 50 with a pension. We eat what we kill, and when the only thing left to eat is on your dinner plates, we'll eat that....

We aren't dinosaurs. We are smarter and more vicious than that, and we are going to survive.

Reported by STACY-MARIE ISHMAEL, FT Alphaville, 30 April 2010

[Jan 02, 2019] Global Networks and Financial Instability by Joseph Joyce

Notable quotes:
"... But systemic risk is an inherent feature of finance, and a disturbance in one area can quickly spread to others through global networks. ..."
"... John Kay has written about the inability to recognize and minimize systemic risk in financial systems in Other People's Money: The Real Business of Finance ..."
"... The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It. ..."
"... "The global financial network remains most susceptible to shocks coming from large central countries and countries with large financial systems (namely, the USA and the UK) " ..."
Jan 02, 2019 | angrybearblog.com

The ten-year anniversary of the global financial crisis has brought a range of analyses of the current stability of the financial system (see, for example, here ). Most agree that the banking sector is more robust now due to increased capital, less leverage, more prudent balance sheets and better regulation. But systemic risk is an inherent feature of finance, and a disturbance in one area can quickly spread to others through global networks.

The growth of financial markets and institutions during the 1990s and 2000s benefitted many, including those in emerging market economies that became integrated with world markets during this period. But the large-scale extension of credit to the housing sector led to property bubbles in the U.S., as well as in Ireland and Spain. The development of financial instruments such as mortgage backed securities (MBS), collateralized debt obligations (CDOs), and credit default swaps (CDS) were supposed to spread the risk of lenders in order to mitigate the impact of a negative price shock. However, these instruments and the extension of credit to subprime borrowers increased the vulnerability of financial institutions to reversals in the housing markets. Risk increased in a non-linear fashion as balance sheets became highly leveraged, and national regulators simply did not understand the nature and scale of these risks.

The holdings of assets across borders amplified the impact of the disruption of the U.S. financial markets once housing prices fell. European banks that had borrowed dollars in order to participate in the U.S. MBS markets found themselves exposed when dollar funding was no longer available. The gross flows of money between the U.S. and Europe increased the ties between their institutions and increased the fragility of their financial markets. It took the the establishment of swap networks between the Federal Reserve and European central banks to provide the necessary dollar funding.

John Kay has written about the inability to recognize and minimize systemic risk in financial systems in Other People's Money: The Real Business of Finance . He draws from engineers the lesson that " stability and resilience requires conscious and systematic simplification, modularity, which enables failures to be contained, and redundancy, which allows failed elements to be by-passed. None of these features -- simplification, modularity, redundancy -- characterized the financial system as is had developed in 2008."

Similarly, Ian Goldin of Oxford University and Chris Kutarna examined the impact of rising financial complexity on the stability of financial systems in the period leading up to the crisis: "Cumulative connective and developmental forces produced a global financial system that was suddenly far bigger and more complex than just a decade before. This made the new hazards harder to see and simultaneously spread the dangers more widely -- to workers, pensioners, and companies worldwide."

Goldin and Mike Marithasan of KU Leuven also looked at the impact of increasing complexity on financial systems in The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It. They use Iceland as an example of how complex financial relationships were constructed with virtually no understanding of the consequences if they unraveled. They draw several lessons for dealing with a more complex financial networks. These include global oversight by regulators using systemic analysis, and the use of simple rules such as leverage ratios rather than complex regulations.

The Basel III regulatory regime follows this advice in a number of areas. But the basic vulnerability of financial networks remains. Yevgeniya Korniyenko, Manasa Patnam, Rita Maria del Rio-Chanon and Mason A. Porter have analyzed the interconnectedness of the global financial system in an IMF working paper, " Evolution of the Global Financial Network and Contagion: A New Approach ." They use a multilayer network framework with data on foreign direct investment, portfolio equity and debt and bank loans over the period 2008-15 to analyze the global financial network.

The authors compare the networks for the years 2009 and 2015, and report which countries are systematically important in the networks. They find that the U.S. and the U.K. appear at the top of these rankings in both of the selected years, although the cross-border holdings of U.S. financial institutions has increased over time while those of the U.K.'s institutions fell. China has moved up in the rankings, as have other Asian countries such as Singapore and South Korea. The authors conclude that "The global financial network remains most susceptible to shocks coming from large central countries and countries with large financial systems (namely, the USA and the UK) "

A decade after the global crisis, the possibility of the rapid propagation of a financial shock remains. There is more resiliency in those parts of the financial system that failed in 2008, but the current most vulnerable areas may not be identified until there is a new crisis. Policymakers who ignore this reality will be tripped up when the next shock occurs, and they will learn that " The past is not dead. It's not even past ."

Bert Schlitz , January 2, 2019 3:12 pm

That is the paradox of low interest rates. They lower leverage and raise it at the same time.

This cycles low interest rates have given business the ability to not spend "real" money and instead borrow while keeping their actually savings, growing. This has created artificially high real earnings reports, when the business simply hasn't been growing that fast. At least corporate earnings of the mid-00's were "real" insofar as accounting. This cycle is all debt based fantasies. As interest rises, Corporations won't be able to keep their books cooked anymore and borrowing will decline. Exposing that will crush real earnings and profits will vanish. The "exposure" will cause a run on high yield corporate bonds after the owners figure out the tide has pulled out, destroying market liquidity. Causing a panic.

This is why, if you want to get rid of financial problems in the modern financialized systems, you need higher interest rates 1-2% above the rate of inflation ex-energy to keep "good" leverage high and "bad" leverage low.

[Dec 31, 2018] Britain fell for a neoliberal con trick even the IMF says so by Aditya Chakrabortty

Looks like Guardian start turning away from neoliberalism.
Notable quotes:
"... What price is paid when a promise is broken? Because for much of my life, and probably yours, the political class has made this pledge: that the best way to run an economy is to hack back the public realm as far as possible and let the private sector run free. That way, services operate better, businesses get the resources they need, and our national finances are healthier. ..."
"... I don't wish to write about the everyday failings of neoliberalism – that piece would be filed before you could say "east coast mainline". Instead, I want to address the most stubborn belief of all: that running a small state is the soundest financial arrangement for governments and voters alike. Because 40 years on from the Thatcher revolution, more and more evidence is coming in to the contrary. ..."
"... The other big reason for the UK's financial precarity is its privatisation programme, described by the IMF as no less than a "fiscal illusion". British governments have flogged nearly everything in the cupboard, from airports to the Royal Mail – often at giveaway prices – to friends in the City. Such privatisations, judge the fund, "increase revenues and lower deficits but also reduce the government's asset holdings". ..."
"... IMF research shows is that the Westminster classes have been asset-stripping Britain for decades – and storing up financial trouble for future generations ..."
Oct 17, 2018 | www.theguardian.com

The fund reports that Britain's finances are weaker than all other nations except Portugal, and says privatisation is to blame

Columnists usually proffer answers, but today I want to ask a question, a big one. What price is paid when a promise is broken? Because for much of my life, and probably yours, the political class has made this pledge: that the best way to run an economy is to hack back the public realm as far as possible and let the private sector run free. That way, services operate better, businesses get the resources they need, and our national finances are healthier.

It's why your tax credits keep dropping , and your mum has to wait half a year to see a hospital consultant – because David Cameron slashed public spending, to stop it "crowding out" private money. It's why water bills are so high and train services can never be counted on – because both industries have been privatised.

We let finance rip and flogged our assets. Austerity was bound to follow Will Hutton

From the debacle of universal credit to the forced conversion of state schools into corporate-run academies, the ideology of the small state – defined by no less a body than the International Monetary Fund as neoliberalism – is all pervasive. It decides how much money you have left at the end of the week and what kind of future your children will enjoy, and it explains why your elderly relatives can't get a decent carer.

I don't wish to write about the everyday failings of neoliberalism – that piece would be filed before you could say "east coast mainline". Instead, I want to address the most stubborn belief of all: that running a small state is the soundest financial arrangement for governments and voters alike. Because 40 years on from the Thatcher revolution, more and more evidence is coming in to the contrary.

Let's start with the IMF itself. Last week it published a report that barely got a mention from the BBC or in Westminster, yet helps reframe the entire debate over austerity. The fund totted up both the public debt and the publicly owned assets of 31 countries, from the US to Australia, Finland to France, and found that the UK had among the weakest public finances of the lot. With less than £3 trillion of assets against £5tn in pensions and other liabilities, the UK is more than £2tn in the red . Of all the other countries examined by researchers, including the Gambia and Kenya, only Portugal's finances look worse over the long run. So much for fixing the roof.

'British governments have flogged nearly everything in the cupboard from airports to the Royal Mail – often at giveaway prices – to friends in the City.' Photograph: Amer Ghazzal/Rex/Shutterstock

Almost as startling are the IMF's reasons for why Britain is in such a state: one way or another they all come back to neoliberalism. Thatcher loosed finance from its shackles and used our North Sea oil money to pay for swingeing tax cuts. The result is an overfinancialised economy and a government that is £1tn worse off since the banking crash. Norway has similar North Sea wealth and a far smaller population, but also a sovereign wealth fund. Its net worth has soared over the past decade.

The other big reason for the UK's financial precarity is its privatisation programme, described by the IMF as no less than a "fiscal illusion". British governments have flogged nearly everything in the cupboard, from airports to the Royal Mail – often at giveaway prices – to friends in the City. Such privatisations, judge the fund, "increase revenues and lower deficits but also reduce the government's asset holdings".

Throughout the austerity decade, ministers and economists have pushed for spending cuts by pointing to the size of the government's annual overdraft, or budget deficit. Yet there are two sides to a balance sheet, as all accountants know and this IMF work recognises. The same goes for our public realm: if Labour's John McDonnell gets into No 11 and renationalises the railways, that would cost tens of billions – but it would also leave the country with assets worth tens of billions that provided a regular income.

Instead, what this IMF research shows is that the Westminster classes have been asset-stripping Britain for decades – and storing up financial trouble for future generations.

Just look at housing to see the true cost of privatisation Dawn Foster

Privatisation and austerity have not only weakened the country's financial position – they have also handed unearned wealth to a select few. Just look at a new report from the University of Greenwich finding that water companies could have funded all their day-to-day running and their long-term investments out of the bills paid by customers. Instead of which, managers have lumbered the firms with £51bn of debt to pay for shareholders' dividends. Those borrowed billions, and the millions in interest, will be paid by you and me in our water bills. We might as well stuff the cash directly into the pockets of shareholders.

Instead of competitively run utilities, record investment by the private sector and sounder public finances, we have natural monopolies handed over to the wealthy, banks that can dump their liabilities on the public when things get tough, and an outsourcing industry that feasts upon the carcass of the public sector. As if all this weren't enough, neoliberal voices complain that we need to cut taxes and red tape, and further starve our public services.

This is a genuine scandal, but it requires us to recognise what neoliberalism promised and what it has failed to deliver. Some of the loudest critics of the ideology have completely misidentified it. Academics will daub the term "neoliberal" on any passing phenomenon. Fitbits are apparently neoliberal, as is Ben & Jerry's ice-cream and Kanye West. Pundits will say that neoliberalism is about markets and choice – tell that to any commuter wedged on a Southern rail train. And centrist politicians claim that the great failing of neoliberalism is its carelessness about identity and place, which is akin to complaining that the boy on a moped who snatched your smartphone is going too fast.

Let us get it straight. Neoliberalism has ripped you off and robbed you blind. The evidence of that is mounting up – in your bills, in your services and in the finances of your country.

• Aditya Chakrabortty is a Guardian columnist and senior economics commentator

[Dec 29, 2018] U.S. retirees try to keep cool as stocks tumble by Tim McLaughlin

Overinvestment in stocks of retires is very common under neoliberalism.
There are several factors here: one is greed cultivated by neoliberal MSM, the second is insufficient retirement funds (gambling with retirement savings) and the last and not least is lack of mathematical skills an inability to use Excel for viewing their portfolio and making informed decisions.
Notable quotes:
"... At the end of 2016, 69 percent of investors in their 60s had at least 40 percent of their 401(k) portfolio invested in stocks, up from 65 percent in 2007, according to the Employee Benefit Research Institute in Washington. ..."
"... 19 percent had more than 80 percent of their 401(k) invested in stocks in 2016 ..."
"... "We had lousy forecasts in 2008. The housing market was in a tailspin," said 76-year-old John Bauer, who worked for McDonnell Douglas and Boeing Co for 36 years in St. Louis. "Today, employment is way up. The housing market is steady and corporations are flush." ..."
Dec 29, 2018 | finance.yahoo.com

BOSTON (Reuters) - Nancy Farrington, a retiree who turns 75 next month, admits to being in a constant state of anxiety over the biggest December stock market rout since Herbert Hoover was president.

"I have not looked at my numbers. I'm afraid to do it," said Farrington, who recently moved to Charleston, South Carolina, from Boston. "We've been conditioned to stand pat and not panic. I sure hope my advisers are doing the same."

Retirees are worrying about their nest eggs as this month's sell-off rounds out the worst year for stocks in a decade, and some fear they are headed for a day of reckoning like the 2008 market meltdown or dot-com crash of the early 2000s.

Retirees have less time to recover from bad investment moves than younger workers. If they or their advisers panic and sell during a brief downturn, they may lock in a more meager retirement. But their portfolio could be even more at risk if they hold on too long in a prolonged decline.

"I have no way of riding it out if that happens," said Farrington. "I can feel the anxiety in my stomach all the time."

While many industrialized countries still have generous safety nets for retirees, pensions for U.S. private-sector workers largely have been supplanted by 401(k) accounts and other private saving plans. That means millions of older Americans are effectively their own pension managers.

Workers in countries like Belgium, Canada, Germany, France and Italy receive, on average, about 65 percent of their income replaced by mandatory pensions. In the Netherlands the ratio of benefits to lifetime average earnings is abut 97 percent, according to a 2017 Organization for Economic Cooperation and Development report.

The OECD says the comparable U.S. replacement rate from Social Security benefits is about 50 percent.

U.S. retirees had watched their private accounts mushroom during a bull stock market that began in early 2009. Meanwhile, the Federal Reserve kept interest rates near zero for years, enticing retirees deeper into stocks than previous generations as investments like certificates of deposit, government bonds and money-market funds generated paltry income.

At the end of 2016, 69 percent of investors in their 60s had at least 40 percent of their 401(k) portfolio invested in stocks, up from 65 percent in 2007, according to the Employee Benefit Research Institute in Washington.

Still, fewer have gone all in on stocks in recent years. Just 19 percent had more than 80 percent of their 401(k) invested in stocks in 2016, down from 30 percent at year-end 2007, according to nonprofit research group EBRI.

"Nothing has gone wrong, but it seems the market is trying to figure out what could go wrong," said Brooke McMurray, a 69-year-old New York retiree who says she became a financial news junkie after the 2007-2009 financial crisis.

"Unlike before, I now know what I own and I constantly read up on my companies," she said.

The three major U.S. stock indexes have tumbled about 10 percent this month, weighed by investor worries including U.S.-China trade tensions, a cooling economy and rising interest rates, and are on track for their worst December since 1931.

The S&P 500 is headed for its worst annual performance since 2008, when Wall Street buckled during the subprime mortgage crisis. But some are not quite ready to draw comparisons.

"We had lousy forecasts in 2008. The housing market was in a tailspin," said 76-year-old John Bauer, who worked for McDonnell Douglas and Boeing Co for 36 years in St. Louis. "Today, employment is way up. The housing market is steady and corporations are flush."

Still, Bauer said he is uneasy about White House leadership. He and several other retirees referenced U.S. Treasury Secretary Steve Mnuchin's recent calls to top bankers, which did more to rattle than assure markets. U.S. stocks tumbled more than 2 percent the day before the Christmas holiday.

Nevertheless, Bauer is prepared to ride out any market turmoil without making dramatic moves to his retirement portfolio. "When it's up, I watch it. When it's down, I don't," he said. And there are some factors helping take the sting out of the market rout, said Larry Glazer, managing partner of Boston-based Mayflower Advisors LLC.

[Dec 27, 2018] Chart analyst sees a weeks-long relief rally in stocks that could offer selling opportunity

Dec 27, 2018 | finance.yahoo.com

Compare with "That's set to worsen in the new year, experts told CNBC on Monday, pointing to risks including the Federal Reserve likely raising interest rates further and mounting concerns about a global economic slowdown." The problem iether expecting rally or expecting further downturn is that stock prices are so detached from reality that everything is possible.

[Dec 25, 2018] 'The worst is yet to come' Experts say a global bear market is just getting started by Yen Nee Lee

The S&P crashed below its bear market level of 2352.7 - the lowest since April 2017 - ending the longest bull market in history. This is the worst December for the S&P 500 since The Great Depression
Dec 25, 2018 | finance.yahoo.com

[Dec 24, 2018] Wells Fargo bonuses were bad business on steroids

Dec 24, 2018 | www.yahoo.com

It was over two years ago that Wells Fargo's fake accounts scandal burst into the headlines, and since then, there has been an unrelenting torrent of bad news. In late October, the American Banker reported that two executives were placed on leave after they received notifications of pending sanctions from the Office of the Comptroller of the Currency. In November, Federal Reserve chairman Jerome Powell sent a letter to Senator Elizabeth Warren saying the Fed will not lift a cap on Wells's growth until the bank addresses deficiencies in oversight and risk management. "The underlying problem at the firm was a strategy that prioritized growth without ensuring that risks were managed, and as a result the firm harmed many of its customers," Powell wrote.

In early November, Jay Welker, who was the head of the private bank, which sits within the bank's wealth management business, retired . Under Welker, the private bank pushed wealth advisors to vigorously sell high-fee products . There may be more bad news about this aspect of the embattled bank. The Justice Department, the SEC, the Labor Department, and Wells Fargo's own board are conducting ongoing investigations into its wealth management business that have yet to be resolved.

There's still one aspect of how the wealth management business pushed for growth that former Wells Fargo employees say hasn't gotten the scrutiny it should. For four years, starting in 2012 and through the end of 2015, Wells incentivized some of its advisors in that business through something called the "Growth Award." Some former employees say these awards led to behavior that was not in the best interest of clients, including steering them towards higher-fee products. The Growth Award was much discussed internally, says a former investment strategist at Wells, although not everyone was privy to the details of how it worked.

Last summer, the Wall Street Journal reported the existence of the growth award, but not the details of how the money worked. Essentially, the growth award was a way of motivating advisors to grow their businesses. In and of itself, that isn't unusual. The industry has for years offered successful brokers incentives, often in the form of elaborate trips to exotic locales.The SEC is weighing new rules that may curtail the use of such rewards under the theory that they could make brokers "predominantly motivated" by "self enrichment." Firms have also long used rich packages to lure successful brokers to move their business.

But firms are cutting back on the use of such packages, according to industry insiders. When told about the details of the growth award, three financial advisors at other firms with whom Yahoo Finance spoke expressed shock at both the sheer size and the way it incentivized advisors for short-term growth, rather than long-term business building. (Another advisor thought that in the context of the packages that were used to incentivize brokers to switch, it wasn't so surprising.) Or as former Wells Fargo executive, who was in the retail brokerage industry for decades, says, "If a free golf outing is bad business, then the Growth Award is bad business on steroids."

In a statement to Yahoo Finance, spokesperson Shea Leordeanu said, "At Wells Fargo Wealth and Investment Management, we are committed to taking care of our clients' financial needs every day and take seriously our responsibility to help them preserve and invest their hard-earned savings. Our primary goal is to be a trusted advisor to our clients and to act in their best interests. And we have supervisory processes and controls in place so that, if a team member acts in a manner not in line with our values and our policies, we take appropriate action."

An enormous, compounding bonus for bringing revenue to Wells Fargo

The Growth Award wasn't available to the entire army of some 14,000 advisors, who make up the broad group of Wells Fargo Advisors. (Many others, most prominently those who came with the 2008 Wachovia merger, had different compensation plans with lock-ups that are just now expiring, leading to something of an exodus , according to press reports.) This Growth Award, on the other hand, was meant for the 3,000 or so advisors who were part of something known as Wealth Brokerage Services, or WBS. These advisors are located in the bank branches, or in hubs -- Wells Fargo buildings in cities -- that housed wealth management personnel among others like business bankers. (Wells Fargo subsequently announced a reorganization that is expected to combine what were separate groups of advisors.) To be eligible, you couldn't be a newbie -- you needed a two year minimum at the bank -- and you had to be doing more than $350,000 in annual revenue. The former executive and another advisor estimate that narrowed the group down to about 2,000 people.

The amounts people stood to make were extraordinary. Here's how the math worked. The goal was for an individual financial advisor to increase his or her revenue by at least 15% for each of the four years that the Growth Award was in place. The award multiplied each year the goal was achieved. So if you achieved 15% growth in the first year, you received a 15% bonus. If you achieved 15% growth again in the second year, you received a 30% bonus. If you achieved 15% growth in the third year, you received a 45% bonus. Finally, if you achieved 15% growth again in the 4th year, you received a whopping 60% bonus.

If you didn't achieve the goal, you were not penalized, but you didn't receive the bonus.

To get specific about just what these percentages could mean, say you generated $1 million in revenue in 2011, and you achieved precisely 15% growth each year for the next 4 years. In year one, your revenue would be $1,150,000, and your bonus, at 15% of that, would be $172,500. The new 2013 goal would be $1,322,500 (a 15% increase from the $1,150,000.). If you hit that goal, your Growth Award bonus for 2013 would be $396,393. And so on. If you hit the goals for 2014 and 2015, you stood to make a bonus of $684,393 and $1,049,403, respectively. That means you stood to make $2.3 million in total Growth Award bonuses. In other words, the financial incentives to hit the numbers were enormous.

Perhaps for the very reason the incentives were so enormous, more advisors hit the numbers than Wells had expected. (Of course, there was also a strong bull market during that period.) The Journal reported that Wells had allotted $250 million for the Growth Award bonuses. Instead, Wells had to pay $750 million between 2012 and 2015. "It's widely known inside Wells that they were so way over budget," says another former advisor. "I personally know brokers who were awarded bonuses of over $2 million, which is a stunning amount of money," says a former investment advisor.

Roughly two-thirds of the 2,000 or so eligible advisors earned an award.

"When you throw that kind of money out, it incentivizes."

Now consider the Growth Award from the perspective of a client, who might wander into a bank branch, maybe having gotten an unexpected inheritance. "You have to connect the dots," the former executive says. "This is where the sales pressure in the bank branches meets the wealth and investment management business."

The staff of the branch was incentivized to steer clients to a Wells financial advisor, because investment management referrals helped them meet their sales goals, and that advisor, in turn had incentives -- really big incentives -- to steer the clients toward products that generate upfront revenue. "If you don't have a high moral background, it'll put you in a position to do things for clients that aren't in their best interest," says a former advisor. "I'm always looking at what's best for the client but it's also what's best for my paycheck." "You are absolutely incentivizing advisors to sell the products with the highest upfront fees," says the former executive.

"Yeah, when you throw that kind of money out, it incentivizes," says another former advisor. "Jesus would probably be okay. But the disciples probably would have had some morals put to the test on that one."

Multiple sources say the Growth Award helps explain why annuity sales at Wells Fargo were so high, especially after the bank tried to tamp down on the amount the Award was going to cost them. In 2014, Wells Fargo decided to stop "fee fronting," which allowed advisors to count fees that would be paid in subsequent years toward their annual tally. So advisors began to search for products with high initial fees, one former advisor said.

Annuities come with high upfront revenues for the broker, making them an obvious choice for someone who is trying to hit a revenue target -- but maybe not the optimal choice for the client. "You think Wells Fargo's Bankers Are Bad? Take a Look at its Brokers," was the headline of an October 2016 piece in thestreet.com. The piece noted that Wells had argued to the Securities and Exchange Commission that it should not be subject to rules to put its investors first in cases where its advisors were making referrals for products including annuities, and that in 2015, Wells was number one in the country for annuity sales.

"It's pretty stunning that a firm that has just half the assets of its larger competitors sells more annuities," says a former advisor. "I think that just speaks to the emphasis on making sales numbers and a need to sell more of the highest payout products." Indeed, the Journal reported and several former advisors corroborate that internally, 2015 was dubbed "The Year of the Annuity."

It wasn't just annuities. One former advisor also noted that advisors trying to chase the growth award also favored mutual funds with high upfront fees. "You'd think if revenue was going up by 15% a year, your AUM would at least go up at least 12% or 13%," a former advisor said. "That was not the case. The award was only revenue based -- there was nothing in there for AUM, longevity, or anything like that. Strictly show us the money and we'll show you the money."

All the fees were disclosed to Wells Fargo's clients. But what clients didn't know was the incentive structure that was in place for their advisor. So yes, clients understood the fees -- but they were in the dark as to at least part of the reason one product might have been recommended over another. "Imagine that it's November," says the former executive. "You have to do $250,000 in revenue, or you going to leave a million dollars on the table. What are you doing to do?" He continues, "Every client of WBS has to go back and look at every trade, every single decision, from 2012 to 2015 and scrutinize whether it was impacted by the Growth Award." "I think if clients and the public knew that Wells Fargo Advisors had given such substantial and amazing well-timed retention bonuses to lock up their advisors, they would begin to wonder whether their advisors were giving the best advice to their clients," says another former investment strategist.

There could be another problem, too. "If you achieved the goal early, you would stop doing business so you didn't have the higher base to start from in the next year," says the former executive. "You'd sand bag -- and that might not be in the client's best interest either."

A golden handcuff at a very good time for Wells Fargo

The Growth Award may also help explain why Wells has been able to retain as many advisors as it has, despite the ongoing scandals. Six months before the end of the Growth Award program, midway through 2015, Wells Fargo asked those advisors who had qualified for the award how they would like to receive their pay. There were two options. The first option essentially allowed the advisor to unlock all the money at the end of February 2021. If the advisor left before that, the money was forfeited. A third of the advisors who earned awards chose this option.

The other option paid out a tenth of the bonus each year for 10 years. If the advisor so chose, they could get that money up front as a forgivable loan. Every year the advisor remained at Wells Fargo, he or she would simply pay the interest on their bonus, and a tenth of the principle would be forgiven. But if the advisor left, he or she had to pay back the unforgiven principle. (Or if the advisor hadn't taken the forgivable loan, the annual checks would stop.) Two-thirds of advisors opted for this route.

The Growth Award also had the potential to create another problem for advisors. The nice thing about building a fee-based business is that it's an annuity for the advisor. Every year, there's a fee. If, on the other hand, the advisors put clients' money into things that generate a one-time pop of revenue, the advisor doesn't get the same type of ongoing fees. So, the former executive says, some advisors are in a hole, where they owe taxes on the Growth Award, while their income has shrunk dramatically. "I know guys who got it who built or bought a huge house and are now stuck," he says.

The golden handcuff of the Growth Award has been good for the bank in the face of all of the scandals. One advisor told Yahoo Finance that the growth in the number of clients also shrank dramatically amid the unrelenting negative news.

"I went from around 30 referrals to two in six months after the scandal hit," this person said. What had been a solid stream of clients slowed to a trickle. But the only out for advisors would have been to have another firm hire them away and pay off their loan.

Perhaps the most interesting thing about the Growth Award is how deliberate it was. "It was not a computer glitch or an oversight," as the former executive says. "It was not perpetrated by a few rogue employees. The Growth Award was conceived by the Compensation Committee. The Compensation Committee is the most senior of senior management. The goal was to drive growth and drive growth it did." But perhaps at a price for clients -- making the Growth Award, in its way, the most telling evidence yet of the cultural issues within Wells Fargo.

Read more:

Exclusive: Wells Fargo pushed wealth advisors to use high-fee products, cross-sell

Exclusive: Wells Fargo automated high-net-worth wealth management as advisors faced sales pressure

[Dec 22, 2018] Crude refusal China shuns U.S. oil despite trade war truce

Dec 22, 2018 | finance.yahoo.com

Chinese refineries that used to purchase U.S. oil regularly said they had not resumed buying due to uncertainty over the outlook for trade relations between Washington and Beijing, as well as rising freight costs and poor profit-margins for refining in the region.

Costs for shipping U.S. crude to Asia on a supertanker are triple those for Middle eastern oil, data on Refinitiv Eikon showed.

A senior official with a state oil refinery said his plant had stopped buying U.S. oil from October and had not booked any cargoes for delivery in the first quarter.

"Because of the great policy uncertainty earlier on, plants have actually readjusted back to using alternatives to U.S. oil ... they just widened our supply options," he said.

He added that his plant had shifted to replacements such as North Sea Forties crude, Australian condensate and oil from Russia.

"Maybe teapots will take some cargoes, but the volume will be very limited," said a second Chinese oil executive, referring to independent refiners. The sources declined to be named because of company policy.

A sharp souring in Asian benchmark refining margins has also curbed overall demand for crude in recent months, sources said.

Despite the impasse on U.S. crude purchases, China's crude imports could top a record 45 million tonnes (10.6 million barrels per day) in December from all regions, said Refinitiv senior oil analyst Mark Tay.

Russia is set to remain the biggest supplier at 7 million tonnes in December, with Saudi Arabia second at 5.7-6.7 million tonnes, he said.

19 hours ago This is an economic/political tight rope for both countries. China is the largest auto market in the world with numerous manufacturers located inside its borders. Apple sales will disappoint inside China after Meng's arrest over Iran sanctions (Huawei is a world heavy weight in terms of sales), and this has already begun inside China due to national pride. Canada has already seen one trade agreement postponed over her detention. US firm on the main have already issued orders to not have key employees travel to their Chinese plants unless absolutely necessary for fear of retaliation. Brussels is actively working on a plan to bypass US Iranian sanctions, which are deeply unpopular in Europe.
The key to this solution might be in automotive. Oil is possibly on the endangered bargaining list. Russia is a key trading partner (for years) with China and, along with Saudi Arabia and Iran (or even without Iran) will be able to supply their needs. Our agricultural sector, particularly in soybeans, has been hit hard, forcing the US govt. into farm subsidies. Brazil just recorded a record harvest in soybeans. The US could counter with lifting Meng from arrest in return for an agricultural break, but those negotiations won't make the mainstream news. Personally, I think her arrest was a very ill-thought move on the part of law enforcement, as the benefits don't even begin to outweigh the massive retaliation to US firms operating inside their borders. It is almost akin to arresting Tim Cook of Apple or Apple's CFO. You don't kill a bug with a sledge hammer.

[Dec 19, 2018] Judge excoriates Trump ex-adviser Flynn, delays Russia probe sentencing by Jan Wolfe and Ginger Gibson

Flynn "treason" is not related to Russia probe and just confirm that Nueller in engaged in witch hunt. I believe half of Senate and House of Representative might go to jail if they were dug with the ferocity Mueller digs Flynn's past. So while Flynn behavior as Turkey lobbyist (BTW Turkey is a NATO country and not that different int his sense from the US -- and you can name a lot of UK lobbyists in high echelons of the US government, starting with McCabe and Strzok) is reprehensible, this is still a witch hunt
When American law enforcement and intelligence officials, who carry Top Secret clearances and authority to collect intelligence or pursue a criminal investigation, decide to employ lies and intimidation to silence or intimidates those who worked for Donald Trump's Presidency, we see shadow of Comrage Stalin Great Terror Trials over the USA.
Dec 19, 2018 | www.yahoo.com
Former U.S. national security adviser Michael Flynn passes by members of the media as he departs after his sentencing was delayed at U.S. District Court in Washington, U.S., December 18, 2018. REUTERS/Joshua Roberts

By Jan Wolfe and Ginger Gibson

WASHINGTON (Reuters) - A U.S. judge fiercely criticized President Donald Trump's former national security adviser Michael Flynn on Tuesday for lying to FBI agents in a probe into Russian interference in the 2016 election, and delayed sentencing him until Flynn has finished helping prosecutors.

U.S. District Judge Emmet Sullivan told Flynn, a retired U.S. Army lieutenant general and former director of the Defense Intelligence Agency, that he had arguably betrayed his country. Sullivan also noted that Flynn had operated as an undeclared lobbyist for Turkey even as he worked on Trump's campaign team and prepared to be his White House national security adviser.

Flynn pleaded guilty to lying to FBI agents about his December 2016 conversations with Sergei Kislyak, then Russia's ambassador in Washington, about U.S. sanctions imposed on Moscow by the administration of Trump's Democratic predecessor Barack Obama, after Trump's election victory but before he took office.

Special Counsel Robert Mueller, leading the investigation into possible collusion between Trump's campaign team and Russia ahead of the election, had asked the judge not to sentence Flynn to prison because he had already provided "substantial" cooperation over the course of many interviews.

But Sullivan sternly told Flynn his actions were abhorrent, noting that Flynn had also lied to senior White House officials, who in turn misled the public. The judge said he had read additional facts about Flynn's behavior that have not been made public.

At one point, Sullivan asked prosecutors if Flynn could have been charged with treason, although the judge later said he had not been suggesting such a charge was warranted.

"Arguably, you sold your country out," Sullivan told Flynn. "I'm not hiding my disgust, my disdain for this criminal offense."

Flynn, dressed in a suit and tie, showed little emotion throughout the hearing, and spoke calmly when he confirmed his guilty plea and answered questions from the judge.

Sullivan appeared ready to sentence Flynn to prison but then gave him the option of a delay in his sentencing so he could fully cooperate with any pending investigations and bolster his case for leniency. The judge told Flynn he could not promise that he would not eventually sentence him to serve prison time.

Flynn accepted that offer. Sullivan did not set a new date for sentencing but asked Mueller's team and Flynn's attorney to give him a status report by March 13.

Prosecutors said Flynn already had provided most of the cooperation he could, but it was possible he might be able to help investigators further. Flynn's attorney said his client is cooperating with federal prosecutors in a case against Bijan Rafiekian, his former business partner who has been charged with unregistered lobbying for Turkey.

Rafiekian pleaded not guilty on Tuesday to those charges in federal court in Alexandria, Virginia. His trial is scheduled for Feb. 11. Flynn is expected to testify.

Prosecutors have said Rafiekian and Flynn lobbied to have Washington extradite a Muslim cleric who lives in the United States and is accused by Turkey's government of backing a 2016 coup attempt. Flynn has not been charged in that case.

'LOCK HER UP!'

Flynn was a high-profile adviser to Trump's campaign team. At the Republican Party's national convention in 2016, Flynn led Trump's supporters in cries of "Lock her up!" directed against Democratic candidate Hillary Clinton.

A group of protesters, including some who chanted "Lock him up," gathered outside the courthouse on Tuesday, along with a large inflatable rat fashioned to look like Trump. Several Flynn supporters also were there, cheering as he entered and exited. One held a sign that read, "Michael Flynn is a hero."

Flynn became national security adviser when Trump took office in January 2017, but lasted only 24 days before being fired.

He told FBI investigators on Jan. 24, 2017, that he had not discussed the U.S. sanctions with Kislyak when in fact he had, according to his plea agreement. Trump has said he fired Flynn because he also lied to Vice President Mike Pence about the contacts with Kislyak.

Trump has said Flynn did not break the law and has voiced support for him, raising speculation the Republican president might pardon him.

"Good luck today in court to General Michael Flynn. Will be interesting to see what he has to say, despite tremendous pressure being put on him, about Russian Collusion in our great and, obviously, highly successful political campaign. There was no Collusion!" Trump wrote on Twitter on Tuesday morning.

After the hearing, White House spokeswoman Sarah Sanders told reporters the FBI had "ambushed" Flynn in the way agents questioned him, but said his "activities" at the center of the case "don't have anything to do with the president" and disputed that Flynn had committed treason.

"We wish General Flynn well," Sanders said.

In contrast, Trump has called his former long-time personal lawyer Michael Cohen, who has pleaded guilty to separate charges, a "rat."

Mueller's investigation into Russia's role in the 2016 election and whether Trump has unlawfully sought to obstruct the probe has cast a shadow over his presidency. Several former Trump aides have pleaded guilty in Mueller's probe, but Flynn was the first former Trump White House official to do so. Mueller also has charged a series of Russian individuals and entities.

Trump has called Mueller's investigation a "witch hunt" and has denied collusion with Moscow.

Russia has denied meddling in the election, contrary to the conclusion of U.S. intelligence agencies that have said Moscow used hacking and propaganda to try to sow discord in the United States and boost Trump's chances against Clinton.

Lying to the FBI carries a statutory maximum sentence of five years in prison. Flynn's plea agreement stated that he was eligible for a sentence of between zero and six months.

(Reporting by Jan Wolfe and Ginger Gibson; Additional reporting by Susan Heavey; Editing by Kieran Murray and Will Dunham)

[Dec 18, 2018] Looks like AP joined Integrity Intiative

Dec 18, 2018 | news.yahoo.com

Yahoo News - Latest News & Headlines

Matt o'Brien and Barbara Ortutay, AP Technology Writers , Associated Press December 17, 2018

<img alt="Key takeaways from new reports on Russian disinformation" src="https://s.yimg.com/ny/api/res/1.2/9VGA29inJ83dPeqC.cvqTg--~A/YXBwaWQ9aGlnaGxhbmRlcjtzbT0xO3c9ODAwO2lsPXBsYW5l/http://globalfinance.zenfs.com/images/US_AHTTP_AP_HEADLINES_BUSINESS/e66de17c8e1a4cecaf1da81f2bf87093_original.jpg" itemprop="url"/>
Some suspected Russian-backed fake social media accounts on Facebook.

Russians seeking to influence U.S. elections through social media had their eyes on Instagram and the black community.

These were among the findings in two reports released Monday by the Senate intelligence committee. Separate studies from University of Oxford researchers and the cybersecurity firm New Knowledge reveal insights into how Russian agents sought to influence Americans by saturating their favorite online services and apps with hidden propaganda.

Here are the highlights:

INSTAGRAM'S "MEME WARFARE"

Both reports show that misinformation on Facebook's Instagram may have had broader reach than the interference on Facebook itself.

The New Knowledge study says that since 2015, the Instagram posts generated 187 million engagements, such as comments or likes, compared with 77 million on Facebook.

And the barrage of image-centric Instagram "memes" has only grown since the 2016 election. Russian agents shifted their focus to Instagram after the public last year became aware of the widespread manipulation on Facebook and Twitter.

NOT JUST ADS

Revelations last year that Russian agents used rubles to pay for some of their propaganda ads drew attention to how gullible tech companies were in allowing their services to be manipulated.

But neither ads nor automated "bots" were as effective as unpaid posts hand-crafted by human agents pretending to be Americans. Such posts were more likely to be shared and commented on, and they rose in volume during key dates in U.S. politics such as during the presidential debates in 2016 or after the Obama administration's post-election announcement that it would investigate Russian hacking.

"These personalized messages exposed U.S. users to a wide range of disinformation and junk news linked to on external websites, including content designed to elicit outrage and cynicism," says the report by Oxford researchers, who worked with social media analysis firm Graphika.

DEMOGRAPHIC TARGETING

Both reports found that Russian agents tried to polarize Americans in part by targeting African-American communities extensively. They did so by campaigning for black voters to boycott elections or follow the wrong voting procedures in 2016, according to the Oxford report.

The New Knowledge report added that agents were "developing Black audiences and recruiting Black Americans as assets" beyond how they were targeting either left- or right-leaning voters.

The reports also support previous findings that the influence operations sought to polarize Americans by sowing political divisions on issues such as immigration and cultural and religious identities. The goal, according to the New Knowledge report, was to "create and reinforce tribalism within each targeted community."

Such efforts extended to Google-owned YouTube, despite Google's earlier assertion to Congress that Russian-made videos didn't target specific segments of the population.

PINTEREST TO POKEMON

The New Knowledge report says the Russian troll operation worked in many ways like a conventional corporate branding campaign, using a variety of different technology services to deliver the same messages to different groups of people.

Among the sites infiltrated with propaganda were popular image-heavy services like Pinterest and Tumblr, chatty forums like Reddit, and a wonky geopolitics blog promoted from Russian-run accounts on Facebook and YouTube.

Even the silly smartphone game "Pokemon Go" wasn't immune. A Tumblr post encouraged players to name their Pokemon character after a victim of police brutality.

WHAT NOW?

Both reports warn that some of these influence campaigns are ongoing.

The Oxford researchers note that 2016 and 2017 saw "significant efforts" to disrupt elections around the world not just by Russia, but by domestic political parties spreading disinformation.

They warn that online propaganda represents a threat to democracies and public life. They urge social media companies to share data with the public far more broadly than they have so far.

"Protecting our democracies now means setting the rules of fair play before voting day, not after," the Oxford report says.

[Dec 18, 2018] Warren Buffett suggests you read this 19th century poem when the market is tanking

Notable quotes:
"... If you can keep your head when all about you are losing theirs ... If you can wait and not be tired by waiting ... If you can think – and not make thoughts your aim ... If you can trust yourself when all men doubt you ... Yours is the Earth and everything that's in it. ..."
"... Like this story? ..."
Dec 18, 2018 | finance.yahoo.com

The stock market has had a volatile year, and it's not over yet: The Dow Jones Industrial Average lost more than 520 points on Monday and the S&P 500 fell 2.1 percent. Both are in correction and on pace for their worst December performance since the Great Depression in 1931.

But for the average person, shifts in the market , even ones as dramatic as the ones we've seen this year, shouldn't be cause for panic. During times of volatility, seasoned investor Warren Buffett says it's best to stay calm and stick to the basics, meaning, buy-and-hold for the long term.

So, during downturns, "heed these lines" from the classic 19th century Rudyard Kipling poem "If -- " which help illustrate this lesson, Buffett wrote in his 2017 Berkshire Hathaway shareholder letter :

If you can keep your head when all about you are losing theirs ...
If you can wait and not be tired by waiting ...
If you can think – and not make thoughts your aim ...
If you can trust yourself when all men doubt you ...
Yours is the Earth and everything that's in it.

Market downturns are inevitable, Buffett pointed out, using his own company as an example: "Berkshire, itself, provides some vivid examples of how price randomness in the short term can obscure long-term growth in value. For the last 53 years, the company has built value by reinvesting its earnings and letting compound interest work its magic. Year by year, we have moved forward. Yet Berkshire shares have suffered four truly major dips."

He went on to cite each of the steep share-price drops, including the most recent one from September 2008 to March 2009, when Berkshire shares plummeted 50.7 percent.

Major declines have happened before and are going to happen again, he says: "No one can tell you when these will happen. The light can at any time go from green to red without pausing at yellow."

Rather than watch the market closely and panic, keep a level head. Market downturns "offer extraordinary opportunities to those who are not handicapped by debt," he says, which brings up another important investing lesson: Never borrow money to buy stocks .

"There is simply no telling how far stocks can fall in a short period," writes Buffett. "Even if your borrowings are small and your positions aren't immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions."

Don't miss: Warren Buffett and Ray Dalio agree on what to do when the stock market tanks

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[Dec 18, 2018] Stock Sell-Off Defies Everything the Bulls Hoped Would Stop It

Dec 18, 2018 | finance.yahoo.com

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Stock Sell-Off Defies Everything the Bulls Hoped Would Stop It

(Bloomberg) -- Valuations aren't stopping it. Jerome Powell's softer tone failed to soothe anyone. The moratorium on tariffs is a fading memory and now the sturdiest chart level of the year is in danger of giving way.

A stock rout that bulls thought was finished three different times since October is in a new and ominous phase, with the Dow Jones Industrial Average losing 1,004 points in two days. No Santa Claus rally. Instead, the S&P 500 Index is hurtling toward the second-worst December on record.

"The stock market doesn't care what looks good now. It's wondering if fundamentals will deteriorate in the future," said Peter Mallouk, co-chief investment officer of Creative Planning, which has around $36 billion under management. "You have a lot of people that are scared, and they're sitting on the sidelines to wait it out."

Waiting it out is starting to look like the only viable strategy. On Monday, the S&P 500 briefly pierced a level that had been a psychological foundation for 10 months, its intraday low from Feb. 9. Valuations shrink and shrink -- computer and software stocks trade at 15 times next year's earnings estimates, cheaper than utilities and soapmakers -- and the selling just gets worse.

With Monday's 54-point loss, the S&P has now fallen 2 percent or more six times this quarter. The Nasdaq Composite has done it 10 times. Both are the most since the third quarter of 2011.

Pinning a single cause on the carnage has become an exercise in absurdity, with analysts cycling through a rotating list of reasons that include trade, Donald Trump's legal travails, China data, sinking oil and cooling home prices. Anyone daring to suggest economic growth may slow in 2019 is pointed to charts showing factories, employment and profits are booming -- but those assurances are starting to fall on deaf ears.

While S&P 500 Index futures indicated a potential respite in Asian trading Tuesday, rising as much as 0.5 percent, traders remained cautious.

Investors "are too worried, but that's the big driver behind the declines we've seen recently, overall worries about U.S. growth and worries about global growth," said Kate Warne, investment strategist at Edward Jones. "Investors have gotten very nervous about the changes they're seeing ahead and they're uncertain about what they mean."

A troubling sign for Americans: equity pain, which all year has been worse overseas, is landing with more force in the U.S. The Russell 2000 Index of small caps, a proxy for domestically oriented companies, slid into a bear market Monday, falling 21 percent since Aug. 31.

On the other hand, since hitting a 19-month low in late October, the MSCI Emerging Markets Index has trended higher, even as the S&P 500 Index keeps making new lows. Stocks in the EM gauge have outperformed the S&P 500 for three consecutive weeks, the most since late January, data compiled by Bloomberg show.

To comfort themselves in the face of such depressing facts, beaten-up investors have looked at past corrections and noticed that this one is still playing out according a relatively benign plan. Under the pattern, major swoons that have interrupted the bull market that began in 2009 have taken around 100 days to tire out before dip-buyers swooped in to put things right.

At the same time, anyone betting the New Year will bring an end to the volatility should be aware that bull markets can die slow deaths. The 88-day sell-off has been going on roughly one-third as long as it has taken for the S&P 500 to fall into the 11 bear markets it's suffered going back to World War II.

How many more sellers than buyers were there on Monday? The volume of stocks trading lower on the New York Stock Exchange reached 1 billion shares, compared with 158 million that were bought. The difference in trading volume, at 883 million shares, is on track to become the biggest weekly gap since 2016, data compiled by Bloomberg show.

That the worst two-day sell-off since October landed on the same week Powell's Federal Reserve is expected to announce its ninth interest rate hike was grist for those who see central bank policy behind everything. As willingly as the Fed chairman has walked back his most hawkish pronouncements, nobody thinks monetary policy is likely to loosen even as growth in the economy and earnings slows from this year's pace.

"That's what the market is struggling with right now -- do they believe in a growth slowdown to trend or something more sinister than that?" said Phil Camporeale, managing director of multi-asset solutions for JPMorgan Asset Management. "I don't think people really want to take risk, but especially trying to catch a falling knife on equity prices."

(Adds details on S&P 500 futures trading in seventh paragraph.)

--With assistance from Elena Popina and Lu Wang.

To contact the reporters on this story: Vildana Hajric in New York at [email protected];Sarah Ponczek in New York at [email protected]

To contact the editors responsible for this story: Jeremy Herron at [email protected], Chris Nagi, Eric J. Weiner

For more articles like this, please visit us at bloomberg.com

©2018 Bloomberg L.P.

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[Dec 18, 2018] DoubleLine's Gundlach says U.S. equities are in long-term bear market

Notable quotes:
"... Jeffrey Gundlach, chief executive of DoubleLine Capital, on Monday said the S&P 500 stock index is headed to new lows and that U.S. equities are in a long-term bear market. ..."
"... "I think it is a bear market. I think we've had the first leg down and the second leg down is usually more painful than the first leg down," said Gundlach, who oversees more than $123 billion. ..."
"... "I think this lasts a long time. It has a lot to do with the fact that, I believe, that we're in a situation that is ... highly unusual - that we're increasing the budget deficit so spectacularly so late in the cycle while the Fed is hiking interest rates." ..."
"... The intraday low for the year in the S&P was on Feb. 9, when it bottomed at 2532.69. The low close for the year was on April 2 at 2581.88. On Monday, the S&P closed 2545.94. ..."
Dec 17, 2018 | finance.yahoo.com
<img alt="FILE PHOTO: Jeffrey Gundlach, CEO of DoubleLine Capital, speaks during the Sohn Investment Conference in New York" src="https://s.yimg.com/it/api/res/1.2/BXVsdhZsK0OiZdcOd8_ffw--~A/YXBwaWQ9eW5ld3M7c209MTt3PTQ1MDtoPTMwMDtpbD1wbGFuZQ--/http://media.zenfs.com/en_us/News/Reuters/2018-12-17T182416Z_1_LYNXMPEEBG1NJ_RTROPTP_2_FUNDS-DOUBLELINE-GUNDLACH.JPG.cf.jpg" itemprop="url"/>

NEW YORK (Reuters) - Jeffrey Gundlach, chief executive of DoubleLine Capital, on Monday said the S&P 500 stock index is headed to new lows and that U.S. equities are in a long-term bear market.

Gundlach, speaking on CNBC TV, said passive investing has reached "mania status" and will exacerbate market problems.

"I think it is a bear market. I think we've had the first leg down and the second leg down is usually more painful than the first leg down," said Gundlach, who oversees more than $123 billion.

"I think this lasts a long time. It has a lot to do with the fact that, I believe, that we're in a situation that is ... highly unusual - that we're increasing the budget deficit so spectacularly so late in the cycle while the Fed is hiking interest rates."

The S&P 500 briefly erased its losses in late-morning trade on Monday but resumed its steep decline and pierced through Gundlach's target after he made his "bear market" comments.

The intraday low for the year in the S&P was on Feb. 9, when it bottomed at 2532.69. The low close for the year was on April 2 at 2581.88. On Monday, the S&P closed 2545.94.

Investors are also bracing for the Federal Reserve's last rate decision of the year on Wednesday, when they are expected to raise U.S. interest rates for a fourth time for 2018.

Gundlach said the Fed should not raise rates this week but will. "The bond market is basically saying, 'You know, Fed, there's no way you should be raising interest rates'," he said.

The U.S. central bank's quantitative tightening campaign has made markets nervous because of the ultra-low levels that have remained in place for several years, Gundlach said.

"The problem is that the Fed shouldn't have kept them (rates) so low for so long. The problem is, we shouldn't have had negative interest rates like we still have in Europe. We shouldn't have had done quantitative easing, which is a circular financing scheme," he said.

Gundlach also said the China-U.S. trade war gets worse from here. "China doesn't like to be told what to do by President Trump," he said. For its part, "I think they (the United States) will probably ratchet up the tariffs."

The remarks by Gundlach, who in April recommended investors short Facebook Inc, extended losses in Facebook shares on Monday after he characterized the social media giant as a "diabolical data-collection monster that would ultimately fall victim to regulation." The stock closed 2.69 percent lower.

Gundlach took a shot at passive investment strategies such as index funds, declaring the investing strategy a "mania" that is causing widespread problems in global stock markets.

"I'm not at all a fan of passive investing. In fact, I think passive investing ... has reached mania status as we went into the peak of the global stock market," Gundlach said. "I think, in fact, that passive investing and robo advisers ... are going to exacerbate problems in the market because it's hurting behavior," he said.

[Dec 18, 2018] 14,889,930,106,680 Reasons to Fear Recession

The last recession was in 2008, so yes it is time for the new one.
Dec 18, 2018 | finance.yahoo.com

(Bloomberg Opinion) -- Traders and investors will be glad to see the back of 2018. It's been the worst rout since 1901, by Deutsche Bank AG's reckoning, with almost every asset class delivering losses. These charts illustrate the backdrop to what went wrong this year – and hint at what could go better in 2019.

$14,889,930,106,680

That's how much the total value of companies listed on the world's stock markets has declined since peaking at $87,289,962,917,450 on Jan 28. In other words, almost $15 trillion has been wiped off the global equity market this year.

The list of potential motivations for the sell-off is long and includes rising geopolitical risks, the prospect of trade wars erupting, the risk that a slowdown in global growth that could degenerate into a worldwide recession, and the evergreen what-goes-up-must-come-down. But might it just be possible that investors start to take the view stocks have fallen far and fast enough to offer value next year?

Talkin' About a Recession

It's clear that one of the fundamental worries spooking investors is that the period of coordinated global growth that propelled stock markets higher in recent years is coming to an end.

The R word is increasingly cropping up in news articles. But economists put the chances of a recession in the coming year at 15 percent in the U.S. and 18 percent in the euro zone, according to Bloomberg surveys. Even the Brexit-battered U.K. economy is only at a 20 percent risk, while for Japan the likelihood rises to 30 percent. Perhaps those concerns about a recession are overdone.

Curving to Inversion

Or perhaps not. One trend was omnipresent in 2018 – the relentless flattening of the yield curve in the U.S.

Yields at the short end of the Treasury market pushed higher with every quarterly increase in the Fed's benchmark interest rate. Longer-dated bonds danced to a different beat, particularly as the October equity shakeout drove a flight to quality.

An inverted yield curve – when yields on shorter-dated bonds are higher than their longer-dated counterparts – is often seen as an indicator of impending recession. It's finally happened: yields on five-years are below those for two-years. A key question for 2019 will be how the feedback loop develops between the Federal Reserve's policy intentions and the shape of the curve.

Quantitative Tightening

The Fed has been reducing its economic stimulus by not replacing the bonds it bought under its Quantitative Easing program as they mature.

But this "normalization" is already taking its toll as the sharp equity market sell off in October showed. The Fed has a tricky choice to make in 2019 about whether it can persist both with hiking rates and reducing quantitative easing. Is the world ready yet to stand on its own feet without ongoing central bank support?

No Alarms and No Surprises

Economic surprise indexes – which measure actual economic data compared to forecasts – are designed to be portents of the future. And for 2018 they largely did their job. U.S. strength is waning and Brexit is taking a toll on the U.K. In particular the third-quarter weakness in euro-zone growth, when both Germany and Italy turned negative, was well-flagged from as early as the first quarter.

For 2019 there is a more neutral outlook, but it is interesting that the U.S. economic data is much more evenly balanced in terms of expectations. Europe continues to be the worst performer – quite something considering the predicament the U.K. is in.

Europe Stumbles

Europe has seen growth falter this year, with Italy's political crisis and Germany's diesel vehicle emissions scandal taking their toll.

Italy's third-quarter growth was revised to -0.1 percent, beating only Germany. The prospects for 2019 are none-too-rosy, bar the notable exception of Spain, as momentum has evaporated. Europe remains in the sick bay of the developed world – just as the European Central Bank prepares to remove its monetary stimulus to the economy.

Relying on China

China came to the global economy's rescue in the wake of the financial crisis, but it is starting to pay the price for increasing its debt to create additional GDP growth. Total social financing as a percentage of gross domestic product – a broad measure of credit creation – is flat-lining. Adding extra debt to boost the economy is becoming a less effective measure. It is not just the threat of a trade war with America that has pushed Chinese equities down by 20 percent in 2018.

China faces the classic emerging-market middle-income trap where growth fueled by credit runs out of road. This debt bubble will not be easily fixed.

Finding Reverse Again

Japanese Prime Minister's famous three economic arrows are failing to hit their mark. Debt that stands in excess of 250 percent of GDP is hampering all efforts to resuscitate inflation and sustainable growth in the world's third-largest economy. Third-quarter GDP contracted 2.5 percent on an annualized basis, the worst performance for four years.

Tokyo might be hosting the Olympics in 2020, but there is little benefit flowing through so far. Japan, like the rest of the once dominant Asian export powerhouses, is just as beholden to the outcome of the trade war with Trump as China is.

Hunting for Neutral

Until very recently, many economists were anticipating at least four more rate increases from the Fed next year at a pace of one per quarter. While the futures market still suggests a Dec. 19 hike is a done deal, the outlook for monetary policy in 2019 has shifted significantly in recent weeks.

Goldman Sachs Group Inc. has trimmed its forecast for number of potential Fed rate increases in 2019; billionaire fund manager Paul Tudor Jones said earlier this month that he's not expecting any additional tightening from the U.S. central bank next year. A halt to the hikes might prove as pleasing to financial markets as to President Donald Trump.

Credit Squeeze

Companies with dollar bonds have seen their borrowing costs soar relative to those of the U.S. government as the Fed has driven its benchmark interest rate higher this year. Investors have seen a corresponding slump in the value of the corporate debt they own.

Any slowdown in the ascent of U.S. borrowing costs as the Fed pauses for breath should give succor to corporate bonds – provided it isn't accompanied by a rise in defaults.

Other People's Money

It's been a terrible year for the stocks of firms that manage other people's money for a living.

Fund managers tend to invest in each other's shares. And you'd expect them to have better-than-average insight into the business prospects of their peers. So watch for an inflection point in asset management stocks – it might be a sign of a turning point for the wider market.

Happy Birthday to the Euro

The common European currency celebrates its 20th birthday at the start of January. During the two decades of its existence, rumors of the euro's demise have been proven to be greatly exaggerated.

The European debt crisis at the beginning of this decade posed an existential threat to the euro's well-being. The currency survived. At several points in the past few years, Greece seemed on the verge of either quitting or being ousted from the project. Its membership survived. And Italy's election of a populist government earlier this year raised the prospect of a founding member threatening to leave if it wasn't allowed to break the bloc's budget rules. Still, the euro survives.

In fact, as the chart above shows, investors are close to the most relaxed they've been about the euro fracturing in more than five years based on the Sentix Euro Break-Up Index, a monthly gauge of investor concern about the threat. So let's end by wishing the euro many happy returns.

To contact the authors of this story: Mark Gilbert at [email protected] Ashworth at [email protected]

To contact the editor responsible for this story: Edward Evans at [email protected]

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

For more articles like this, please visit us at bloomberg.com/opinion

[Dec 18, 2018] FBI's Flynn Notes Show He Was Aware of Nature of First Interview

Notable quotes:
"... christophere steele admitted before a british court today that he was hired by the clintons/obama/DNC to make up the dossier as a weapon to use against trump as a backup plan in case he won the election.. this proves the DNC lied, paid for a fake dossier, and comey admitted he knew the fake dossier was false before using it to get a FISC warrant and to spy on trump, which was used as an excuse for the mueller investigation.. yahoo news and leftwing media arent covering the story.. educate yourselves ..."
Dec 18, 2018 | news.yahoo.com

[Dec 16, 2018] Trump Models His War on Bank Regulators on Bill Clinton and W's Disastrous Wars by Bill Black

Notable quotes:
"... By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Jointly published with New Economic Perspectives ..."
"... Wall Street Journal ..."
"... Wall Street Journal ..."
"... The idea that examiners should not criticize any bank misconduct, predation, or 'unsafe and unsound practice' that does not constitute a felony is obviously insane. ..."
"... The trade association complaint that examiners dare to criticize non-felonious bank conduct – and the WSJ ..."
"... I have more than a passing acquaintance with banking, banking regulation, and banking's rectitude (such an old fashioned word) in the importance for Main Street's survival, and for the country's as a whole survival as a trusted pivot point in world finance , or for the survival of the whole American project. I know this sounds like an over-the-top assertion on my part, however I believe it true. ..."
"... Obama et al confusing "banking" with sound banking is too ironic, imo. ..."
"... It was actually worse than this. The very deliberate strategy was to indoctrinate employees of federal regulatory agencies to see the companies they regulated not as "partners" but as "customers" to be served. This theme is repeated again and again in Bush era agency reports. Elizabeth Warren was viciously attacked early in the Obama Administration for calling for a new "watchdog" agency to protect consumers. The idea that a federal agency would dedicate itself to protecting citizens first was portrayed as dangerously radical by industry. ..."
"... Models on Clinton and Bush. What's not to like? Why isn't msm and dem elites showing him the love when he's following their long term policies? And we might assume these would be hills policies if she had been pushed over the line. A little thought realizes that in spite of the pearl clutching they far prefer him to Bernie. ..."
Dec 14, 2018 | www.nakedcapitalism.com
By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Jointly published with New Economic Perspectives

The Wall Street Journal published an article on December 12, 2018 that should warn us of coming disaster: "Banks Get Kinder, Gentler Treatment Under Trump." The last time a regulatory head lamented that regulators were not "kinder and gentler" promptly ushered in the Enron-era fraud epidemic. President Bush made Harvey Pitt his Securities and Exchange Commission (SEC) Chair in August 2001 and, in one of his early major addresses, he spoke on October 22, 2001 to a group of accounting leaders.

Pitt, as a private counsel, represented all the top tier audit firms, and they had successfully pushed Bush to appoint him to run the SEC. The second sentence of Pitt's speech bemoaned the fact that the SEC had not been "a kinder and gentler place for accountants." He concluded his first paragraph with the statement that the SEC and the auditors needed to work "in partnership." He soon reiterated that point: "We view the accounting profession as our partner" and amped it up by calling accountants the SEC's "critical partner."

Pitt expanded on that point: "I am committed to the principle that government is and must be a service industry." That, of course, would not be controversial if he meant a service agency (not "industry") for the public. Pitt, however, meant that the SEC should be a "service industry" for the auditors and corporations.

Pitt then turned to pronouncing the SEC to be the guilty party in the "partnership." He claimed that the SEC had terrorized accountants. He then stated that he had ordered the SEC to end this fictional terror campaign.

[A]ccountants became afraid to talk to the SEC, and the SEC appeared to be unwilling to listen to the profession. Those days are ended.

This prompted Pitt to ratchet even higher his "partnership" language.

I speak for the entire Commission when I say that we want to have a continuing dialogue, and partnership, with the accounting profession,

Recall that Pitt spoke on October 22, 2001. Here are the relevant excerpts from the NY Times' Enron timeline :

Oct. 16 – Enron announces $638 million in third-quarter losses and a $1.2 billion reduction in shareholder equity stemming from writeoffs related to failed broadband and water trading ventures as well as unwinding of so-called Raptors, or fragile entities backed by falling Enron stock created to hedge inflated asset values and keep hundreds of millions of dollars in debt off the energy company's books.

Oct. 19 – Securities and Exchange Commission launches inquiry into Enron finances.

Oct. 22 – Enron acknowledges SEC inquiry into a possible conflict of interest related to the company's dealings with Fastow's partnerships.

Oct. 23 – Lay professes confidence in Fastow to analysts.

Oct. 24 – Fastow ousted.

The key fact is that even as Enron was obviously spiraling toward imminent collapse (it filed for bankruptcy on December 2) – and the SEC knew it – Pitt offered no warning in his speech. The auditors and the corporate CEOs and CFOs were not the SEC's 'partners.' Thousands of CEOs and CFOs were filing false financial statements – with 'clean' opinions from the then 'Big 5' auditors. Pitt was blind to the 'accounting control fraud' epidemic that was raging at the time he spoke to the accountants. Thousands of his putative auditor 'partners' were getting rich by blessing fraudulent financial statements and harming the investors that the SEC is actually supposed to serve.

Tom Frank aptly characterized the Bush appointees that completed the destruction of effective financial regulation as "The Wrecking Crew." It is important, however, to understand that Bush largely adopted and intensified Clinton's war against effective regulation. Clinton and Bush led the unremitting bipartisan assault on regulation for 16 years. That produced the criminogenic environment that produced the three largest financial fraud epidemics in history that hyper-inflated the real estate bubble and drove the Great Financial Crisis (GFC). President Trump has renewed the Clinton/Bush war on regulation and he has appointed banking regulatory leaders that have consciously modeled their assault on regulation on Bush and Clinton's 'Wrecking Crews.'

Bill Clinton's euphemism for his war on effective regulation was "Reinventing Government." Clinton appointed VP Al Gore to lead the assault. (Clinton and Gore are "New Democrat" leaders – the Wall Street wing of the Democratic Party.) Gore decided he needed to choose an anti-regulator to conduct the day-to-day leadership. We know from Bob Stone's memoir the sole substantive advice he gave Gore in their first meeting that caused Gore to appoint him as that leader. "Do not 'waste one second going after waste, fraud, and abuse.'" Elite insider fraud is, historically, the leading cause of bank losses and failures, so Stone's advice was sure to lead to devastating financial crises. It is telling that it was the fact that Stone gave obviously idiotic advice to Gore that led him to select Stone as the field commander of Clinton and Gore's war on effective regulation.

Stone convinced the Clinton-Gore administration to embrace the defining element of crony capitalism as its signature mantra for its war on effective regulation. Stone and his troops ordered us to refer to the banks, not the American people, as our "customers." Peters' foreword to Stone's book admits the action, but is clueless about the impact.

Bob Stone's insistence on using the word "customer" was mocked by some -- but made an enormous difference over the course of time. In general, he changed the vocabulary of public service from 'procedure first' to 'service first.'"

That is a lie. We did not 'mock' the demand that we treat the banks rather than the American people as our "customer" – we openly protested the outrageous order that we embrace and encourage crony capitalism. Crony capitalism's core principle – which is unprincipled – is that the government should treat elite CEOs as their 'customers' or 'partners.' A number of us publicly expressed our rage at the corrupt order to treat CEOs as our customers. The corrupt order caused me to leave the government.

Our purpose as regulators is to serve the people of the United States – not bank CEOs. It was disgusting and dishonest for Peters to claim that our objection to crony capitalism represented our (fictional) disdain for serving the public. Many S&L regulators risked their careers by taking on elite S&L frauds and their powerful political fixers. Many of us paid a heavy personal price because we acted to protect the public from these elite frauds. Our efforts prevented the S&L debacle from causing a GFC – precisely because we recognized the critical need to spend most of our time preventing and prosecuting the elite frauds that Stone wanted us to ignore..

Trump's wrecking crew is devoted to recreating Clinton and Bush's disastrous crony capitalism war on regulation that produced the GFC. In a June 8, 2018 article , the Wall Street Journal mocked Trump's appointment of Joseph Otting as Comptroller of the Currency (OCC). The illustration that introduces the article bears the motto: "IN BANKS WE TRUST."

Otting, channeling his inner Pitt, declared his employees guilty of systematic misconduct and embraced crony capitalism through Pitt's favorite phrase – "partnership."

I think it is more of a partnership with the banks as opposed to a dictatorial perspective under the prior administration.

Otting, while he was in the industry, compared the OCC under President Obama to a fictional interstellar terrorist. Obama appointed federal banking regulators that were pale imitation of Ed Gray, Joe Selby, and Mike Patriarca – the leaders of the S&L reregulation. The idea that Obama's banking regulators were akin to 'terrorists' is farcical.

The WSJ's December 12, 2018 article reported that Otting had also used Bob Stone's favorite term to embrace crony capitalism.

Comptroller of the Currency Joseph Otting has also changed the tone from the top at his agency, calling banks his "customers."

There are many terrible role models Trump could copy as his model of how to destroy banking regulation and produce the next GFC, but Otting descended into unintentional self-parody when he channeled word-for-word the most incompetent and dishonest members of Clinton and Bush's wrecking crews.

The same article reported a trade association's statement that demonstrates the type of outrageous reaction that crony capitalism inevitably breeds within industry.

Banks are suffering from "examiner criticisms that do not deal with any violation of law," said Greg Baer, CEO of the Bank Policy Institute ."

The article presented no response to this statement so I will explain why it is absurd. First, "banks" do not "suffer" from "examiner criticism." Banks gain from examiner criticism. Effective regulators (and whistleblowers) are the only people who routinely 'speak truth to power.' Auditors, credit rating agencies, and attorneys routinely 'bless' the worst CEO abuses that harm banks while enriching the CEO. The bank CEO cannot fire the examiner, so the examiners' expert advice is the only truly "independent" advice the bank's board of directors receives. That makes the examiners' criticisms invaluable to the bank. CEOs hate our advice because we are the only 'control' (other than the episodic whistleblower) that is willing and competent to criticize the CEO.

The idea that examiners should not criticize any bank misconduct, predation, or 'unsafe and unsound practice' that does not constitute a felony is obviously insane. While "violations of law" (felonies) are obviously of importance to us in almost all cases, our greatest expertise is in identifying – and stopping – "unsafe and unsound practices" because such practices, like fraud, are leading causes of bank losses and failures.

Third, repeated "unsafe and unsound practices" are a leading indicator of likely elite insider bank fraud and other "violations of law."

The trade association complaint that examiners dare to criticize non-felonious bank conduct – and the WSJ reporters' failure to point out the absurdity of that complaint – demonstrate that the banking industry's goal remains the destruction of effective banking regulation. Trump's wrecking crew is using the Clinton and Bush playbook to restore fully crony capitalism. He has greatly accelerated the onset of the next GFC.


Chauncey Gardiner , December 14, 2018 at 2:01 pm

Thank you for this, Bill Black. IMO the long-term de-regulatory policies under successive administrations cited here, together with their neutering the rule of law by overturning the Glass-Steagall Act; de-funding and failing to enforce antitrust, fraud and securities laws; financial repression of the majority; hidden financial markets subsidies; and other policies are just part of an organized, long-term systemic effort to enable, organize and subsidize massive control and securities fraud; theft of and disinvestment in publicly owned resources and services; environmental damage; and transfers of social costs that enable the organizers to in turn gain a hugely disproportionate share of the nation's wealth and nearly absolute political control under their "Citizens United" political framework.

Not to diminish, but among other things the current president provides nearly daily entertainment, diversion and spectacle in our Brave New World that serves to obfuscate what has occurred and is happening.

RBHoughton , December 14, 2018 at 9:41 pm

I'm with you Chauncey. I believe the rot really got started with creative accounting in early 1970s. That's when accountants of every flavor lost themselves and were soon followed by the lawyers. Sauce for the goose.

Banks and Insurers and many industrial concerns have become too big. We could avoid all the regulatory problems by placing a maximum size on commercial endeavour.

chuck roast , December 14, 2018 at 4:28 pm

Sameo-sameo

A number of years ago I did both the primary capital program and environmental (NEPA) review for major capital projects in a Federal Region. Hundreds of millions of dollars were at stake. A local agency wanted us (the Feds) to approve pushing up many of their projects using a so-called Public Private Partnership (PPP). This required the local agency to borrow many millions from Wall Street while at the same time privatizing many of their here-to-fore public operations. And of course there was an added benefit of instituting a non-union shop.

To this end I was required to sit down with the local agency head (he actually wore white shoes), his staff and several representatives of Goldman-Sachs. After the meeting ended, I opined to the agency staff that Goldman-Sachs was "bullshit" and so were their projects.

Shortly thereafter I was removed to a less high-profile Region with projects that were not all that griftable, and there was no danger of me having to review a PPP.

Oh, and I denied, denied, denied saying "bullshit."

flora , December 14, 2018 at 10:08 pm

Thank you, NC, for featuring these posts by Bill Black.

I have more than a passing acquaintance with banking, banking regulation, and banking's rectitude (such an old fashioned word) in the importance for Main Street's survival, and for the country's as a whole survival as a trusted pivot point in world finance , or for the survival of the whole American project. I know this sounds like an over-the-top assertion on my part, however I believe it true.

Main Street also knows the importance of sound banking. Sound banking is not a 'poker chip' to be used for games. Sound banking is key to the American experiment in self-determination, as it has been called.

Politicians who 'don't get this" have lost touch with the entire American enterprise, imo. And, no, the neoliberal promise that nation-states no longer matter doesn't make this point moot.

flora , December 14, 2018 at 10:47 pm

adding: US founding father Alexander Hambleton did understand the importance of sound banking, and so Obama et al confusing "banking" with sound banking is too ironic, imo.

Tim , December 15, 2018 at 8:29 am

It was actually worse than this. The very deliberate strategy was to indoctrinate employees of federal regulatory agencies to see the companies they regulated not as "partners" but as "customers" to be served. This theme is repeated again and again in Bush era agency reports. Elizabeth Warren was viciously attacked early in the Obama Administration for calling for a new "watchdog" agency to protect consumers. The idea that a federal agency would dedicate itself to protecting citizens first was portrayed as dangerously radical by industry.

John k , December 15, 2018 at 12:14 pm

Models on Clinton and Bush. What's not to like? Why isn't msm and dem elites showing him the love when he's following their long term policies?
And we might assume these would be hills policies if she had been pushed over the line. A little thought realizes that in spite of the pearl clutching they far prefer him to Bernie.

[Dec 16, 2018] Top Democrat Schiff Adds Call for Probe of Trump, Deutsche Bank Links

CIA democrats are still determined to sink Tramp, and continues to beat the dead cat of "Russian collision". What is interesting is that Jacob Schiff financed Bolsheviks revolution in Russia.
Yahoo comments reflect the deep split in the opinions in the society, which is positioned mainly by party lines. Few commenters understadn that the problem is with neoliberalism, not Trump, or Hillary who represent just different factions of the same neoliberal elite.
Notable quotes:
"... Schiff said Deutsche Bank has paid hundreds of millions of dollars in fines to the state of New York for laundering Russian money, and that it was the one bank willing to do business with the Trump Organization. ..."
"... In an interview with the New Yorker that was posted on line on Dec. 14, Schiff said the Intelligence Committee is "going to be looking at the issue of possible money laundering by the Trump Organization, and Deutsche Bank is one obvious place to start." ..."
"... A Senate investigation, which Warren and Van Hollen want to see followed by a report and a hearing, could put further pressure on the lender. The written request from the senators, sent Dec. 13, cites Deutsche Bank's "numerous enforcement actions" and a recent raid by police officers and tax investigators in Germany. ..."
"... Schiff, a target of Trump's on Twitter, also referred to reported comments by the president's sons some years ago that they didn't need "to deal with U.S. banks because they got all of the cash they needed from Russia or disproportionate share of their assets coming from Russia." He said Sunday he expects to learn more about that claim through financial records. ..."
Dec 16, 2018 | finance.yahoo.com

(Bloomberg)

The incoming chairman of the House Intelligence Committee joined Democratic colleagues in questioning ties between Deutsche Bank AG and President Donald Trump's real estate business.

Representative Adam Schiff of California said on NBC's "Meet the Press" Sunday that any type of compromise needs to be investigated. That could add his panel's scrutiny to that of Representative Maxine Waters, who's in line to be chair of the House Financial Services Committee and has also focused on the bank's connections to Trump.

Schiff's comments came three days after Wall Street critic Elizabeth Warren of Massachusetts and fellow Senate Democrat Chris Van Hollen called for a Banking Committee investigation of Deutsche Bank's compliance with U.S. money-laundering regulations.

Schiff said Deutsche Bank has paid hundreds of millions of dollars in fines to the state of New York for laundering Russian money, and that it was the one bank willing to do business with the Trump Organization.

"Now, is that a coincidence?" Schiff said. "If this is a form of compromise, it needs to be exposed."

In an interview with the New Yorker that was posted on line on Dec. 14, Schiff said the Intelligence Committee is "going to be looking at the issue of possible money laundering by the Trump Organization, and Deutsche Bank is one obvious place to start."

More Pressure

A Senate investigation, which Warren and Van Hollen want to see followed by a report and a hearing, could put further pressure on the lender. The written request from the senators, sent Dec. 13, cites Deutsche Bank's "numerous enforcement actions" and a recent raid by police officers and tax investigators in Germany.

It also notes the lender's U.S. operations being implicated in cross-border money-laundering accusations such as in a recent case involving Danish lender Danske Bank A/S and the movement of $230 billion in illicit funds.

"The compliance history of this institution raises serious questions about the national security and criminal risks posed by its U.S. operations," the senators said in their letter. "Its correspondent banking operations in the U.S. serve as a gateway to the U.S. financial system for Deutsche Bank entities around the world."

Troy Gravitt, a Deutsche Bank spokesman, responded that the company "takes its legal obligations seriously and remains committed to cooperating with authorized investigations."

Van Hollen, a Maryland Democrat, had questioned the Federal Reserve earlier this year about how it would keep the White House from interfering with oversight of the lender, which had been a major lender to Trump's real estate business.

Schiff, a target of Trump's on Twitter, also referred to reported comments by the president's sons some years ago that they didn't need "to deal with U.S. banks because they got all of the cash they needed from Russia or disproportionate share of their assets coming from Russia." He said Sunday he expects to learn more about that claim through financial records.

To contact the reporter on this story: Jesse Hamilton in Washington at [email protected]

To contact the editors responsible for this story: Jesse Westbrook at [email protected], Mark Niquette, Ros Krasny

[Dec 14, 2018] Fairly Recently Must - and Should-Reads book on financial fraud

Notable quotes:
"... Dan Davies on financial fraud is certainly the most entertaining book on Economics I have read this year. Highly recommend ..."
"... Chris Dillow : Review of Dan Davies: Lying for Money ..."
"... Lying For Money ..."
"... Dan has also a theory of fraud. 'The optimal level of fraud is unlikely to be zero' he says. If we were to take so many precautions to stop it, we would also strangle legitimate economic activity... ..."
Nov 24, 2018 | www.bradford-delong.com

Dan Davies on financial fraud is certainly the most entertaining book on Economics I have read this year. Highly recommend

Chris Dillow : Review of Dan Davies: Lying for Money :

"Squalid crude affairs committed mostly by inadequates. This is a message of Dan Davies' history of fraud, Lying For Money ....

Most frauds fall into a few simple types.... Setting up a fake company... pyramid schemes... control frauds, whereby someone abuses a position of trust...

plain counterfeiters.

My favourite was Alves dos Reis, who persuaded the printers of legitimate Portuguese banknotes to print even more of them....

All this is done with the wit and clarity of exposition for which we have long admired Dan. His footnotes are an especial delight, reminding me of William Donaldson.

Dan has also a theory of fraud. 'The optimal level of fraud is unlikely to be zero' he says. If we were to take so many precautions to stop it, we would also strangle legitimate economic activity...

[Dec 14, 2018] The whole austerity crisis thing appears to have been engineered so that a few blinkered and unpatriotic, vulture mafia privateers can make a killing, selling off vital state assets, such as infrastructure and ports, to the Chinese. This is a very suspicious and widespread trend.

Notable quotes:
"... Bob Marley got it right.... the human race is becoming a rat race, and it's a disgrace. ..."
"... The biggest problem is the financialisation of the economy... what is the actual value of things? The market is so manipulated that real price discovery is not possible. ..."
"... We have an over-cooked service-sector economy unsustainably reliant on cheap debt, cheap energy, and cheap manufactured goods to fuel our 'high-end levels of consumption, and mobility or living standards, and an over-heated housing market that is unsustainably run according to the needs of investors and landlords rather than residents or tenants. ..."
"... What we need is a coordinated approach between our nations. Undercutting each other on corporate taxes, writing tax avoidance into law, and continuing to allow multinationals to influence our politicians and play our governments against each other is exactly the game we must end. ..."
"... Instead, it places the financially powerful beyond any state, in an international elite that makes its own rules, and holds governments to ransom. That's what the financial crisis was all about. The ransom was paid, and as a result, governments have been obliged to limit their activities yet further.... ..."
"... "Ransom". There is no better word to describe it. This (the ransom mentality) is exactly the reactionary, vindictive, doctrinaire psychology that must be extracted like a cancer from our institutional lives and the human species. A monolithic task. But identifying the cause is the first step to cure. ..."
"... these are the new medieval transnational barons ..."
Jun 09, 2013 | theguardian.com
MysticFish -> Crackerpot , 8 Jun 2013 14:43
@Crackerpot - The whole austerity crisis thing appears to have been engineered so that a few blinkered and unpatriotic, vulture mafia privateers can make a killing, selling off vital state assets, such as infrastructure and ports, to the Chinese. This is a very suspicious and widespread trend.
artheart , 8 Jun 2013 14:38

Bob Marley got it right.... the human race is becoming a rat race, and it's a disgrace.

I see it every day from the window of my flat, on a main road, in Bethnal Green. There's a 'mentally unstable' Rastafarian who stands by the overground station, and shouts things out to people like "You're living in babylon".

I do sometimes think he's not the mental one.

artheart -> HolyInsurgent , 8 Jun 2013 14:32
@HolyInsurgent

The biggest problem is the financialisation of the economy... what is the actual value of things? The market is so manipulated that real price discovery is not possible.

We have an over-cooked service-sector economy unsustainably reliant on cheap debt, cheap energy, and cheap manufactured goods to fuel our 'high-end levels of consumption, and mobility or living standards, and an over-heated housing market that is unsustainably run according to the needs of investors and landlords rather than residents or tenants.

The whole thing is going to blow apart. Our 'aspirations' are slowly killing us - they're destroying the social fabric.

MikeInCanada , 8 Jun 2013 14:28
What we need is a coordinated approach between our nations. Undercutting each other on corporate taxes, writing tax avoidance into law, and continuing to allow multinationals to influence our politicians and play our governments against each other is exactly the game we must end.
HolyInsurgent , 8 Jun 2013 14:08

Deborah Orr: Instead, it places the financially powerful beyond any state, in an international elite that makes its own rules, and holds governments to ransom. That's what the financial crisis was all about. The ransom was paid, and as a result, governments have been obliged to limit their activities yet further....

I never thought I would live long enough to see this level of honesty ATL. It should have been published long ago, but at least the discussion now begins.

"Ransom". There is no better word to describe it. This (the ransom mentality) is exactly the reactionary, vindictive, doctrinaire psychology that must be extracted like a cancer from our institutional lives and the human species. A monolithic task. But identifying the cause is the first step to cure.

peterpuffin -> PointOfYou , 8 Jun 2013 14:03
@PointOfYou - these are the new medieval transnational barons

[Dec 14, 2018] Here's the funny thing about those who cheer the broken neoliberal model. They promise we will get to those "sunny uplands" with exactly the same fervor as old Marxists.

Notable quotes:
"... Neoliberalism? This is not just a financial agenda. This a highly organized multi armed counterculture operation to force us, including Ms Orr [unless she has...connections] into what Terence McKenna [who was in on it] termed the `Archaic Revival'. That is - you and me [and Ms Orr] - our - return to the medieval dark ages, if we indeed survive that far. ..."
"... The conscious and intelligent manipulation of the organised habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. We are governed, our minds are moulded, our tastes formed, our ideas suggested, largely by men we have never heard of. ..."
"... the UK government did intervene in the economy when it bailed out the banks to the tune of many billions of pounds underwritten by the taxpayer. The markets should always be regulated sufficiently (light touch is absolutely useless) to prevent the problems currently being experienced from ever happening again. ..."
"... Traditional liberalism had died decades before WWII and was replaced by finance capitalism. What happened after WW II was that capitalism had to make various concessions to avoid a socialist revolution: social and political freedoms indeed darted ahead. ..."
"... No chance mate, at least not all the time greasy spiv and shyster outfits like hedge funds are funding Puffin face and the Vermin Party. They are never going to bite the hand that feeds them ..."
"... And in case we get uppity and endeavour to challenge the economic paradigm and the rule of these neoliberal elites, there's the surveillance state panopticon to track our movements and keep us in check. ..."
"... There is not a shred of logical sense in neoliberalism. You're doing what the fundamentalists do... they talk about what neoliberalism is in theory whilst completely ignoring what it is in practice. In theory the banks should have been allowed to go bust, but the consequences where deemed too high (as they inevitable are). The result is socialism for the rich using the poor as the excuse, which is the reality of neoliberalism. ..."
"... She, knowingly, let neo-liberal economic philosophy come trumpeting through the door of No10 and it's been there ever since; it has guided our politicians for the past 30 odd years. Hence, it is Thatcher's fault. She did this and another bad thing: the woman who glorified household economics pissed away billions of pounds of North Sea Oil. ..."
"... Bailouts have been a constant feature of neoliberalism. In fact the role of the state is simply reduced to a merely commissioning agent to private parasitical corporations. History has shown the state playing this role since neoliberalism became embedded in policy since the 1970s - Long Term Capital Management, Savings and Loans, The Brady Plan, numerous PFI bailouts and those of the Western banking system during the 1982 South American, 1997 Asian and 2010 European debt crises. ..."
Jun 08, 2013 | discussion.theguardian.com

Jenny340 -> EllisWyatt, 8 Jun 2013 13:37

@EllisWyatt - Here's the funny thing about those who cheer the broken neoliberal model. They promise we will get to those "sunny uplands" with exactly the same fervor as old Marxists.
PointOfYou , 8 Jun 2013 13:37

Neoliberalism has spawned a financial elite who hold governments to ransom

Neoliberalism? This is not just a financial agenda. This a highly organized multi armed counterculture operation to force us, including Ms Orr [unless she has...connections] into what Terence McKenna [who was in on it] termed the `Archaic Revival'. That is - you and me [and Ms Orr] - our - return to the medieval dark ages, if we indeed survive that far.

The same names come up time and time again. One of them being, father of propaganda, Edward Bernays.

Bernays wrote what can be seen as a virtual Mission Statement for anyone wishing to bring about a "counterculture." In the opening paragraph of his book Propaganda he wrote:

"..The conscious and intelligent manipulation of the organised habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. We are governed, our minds are moulded, our tastes formed, our ideas suggested, largely by men we have never heard of.

This is a logical result of the way in which our democratic society is organised. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society. In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons who understand the mental processes and social patterns of the masses.

It is they who pull the wires which control the public mind..."[28]

Bernays' family background made him well suited to "control the public mind." He was the double nephew of psychoanalysis pioneer Sigmund Freud. His mother was Freud's sister Anna, and his father was Ely Bernays, brother of Freud's wife Martha Bernays.

Snookerboy -> OneCommentator , 8 Jun 2013 13:17
@OneCommentator - the UK government did intervene in the economy when it bailed out the banks to the tune of many billions of pounds underwritten by the taxpayer. The markets should always be regulated sufficiently (light touch is absolutely useless) to prevent the problems currently being experienced from ever happening again.

Those at the bottom of society and those in the public sector are the ones paying the price for this intervention in the UK. If you truly believe in the 'free' market then all of these failing organisations (banks, etc) should have been allowed to fail. The problem is that the wealth created under the current system is virtually all going to those at the top of the income scale and this needs to change and is one of the main reasons that neo liberalism should be binned!

ATrueFinn -> OneCommentator , 8 Jun 2013 13:09
@ OneCommentator 08 June 2013 5:21pm

No, it was as recently as ww2 more or less

Traditional liberalism had died decades before WWII and was replaced by finance capitalism. What happened after WW II was that capitalism had to make various concessions to avoid a socialist revolution: social and political freedoms indeed darted ahead.

Do read a book about history!

clairesdad -> brighton2 , 8 Jun 2013 13:06
@brighton2 - No chance mate, at least not all the time greasy spiv and shyster outfits like hedge funds are funding Puffin face and the Vermin Party. They are never going to bite the hand that feeds them.
NotWithoutMyMonkey , 8 Jun 2013 13:01
And in case we get uppity and endeavour to challenge the economic paradigm and the rule of these neoliberal elites, there's the surveillance state panopticon to track our movements and keep us in check.
TedStewart , 8 Jun 2013 12:51
Neoliberalism has spawned a financial elite who hold governments to ransom

Are you saying neoliberalism is a great big useless pile of shit? Then you are absolutely right!

kingcreosote -> MickGJ , 8 Jun 2013 12:47
@ MickGJ 08 June 2013 1:08pm . Get cifFix for Firefox .

I know what you are saying it's just sooner or later as those at the bottom continue to be squeezed the wealthy will sow their own seeds of destruction. I think we are witnessing the end game which is reflected in the desperation of the coalition to flog everything regardless of the efficacy of such behavior, they feel time is running out and they would be right.

taxhaven , 8 Jun 2013 12:44
Call it what you will - "neoliberalism", "neoconservatism", "socialism" or whatever it is...

This debate is not even really solely about money: this is about liberty , about free choice, about being permitted to engage in voluntary exchange of goods and services with others, unmolested. About the users of services becoming the ones paying for those services.

Ultimately the real effect will be to remove power from governments and hand it back to where it belongs - the free market.

dmckm -> OneCommentator , 8 Jun 2013 12:43
@ OneCommentator 08 June 2013 5:04pm . Get cifFix for Firefox .

voluntary transactions among free agents. That's called a free market and it is by far the most efficient way to produce wealth humanity has ever known.

Could you explain how someone bound by a contract of employment, with the alternative, destitution, is a 'free agent'?

jazzdrum -> SpinningHugo , 8 Jun 2013 12:25
@SpinningHugo - Nothing comes out of nothing and i well remember black Monday in the City. That was the start of the spivs running the economy as if it were a casino. If you think its only on CiF that Thatcher gets the blame, think on this, Scotland, a whole nation blames her too.
TedSmithAndSon -> theguardianisrubbish , 8 Jun 2013 12:24
@theguardianisrubbish -

Unless you are completely confused by what neoliberalism is there is not a shred of logical sense in this.

There is not a shred of logical sense in neoliberalism. You're doing what the fundamentalists do... they talk about what neoliberalism is in theory whilst completely ignoring what it is in practice. In theory the banks should have been allowed to go bust, but the consequences where deemed too high (as they inevitable are). The result is socialism for the rich using the poor as the excuse, which is the reality of neoliberalism.

Savers in a neoliberal society are lambs to the slaughter. Thatcher "revitalised" banking, while everything else withered and died.

Neoliberalism is based on the thought of personal freedom, communism is definitely not. Neoliberalist policies have lifted millions of people out of poverty in Asia and South America.

Neoliberalism is based on the thought that you get as much freedom as you can pay for, otherwise you can just pay... like everyone else. In Asia and South America it has been the economic preference of dictators that pushes profit upwards and responsibility down, just like it does here.

I find it ironic that it now has 5 year plans that absolutely must not be deviated from, massive state intervention in markets (QE, housing policy, tax credits... insert where applicable), and advocates large scale central planning even as it denies reality, and makes the announcement from a tractor factory.

Neoliberalism is a blight... a cancer on humanity... a massive lie told by rich people and believed only by peasants happy to be thrown a turnip. In theory it's one thing, the reality is entirely different. Until we're rid of it, we're all it's slaves. It's an abhorrent cult that comes up with purest bilge like expansionary fiscal contraction to keep all the money in the hands of the rich.

outragedofacton -> MickGJ , 8 Jun 2013 12:02
@MickGJ - You are wrong about the first 2 of course. Banksters get others to do their shit.

But unfortunately the poor sods who went down on D Day were in their way fighting for Wall Street as much as anything else. It's just that they weren't told about it by the Allies massive propaganda machine. So partly right

5/10

LetsGetCynical , 8 Jun 2013 11:57

The response should be a wholesale reevaluation of the way in which wealth is created and distributed around the globe

Which would be what? State planning? Communism? Totally free market capitalism? Oh wait, we already have the best of a bad bunch, a mixed capitalist economy with democracy. That really is the crux of it, our system isn't perfect, never will be, but nobody has come up with a better solution.

outragedofacton -> artheart , 8 Jun 2013 11:55
@artheart - Thank goodness for RT.

Learn also about the West's nefarious activities in the Middle East.

ATrueFinn -> fr0mn0where , 8 Jun 2013 11:51
@ fr0mn0where 08 June 2013 4:29pm

Barclays bank "only" paid out £660m in dividends to the bearers of risk capital, while its bonus pot for a very select number of its staff was £1.5bn.

Fascinating! Now, one could infer that Barclays represent "beneficial capitalism", rewarding its hard-working employees, but maybe we won't.

This is not the traditional capitalist style

The Traditional capitalist is not an extinct species but under threat. For the time being the population is stagnant in some countries and even increasing in some others. However, due to the foraging capacity of Neoliberal creature , competing in the same economical niche, the size and life expectation of it are diminishing.

dmckm -> SpinningHugo , 8 Jun 2013 11:50
@ SpinningHugo 08 June 2013 10:59am . Get cifFix for Firefox .

She, knowingly, let neo-liberal economic philosophy come trumpeting through the door of No10 and it's been there ever since; it has guided our politicians for the past 30 odd years. Hence, it is Thatcher's fault. She did this and another bad thing: the woman who glorified household economics pissed away billions of pounds of North Sea Oil.

szwalby -> MickGJ , 8 Jun 2013 11:30
@MickGJ - No, you're right. Why let yesterdays experience feed into what you expect of the future? Lets go forwards goldfish like, every minute a brand new one, with no baggage!
And by the way, who saved the hide of the very much private sector banks and financial institutions? The hated STATE, us tax payers!
fr0mn0where -> ATrueFinn , 8 Jun 2013 11:29
@ATrueFinn -

I think I agree with everything that you say here? The people at the top these days aren't really of much use for anything, including capitalism. The only thing that they do excel at is lining their own pockets and securing their privileged position in society.

They have become quite up front about it. There was a bit of a fuss last year when Barclays bank "only" paid out £660m in dividends to the bearers of risk capital, while its bonus pot for a very select number of its staff was £1.5bn. Barclays released a statement before their AGM explaining:

"Barclays is fully committed to ensuring that a greater proportion of income and profits flow to shareholders notwithstanding that it operates within the constraints of a competitive market."

This is not the traditional capitalist style competition that they are talking about where companies competed as to who can return the biggest profit for their shareholders this now comes secondary to the real competition which is for which company can return the biggest bonuses for a small group of employees.

theonionmurders -> theguardianisrubbish , 8 Jun 2013 11:05
@theguardianisrubbish

Bailouts have been a constant feature of neoliberalism. In fact the role of the state is simply reduced to a merely commissioning agent to private parasitical corporations. History has shown the state playing this role since neoliberalism became embedded in policy since the 1970s - Long Term Capital Management, Savings and Loans, The Brady Plan, numerous PFI bailouts and those of the Western banking system during the 1982 South American, 1997 Asian and 2010 European debt crises.

No wonder you're so ignorant of the basics of economic policy if you won't flick through a book - fear of accepting that you're simply wrong is a sure sign of either pig ignorance or denial, and is as I said embarrassing so its not really much point in wasting anymore time engaging with you.

petercs , 8 Jun 2013 10:44

The neoliberal idea is that the cultivation itself should be conducted privately as well. They see "austerity" as a way of forcing that agenda.

..."neoliberal", concept behind the word, has nothing to do with liberal or liberty or freedom...it is a PR spin concept that names slavery with a a word that sounds like the opposite...if "they" called it neoslavery it just wouldn't sell in the market for political concepts.

..."austerity" is the financial sectors' solution to its survival after it sucked most the value out of the economy and broke it. To mend it was a case of preservation of the elite and the devil take the hindmost, that's most of us.

...and even Labour, the party of trade unionism, has adopted austerity to drive its policy.

...we need a Peoples' Party to stand for the revaluation of labour so we get paid for our effort rather than the distortion, the rich xxx poor divide, of neoslavery austerity.

Crackerpot , 8 Jun 2013 10:43
When the IMF 'admitted' that the first bail out of Greece was 'bungled' are they trying to imply that the subsequent bail outs have been a success....
artheart , 8 Jun 2013 10:34
People need to start watching The Keiser Report to hear the truth, if they can handle the truth. Link here: http://rt.com/shows/keiser-report/

I simply cannot recommend it enough.

MickGJ -> bluebirds , 8 Jun 2013 10:30

@bluebirds - deregulated capitalism has failed

Of course it has. And it will continue to "fail", while provide us with all sorts of goodies, for the foreseeable future. Capitalism's endless "failure" is of no more concern than human mortality. Ever tried, ever failed, try again, fail better.
epinoa -> CaptainGrey , 8 Jun 2013 10:25
@CaptainGrey -

Except it's not. It is still very much alive and growing.

In as much as a zombie is.

The "alternatives" have crashed and burned save Cuba and North Korea.

I'd say the current oligarchical form of capitalism has crashed quite spectacularly. I say this as a free market capitalist too.

[Dec 14, 2018] Noam Chomsky pointed this out aeons ago though-that the American model is to use tax money to benefit private interests through technological infrastructure

Notable quotes:
"... Now we see moneyed entities with vested interests, carpet bagging and flogging off the NHS and an unelected fossil fuel mandarin, at the heart of government decision making, appointing corporate yea-sayers, to the key government departments, with environmental responsibilities. Corporations capturing the state apparatus for their own ends, is 'corporatism.' ..."
"... "Neoliberalism in practice is every bit as bad as Communism in practice, with none of the benefits." ..."
"... The bailout is simply actual neoliberalism as opposed to the theory inside tiny right wing minds. The system depends on the wealthy not being allowed to suffer the consequences of their own greed, or it would represent revolution and still not work. ..."
"... Neoliberalism in practice is every bit as bad as Communism in practice, with none of the benefits. It always amusing to see neoliberal morons shout about the red menace when they're two sides of the same coin. ..."
"... Neoliberalism is nothing if not the opposite extreme of the communist planned economy. Like the communist planned economy, neoliberalism is doomed to failure. I think we've all been sold a lie. ..."
Jun 08, 2013 | discussion.theguardian.com

epinoa -> Fachan , 8 Jun 2013 10:19

@Fachan -

Just as democracy is the worst system of government except for all other, so capitalism is the worst economic model except for all other.

Shame we only have bastardized forms of them.
bridkid5 -> NotAgainAgain , 8 Jun 2013 10:18
@NotAgainAgain - this is very true, it reminds me of an engineering company I worked for in Nottingham (since gone under). The production manger was a corrupt thief. He gradually sub-contracted the production work out to other companies in the area, taking backhanders for his troubles.

Once all the production was farmed out, he somehow got himself promoted to director level, where he and a sycophant subbed all the design work out. So all the production and design was done out of house, standards dropped and the company closed, leaving him with a nice payoff, just prior to retirement.

Some would say he played a blinder, my interpretation is he ruined a perfectly viable company, making a very good product, and over the course of about 5 years put over 30 people out of work.

In a just world he would be spending his retirement in prison.

ATrueFinn -> MickGJ , 8 Jun 2013 10:13
@ MickGJ 08 June 2013 2:16pm

ext year's harvest (possibly of GM food which makes better use of scarce resources)

Indeed. Wheat will grow as flour and fly to our cupboards.

ATrueFinn -> fr0mn0where , 8 Jun 2013 10:10
@ fr0mn0where 08 June 2013 1:53pm

Income distribution and a happy workforce is actually very good for business as well as society!

Of course it is, but the capitalists do not know it. In many countries, including Finland, the "condition of the working classes", ie. working conditions, have been in rapid decline for the last 20 years.

Permanent salaried jobs have been replaced with temps from agencies, unpaid overtime is becoming the norm, burnouts are commonplace and so on.

If in your country things are different, no mass lay-outs and outsourcing to China, count yourself lucky!

crinklyoldgit , 8 Jun 2013 10:04
On form, Debs. Here is something I like.

But even though an illiterate market wouldn't be so great for them, they avoid their taxes, because they can, because they are more powerful than governments

Noam Chomsky pointed this out aeons ago though-that the American model is to use tax money to benefit private interests through technological infrastructure.

It was ever thus, if in slightly different forms. Still it is surprising that they have gone so quickly from their stated position at the start of the republic of a rejection of kings and emperors to their position now of corruption so ingrained it is impossible to make distinctions. Proxy emperors are emperors all the same, no matter the rhetoric that promotes them.

One senses that there is very little 'going back' possible. Besides, the great Neoliberal scam is predicated upon the qualities of the 'governments' we have and the capacity of those 'rhetoricians' with the capacity to say anything or play any role, to lick any arse, to get elected. Such apparent strength is weakness. In this world that now exists here, we have now entered the same world as the USSR in the eighties, where the announcement of bumper harvests of wheat, made everyone with a brain cell groan and think 'Oh fuck! no bread this winter-quick, run to the shops now, and buy up all the flour there'.

But there is now no way to declare that without being seen as beyond the pale-a bug eyed conspiracist.

Still, I am a believer in the connectedness of this world. The economic system and its mythologies are just weird and distorted canaries in the coalmine of the wider environment. It is indicating that there is a misalignment between the way we think and what is possible in this world. Austerity promoters and 'Keynsian' Ballsites are one and the same thing-both pretenders that the key to the problems is within their narrow gifts

Hubris is followed by nemesis. In a wider sense what we seen now is a complete failure of the capacity to educate and to learn,and moderate behaviour, and find some way of caring for our 'others', beyond the core of 'self'. nationalism is essentially an extension of 'self'. We now shall see the failure of a retraction of thought into nationalism and scapegoating.

I predict that the population of the world will decline over the next century-quite markedly.
The only solace is that at the end of the process, the pain will be forgotten. It always is.

MysticFish -> MickGJ , 8 Jun 2013 09:57
@MickGJ - Cameron said 'We will cut the deficit, not the NHS,' and promised to be the 'greenest government ever,' saying that you could 'go green,' if you voted 'blue.'

Now we see moneyed entities with vested interests, carpet bagging and flogging off the NHS and an unelected fossil fuel mandarin, at the heart of government decision making, appointing corporate yea-sayers, to the key government departments, with environmental responsibilities. Corporations capturing the state apparatus for their own ends, is 'corporatism.'

Spoutwell , 8 Jun 2013 09:53

Much of the healthy economic growth – as opposed to the smoke and mirrors of many aspects of financial services – that Britain enjoyed during the second half of the 20th century was due to women swelling the educated workforce.

There was very little 'healthy economic growth' in Britain in the second half of the 20th century. Britain was bankrupt after WW2 with its people dependent on Marshall Aid and food contributions from its former 'colonies'.

Whatever 'growth' occured after Marshall Aid arrived was scuppered by a class system where company managers were more concerned with walking on the workers than with keeping their businesses afloat while such discrimination provoked hard left trade union policies which left british industry uncompetitive and ultimately non-existent.

If that wasn't enough, Thatcherism arrived to re-inforce class discrimination, sell off national services and assets and replace social policy with neo-liberal consumerism. Whether the workforce was swollen by women or anyone else is immaterial.

The anti-democratic incestuous class conflict latent in British society continues to ensure that the UK will remain a mere vassal state of foot-soldiers and consumers for international neo-liberal capitalism.

MurchuantEacnamai -> DasInternaut , 8 Jun 2013 09:49
@DasInternaut - Completely agree. The performance has been poor to absymal. But this is a failure of democratic governance because the collective interests of citizens as consumers and service users are not being represented and enforced by the elected politicians since they have been suborned by the capitalists elites and their fellow-travellers.

The people, indeed, have been sold a lie, but, unfortunately, it is only UKIP which is making the political waves by revealing selected aspects of this lie. The three established parties have been 'bought' to varying extents. But more and more citizens are beginning to realise the extent to which they have been bought.

Itsrainingtin , 8 Jun 2013 09:44
There is an upside to all of this, maybe I wont get modded so much from now on for being so angry at the ideological criminals . Hopefully the middle classes will cotton on to the fact that all this is not a mad hatters tinfoil hobby, we need more of them to be grumpy.
szwalby -> MickGJ , 8 Jun 2013 09:43
@MickGJ - We've already seen it. Not great so far. GS4, Winterbourne view, southern cross, trains...............Welfare to work companies, delivering no better results than people left to their own devices. Energy companies.

We'll see if the new wave of free schools, academy schools, and all the service outsourced by the council perform any better.

Doubtful, as to make a profit, they have to employ poorer paid people, less well qualified, and once they've got a contract, they've got very little competition, as when the second round of bidding comes around, as the firms having got the first contract are the only one with relevant experience, they are assured of renewal, the money machine will keep going!

MurchuantEacnamai -> TedSmithAndSon , 8 Jun 2013 09:39
@TedSmithAndSon - There's a huge difference between meddling and ensuring effective governance. But I expect in your omniscence you know that.
theguardianisrubbish -> theonionmurders , 8 Jun 2013 09:38
@theonionmurders - I am not going to read a book.

Neoliberalism are policies that are influenced by neo classical economics. If you are suggesting that the neoliberal school of thought would advocate any kind of a bailout then you are mistaken. Where else have I "apparently" embarrassed myself?

theguardianisrubbish -> TedSmithAndSon , 8 Jun 2013 09:28
@TedSmithAndSon - This is just an inaccurate rant not a reply.

"The system depends on the wealthy not being allowed to suffer the consequences.."

Unless you are completely confused by what neolibralism is there is not a shred of logical sense in this.

"The debt industry are the lenders who take advantage of a financial system..."

Which is what savers are. They come in the form of individuals businesses and governments. This encompasses everyone.

"whilst paying the lowest possible rate. Wonga, for instance."

If you are a lender you do not pay anything, you receive.

"Thatchers revolution was to take our citizenship and give it a value, whilst making everyone else a consumer, all for a handful of magic beans in the shape of British Gas shares."

...not forgetting that she revitalised the economy and got everyone back to work again.

"Neoliberalism in practice is every bit as bad as Communism in practice, with none of the benefits."

Neoliberalism is based on the thought of personal freedom, communism is definitely not. Neoliberalist policies have lifted millions of people out of poverty in Asia and South America. Communism has no benefits for society open your eyes!

theonionmurders -> theguardianisrubbish , 8 Jun 2013 09:24

@theguardianisrubbish - Does this author not realise that a government bailout goes against the whole neoliberal school of thought?

No it isn't. You're confusing neoliberalism with neo classical economics. The level of knowledge on economic theory here is sometimes embarrassing.

http://www2.warwick.ac.uk/fac/soc/sociology/rsw/research_centres/theory/conf/rg/harvey_a_brief_history_of_neoliberalism.pdf

MickGJ -> ATrueFinn , 8 Jun 2013 09:16

@ATrueFinn - After they are finished, what do Singaporeans eat?

Next year's harvest (possibly of GM food which makes better use of scarce resources). I imagine the sun will eventually stop bombarding us with the energy that powers photosynthesis but I'm not losing any sleep over it.
richmanchester -> MurchuantEacnamai , 8 Jun 2013 09:13
@MurchuantEacnamai - I think the point is this, Amazon make money by selling books, they avoid paying taxes, yet expect an educated, literate population to be provided for them, on the grounds that illiterate people don't buy books, and expect roads to move the books around on.

So who will pay for this?

TedSmithAndSon -> theguardianisrubbish , 8 Jun 2013 09:12
@theguardianisrubbish - No! The bailout is simply actual neoliberalism as opposed to the theory inside tiny right wing minds. The system depends on the wealthy not being allowed to suffer the consequences of their own greed, or it would represent revolution and still not work.

The debt industry are the lenders who take advantage of a financial system designed to push profits upwards (neoliberalism in practice), whilst paying the lowest possible rate. Wonga, for instance.

Thatchers revolution was to take our citizenship and give it a value, whilst making everyone else a consumer, all for a handful of magic beans in the shape of British Gas shares.

Neoliberalism in practice is every bit as bad as Communism in practice, with none of the benefits. It always amusing to see neoliberal morons shout about the red menace when they're two sides of the same coin.

szwalby -> MickGJ , 8 Jun 2013 09:04
@MickGJ -

.and provides them at a massively inflated cost accompanied by unforgivable waste and inefficiency, appalling service and life-threatening incompetence.

as opposed to the private sector, who always does what it says it will do, at reasonable cost, for the benefit of their customers, and with due regards to ethics? Like the Banks, the financial sector, who will never sell you a product that isn't the best for you, regardless of their interest? the private companies like Southern Cross, GS4?

The private insurance who refuse to take you on the minute you've got some illness or disability? Get off it! The state isn't perfect, the services it provides are not perfect, but replacing them with private provision isn't the answer!

DasInternaut -> MurchuantEacnamai , 8 Jun 2013 08:59
@MurchuantEacnamai - How would you rate how well British government has done in ensuring markets are genuinely competitive. How well has British government done in ensuring our energy market is competitive, for example. Does the competitiveness we observe in the energy market give customers better or worse value than they had before deregulation? How do you rate the British government's performance in rail and public transport, with respect to competitiveness?

Personally, and notwithstanding the notable exception of telecoms, I rate the British (and US) government's performance in deregulating state entities, creating new markets and ensuring competition, as poor.

Neoliberalism is nothing if not the opposite extreme of the communist planned economy. Like the communist planned economy, neoliberalism is doomed to failure. I think we've all been sold a lie.

[Dec 14, 2018] Neoliberal ideology acted as a smokescreen that enabled the financially powerful to rewrite the rules and place themselves beyond the law

Notable quotes:
"... Neoliberalism has spawned a financial elite who hold governments to ransom ..."
"... Neoliberal ideology acted as a smokescreen that enabled the financially powerful to rewrite the rules and place themselves beyond the law. ..."
"... So it seems that your suggestion is for a return to western capitalism post-war style - would that be right? (b.t.w. if I bring up the whole Soviet Union thing, it is partly because quite a few commentators in this debate come across as if they wish for something much more leftist than that). ..."
"... What you have missed, is that the lions share of the proceeds of that growth are not going to ordinary people but to a tiny minority of super rich. It is not working for the majority. ..."
"... The taxpayers are left to pick up the tab, nations are divided against immigrants and scroungers and then unfettered evangelists like you can spout as pompously as you like about how much big business would like to remove the state from corporate affairs. ..."
"... Without the state there wouldn't be neo-Liberalism, it took state regulated capitalism to build what unfettered purists insist on tearing apart for short term greed. ..."
"... The trouble is Neo-Liberals do not want to remove the state at all, they want to BE the state and in the process rendering democracy pretty much meaningless. And they've succeeded. ..."
"... The biggest swindle ever pulled was turning the most glaring and crushing failure of unfettered corporatism into the biggest and most crushing power grab implemented in order to suppress the will of the people ..."
"... Nobody hates a market more than a monopoly and capitalism must inevitably end in monopoly as it has. For the profiteering monopolies investment especially via taxation is insane as it can only undermine their monopoly. ..."
"... The bankers have always known that the austerity caused by having to pay off un-payable loans, that increase every year, will eventually produce countries very similar to the "Weimar Days" in pre-Hitler Germany. ..."
"... They also know that drastic conditions such as these often lead to a collapse of democracy and a resurgence of Fascism. ..."
"... Neoliberalism could not exist without massive state support. So the term is meaningless. There is nothing "liberal" about having a huge state funded military industrial complex that acts a Trojan horse for global corporations, invading other countries for resources. ..."
"... Neoliberalism is a branch of economic ideology which espouses the value of the free-market, and removing all protective legislation, so that large companies are free to do what they want, where-ever they want, with no impediments from social or environmental considerations, or a nation's democratic preferences. ..."
"... Business-friendly to who exactly: the nation or hostile overseas speculators? ..."
"... The golden age of 1945 - 1975 or so witnessed huge rises in standards of living so your point linking neo-liberalism to rising standards of living is literally meaningless. There was an explosive growth in economic activity during the three or four post war decades ..."
"... The assumption shared by many round here that the young are some untapped resource of revolutionary energy is deeply mistaken ..."
Jun 10, 2013 | www.theguardian.com

WyldeWolfe , 10 Jun 2013 19:42

Neoliberalism has spawned a financial elite who hold governments to ransom

So it's been a success then.

disorderedworld , 10 Jun 2013 17:21
A wonderful article that names the central issue. Neoliberal ideology acted as a smokescreen that enabled the financially powerful to rewrite the rules and place themselves beyond the law. The resultant rise of financial capitalism, which now eclipses the productive manufacturing-based capitalism that was the engine of world growth since the industrial revolution, has propelled a dangerous self-serving elite to the centre of world power. It's not just inequality that matters, but the character of the global elite.
MatthewBall -> murielbelcher , 10 Jun 2013 16:23
@murielbelcher -

The neo-liberal order commenced only in the late 1970s - there was a very different order prior to this which was not "soviet socialism" as you term it.

So it seems that your suggestion is for a return to western capitalism post-war style - would that be right? (b.t.w. if I bring up the whole Soviet Union thing, it is partly because quite a few commentators in this debate come across as if they wish for something much more leftist than that).

Anyway, my worry with this idea is that I am just not convinced that life in "The West 1945-80" was better on the whole than in "The West 1980-present". It's true that unemployment is higher these days, but a lot of work in the post-war years was boring and physically exhausting; in factories and mines where conditions were degrading and bad for health; and where industrial relations were simply terrible. I think as well that the higher unemployment is a localized phenomenon that many developing countries are not experiencing (this is relevant because Deborah Orr proposes change for the whole world, not merely the West).

There were also frequent recessions and booms - in fact, more frequent (albeit shorter) than now. What seems to have changed in this respect is that, whereas we used to alternate regularly between 2-3 years of boom and 1-2 years of bust, we now have 15 years of continuous boom followed by a (maybe?) 10 year bust (this pattern began around 1980). If you asked me which of these two patterns I preferred, then I think I'd go for the pre-1980 pattern, but its not clear to me that the post-1980 pattern is so much worse as to underwrite a savage indictment of the whole system.

As for Casino banking: they should reform that. Britain's Coalition Government has done something in that respect, although its not very radical - I am hoping Labour can do more. There is certainly a lot to be said for banks going back to a pre-"Big Bang" sense of tradition and prudence.

Buts let's not also forget the plus sides in the ledger for post-1980 capitalism: hundreds of millions in the former third world lifted out of poverty; unprecedented technological innovation (e.g. the internet, which makes access to knowledge more equal even as income inequality grows); and the accomodation (at least in the West) of progressive social change, such as the empowerment of ethnic minorities, LGBT people and women.

Change, yes - but lets be careful not to throw the baby out with the bathwater.

MatthewBall -> Grich , 10 Jun 2013 15:40
@Grich -

What you have missed, is that the lions share of the proceeds of that growth are not going to ordinary people but to a tiny minority of super rich. It is not working for the majority. http://www.nakedcapitalism.com/2010/07/58-of-real-income-growth-since-1976-went-to-top-1-and-why-that-matters.html

OK, but both the claim and the link cited in support talk only about a problem in the US. This can't really answer my point, which was that the rest of the world should not be expected to support a change to the economic system of the whole world just because of problems that are mostly localised to North America and Europe. People in developing countries might like the fact that they are, at last, catching "the West" up, and might well not care much about widening inequality of incomes in Western societies.

If you are going to propose changes that you want the whole world to adopt, as Deborah Orr does, then you should be careful to avoid casually assuming that Africa, India, China, et al, feel the same way about the world's recent history as we do. It seems to me that not enough care has been demonstrated in this regard.

MarkHH -> MickGJ , 10 Jun 2013 13:34

@MickGJ - Left to their own devices the most extreme neo-liberals would remove the state almost completely from corporate life.

Except when the State has to step in to prop up an unsustainable ideology. Then it's all meek murmurings and pleas for forgiveness and a timid "we'll be better from now" concessions and the Government obliges the public with the farce that they actually intend to do anything at all but make the public pay for the financial sector's state subsidized profligacy.

Once the begging bowl is re-filled of course then the pretense of "business as usual" profligacy rises to the fore.

The taxpayers are left to pick up the tab, nations are divided against immigrants and scroungers and then unfettered evangelists like you can spout as pompously as you like about how much big business would like to remove the state from corporate affairs.

When you well know that is the last thing big business would like to do. More of the state owned pie is always the most urgent of priorities. Poorer services at inflated costs equates as 'efficiency' until the taxpayer is again left to step in and pick up the bill.

Without the state there wouldn't be neo-Liberalism, it took state regulated capitalism to build what unfettered purists insist on tearing apart for short term greed.

The trouble is Neo-Liberals do not want to remove the state at all, they want to BE the state and in the process rendering democracy pretty much meaningless. And they've succeeded.

The biggest swindle ever pulled was turning the most glaring and crushing failure of unfettered corporatism into the biggest and most crushing power grab implemented in order to suppress the will of the people.

Just as IMF loans come with 'obligations' the principle of democracy itself was sold as part of 'the solution'.

The unsustainable, sustained. By slavery to debt, removal of society's safety net and an economy barely maintained by industries that serve the rich, vultures that prey on the weak and rising living costs and the drudgery of a life compounded by a relentless bombardment of everything in life that is unattainable.

Toeparty , 10 Jun 2013 05:28
Nobody hates a market more than a monopoly and capitalism must inevitably end in monopoly as it has. For the profiteering monopolies investment especially via taxation is insane as it can only undermine their monopoly. With the economy now globalised not even a world war could sweep away the current ossified political economy and give capitalism a new lease on life. It's socialism or monopoly capitalist barbarism. Make your choice.
DracoTBastard , 10 Jun 2013 05:26

The IMF exists to lend money to governments,

Money that the governments don't actually need as they can print their own money and spend it to use their countries own resources and then raise taxes to offset the extra spending and thus maintaining monetary value. The reality is that a government should never, ever borrow money.
Malakia123 , 10 Jun 2013 03:35
The beginning period between the two world wars (1919-33) in Germany called the Weimar Republic shows us exactly what severe austerity imposed by the Treaty of Versailles caused. Because the German economy contracted severely due to reparations payments, steady inflation and severe unemployment ensued. Of course the FED having started the Great Depression in America had not helped matters much anywhere in the world. The bankers have always known that the austerity caused by having to pay off un-payable loans, that increase every year, will eventually produce countries very similar to the "Weimar Days" in pre-Hitler Germany.

They also know that drastic conditions such as these often lead to a collapse of democracy and a resurgence of Fascism.

What causes inflation is uncontrolled speculation of the kind we have seen fed by private banking at various crucial points in history, such as the Weimar Republic. When speculation is coupled with debt (owed to private banking cartels) such as we are seeing in America and Europe now, the result is disaster. On the other hand, when a government issues its own "good faith" commerce-related currency in carefully measured ways as we saw in Roman times or Colonial America, it causes supply and demand to increase together, leaving prices unaffected. Hence there is no inflation, no debt, no unemployment, and no need for income taxes.

In reality, the Weimar financial crisis began with the impossible reparations payments imposed at the Treaty of Versailles. It is very similar to the austerity being imposed on European Nations and America as we speak – regardless of the fact that the IMF is trying to pose as "the Good Cop" at the moment! The damage has been done to nations like Greece, and others are soon to follow. The uncontrollable greed of banks and corporations is leading to an implosion of severe magnitude! It's time to open their books and put a stop to these private banks right now!

brucefiiona -> MysticFish , 9 Jun 2013 20:36
@MysticFish - So the US who has a greater spend on the military than communist China is neoliberal?

Neoliberalism could not exist without massive state support. So the term is meaningless. There is nothing "liberal" about having a huge state funded military industrial complex that acts a Trojan horse for global corporations, invading other countries for resources.

The term neoliberal is not only meaningless but misleading as it implies a connection with true liberalism, of which it has no meaningful connection.

brucefiiona , 9 Jun 2013 20:28
Do away with deceptive terms like neoliberalism, capitalism, socialism, left wing and right wing and things become clearer.

At root a lot of the people who get involved in all of the above have very similar character traits - love of power, greed, deceitful, ruthlessness. Most start out with these character traits, and others gain them as a result of power.

Anyone high up in politics or business is unhinged. You have to be. The organizational structures in these things are so synthetic, the beliefs so artificial, rigid, dogmatic and inhuman that only a unhinged person could prosper in this climate.

Most reasonable people admit doubt, are willing to accept compromise, are willing to make the occasional sacrifice for the greater good. All these things are what make us human, however all these things are seen as weaknesses in the inverted world of business and politics.

Business and politics creates an environment where the must inhuman traits prosper.

fr0mn0where -> murielbelcher , 9 Jun 2013 14:42
@murielbelcher -

"no but the highly placed banking and financial class are along with their venal political mates"

For sure but are they capitalists? Although they may well own capital does their power derive from the ownership of capital? You may, or may not be interested in this lecture on the future of capitalism by John Kay.

MysticFish -> AssistantCook , 9 Jun 2013 14:28
@AssistantCook - Neoliberalism is a branch of economic ideology which espouses the value of the free-market, and removing all protective legislation, so that large companies are free to do what they want, where-ever they want, with no impediments from social or environmental considerations, or a nation's democratic preferences. Von Hayek was a major influence and Thatcher was a loyal disciple, as was the notorious dictator, Pinochet. It is economic theory, designed for vulture capitalists, and unpopular industries like fossil fuel or tobacco, and usually the 'freedom' is all one-sided.
MysticFish -> DavidPavett , 9 Jun 2013 14:12
@DavidPavett - If states are too big, then what about multinational banks and corporations? I wonder why Neoliberal ideology does not try to limit the size of these. They are cumbersome and destructive, predatory dinosaurs and yet our politicians seem mesmerised to the point of allowing them special favours, tax incentives and the ability to determine our nation's policies in matters such as energy and health. Why not 'Small is Beautiful,' when it comes to companies? It doesn't make sense to shrink the state but then let non-transparent and unaccountable, multinational companies become too powerful. One gets the feeling the country is being invaded by the interests of hostile nations, using all-too-convenient Neoliberal ideology and hidden behind a corporate mask.
Jesús Rodriguez , 9 Jun 2013 12:46
Is the IMF ever stop evading its responsibility and blaming others for the worldwide financial tragedy it has provoked? Is it ever stop hurting the working class?
theguardianisrubbish -> murielbelcher , 9 Jun 2013 07:28
@murielbelcher -

"Neo-liberalism is based on the thought of personal freedom for the rich and powerful elites is all."

No it is not that is what you want to believe. There is nothing in this statement other than an opinion based on nothing.

"Many people across the globe were lifted out of poverty between 1945-1980 so what does your statement about neo-liberalism prove"

Which countries during this period saw massive sustainable reductions in poverty without some free market model in place?

"It is you who should open your eyes and stop expecting people on here to accept your ideological beliefs and statements as facts."

I don't expect people to accept my beliefs I am just pointing out why I think their beliefs are wrong. This is a comment section the whole idea of it is to comment on different views and articles. How can you ever benefit or make an accurate decision or belief if you do not try to understand what the opposite belief is? I think nearly everything I have said has been somewhat backed up by logic or a fact, I have not said wishy washy statements like:

"Neo-liberalism is based on the thought of personal freedom for the rich and powerful elites is all."

Unless you can expand on this and give evidence or some form of an example why you think its true then it makes no sense. You are not the only commentor on this article to make a similar statement and the way people have attempted to justify it is due to bailouts but as I have said a bailout is not part of the neoliberal school of thought so if you have a problem with bailouts you don't have a problem with neoliberalism.

theguardianisrubbish -> murielbelcher , 9 Jun 2013 07:10
@murielbelcher - I don't want to go to far into Thatcherism because it is slightly off topic. The early 80s recession was a global recession and yes during the first few years unemployment soared. Why was that because the trade unions were running amok the UK was losing millions of days of work per month.

Inflation was getting out of control and the only way to solve it was a self induced recession. You cannot seriously believe that without the reforms that she implemented we would not have recovered as quick as we did nor can you argue that it was possible for her or anyone else to turn around such an inefficient industry. Don't forget the problems of the manufacturing industry go back way before Thatcher's time.

theguardianisrubbish -> someoneionceknew , 9 Jun 2013 06:34
@someoneionceknew -

"Here's your problem. You believe that banks lend savings. They don't. Loans create deposits create reserves."

I am not claiming to be an expert on this if you are then let me know and please do correct me. I agree banks do not lend deposits but they do lend savings. There is a difference putting money on deposit is different to say putting money into an ISA. I don't agree though that deposits create reserves I believe that they come from the central bank otherwise banks would be constrained by the amount of deposits in the system which is not true and something you have said is not true.

Nevertheless, the majority of liquidity in the bond markets (like most other markets) comes from institutional investors, i.e pension funds, unit trusts, insurance companies, etc. They get their money from savings by consumers as well as sometimes companies. Ok we don't always give our money to insurance companies when we save but via premiums is another way the ordinary consumer contributes to this so called "debt industry". I also said that foreign and local governments buy debt and companies invest directly into the debt market.

MysticFish -> MickGJ , 9 Jun 2013 06:17
@MickGJ - Business-friendly to who exactly: the nation or hostile overseas speculators?
theguardianisrubbish -> TedSmithAndSon , 9 Jun 2013 06:14
"In theory the banks should have been allowed to go bust, but the consequences where deemed too high (as they inevitable are). "

Iceland would disagree.

"The result is socialism for the rich using the poor as the excuse, which is the reality of neoliberalism."

Why have only the rich benefited from the bailout? You are not making any sense.

"The result is socialism for the rich using the poor as the excuse, which is the reality of neoliberalism."

Why? You cannot just say a statement like that and not expand, it makes no sense.

"Thatcher "revitalised" banking, while everything else withered and died."

...but also revitalised the economy and got everyone back to work.

"Neoliberalism is based on the thought that you get as much freedom as you can pay for, otherwise you can just pay... like everyone else."

Again you have to expand on this because it makes no sense.

"In Asia and South America it has been the economic preference of dictators that pushes profit upwards and responsibility down, just like it does here."

Don't think that is true in most cases nor would it make sense. Why would a dictator who wants as much power as possible operate a laissez-faire economy? You cannot have personal freedom without having economic freedom, it is a necessary not sufficient condition. Tell me a case where these is a large degree of political freedom but little to no economic freedom. Moreover look at the countries in Asia and South America that have adopted a neoliberal agenda and notice their how poverty as reduced significantly.

"I find it ironic that it now has 5 year plans that absolutely must not be deviated from, massive state intervention in markets (QE, housing policy, tax credits... insert where applicable), and advocates large scale central planning even as it denies reality, and makes the announcement from a tractor factory."

Who has 5 year plans?

"In theory it's one thing, the reality is entirely different."

If the reality is different to the theory then it is not neoliberalism that is being implemented therefore it makes no sense to dispute the theory. Look at where it has been implemented, the best case in the world at the moment is Hong Kong look at how well that country has performed.

"a massive lie told by rich people "

I can assure you I am not rich.

"Until we're rid of it, we're all it's slaves."

Neoliberalism is based on personal freedom. If you believe this about neoliberalism in your opinion give me one economic school of thought where this does not apply.

theguardianisrubbish -> theonionmurders , 9 Jun 2013 05:35
@theonionmurders -

"Bailouts have been a constant feature of neoliberalism."

What you are saying does not make sense. Whatever you say about that there was no where else to turn the government had to bailout out the banks a neolibralist would disagree.

"In fact the role of the state is simply reduced to a merely commissioning agent to private parasitical corporations. "

That's corporatism which so far you have described pretty well.

"History has shown the state playing this role since neoliberalism became embedded in policy since the 1970s - Long Term Capital Management, Savings and Loans, The Brady Plan, numerous PFI bailouts and those of the Western banking system during the 1982 South American, 1997 Asian and 2010 European debt crises."

What?! Bailouts have been occurring before the industrial revolution. Deregulation in the UK occurred mainly during the 80s not 70's. Furthermore financial deregulation occurred in the UK in 1986. In the USA the major piece of financial deregulation was the Gramm Leach Bliley Act which was passed in 1999. So you have just undercut your own point with the examples you gave above. You could argue Argentina and we could argue all day about the causes of that, but I would say that any government that pursues an expansionary monetary policy under a fixed ER is never going to end well.

"...policy if you won't flick through a book."

My point was that when people quote a source they tend to either quote the page that the point comes from. To be honest if this book is telling you that neoliberalism and neoclassical are significantly different (which you seemed to suggest in you earlier post) then I would suggest put the book down.

ATrueFinn -> fireman36 , 9 Jun 2013 04:17
@ fireman36 09 June 2013 1:32am

Don't like it? Change the rules.

Exactly! However:

"Google, Amazon and Apple... avoid their taxes, because they can, because they are more powerful than governments."

Yes to the first, no to the second. Corporations with revenues exceeding the GDP of a small nation have quite a lot of power: Exxon's revenue is between the GDP of Norway and Austria. In Finland Nokia generated 3 4 % of the GDP for a decade and the government bent backwards to accommodate its polite requests, including a specific law reducing the privacy of employees' emails.

Grich -> MatthewBall , 8 Jun 2013 22:29
@MatthewBall -

I am not sure if this is true. We have the same economic system (broadly speaking, capitalism) as nearly every country in the world, and the world economy is growing at a reasonable rate, at around 3-4% for 2013-14 (see http://www.imf.org/external/pubs/ft/weo/2013/01/pdf/c1.pdf for more details).

We percieve a problem in (most of) Europe and North America because our economies are growing more slowly than this, and in some cases not at all. The global growth figure comes out healthy because of strong growth in the emerging countries, like China, Brazil and India, who are narrowing the gap between their living standards and ours. So, the world as a whole isn't broken, even if our bit of it is going through a rough patch.

What you have missed, is that the lions share of the proceeds of that growth are not going to ordinary people but to a tiny minority of super rich. It is not working for the majority. http://www.nakedcapitalism.com/2010/07/58-of-real-income-growth-since-1976-went-to-top-1-and-why-that-matters.html

oriel46 -> Fachan , 8 Jun 2013 22:08
@Fachan - Except that it isn't capitalism that was being criticized here, but neoliberalism: a distinction that's often lost on neoliberals themselves, ironically.
TomorrowsWorld , 8 Jun 2013 19:58
I'm sure that Denis Healy and any number of African economists would confirm that the IMF is quite simply a refuge of absolutely last resort, when investor confidence in your economy is so shattered that the only way ahead is to open the shark gates and allow big money to plunder whatever value remains there, without the benefit of any noticeable return for your people. Greece is but one more victim of a syndrome that encompasses all the science and forensic analysis of ritual sacrifice.
murielbelcher -> OneCommentator , 8 Jun 2013 19:10
@OneCommentator - don't confuse economic deregulation which acted as handmaiden to global finance and multinationals as economic freedoms for population

China's govt was doing what china's govt had decided to do from 1978 BEFORE the election of Thatcher in 1979 or Reagan in 1980 (office from Jan 1981), so very little correlation there I think

The GATT rounds whether you agree with their aims or not were the products of the post war decades, again before Thatcher and Reagan came to power

The golden age of 1945 - 1975 or so witnessed huge rises in standards of living so your point linking neo-liberalism to rising standards of living is literally meaningless. There was an explosive growth in economic activity during the three or four post war decades

murielbelcher -> theguardianisrubbish , 8 Jun 2013 19:04
@theguardianisrubbish - you can't get away with this

She DID not get everyone back to work again. There were two recessions at either end of the 1980s. She TRIPLED unemployment during the first half of the 1980s and introduced the phenomenon of high structural unemployment and placing people on invalidity benefits to massage the headline unemployment count. Give us the figures to back up your assertion that she "got everyone back to work again." I suspect that you cannot and your statement stands for the utter nonsense that it is in any kind of reality.

A few months after she was forced out Tory Chancellor Norman Lamont in 1991 during yet another recession declared that "unemployment was a price worth paying"!!!

Neo-liberalism is based on the thought of personal freedom for the rich and powerful elites is all. Many people across the globe were lifted out of poverty between 1945-1980 so what does your statement about neo-liberalism prove

It is you who should open your eyes and stop expecting people on here to accept your ideological beliefs and statements as facts.

Because they are not: in no shape, way or form

fireman36 , 8 Jun 2013 19:03
Not very impressed to be honest. For starters:

"The IMF exists to lend money to governments, so it's comic that it wags its finger at governments that run up debt. And, of course, its loans famously come with strings attached: adopt a free-market economy, or strengthen the one you have, kissing goodbye to the Big State."

That's glib and inaccurate. A better read about the IMF from an insider: http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/307364/ Digest: the biggest problem the IMF have to deal with in bailouts is always the politics of cronyism; free-market oligarchs and government in cahoots.

"Many IMF programs "go off track" (a euphemism) precisely because the government can't stay tough on erstwhile cronies, and the consequences are massive inflation or other disasters. A program "goes back on track" once the government prevails or powerful oligarchs sort out among themselves who will govern -- and thus win or lose -- under the IMF-supported plan. The real fight in Thailand and Indonesia in 1997 was about which powerful families would lose their banks. In Thailand, it was handled relatively smoothly. In Indonesia, it led to the fall of President Suharto and economic chaos."

MickGJ -> JohnBroggio , 8 Jun 2013 18:42

@JohnBroggio - who caters for the idealist vote?

Generally whoever happens to be in opposition at the time. This made the LibDems the ideal (sorry) choice for a long time but then they broke a long-standing if unspoken promise that they would never actually be in government.

Last weekś Economist has some very interesting stuff from the British Social Attitudes survey which shows the increasing drift away from collectivist ideals towards liberalism over each succeeding generation.

The assumption shared by many round here that the young are some untapped resource of revolutionary energy is deeply mistaken

[Dec 14, 2018] Neoliberalism has spawned a financial elite who hold governments to ransom by Deborah Orr

Highly recommended!
Notable quotes:
"... The crash was a write-off, not a repair job. The response should be a wholesale reevaluation of the way in which wealth is created and distributed around the globe ..."
"... The IMF also admits that it "underestimated" the effect austerity would have on Greece. Obviously, the rest of the Troika takes no issue with that. Even those who substitute "kick up the arse to all the lazy scroungers" whenever they encounter the word "austerity", have cottoned on to the fact that the word can only be intoned with facial features locked into a suitably tragic mask. ..."
"... Yet, mealy-mouthed and hotly contested as this minor mea culpa is, it's still a sign that financial institutions may slowly be coming round to the idea that they are the problem. ..."
"... Markets cannot be free. Markets have to be nurtured. They have to be invested in. Markets have to be grown. Google, Amazon and Apple haven't taught anyone in this country to read. But even though an illiterate market wouldn't be so great for them, they avoid their taxes, because they can, because they are more powerful than governments. ..."
"... The neoliberalism that the IMF still preaches pays no account to any of this. It insists that the provision of work alone is enough of an invisible hand to sustain a market. Yet even Adam Smith, the economist who came up with that theory , did not agree that economic activity alone was enough to keep humans decent and civilised. ..."
"... Governments are left with the bill when neoliberals demand access to markets that they refuse to invest in making. Their refusal allows them to rail against the Big State while producing the conditions that make it necessary. ..."
Jun 08, 2013 | www.theguardian.com

The crash was a write-off, not a repair job. The response should be a wholesale reevaluation of the way in which wealth is created and distributed around the globe

Sat 8 Jun 2013 02.59 EDT First published on Sat 8 Jun 2013 02.59 EDT

The IMF's limited admission of guilt over the Greek bailout is a start, but they still can't see the global financial system's fundamental flaws, writes Deborah Orr. Photograph: Boris Roessler/DPA FILE T he International Monetary Fund has admitted that some of the decisions it made in the wake of the 2007-2008 financial crisis were wrong, and that the €130bn first bailout of Greece was "bungled". Well, yes. If it hadn't been a mistake, then it would have been the only bailout and everyone in Greece would have lived happily ever after.

Actually, the IMF hasn't quite admitted that it messed things up. It has said instead that it went along with its partners in "the Troika" – the European Commission and the European Central Bank – when it shouldn't have. The EC and the ECB, says the IMF, put the interests of the eurozone before the interests of Greece. The EC and the ECB, in turn, clutch their pearls and splutter with horror that they could be accused of something so petty as self-preservation.

The IMF also admits that it "underestimated" the effect austerity would have on Greece. Obviously, the rest of the Troika takes no issue with that. Even those who substitute "kick up the arse to all the lazy scroungers" whenever they encounter the word "austerity", have cottoned on to the fact that the word can only be intoned with facial features locked into a suitably tragic mask.

Yet, mealy-mouthed and hotly contested as this minor mea culpa is, it's still a sign that financial institutions may slowly be coming round to the idea that they are the problem. They know the crash was a debt-bubble that burst. What they don't seem to acknowledge is that the merry days of reckless lending are never going to return; even if they do, the same thing will happen again, but more quickly and more savagely. The thing is this: the crash was a write-off, not a repair job. The response from the start should have been a wholesale reevaluation of the way in which wealth is created and distributed around the globe, a "structural adjustment", as the philosopher John Gray has said all along.

The IMF exists to lend money to governments, so it's comic that it wags its finger at governments that run up debt. And, of course, its loans famously come with strings attached: adopt a free-market economy, or strengthen the one you have, kissing goodbye to the Big State. Yet, the irony is painful. Neoliberal ideology insists that states are too big and cumbersome, too centralised and faceless, to be efficient and responsive. I agree. The problem is that the ruthless sentimentalists of neoliberalism like to tell themselves – and anyone else who will listen – that removing the dead hand of state control frees the individual citizen to be entrepreneurial and productive. Instead, it places the financially powerful beyond any state, in an international elite that makes its own rules, and holds governments to ransom. That's what the financial crisis was all about. The ransom was paid, and as a result, governments have been obliged to limit their activities yet further – some setting about the task with greater relish than others. Now the task, supposedly, is to get the free market up and running again.

But the basic problem is this: it costs a lot of money to cultivate a market – a group of consumers – and the more sophisticated the market is, the more expensive it is to cultivate them. A developed market needs to be populated with educated, healthy, cultured, law-abiding and financially secure people – people who expect to be well paid themselves, having been brought up believing in material aspiration, as consumers need to be.

So why, exactly, given the huge amount of investment needed to create such a market, should access to it then be "free"? The neoliberal idea is that the cultivation itself should be conducted privately as well. They see "austerity" as a way of forcing that agenda. But how can the privatisation of societal welfare possibly happen when unemployment is already high, working people are turning to food banks to survive and the debt industry, far from being sorry that it brought the global economy to its knees, is snapping up bargains in the form of busted high-street businesses to establish shops with nothing to sell but high-interest debt? Why, you have to ask yourself, is this vast implausibility, this sheer unsustainability, not blindingly obvious to all?

Markets cannot be free. Markets have to be nurtured. They have to be invested in. Markets have to be grown. Google, Amazon and Apple haven't taught anyone in this country to read. But even though an illiterate market wouldn't be so great for them, they avoid their taxes, because they can, because they are more powerful than governments.

And further, those who invest in these companies, and insist that taxes should be low to encourage private profit and shareholder value, then lend governments the money they need to create these populations of sophisticated producers and consumers, berating them for their profligacy as they do so. It's all utterly, completely, crazy.

The other day a health minister, Anna Soubry , suggested that female GPs who worked part-time so that they could bring up families were putting the NHS under strain. The compartmentalised thinking is quite breathtaking. What on earth does she imagine? That it would be better for the economy if they all left school at 16? On the contrary, the more people who are earning good money while working part-time – thus having the leisure to consume – the better. No doubt these female GPs are sustaining both the pharmaceutical industry and the arts and media, both sectors that Britain does well in.

As for their prioritising of family life over career – that's just another of the myriad ways in which Conservative neoliberalism is entirely without logic. Its prophets and its disciples will happily – ecstatically – tell you that there's nothing more important than family, unless you're a family doctor spending some of your time caring for your own. You couldn't make these characters up. It is certainly true that women with children find it more easy to find part-time employment in the public sector. But that's a prima facie example of how unresponsive the private sector is to human and societal need, not – as it is so often presented – evidence that the public sector is congenitally disabled.

Much of the healthy economic growth – as opposed to the smoke and mirrors of many aspects of financial services – that Britain enjoyed during the second half of the 20th century was due to women swelling the educated workforce. Soubry and her ilk, above all else, forget that people have multiple roles, as consumers, as producers, as citizens and as family members. All of those things have to be nurtured and invested in to make a market.

The neoliberalism that the IMF still preaches pays no account to any of this. It insists that the provision of work alone is enough of an invisible hand to sustain a market. Yet even Adam Smith, the economist who came up with that theory , did not agree that economic activity alone was enough to keep humans decent and civilised.

Governments are left with the bill when neoliberals demand access to markets that they refuse to invest in making. Their refusal allows them to rail against the Big State while producing the conditions that make it necessary. And even as the results of their folly become ever more plain to see, they are grudging in their admittance of the slightest blame, bickering with their allies instead of waking up, smelling the coffee and realizing that far too much of it is sold through Starbucks.

[Dec 14, 2018] The era of neoliberalism has seen a massive increase in government, not a shrinkage. The biggest change is the role of governments - to protect markets rather than to protect the rights and dignities of its citizens

Notable quotes:
"... The era of neoliberalism has seen a massive increase in government, not a shrinkage. The biggest change is the role of governments - to protect markets rather than to protect the rights and dignities of its citizens. When viewed by outcome rather than ideological rhetoric, it becomes increasingly clear that neoliberalism has nothing to do with shrinking the state, freeing markets, or freeing the individual, and everything to do with a massive power grab by a global elite. ..."
"... What was the billions of pounds in bank bailout welfare and recession on costs all about? You tell me. All the result of the application of your extremist free market ideology? Let the banks run wild, they mess up and the taxpayer has to step in with bailout welfare and pay to clear up the recession debris ..."
"... Market participants and their venal political friends have during the past 30 years of extremist neo-liberal ideology rigged, abused, distorted and subverted their market and elite power to tilt the economic and social balance massively in their favour ..."
"... Neo liberalism = the favoured ideology of the very rich and powerful elite ..."
"... at last somebody is looking at globalisation and asking whose interests is it designed to serve? It certainly ain't for the people. ..."
"... the highly placed banking and financial class are along with their venal political mates ..."
"... We've had three decades of asset stripping in favor of the rich elites and look at the mess we're in now. ..."
"... I strongly believe that people are not being told the full story. Like the NSA surveillance revelation, the effects will not be pretty when the facts are known. No country needs the IMF. ..."
"... The mythology surrounding deficits and national debt is a religion that the world is in desperate need of debunking. Like religion, the mythology is used as a means of power and entrenchment of privilege for the Ruling Caste, not the plebs (lesser mortals). ..."
Dec 03, 2018 | www.theguardian.com
justamug , 8 Jun 2013 18:09
This article is a testament to our ignorance. Orr is no intellectual slouch, but somehow, like many in the mainstream, she still fails to address some fundamental assumptions and thus ends up with a muddled argument.

"What they don't seem to acknowledge is that the merry days of reckless lending are never going to return;"

Lending has not stopped - it's just moved out of one market into another. Banks are making profits, and banks profit are made by expanding credit.

Neoliberal ideology insists that states are too big and cumbersome, too centralised and faceless, to be efficient and responsive.

Yes and no. There is a difference between what is preached and what happens in practice. The era of neoliberalism has seen a massive increase in government, not a shrinkage. The biggest change is the role of governments - to protect markets rather than to protect the rights and dignities of its citizens. When viewed by outcome rather than ideological rhetoric, it becomes increasingly clear that neoliberalism has nothing to do with shrinking the state, freeing markets, or freeing the individual, and everything to do with a massive power grab by a global elite.
murielbelcher -> MurchuantEacnamai , 8 Jun 2013 18:06
@MurchuantEacnamai - well righty ideologues such as yourself and your venal political acolytes have utterly failed to support the case or institute measures that: "apply effective democratic governance to ensure market

What was the billions of pounds in bank bailout welfare and recession on costs all about? You tell me. All the result of the application of your extremist free market ideology? Let the banks run wild, they mess up and the taxpayer has to step in with bailout welfare and pay to clear up the recession debris

Market participants and their venal political friends have during the past 30 years of extremist neo-liberal ideology rigged, abused, distorted and subverted their market and elite power to tilt the economic and social balance massively in their favour

You the taxpayer are good enough to bail us out when we mess up but then we demand that your services are cut in return and that your employment is ever more precarious and wages depressed (at the lower end of the scale - never ever the higher of course!! That's the neo-liberal deal isn't it

Neo liberalism = the favoured ideology of the very rich and powerful elite and boy don't they know how to work its levers

freedomrespect , 8 Jun 2013 18:00
Very insightful commentary and at last somebody is looking at globalisation and asking whose interests is it designed to serve? It certainly ain't for the people. Amazing it's been approved on a UK liberal newspaper as well!
Boguille -> Fachan , 8 Jun 2013 17:57
@Fachan - There was nothing in the article about envy. It was an exposition of the failure of our present system which allows the rich to get ever richer. That would be fine if it weren't for the fact that the increasing disparity in wealth is bringing down the economy and making it less productive while leaving a large part of the population in, or on the verge of, poverty.
murielbelcher -> CaptainGrey , 8 Jun 2013 17:41
@CaptainGrey - but we're not talking about that form of capitalism are we?

Surely you must realise that there are very very different forms of capitalism. The capitalism that reigns now would not have permitted the creation of the NHS had it not been devised in the1940s when a very different type of capitalism reigned. Its political acolytes and its cheerleader press would have denounced the NHS as an extremist commie idea!!

murielbelcher -> fr0mn0where , 8 Jun 2013 17:39
@fr0mn0where - it was crumbling in the 1980s

The Chicago boys swarmed into eastern Europe after 1989 to introduce a form of gangster unbridled capitalism. The very Chicago boys led by Milton Friedman who used the dictator Pinochet's Chile as test bed for their ideology from September 1973 after the coup that overthrew Allende

murielbelcher -> fr0mn0where , 8 Jun 2013 17:35
@fr0mn0where - no but the highly placed banking and financial class are along with their venal political mates

We've had three decades of asset stripping in favor of the rich elites and look at the mess we're in now.

murielbelcher -> MatthewBall , 8 Jun 2013 17:33
@MatthewBall - social democracy

The neo-liberal order commenced only in the late 1970s - there was a very different order prior to this which was not "Soviet Socialism" as you term it.

As such this extremist rich man's ideological experiment has had a long innings and has failed as the events of 2008 laid bare for all to see - it has been tried out disastrously on live human beings for 34 years and has now been thoroughly discredited with the huge bank bailouts and financial crash and ensuing and enduring recession It was scarcely succeeding prior to this with high entrenched rates of unemployment, frequent recessions/booms and busts and unsustainable property bubbles and deregulated unstable speculative aka casino banking activity

Time for a change

RidiculousPseudonym , 8 Jun 2013 17:26
This is basically right, but a few comments.

1. Neoliberalism cannot be pinned on one party alone. It was accepted by the Thatcher government, but no Prime Minister since has seriously challenged it.

2. Neoliberalism is logically contrary to conservative values. Either there are certain moral imperatives so important that it is worth wasting money over them, or there are not. No wonder that Tories are torn in two, not to mention Labour politicians who also try to combine neoliberalism and moral principle.

3. Saying "even Adam Smith" is understandable but unfair. His work was rather enlightened in the context of mercantilism, and of course the Wealth of Nations was not his only book. Others will know his work better than me, but I think he dwells rather strongly on problems of persistent poverty.

4. The political and redistributive functions of nations are indeed damaged by neolib, but I don't think there is any realistic way of getting that power back without applying capital controls. If we apply capital controls, all hell breaks loose.

5. Ergo, we are stuck with a situation where neolib is killing democracy, distributive justice and conservative moral values, but there is nothing we can do about it without pulling the plug altogether and unleashing a sharp drop in wealth and 1930s nationalistic havoc. A bit of a tragedy, indeed.

HolyInsurgent , 8 Jun 2013 17:22

Deborah Orr: The IMF exists to lend money to governments, so it's comic that it wags its finger at governments that run up debt.

I strongly believe that people are not being told the full story. Like the NSA surveillance revelation, the effects will not be pretty when the facts are known. No country needs the IMF. Any national government with its own national currency sovereignty can pay its own debts within its own country with its own currency. International borrowing in foreign markets is the biggest myth since religion. But since neoliberalism and its inherent myths have been swallowed whole for so long, we are still at the stage where the child points and laughs at the nude emperor. The fallout from the revelation and remedy is to follow.

The problem with the Eurozone is not that the Euro is the "national" currency. Control of the Euro resides with the European Central Bank, not the Troika (European Commission, European Central Bank, IMF). The European Central Bank, as sole controller of the Euro (the "national" currency), can issue funds to constituent Eurozone states to the extent necessary. I challenge anyone to demonstrate how any central bank does not have power over its own currency!

The mythology surrounding deficits and national debt is a religion that the world is in desperate need of debunking. Like religion, the mythology is used as a means of power and entrenchment of privilege for the Ruling Caste, not the plebs (lesser mortals).

someoneionceknew -> colonelraeburn , 8 Jun 2013 17:18
@colonelraeburn - Excuse me? Private bank credit caused the housing price inflation.

Politicians were complicit in deregulating and appointing non-regulators but they didn't make the loans.

MickGJ -> DavidPavett , 8 Jun 2013 17:16

@DavidPavett - Does anyone have any idea what this is supposed to mean? There are certainly no leads on this in the link given to "the philosopher" John Gray

Gray wrote this in the Guardian in 2007:

Whether in Africa, Asia, Latin America or post-communist Europe, policies of wholesale privatisation and structural adjustment have led to declining economic activity and social dislocation on a massive scale

This doesn't seem to support Orrś assertion that he is calling for a structural adjustment, rather the opposite. I'ḿ not really familiar with Grayś work but he seems to be rather against the universal imposition of any system, new or old.
katiewm -> CaptainGrey , 8 Jun 2013 16:46
@CaptainGrey - Capitalism is not an undifferentiated mass. Late-stage neoliberal hypercapitalism as practiced in the US and increasingly in the UK is a very different beast than the traditional European capitalist social democracy or the Nordic model, which have been shown to work relatively well over time. In fact, neoliberal capitalism - the sort Orr is talking about here - is marked by increasing decline both in the state and in the economy, as inequality in wealth distribution creates a society of beggars and kings instead of spenders and savers. The gains achieved through carefully regulated capitalism won't stick around in the free-for-all conditions preferred by those whose ideology demands the sell-off of the state.
jazzdrum -> PeterWoking , 8 Jun 2013 16:16
@PeterWoking - For some parts of the world , yes they are more affluent now , but a huge part of the globe is still without food and water .

I think de regulation of the financial sector has caused a huge amount of damage to the world all round and to be honest, i expect more of the same as the Bankers are still in control.

[Dec 09, 2018] Prosperity theology - Wikipedia

In Christian tradition, the love of money is condemned as a sin primarily based on texts such as Ecclesiastes 5.10 and 1 Timothy 6:10. The Jewish and Christian condemnation relates to avarice and greed rather than money itself. Christian texts (scriptures) are full of parables and use easy to understand subjects, such as money, to convey the actual message, there are further parallels in Solon and Aristotle,[1] and Massinissa-who ascribed love of money to Hannibal and the Carthaginians.[2].
Avarice is one of the Seven deadly sins in the Christian classifications of vices (sins). The Catholic Church forbids usury.
While certain political ideologies, such as neoliberalism, assume and promote the view that the behavior that capitalism fosters in individuals is natural to humans,[2][3] anthropologists like Richard Robbins point out that there is nothing natural about this behavior - people are not naturally dispossessed to accumulate wealth and driven by wage-labor
Neoliberalism abstract the economic sphere from other aspects of society (politics, culture, family etc., with any political activity constituting an intervention into the natural process of the market, for example) and assume that people make rational exchanges in the sphere of market transactions. In reality rational economic exchanges are actually heavily influenced by pre-existing social ties and other factors.
Under neoliberalism both the society and culture revolve around business activity (the accumulation of capital). As such, business activity and the "free market" exchange (despite the fact that "free market" never existed in human history) are often viewed as being absolute or "natural" in that all other human social relations revolve around these processes (or should exist to facilitate one's ability to perform these processes
Notable quotes:
"... Conwell equated poverty with sin and asserted that anyone could become rich through hard work. This gospel of wealth, however, was an expression of Muscular Christianity and understood success to be the result of personal effort rather than divine intervention. [5] ..."
"... They criticized many aspects of the prosperity gospel, noting particularly the tendency of believers to lack compassion for the poor, since their poverty was seen as a sign that they had not followed the rules and therefore are not loved by God ..."
Dec 09, 2018 | en.wikipedia.org
[Video] Interview with Kate Bowler on Blessed: A History of the American Prosperity Gospel , March 18, 2014 , C-SPAN

According to historian Kate Bowler , the prosperity gospel was formed from the intersection of three different ideologies: Pentecostalism , New Thought , and "an American gospel of pragmatism, individualism, and upward mobility". [4] This "American gospel" was best exemplified by Andrew Carnegie 's Gospel of Wealth and Russell Conwell 's famous sermon "Acres of Diamonds", in which Conwell equated poverty with sin and asserted that anyone could become rich through hard work. This gospel of wealth, however, was an expression of Muscular Christianity and understood success to be the result of personal effort rather than divine intervention. [5]

... ... ...

In 2005, Matthew Ashimolowo , the founder of the largely African Kingsway International Christian Centre in southern England, which preaches a "health and wealth" gospel and collects regular tithes, was ordered by the Charity Commission to repay money he had appropriated for his personal use. In 2017, the organisation was under criminal investigation after a leading member was found by a court in 2015 to have operated a Ponzi scheme between 2007 and 2011, losing or spending £8 million of investors' money. [43]

... ... ...

The inauguration of Donald Trump as the 45th President of the United States featured prayers from two preachers known for advocating prosperity theology. [45] Paula White , one of Trump's spiritual advisers, gave the invocation. [46]

... ... ...

36] Hanna Rosin of The Atlantic argues that prosperity theology contributed to the housing bubble that caused the late-2000s financial crisis . She maintains that home ownership was heavily emphasized in prosperity churches, based on reliance on divine financial intervention that led to unwise choices based on actual financial ability. [36]

... ... ...

Historian Carter Lindberg of Boston University has drawn parallels between contemporary prosperity theology and the medieval indulgence trade . [69] Coleman notes that several pre–20th century Christian movements in the United States taught that a holy lifestyle was a path to prosperity and that God-ordained hard work would bring blessing. [16]

... ... ...

In April 2015, LDS apostle Dallin H. Oaks stated that people who believe in "the theology of prosperity" are deceived by riches. He continued by saying that the "possession of wealth or significant income is not a mark of heavenly favor, and their absence is not evidence of heavenly disfavor". He also cited how Jesus differentiated the attitudes towards money held by the young rich man in Mark 10:17–24, the good Samaritan, and Judas Iscariot in his betrayal. Oaks concluded this portion of his sermon by highlighting that the "root of all evil is not money but the love of money". [90]

In 2015, well known pastor and prosperity gospel advocate Creflo Dollar launched a fundraising campaign to replace a previous private jet with a $65 million Gulfstream G650. [91] On the August 16, 2015 episode of his HBO weekly series Last Week Tonight , John Oliver satirized prosperity theology by announcing that he had established his own tax-exempt church, called Our Lady of Perpetual Exemption . In a lengthy segment, Oliver focused on what he characterized as the predatory conduct of televangelists who appeal for repeated gifts from people in financial distress or personal crises, and he criticized the very loose requirements for entities to obtain tax exempt status as churches under U.S. tax law. Oliver said that he would ultimately donate any money collected by the church to Doctors Without Borders . [92]

In July 2018, Antonio Spadaro and Marcelo Figueroa, in the Jesuit journal La Civilità Cattolica , examined the origins of the prosperity gospel in the United States and described it as a reductive version of the American Dream which had offered opportunities of success and prosperity unreachable in the Old World . The authors distinguished the prosperity gospel from Max Weber 's Protestant ethic , noting that the protestant ethic related prosperity to religiously inspired austerity while the prosperity gospel saw prosperity as the simple result of personal faith. They criticized many aspects of the prosperity gospel, noting particularly the tendency of believers to lack compassion for the poor, since their poverty was seen as a sign that they had not followed the rules and therefore are not loved by God . [93] [94]

[Dec 09, 2018] Neoliberalism us the economic stablemate of big religion's Prosperity Evangelism cult

Dec 09, 2018 | discussion.theguardian.com

Alan Ritchie , 31 Oct 2018 22:24

Neoliberalism, the economic stablemate of big religion's Prosperity Evangelism cult. https://en.wikipedia.org/wiki/Prosperity_theology . Dual streams of bull shit to confuse the citizens while the Country's immense wealth is stolen.

[Dec 08, 2018] The problem with predatory behaviour of TBTF financial institutions is probably deeper then personality of Blankfein

Sliding of the banks into criminal behaviour is a norm, not an exemption
Feb 06, 2017 | economistsview.typepad.com
pgl : February 04, 2017 at 03:41 PM, 2017 at 03:41 PM
Not that Wikipedia gets everything right but here is a snippet of what it says about the Goldman Sachs CEO:

'Blankfein testified before Congress in April 2010 at a hearing of the Senate Permanent Subcommittee on Investigations. He said that Goldman Sachs had no moral or legal obligation to inform its clients it was betting against the products which they were buying from Goldman Sachs because it was not acting in a fiduciary role. The company was sued on April 16, 2010, by the SEC for the fraudulent selling of a synthetic CDO tied to subprime mortgages. With Blankfein at the helm, Goldman has also been criticized "by lawmakers and pundits for issues from its pay practices to its role in helping Greece mask the size of its debts". In April 2011, a Permanent Subcommittee on Investigations report accused Goldman Sachs of misleading clients about complex mortgage-related investments in 2007, and Senator Carl Levin alleged that Blankfein misled Congress, though no perjury charges have been brought against Blankfein. In August of the same year, Goldman confirmed that Blankfein had hired high-profile defense lawyer Reid Weingarten'

Weingarten helped in the defense of the Worldcom thieves. Why would anyone do business with a company led by such an ethically challenged CEO?

libezkova -> pgl... , February 04, 2017 at 07:12 PM
The problem here is probably deeper then personality of Blankfein.

There is such thing as system instability of economy caused by outsized financial sector and here GS fits the bill. Promotion of psychopathic personalities with no brakes and outsize taste for risk is just an icing on the cake.

> Why would anyone do business with a company led by such an ethically challenged CEO?

Why you are assuming the other TBTF are somehow better then GS?

[Dec 08, 2018] Owning the lawmakers doesn't make banksters not criminals, it just makes them criminals that are above the law

Dec 08, 2018 | www.alternet.org

Guest 6 years ago

[Dec 08, 2018] White House, Trudeau seek to distance themselves from Huawei move

This is about destruction of neoliberalism. Transnational financial elite under neoliberalism is above the law. the USA blatantly breaches this convention now. And will pay the price.
This is Onion-style humor is no it : White House, Trudeau seek to distance themselves from Huawei move
Notable quotes:
"... The official, speaking on condition of anonymity, acknowledged that the arrest could complicate efforts to reach a broader U.S.-China trade deal but would not necessarily damage the process. ..."
"... Meng's detention also raised concerns about potential retaliation from Beijing in Canada, where Prime Minister Justin Trudeau sought to distance himself from the arrest. ..."
Dec 08, 2018 | finance.yahoo.com

Huawei Technologies Co Ltd's chief financial officer, Meng Wanzhou, the 46-year-old daughter of the company's founder, was detained in Canada on Dec. 1, the same day Trump and Chinese President Xi Jinping dined together at the G20 summit in Buenos Aires.

A White House official told Reuters Trump did not know about a U.S. request for her extradition from Canada before he met Xi and agreed to a 90-day truce in the brewing trade war.

Meng's arrest during a stopover in Vancouver, announced by the Canadian authorities on Wednesday, pummeled stock markets already nervous about tensions between the world's two largest economies on fears the move could derail the planned trade talks.

The arrest was made at Washington's request as part of a U.S. investigation of an alleged scheme to use the global banking system to evade U.S. sanctions against Iran, according to people familiar with the probe.

Another U.S. official told Reuters that while it was a Justice Department matter and not orchestrated in advance by the White House, the case could send a message that Washington is serious about what it sees as Beijing's violations of international trade norms.

The official, speaking on condition of anonymity, acknowledged that the arrest could complicate efforts to reach a broader U.S.-China trade deal but would not necessarily damage the process.

Meng's detention also raised concerns about potential retaliation from Beijing in Canada, where Prime Minister Justin Trudeau sought to distance himself from the arrest.

"The appropriate authorities took the decisions in this case without any political involvement or interference ... we were advised by them with a few days' notice that this was in the works," Trudeau told reporters in Montreal in televised remarks.

[Dec 08, 2018] Wall Street s corruption runs deeper than you can fathom by Robert Scheer

Notable quotes:
"... Noncompliant: A Lone Whistleblower Exposes the Giants of Wall Street. ..."
"... Noncompliant: A Lone Whistleblower Exposes the Giants of Wall Street. ..."
"... Noncompliant: A Lone Whistleblower Exposes the Giants of Wall Street. ..."
"... A Lone Whistleblower Exposes the Giants of Wall Street. ..."
Dec 08, 2018 | www.alternet.org

Originally from: Truthdig December 8, 2018, 4:38 AM GMT

Wall Street's corruption runs deeper than you can fathom | Alternet Wall Street's corruption runs deeper than you can fathom As an employee at the Federal Reserve in 2011, three years after the dissolution of Lehman Brothers, Carmen Segarra witnessed the results of this deregulation firsthand

Print 61 COMMENTS

Of the myriad policy decisions that have brought us to our current precipice, from the signing of the North Atlantic Free Trade Agreement (NAFTA) to the invasion of Iraq and the gerrymandering of House districts across the country, few have proven as consequential as the demise of Glass-Steagall . Signed into law as the U.S.A. Banking Act of 1933, the legislation had been crucial to safeguarding the financial industry in the wake of the Great Depression. But with its repeal in 1999, the barriers separating commercial and investment banking collapsed, creating the preconditions for an economic crisis from whose shadow we have yet to emerge.

Carmen Segarra might have predicted as much. As an employee at the Federal Reserve in 2011, three years after the dissolution of Lehman Brothers, she witnessed the results of this deregulation firsthand. In her new book, " Noncompliant: A Lone Whistleblower Exposes the Giants of Wall Street, " she chronicles the recklessness of institutions like Goldman Sachs and the stunning lengths the United States government went to to accommodate them, even as they authored one of the worst crashes in our nation's history.

"They didn't want to hear what I had to say," she tells Robert Scheer in the latest installment of "Scheer Intelligence." "And so I think what we have in terms of this story is really not just a failure of the banks and the regulators, but also a failure of our prosecutors. I mean, a lot of the statutes that could be used -- criminal statutes, even, that could be used to hold these executives accountable are not being used, and they have not expired; we could have prosecutors holding these people accountable."

Segarra also explains why she decided to blow the whistle on the Fed, and what she ultimately hopes to accomplish by telling her story. "I don't like to let the bad guys win," she says. "I'd rather go down swinging. So for me, I saw it as an opportunity to do my civic duty and rebuild my life. I was very lucky to be blessed by so many people who I shared the story to, especially lawyers who were so concerned about what I was reporting, who thought that the Federal Reserve was above this, who thought that the government would not fail us after the financial crisis, and who were livid."

"Noncompliant" explores one of the darkest chapters in modern American history, but with a crook and unabashed narcissist occupying the Oval Office, its lessons are proving remarkably timely. "We live in a culture where we reward bad behavior, we worship bad behavior, and it's something that needs to stop," she cautions. "Changing the regulatory culture on [a] U.S. governmental level is something that's going to take a decade, maybe two. And we need to start now, before things get worse."

Listen to Segarra's interview with Scheer or read a transcript of their conversation below:

Robert Scheer: Hi, I'm Robert Scheer, and this is another edition of "Scheer Intelligence," where the intelligence comes from my guests. Today, Carmen Segarra. She's written a book, just came out, called "Noncompliant: A Lone Whistleblower Exposes the Giants of Wall Street." And boy, did she ever. Perhaps you remember this case; it was in 2011, two, three years into the Great Recession. There was a lot of pressure from Congress that these banks be regulated in a more serious way. As a result, Carmen Segarra, someone of considerable education, was brought in. And she was assigned to do a survey of Goldman Sachs, to go over to Goldman Sachs. And I just want to preface this, people have to understand that not only is the Federal Reserve an incredibly -- the most important economic institution in the United States, but the New York Federal Reserve plays a special role being in New York. And they are basically entrusted with regulating the banks, and they are the institution that most definitely failed in that task, and helped bring about the Great Recession. Would you agree with that assessment?

Carmen Segarra: Yes, I would agree with that assessment. When I joined the Federal Reserve, as you pointed out, I was hired from outside the regulatory world, but within the legal and compliance banking world, to help fix its problems. And I was well aware of the problems that existed. And scoping the problems itself was relatively easy; I mean, within days of arriving, I had participated in meetings where you had Goldman Sachs executives, you know, lying, doublespeaking, and misrepresenting to regulatory agencies without fear of repercussions. And where I saw Federal Reserve regulators actively working to suppress and expunge from the record evidence of wrongdoing that could be used by regulatory agencies, prosecutors, and even the Federal Reserve itself to hold Goldman Sachs accountable. The question was, when I arrived, you know, are these problems fixable? And, spoiler alert: I don't think so.

RS: Well, your book really is a compelling read on, really, what one could consider the dark culture of finance capital. Most of us know very little about it; we think it's boring, it's detailed and so forth. And I was thinking of another woman observer of great education and experience, who first tipped me off as a journalist when I was trying to cover the stuff about banking deregulation and so forth, and when Clinton was president and they did the basic financial deregulation. A woman named Brooksley Born, who was head of the Commodity Futures Trading Commission, and she had your kind of background, you know; a leading lawyer with the banks, and so forth. Understood this a lot better than most of the men who were powerful, including Treasury Secretary Robert Rubin; Lawrence Summers, who took over from him and went on to be the head of Harvard; Alan Greenspan–none of them really understood these collateralized debt obligations, credit default swaps; she did. She blew the whistle on it, and they basically destroyed her. She was forced out of the Clinton administration, and what have you. Did you know about Brooksley Born's work when you got into this? Do you have any sense? I mean, this was really sort of the first major whistleblower, and she was, as you have been, basically pushed aside.

CS: Yes. I definitely knew about her. And you know, I have to say that I was, you know, just taking that historical perspective, which I think is an important point of view through which we should approach this topic. I mean, I remember when I was in law school, I was one of the very first graduating classes to graduate into a post-Glass-Steagall world. From a 50,000-foot level, I think people have a better understanding of what that means, in the sense, you know, you have all of a sudden the securities and the banking products can get together.

But from a practical standpoint, from a ground-zero level, where I was at, that essentially meant two things. From a professional standpoint, we studied and were aware of the fact that there were a bunch of people on one side of the aisle, the investment products side–you know, the collateralized debt obligations that you mentioned.

And then there were people who were on the banking side; we're talking, you know, for purposes of argument, credit cards and debit cards. And that these people, they may have known about their products, but they were highly specialized; they only knew about the one or two things that they touched, and they certainly didn't know about them and how they interacted together. And one of the things that I remember studying were not just the cases of whistleblowers, but also discussing amongst our classmates, you know, what the impact would be of all of a sudden having a class or a series of classes, graduating from law school, with people who are focusing on banking and compliance, like I was, and who are having to understand both of these products and sort of how they interact together. And what, sort of visualizing what our work life would be like, in terms of reporting to people that had an incomplete understanding of how the banking world worked. So, yes, I was definitely aware; I understood perfectly where she was coming from. And she was very much a cautionary tale for the rest of us who are lawyers. In terms of, if you find yourself in these difficult situations, you sort of game out what potentially can happen. And I certainly took it into consideration when I was gaming out whether or not to whistleblow.

RS: Well, before you get to the whistleblowing stage, I think you're being too kind to what I personally think are people who should be considered as, or at least charged and examined often with what is criminal behavior. Because ignorance is really not a good defense; when they were called before congressional committees, these knowledgeable people admitted they really didn't understand collateralized debt obligations and credit default swaps. And for people who are not that familiar, you mentioned Glass-Steagall. And what Glass-Steagall was, was one of the, really maybe the most important response of Franklin Delano Roosevelt's democratic administration to the Great Depression. And how did this terrible depression happen, how were the banks so irresponsible. And they decided the key thing was to separate investment banks from commercial bank; investment banks could be high-rollers, private money, you know what you're doing, you have knowledge; and commercial banks where you're basically protecting the assets of ordinary people, they're not knowledgeable, they're trusting your expertise. And eliminating Glass-Steagall eliminated this wall between the two kinds of banking. And the company that you went to observe, Goldman Sachs, was an investment bank. And by the working of that law, they should have been allowed to go belly-up when it turned out they had a lot of these dubious credit default swaps and collateralized debt obligations. To people who don't know, a credit default swap was a phony insurance policy pretending to cover these things, but really there's nothing backing it up. And somehow, in order to save them, they were allowed to announce they could do commercial banking. One could argue, in some ways, the barrier was lifted to help–Citigroup was of course the other one–Citibank. And these are two banks that the government stepped in to help and create this monster. Is it not the case?

CS: Yeah, that's absolutely the case. But there's a couple of things that we need to keep in mind. I mean, I think that we're all sort of educated enough to know that, you know, where there's a will, there's a way. And so if a system can be corrupted, people that are allowed to grab hold of power will corrupt it–insofar and only for so long as we allow those people to have the ability and the power to corrupt it. So ultimately, talking about more or less rules, or different rules, is productive only to a point. Because ultimately what we're talking about here is the haphazard, slap on the wrist, failure to truly enforce the rules and regulations equitably across the system. And that creates the imbalances that you see, for example, in Goldman Sachs, and that you see in the system in general. One of the things that happened as a result of Glass-Steagall coming down was that a lot of the investment bankers were allowed to take over the commercial banks. And those investment bankers knew nothing about banking, and Goldman is a great example of that. I mean, when I arrived three years in after the financial crisis, what was one of the things that was very shocking to me was going into meeting after meeting with Goldman senior management and hearing them lie, doublespeak, and most shockingly of all, insist that they didn't have to comply with the law. And that is a problem. Because a bank that doesn't believe, or management at a bank that doesn't believe they have to comply with the law–you bet they are not supervising their employees correctly, and they're not incentivizing employees correctly in terms of how to do their job. So their behavior is injecting enormous risk into the system

... ... ...

CS: The case was assigned to a judge who was friends with the attorney, I had worked with the attorney that represented the Fed. And then two days before dismissing the case, she revealed that she was married to someone who represented Goldman Sachs for a living. So, yeah, there you go. [Laughs] I mean, it's almost impossible in terms of successfully blowing the whistle. But going back to your question with respect to the recordings and having a say, I think the question that we need to be asking ourselves is this: the Federal Reserve Bank of New York, and the Federal Reserve in general, is tasked with supervising the banks. They have recorders. They have the law on their side. New York is a one person consent state. Banks, private banks, habitually record everything that goes on inside the bank, and they do it for good reason. Because they do it to stop and prevent fraud, among employees and by anybody that walks in the door. Why is the Federal Reserve not recording these executives? Why are they not preserving evidence? I think that is the question that we need to be asking ourselves. You know, what I did was not special. What I did is what the Fed should have been doing.

about:blank

Wall Street's corruption runs deeper than you can fathom | Alternet RS: Well, it was special in that [Laughs]–come on! There have been a lot of witnesses to these crimes, really, and you're the lone voice from within that system that dared to speak up. And as I said, had you not been able to document it with these tapes, you would have been just dismissed as some kind of kook. The book is called Noncompliant: A Lone Whistleblower Exposes the Giants of Wall Street. You know, what is so important is nuance and language and attitude. And the people on Wall Street can affect the protection of manners and complexity. I remember Lawrence Summers testifying in Congress on why you had to get rid of Glass-Steagall, and he said "this is very complicated." And he said the same thing Alan Greenspan said: "These people know what they're doing," and so forth. It wasn't complicated. If the Mafia did it, you'd see right through it in five minutes. Right? You were bundling a bunch of lousy deals together with some good deals, and you didn't even know what was in there, and you sold them, and you got a phony insurance contract to back it up. And yet none of these people have been, gone to jail; very few, one or two have been prosecuted as kind of a scapegoat. But the book is a great story of an American heroine–but this is what everybody should do! [Laughs] I mean, the real issue about whistleblowers like yourself is why did it take you? Where were the other folks? How many people–yeah, go ahead.

CS: Yeah, agreed. I think that's exactly right. You know, there's a number of reasons why I wrote the book. First of all, because I think it's an important contribution to the historical record. As to what is the systemic culture of corruption that exists in these regulatory agencies that are taking our taxpayer dollars and paying themselves handsome salaries to work against the American taxpayers. And then the second reason I wrote it is to incentivize people to come forward with their stories. I wasn't the only person who wanted to blow the whistle in terms of what was going on there. My circumstances were unique, and I sort of go through it in the book, in the sense that I was very lucky, for example, that the Fed refused to even negotiate the mandated settlement that they were supposed to negotiate with me. But they refused, and that allowed me to sue. There's a number of people who have gone through the process and have been silenced by, you know, getting a monetary offer and signing a settlement agreement. And we don't hear about them because they are forced not to talk. What I sort of thought about was, you know, this is just a unique–you know, I didn't ask to be in this situation, but I felt it was my civic duty. Because I do think that we need more people to really think about how in their daily lives, they can stop rewarding bad behavior. We live in a culture where we reward bad behavior, we worship bad behavior, and it's something that needs to stop, you know. Changing the culture, the regulatory culture on the U.S. governmental level is something that's going to take a decade, maybe two. And we need to start now, before things get worse. We are not in the best-off of situations as a country; you know, we have what seems like an economic boom, but it's really just a debt-fueled economic boom that is going to be temporary. And it's very tough to fix these types of cultural issues, system issues, when the hurricane of the next financial crisis hits. We need to fix it now, while we still have a semblance of peace, while we still have the sun shining. And we don't know how much longer that's going to be. I hope it's long enough to fix it. I hope that people are inspired to come forward and to think about how to make a difference in their daily lives. You know, because we need to start thinking of raising children and raising adults that are incentivized in their daily lives to reward good behavior. I think that until we create a critical mass of Americans that in their daily lives refuse to reward bad behavior, we're not going to see real systemic change.

RS: Well, we'll see change. It might not be good change. I mean, you have Donald Trump–and I want to put some oomph behind this, that it's bipartisan. Because one of the–you know, everybody, a lot of people I know are very upset about Donald Trump. He's speaking to what Hillary Clinton calls the "deplorables"; but there's a lot of people hurting out there. And if you read a study done by the Federal Reserve of St. Louis about the consequence of this economic meltdown that was engineered from places like Goldman Sachs, the human cost was incredible. I mean, people lost everything. They weren't bailed out. There was no mortgage relief. They were not helped. The banks were bailed out. And yet no one has been held accountable, and the politicians, democrats and republicans, who supported it, have gotten off scot-free.

CS: Yeah

about:blank

Wall Street's corruption runs deeper than you can fathom | Alternet CS: Yeah, I think you're absolutely right. This is not a democratic problem, this is not a republican problem. This is an American problem with worldwide impact. The U.S. dollar is a reserve currency. The world depends in large part on the American banking system to work. And for it to work, there are these rules, and these rules are there to create trust in the system and to create smooth processes in the system, so that money can be moved and the economy can continue to grow. If the world can no longer trust the American banking system because Americans cannot be trusted to regulate it, they are going to move away from the American banking system. They are going to move away from the U.S. dollar as a reserve currency. And then we are going to find ourselves in the situation that a lot of countries that are not governed by reserve currencies find themselves occasionally, from time to time, whenever they have a crisis. You know, we're talking about countries in Latin America; we're talking about countries in Africa; we're talking about countries in Asia. I hope the book will inspire people to really take a look around and realize, you know, the American consumer, the American worker, is incredibly powerful. You know, these banks cannot survive without our money. We don't have to wait for the government to keep failing us; we don't have to wait for the judiciary to keep failing us; we don't have to wait for lawyers to keep failing us. We choose who we work for. We choose where we keep our money. We can choose to protest. We can choose to call our pension funds and tell them, I want you to stop doing business with Goldman Sachs. It's what we do on a daily basis. When we stand up and we say, I am not going to be banking with these people–they will listen. It's like, they control all of these other checks and balances that were put in place in terms of the government to stop them. So now it's up to us as a people to actually do something about this.

RS: Let me take a break. And I've been talking to Carmen Segarra, who is actually the lone honest person from within the banking system that I know of who really took the story of what these people were doing, and swindling the American people, and fortunately documented it with tape recording–as they document everything; if you call the bank for information, "your conversation will be recorded to make it more efficient"–well, she turned the table on that, had the record. The book is called Noncompliant: A Lone Whistleblower Exposes the Giants of Wall Street. [omission for station break] I'm not going to be able, in the time that I have here, to do justice to this book, because the devil is in the details. I want to talk about some people who did speak up. I mentioned Brooksley Born, who was this brilliant member of the Clinton administration who got pushed out for speaking up. But when the pressure came down after the Great Recession, and the banks had to be questioned, they at Goldman Sachs turned to a Columbia University finance professor, David Beim. And he did a report. He had access to everything, he did this incredible report. We only know about it because it showed up in some footnote somewhere. And by the way, I haven't given enough credit here to the people who have helped break this story. ProPublica, who did a really terrific job on it, and the NPR show This American Life, which really did a great job. So there has been really good reporting. As you pointed out, it was absolutely shameful that Congress did not really take testimony from you; you were there as an observer–I think in a red dress, to be noticed. [Laughs]

CS: Yes. Well, you know, red is the color of martyrs.

RS: And so I want to ask you about that. Before you even went there, this guy David Beim had done a study. And William Dudley, the president of the bank, didn't even respond. He said thank you, they looked at the–and they never responded to the criticisms in that study, which were devastating. Of how the bank was operating.

CS: Yeah, but that's how the Federal Reserve Bank of New York operates. And that's, curiously enough, also how Goldman Sachs operates. They say one thing and do another. If you want to know what they're doing, just flip it, right? I mean, if they're asking for a report, that means that they plan to do nothing about it. And you know, the book sort of walks you through the story of how they played at this game of pretending to clean up the regulatory issues. I mean, the joke really was on us, the new regulators that were brought in from the industry to actually clean up the problems that were there. None of us are there at the Fed anymore. Every single one of those people that I talk about that validated my story, they're gone. And they are gone under different circumstances, some in good standing, some in less good standing, but the point is they're all gone. Because the purpose of bringing us in was not really to change things, it was to ensure that they had a smoke screen and a story to feed the press, that they would print, saying that they had indeed fixed this. And there was nothing else there to see.

about:blank

Wall Street's corruption runs deeper than you can fathom | Alternet RS: We're going to run out of time here, but I want to nail down one–this chain of responsibility. And I had just mentioned New York Fed president William Dudley, who I believe ran into some difficulty; he had ownership in something that they were trading with. But leaving that aside, he replaced Timothy Geithner. And when Goldman Sachs, when this whole banking thing happened, there was no more important individual in this country, in a position to observe it, than Timothy Geithner. He had been in the Clinton administration; he had worked for Robert Rubin and Lawrence Summers in the Clinton administration when they deregulated Wall Street. And he was rewarded for that deregulation, right, by being named to the most important regulatory position, to be head of the New York Fed. And Barack Obama in 2008, as the banking meltdown was happening, gave a speech at Cooper Union, April of 2008, blasting Wall Street. And then, when Hillary Clinton lost the primary, Barack Obama turned to Lawrence Summers and Timothy Geithner, and these people for advice, and he named Timothy Geithner to be his treasury secretary. The guy who at the New York Fed, where you went there to work and to try to supervise Goldman Sachs–he knew everything about this, and told us nothing, and he was rewarded by being made treasury secretary.

CS: When I'm saying, you know, we have to stop rewarding bad behavior, that's an example of what I'm talking about. It's like, we have a culture where we reward people for their bad behavior. And in the Fed it is a systemic problem. And it is a problem that comes from the top down. And when I was at the Fed, Ben Bernanke was head of the Fed; Bill Dudley, as you pointed out, was the head of the New York Fed; and Sarah Dahlgren was his head of supervision. This is a very small world. We're not talking about a lot of people; the culture is top-down, and everybody there just does what these people say, because if they don't they're afraid they're going to lose their jobs. So from their perspective, they have nothing to lose, because they have a bunch of workers that are going to do as they say. And they will do what is in their best corporate interests. I mean, you have Bill Dudley, who was allowed to hold on to a lot of his investments that predated his arrival at the Fed and were held at Goldman Sachs. And you know, when you have somebody who's not forced to really work for the government–as in divesting themselves of their own conflicts and truly taking taxpayer money and doing their job–then you can't expect a good result to come from that. Again, we rewarded bad behavior. And that's why I think, you know, the key here is really about taking a really good look at our daily lives and seeing, who are we rewarding on a regular basis? And we need to stop rewarding that bad behavior.

about:blank

Wall Street's corruption runs deeper than you can fathom | Alternet RS: But I want to challenge what I think is your optimism. And in fact, you are living proof that doing the right thing can be a career-ender. I haven't asked you, I mean, I assume you still have a good career; you're highly talented and competent, and you were, you know, extremely well educated. But you're not being considered to be treasury secretary or something, right? The consequences for you were quite dire, weren't they?

CS: They were. And you know, my career in banking is over on a permanent basis. But I think you sort of point out to, a little bit to my personality, and I hope it comes through in the book; I sort of talk about that fact that I'm just a very resilient person. And I just, I don't like to let the bad guys win. I'd rather go down swinging. So for me, I saw it as an opportunity to do my civic duty and rebuild my life. You know, and I was very lucky to be blessed by so many people who I shared the story to, especially lawyers who were so concerned about what I was reporting, who thought that the Federal Reserve was above this, who thought that the government would not fail us after the financial crisis, and who were livid. And I've been blessed with their support through the process of whistleblowing, and I continue to be blessed by their support even after. I have a husband who was, you know, a real hero of the story in my book, and I have been able to remake my life as a lawyer in private practice. And my clients, you know, God bless them, they trust me to help them. And I wouldn't change what I did for anything. Because I think for me–and I talk about it in the book–I think living a meaningful life is more important than making money. I think for me, making money is important insofar as it pays the bills. But once my bills are paid, it's about having a meaningful life. And I just feel very, very lucky that I have had the life that I've had, that I got to go to a Catholic school that taught me the morals that I believe in. I think that I am who I am, and I think that I would be just as moral if I had grown up Jewish, or if I had grown up a Mormon, or if I had grown up a Protestant. So I feel very blessed that I was exposed to what good values and good behavior are. I decided since I was very little that that's just the way I wanted to live my life, and that to live meaningfully was more important than anything else. And that has driven all of my decisions, and I found the experience to be rewarding. And when people talk to me about how bad things are and how things sort of look like they're never going to turn around, I tell them, no. They will turn around. We just need to believe in ourselves and be our own saviors, and be our own heroes in our own daily lives.

RS: But let me, let me challenge that. And yes, you're an exemplary person. No question. And people should read this book, Noncompliant: A Lone Whistleblower Exposes the Giants of Wall Street. But I want to focus on that word, "lone." Lone whistleblower. These people had the same great education you had at the best schools, OK? They didn't blow the whistle. No, they abetted the crime! They made it possible. They destroyed people like Brooksley Born, who dared challenge it. And the fact of the matter is, you can't expect ordinary people–even myself. You know, I did graduate work in economics, I'm a professor, blah blah blah. But I can tell you, when I went into my bank loans, I didn't know all the details and what they were talking about and everything. I counted on regulation, I counted on government, I counted on accountability, frankly, on the part of these institutions. So my view is, you can't expect ordinary people–that's why we had a distinction between investment banks and commercial banks. Commercial banks are supposed to deal with ordinary people, OK? They're supposed to hold their money, give them a fair interest rate, make loans on their houses, and help them out. And they have to be regulated, because you know, the ordinary person can't be an expert. The failure here is of the educated class. Of the superachievers. And you count on those people, yes, to do the right thing. But money talks. And the fact of the matter is, the people you went to school with, at the Ivy League schools, at the wherever–they sold us all out.

CS: I think you make a good point. But I also think that the problems are systemic and run deeper. I mean, I would point out, for example, just from a personal perspective, when I graduated both college and law school I happened to be one of those that graduated into a recession, twice. There weren't too many jobs. I didn't have too many options. I ended up working in where I ended up working because it was either that or not feed myself. And I think one of the problems that we have that is systemic is that we have allowed capitalism to create such huge imbalances in how we reward people for their daily work. So people are forced to do something that they may not even like, or may not even be good at, because they have no choice. It's a shame, because we're a big enough country, we have a lot of talent, there should be more invisible hand, central planning. This whole system where we are now turning our attention to creating computer programmers is more based on making sure that computer programming becomes a cheap, minimum-wage job where the owners of the computer companies like Apple don't have to overpay like they are doing now for those workers. So I think that there are more systemic issues than we realize. And I agree with you, I think that, you know, we were sold out by the intellectual class. But we still need to figure out–and the intellectuals are the ones who are going to help us–we need to figure out how to fix the system on a larger scale if we are going to rebalance things. And I don't have the monopoly on the answer, on all the answers, you know? I'm just a girl born in Indiana to two Puerto Rican parents, you know? [Laughs] It's not like I have any terms, in any way access to the higher echelons and how that works. But I think that we really do need to think about, in our own ways and in our own lives, how we can sort of convince other people to make the right choices on a daily basis. Because I think that if everybody takes making the right choices seriously, and realizes that we're all in the same boat–you know, we're all Americans, this is going to impact us all–I think that we can, slowly but surely, right the boat and start heading in the right direction.

RS: People should read Noncompliant –it's an important word; they weren't compliant– A Lone Whistleblower Exposes the Giants of Wall Street. And recognize that the problem with modern governance is that the decisions are made by people who don't have our common interest, who are bought off. That money talks. And one reason we have such despair now, and we go for demagogues, and we have such divisive, ugly language and ugly politics, is the so-called civilized, well-educated leaders of our country went for the money and betrayed ordinary people. I'll let you take the last word, and then we'll wrap it up.

CS: Ah, well, thank you. And again, you know, I know that you are sort of [Laughs] thinking about it from the perspective of a hopeless sort of case. But I do think that there is–and I hope people will look at it as the beginning of change. You know, yes, the book is a very sad story; the bad guys do win, for now. But just because they win the battle doesn't mean they're going to win the war. And I refuse to give up hope in the American people, and I refuse to give up hope in the American consumer. I think that we can make a difference if we try. Because I think that when we get the American people–no matter whether they're democrats, republicans, independent–when we get them educated on the topic of finance, when we get them accessible stories, they will have their say. And they matter–we matter. And it's important that they come to the table, otherwise this problem isn't going to get solved.

[Dec 08, 2018] Bill Black Who Said This A Bank Fraud Quiz by Bill Black

Big finance does behave like an organized crime. And should be treated by society as such...
Notable quotes:
"... By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Jointly published with New Economic Perspectives ..."
Dec 08, 2018 | www.nakedcapitalism.com
By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Jointly published with New Economic Perspectives

I cannot write many blogs during the fall semesters because I teach four classes (I co-teach one of them). The fall term of instruction at UMKC is now over so I am writing one piece before turning to grading. I have recently done additional research on a topic I know is of great interest -- the prosecution of elite white-collar criminals. I have organized it in the form of a game in which the reader guesses who authored the quoted passage.

Which President described the elite banksters of his era as "charlatans, chiselers and cheats?" Which Vice President criticized prosecutions, enforcement actions, and even safety rules for the elite white-collar criminals of his era in these terms?

But the number of complex regulations is only half the problem. As President [deleted] has repeatedly emphasized, it is also the adversarial and seemingly mindless enforcement methods that really get under people's skins. Business owners are sick of being treated like criminals. They see a government that just doesn't make sense, that charges them with safety violations when no one is in harm's way.

[Note that enforcement action is supposed to be 'adversarial' and that 'business owners' need to be 'treated [as] [not 'like'] criminals' when they are criminals. A safety violation that does not cause injury because no worker is in the unsafe trench when it collapsed should be charged as a safety violation because it is. A well-run company with a strong safety record takes that approach to safety. The government must too.]

Which U.S. Attorney General offered the excuse for refusing to create a national task force to prioritize the prosecution of the elite banksters of his era that the fraudsters were merely "white collar street criminals"? Which U.S. Attorney General explained in these terms why he was working with the regulators because prosecutions of elite banksters require enormous sophistication and prioritization?

[T]hese investigations most often involve complicated paper trails leading to highly sophisticated schemes which disguise illegality under the veneer of legitimate business and financial transactions.

[Note that this AG understood the essential danger that makes 'control frauds' uniquely damaging -- the fact that the CEO finds it far easier to 'disguise illegality' 'under the veneer' of seeming 'legitima[cy].']

Which U.S. President met with the Nation's U.S. Attorneys to emphasize in these terms the criticality of prosecuting elite banksters?

It takes a snake, a cold-blooded snake, to betray the trust and innocence of hard-working people," [deleted] said in a speech to his administration's U.S. attorneys in announcing his effort. "And so, if we have to look under rocks to find these white-collar criminals, then we will leave no stone unturned.

Which U.S. President proclaimed "I did not run for office to be helping out a bunch of fat cat bankers on Wall Street"? Which FBI Director characterized the level of elite fraud in failed insured institutions as 'pervasive' and explained that the fraud problem came from the top in these terms?

The American public relied upon banking institutions and financial institutions being soundly managed by people who were honest. Therefore, it is absolutely essential that this program go forward to the end no matter how long that takes.

He discounted past arguments that Texas' economy was the root cause for the state's financial crisis. "Although it was the general economic downturn in Texas that surfaced the problem, it appears to the FBI as if a pervasive pattern of fraudulent lending activity began much earlier."

Which U.S. President told the Nation's leading bankers "My administration is the only thing between you and the pitchforks"?

[Note that the President was characterizing the American people as a mob out to murder the banksters that caused the financial crisis -- and stressing that his administration would safeguard them from accountability for their crimes.]

Which U.S. Attorney General explained in these terms how he began working with the new regulator the day after he was appointed to ensure the prioritization of the most elite banksters in the ongoing financial crisis they were both confronting?

I met with [deleted] Director of [deleted], the day after he assumed office to map out a joint effort between the regulatory agencies and the Department of Justice to winnow through the mass of referrals that had already been made to ensure that we were focusing upon the most significant cases as our first priority.

Which regulatory agency made the 'mass of [criminal] referrals' the AG was referring to? How many criminal referrals did the agency make in response to its financial crisis? How many felony convictions of individuals did the Department of Justice (DOJ) obtain in 'major' cases in response to these referrals? Which senior law enforcement agency warned in September 2004 that an 'epidemic' of mortgage fraud was developing that would, he predicted, cause a financial 'crisis' if it were not stopped? Which administration "debated for months the advantages and perils of a criminal indictment against HSBC" given an FBI investigation confirming the congressional finding that the bank, between 2001 and 2010, "exposed the U.S. financial system to money laundering [by a leading drug cartel] and terrorist financing risks" [by Saudis]"? The U.S. Attorney General, at the urging of the Fed and the Comptroller of the Currency, refused to indict the bank or its senior officers who committed and profited from tens of thousands of felonies. What U.S. Attorney General testified to Congress in the following terms that the largest banks were too big to prosecute?

I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.

Under which administration did Scott G. Alvarez, general counsel at the Federal Reserve successfully intervene with the SEC to weaken fraud penalties against some of the world's largest banks? Under which administration did Timothy Geithner, then President of the NY Fed, successfully intervene with then NY Attorney General Cuomo to caution against vigorous prosecution of elite banksters? Did this harm Geithner and Cuomo's careers? Which President unconstitutionally appointed the first Director of the Office of Thrift Supervision -- after being warned that appointing him without the Senate's 'advice and consent' would be unconstitutional? Why did the President do so -- and why did the Senate not protest the action? Which administration ended the career prospects of a top regulator they appointed when he had the audacity to bring an enforcement action against the President's son? Which U.S. Attorney General wrote: "We are presently facing the largest financial disaster in American history grounded in the betrayal of public trust by flagrant self-dealing in 'other people's money'"? Which U.S. Attorney General described the causes of the financial crisis he was investigating "the biggest white-collar swindle in history"?

For bonus points, these questions relate to a non-government party.

Who wrote the following -- and made it public?

"Our savings and loan industry has created the largest mess in the history of U.S. financial institutions," [deleted] said in a letter to the [industry trade association -- the 'league']. "The league responds to the savings and loan mess as Exxon would have responded to the oil spill from the Valdez if it had insisted thereafter on liberal use of whisky by tanker captains." [Deleted] blamed the league for 'constant and successful' lobbying over many years that prevented government regulators from cracking down on S&Ls run by 'crooks and fools' and persuaded regulators to use 'Mickey Mouse' accounting .

"It is not unfair to liken the situation now facing Congress to cancer and to liken the league to a significant carcinogenic agent ."

"Because the League has clearly misled its government for a long time, to the taxpayers' great detriment, a public apology is in order, not redoubled efforts to mislead further."

Answers : (plus the President that appointed the official):

George HW Bush Gore Mukasey (Bush II) Thornburgh (Bush I) George HW Bush Obama William Sessions (Bush II) Obama Thornburgh (Tim Ryan was the OTS Director he worked with) OTS, during the S&L debacle, made > 30,000 criminal referrals (all federal banking agencies combined made fewer than a dozen criminal referrals in response to the Great Financial Crisis) and DOJ obtained > 1,000 felony convictions in cases DOJ defined as 'major.' The FBI (through Chris Swecker) Obama 13. Holder (Obama) Bush II Bush II (No, Cuomo was elected Governor of NY and Obama appointed Geithner as Treasury Secretary) George HW Bush (the unconstitutional appointment was Danny Wall as OTS Director) George HW Bush (Tim Ryan was the OTS Director who brought the enforcement action v. Neil Bush) Thornburg (Bush I) Thornburgh (Bush I) Warren Buffett and Charles Munger (May 30, 1989).

JEHR , December 8, 2018 at 12:57 pm

The mess is caused by deregulation, money in politics, lobbying by the rich, wealth inequality, fraud in the banking system, corruption of corporations, the wealthy hiding taxes off-shore, greed, failure of democratic institutions, etc. In another way, you could say It's the Love of Money. (It is a very long list epitomized by Black's quotations from the highest offices in the land.)

Chauncey Gardiner , December 8, 2018 at 9:35 am

Concise and enlightening summary. Thank you, Bill Black. Should be taught in every high school US History and Civics class in America together with financial and monetary literacy. Interesting how pervasive this behavior has been across so called "leaders" of both legacy political parties and whose names repeatedly appear on the summary list. The damage to the social and political fabric of the nation is incalculable.

[Dec 06, 2018] Social Security benefits will go up in 2019. Find out now how big your check will be

Dec 06, 2018 | finance.yahoo.com

Social Security recipients will get a 2.8 percent increase in 2019, following a cost-of-living adjustment announced by the agency in October.

That marks the biggest hike since 2012, when the cost-of-living adjustment was 3.6 percent .

[Dec 06, 2018] Market Moves Suggest a Recession Is Unavoidable

Notable quotes:
"... In bull markets, everything works. In bear markets, the only thing that really works is short-term government and municipal bonds and cash. Ample opportunity is being given to cut exposure to risk, and it's clear that few people are taking advantage of it. They never do. ..."
Dec 06, 2018 | finance.yahoo.com
(Bloomberg Opinion) -- As a longtime market observer, what I find most interesting about the latest correction in equities has the feeling of inevitability that it will turn into something worse. It wasn't this way in late January, when everyone wanted to buy that dip. It certainly wasn't this way in 2007, when the magnitude of the recession was grossly underestimated.

Even the Federal Reserve is getting into the pessimism. Chairman Jerome Powell signaled last week that a pause in interest-rate hikes might be forthcoming. What's interesting about that is Powell surely knew that such a reference might be interpreted as bowing to pressure from President Donald Trump and yet he did it anyway. In essence, he risked the perception of the Fed's independence probably because he knows the economic data is worsening.

Just about everyone I talk to in the capital markets, including erstwhile bulls, acknowledges that things are slowing down. Yes, the Institute for Supply Management's monthly manufacturing index released earlier this week was strong, but jobless claims are ticking up and I am hearing anecdotal reports of a wide range of businesses slowing down. Even my own business is slowing. Anecdotes aside, oil has crashed, home builder stocks have been crushed, and the largest tech stocks in the world have taken a haircut. If we get a recession from this, it will be a very well-telegraphed recession. Everyone knows it is coming.

A recession is nothing to fear. We have lost sight of the fact that a recession has cleansing properties, helping to right the wrong of the billions of dollars allocated to bad businesses while getting people refocused on investing in profitable enterprises. Stock market bears are so disliked because it seems as though they actually desire a recession and for people to get hurt financially. In a way, they are rooting for a recession because they know that the down part of the cycle is necessary.

There are signs that capital has been incorrectly allocated. In just in the span of a year, there have been three separate bubbles: one in bitcoin, one in cannabis and one in the FAANG group of stocks: Facebook, Apple, Amazon.com, Netflix and Google-parent Alphabet. This is uncommon. I begged the Fed to take the punch bowl away, and it eventually did, and now yields of around 2.5 percent on risk-free money are enough to get people rethinking their allocation to risk.

Yet, I wonder if it is possible to have a recession when so many people expect one. The worst recessions are the ones that people don't see coming. In 2011, during the European debt crisis, most people were predicting financial markets Armageddon. It ended up being a smallish bear market, with the S&P 500 Index down about 21 percent on an intraday basis between July and October of that year. It actually sparked a huge bull market in the very asset class that people were worried about: European sovereign debt. We may one day have a reprise of that crisis, but if you succumbed to the panic at the time, it was a missed opportunity.

But just the other day, the front end of the U.S. Treasury yield curve inverted, with two- and three-year note yields rising above five-year note yields. Everyone knows that inverted yield curves are the most reliable recession indicators. Of course, the broader yield curve as measured by the difference between two- and 10-year yields or even the gap between the federal funds rate and 10-year yields has yet to invert, but as I said before, there is an air of inevitability about it. Flattening yield curves always precede economic weakness. They aren't much good at exactly timing the top of the stock market, but you can get in the ballpark.

I suppose all recessions are a surprise to some extent. If you are a retail investor getting your news from popular websites or TV channels, you might not be getting the whole picture. In the professional community, it is becoming harder to ignore the very obvious warning signs that a downturn is coming. In bull markets, everything works. In bear markets, the only thing that really works is short-term government and municipal bonds and cash. Ample opportunity is being given to cut exposure to risk, and it's clear that few people are taking advantage of it. They never do.

[Dec 03, 2018] Neoliberalism is just a sanitised-sounding expression, to cover-up the fact that what we are really seeing here is re-branded, far-right corporatist ideology

Notable quotes:
"... 'Neoliberalism' is just a sanitised-sounding expression, to cover-up the fact that what we are really seeing here is re-branded, far-right, corporatist ideology. ..."
"... There is a major dividing line. There are those who recognise the abuses of the system and lobby for changes and there are those who lobby for further exploitation. ..."
"... The West became over-indebted when it embraced globalisation which necessarily impoverishes the Middle and Working Classes of the developed nations. A chap called Jimmy Goldsmith warned of this and was widely condemned for it. There is another issue Guardianistas would rather not confront : you can a welfare state or you can have open borders. But you can't have both. ..."
"... Private enterprise is inefficient because at it's heart it rules out cooperation. Being happiest if it's a monopoly, there's nothing a business would like better than wipe out all competition. ..."
"... Right now, the neoliberals think that those in the Far East are the workers and those in the West are the consumers, until the Far East becomes the market and wages so low in the West that they become the workers, unless of course some kind souls decide to invest money in Education, Health and infrastructure in Africa on a huge scale, so we then have Africa as the workers and the far East as the market, and the West, apart from those who own large numbers of shares or business outright, presumably either starve to death or pull themselves up by their bootstraps, and start all over again, inventing and setting up completely new industries, providing the newly universally educated and healthy Chinese and Africans and South Americans haven't done it first. ..."
"... The economic model we have is bankrupt and in its death throes ..."
"... Except it's not. It is still very much alive and growing. ..."
"... deregulated capitalism has failed. That is the product of the last 20 years. The pure market is a fantasy just as communism is or any other ideology. In a pure capitalist economy all the banks of the western world would have bust and indeed the false value "earned" in the preceding 20 years would have been destroyed. ..."
"... "Multinationals need to recognise that paying tax is an investment. Without that tax, their markets will slowly evaporate." However, the gains for the transnational rich are immediate and enormous, while the failure of their markets is slow and, so far, almost entirely painless. ..."
"... Accountants now hold the whip hand in government and business. They know the price of everything but the value of nothing. They advocate selling off industries, outsourcing to low wage economies, zero hours contracts and deregulation (under the bogus campaign line of cutting red tape). ..."
"... Google, Amazon and Apple haven't taught anyone in this country to read. But even though an illiterate market wouldn't be so great for them, they avoid their taxes, because they can , because they are more powerful than governments. ..."
"... If you invent a set of rules that says a country that deficit spends above an arbitrary percentage of its GDP is horribly inefficient and far too high then it should not be a surprise that when that happens, it is described as such. ..."
"... But the basic problem is this: it costs a lot of money to cultivate a market – a group of consumers – and the more sophisticated the market is, the more expensive it is to cultivate them. A developed market needs to be populated with educated, healthy, cultured, law-abiding and financially secure people ..."
"... The economic model we have is bankrupt and in its death throes is gobbling up the last scintilla of surplus that can be extracted from the poor ( anyone not independently wealthy). ..."
Dec 03, 2018 | www.theguardian.com

MysticFish , 8 Jun 2013 04:29

'Neoliberalism' is just a sanitised-sounding expression, to cover-up the fact that what we are really seeing here is re-branded, far-right, corporatist ideology.

"Fascism should more properly be called corporatism because it is the merger of state and corporate power."
- Benito Mussolini

NotAgainAgain -> EllisWyatt , 8 Jun 2013 04:15
@EllisWyatt -

There is a major dividing line. There are those who recognise the abuses of the system and lobby for changes and there are those who lobby for further exploitation.

So on the one hand there are relatively rich philanthropists who are quietly supporting campaigns to redistribute wealth and our abstaining, and on the other you have people arguing for repealing employment legislation.Worst of the lot are people who pretend to care about the poor but then proceed to fill their own boots.

As consequence people like Warren Buffet should perhaps be among the good guys, whilst people like Tony Blair are the worst of lot.

Uncertainty -> RedHectorReborn , 8 Jun 2013 04:09
@RedHectorReborn - The rich have extracted all of the wealth from the wells and is now turning to fracking, regardless of the cost to us all.
thenardiers , 8 Jun 2013 04:08
All very true. The failures of markets are well documented in economics: the tendency towards monopoly, the failure to value social goods etc.

In addition, it is ironic that the arch advocates of the 'free market' came begging ( read lobbying) to their governments insisting upon public financial bailouts for themselves or their counter parties. It was the 'free markets' failure to correctly price 'risk' that was the route of the economic collapse.

As regards access to 'free markets' it seems patently obvious that if you extract the most money from that market (Amazon et al), you should contribute a fair share towards the infrastructure of that market: roads, educations, health care etc.

1nn1t -> EllisWyatt , 8 Jun 2013 04:06

@EllisWyatt - ... we have a real problem with corporations that have a default setting of minimize taxes through ever more complex structures. It can't be beyond the wit of HMRC to reduce the complexity of the tax legislation and make it harder to avoid? The prize is continued access to the UK market

We also have the problem that for half the households in the land the level of welfare and benfits rather than wages is the major determinant of their disposable income and general prosperity.

The welfare code is now comparable in size to the tax code. The tax-benefit affairs of the working poor in the UK are now becoming as complex as those of the companies that employ them.

The welfare rights industry, which is essentially tax-benefit-lawyering for claimants, is now as large and complex as the tax-lawyering industry for companies.

It really is insane that we set the minimum wage so low that it attracts income tax, and then attempt to collect tax from the employing company to fund a tax credit to top up the same low wages that the same company is paying.

marienkaefer , 8 Jun 2013 04:00
The neoliberalism that the IMF still preaches pays no account to any of this. It insists that the provision of work alone is enough of an invisible hand to sustain a market

Does it? where does it say that? An article which as usual blanket condemns "financial institutions" but actually means banks.

gyges1 , 8 Jun 2013 03:59
The West became over-indebted when it embraced globalisation which necessarily impoverishes the Middle and Working Classes of the developed nations. A chap called Jimmy Goldsmith warned of this and was widely condemned for it. There is another issue Guardianistas would rather not confront : you can a welfare state or you can have open borders. But you can't have both.
JamesValencia , 8 Jun 2013 03:59
Most interesting.

Though I'd say private enterprise is capable of building markets - but not of sustaining them. Take books: If few people know how to read, someone will start a fee paying school to teach those who can pay for it. Then books will take off. And that will generate money for some, who'll send their kids to school.

However it will always, inevitably, crash at some point: Business can build up, but will always do it in destructuve cycles - exactly like the brush fires that destroy and regenerate the savannas. As somebright spark once said: Capitalism contains the seeds of it's own destruction, or something along those lines.

And we don't want to live like that - so we have regulation, and the state.And the state fertilises, and safeguards, by cutting the grass, making mulch, and spreading the rich gooey muck all over the nice, green, verdant, state controlled pampa.

The cowboys, now, they prefer no cutting of grass, and letting their cattle chomp away undistrurbed. And now my analogy is starting to wear thin.

The bottom line: Private enterprise is inefficient because at it's heart it rules out cooperation. Being happiest if it's a monopoly, there's nothing a business would like better than wipe out all competition.

Hence, the necessity for state spending, and state regulation, which the private sector is blind to, because it can't look ahead.

Rochdalelass , 8 Jun 2013 03:57
Well said Deborah!

People are members of families, and are employers and workers, who are customers or clients, and part of their local communities and professions and trades and hobbyists/clubs who are large scale wholesale consumers who create the markets that provides employment and income to individuals who are workers. And, and, one big circle.

Right now, the neoliberals think that those in the Far East are the workers and those in the West are the consumers, until the Far East becomes the market and wages so low in the West that they become the workers, unless of course some kind souls decide to invest money in Education, Health and infrastructure in Africa on a huge scale, so we then have Africa as the workers and the far East as the market, and the West, apart from those who own large numbers of shares or business outright, presumably either starve to death or pull themselves up by their bootstraps, and start all over again, inventing and setting up completely new industries, providing the newly universally educated and healthy Chinese and Africans and South Americans haven't done it first.

OK. I was against it for a long time, but go ahead. There's no way of avoiding it. Eat the Rich. Apart from the fact that ultra thin is fashionable, and with all that dieting and exercising, they are the only people who actually get the time for lots of exercise these days, and they'll taste incredibly tough and stringy.

EllisWyatt -> CaptainGrey , 8 Jun 2013 03:56
@CaptainGrey - Ssshhh not on CiF, we all know that capitalism has failed its just that we can't point to a successful alternative model because such a thing has never existed, its just that this time its different and the model I advocate will lead us all to the sunny uplands of utopia.

Obviously there will be a little bit of coercion and oppression to get us to those sunny uplands, but you can't make an omlette etc. plus don't worry that stuff will only happen to "bad people"

CaptainGrey -> emkayoh , 8 Jun 2013 03:55
@emkayoh -

The economic model we have is bankrupt and in its death throes

Except it's not. It is still very much alive and growing. The "alternatives" have crashed and burned save Cuba and North Korea. Capitalism, especially the beneficial capitalism of the NHS, free education etc. has won and countless people have gained as a result.
bluebirds -> CaptainGrey , 8 Jun 2013 03:55
@CaptainGrey - deregulated capitalism has failed. That is the product of the last 20 years. The pure market is a fantasy just as communism is or any other ideology. In a pure capitalist economy all the banks of the western world would have bust and indeed the false value "earned" in the preceding 20 years would have been destroyed.
MylesMackie , 8 Jun 2013 03:55
In the 19th century based on experience the public services became part of the public sector to avoid corruption and corporate blackmail. The neoclassical revolution of the late 20th century has pushed us back to days when elites regarded the state as their property. Democracy was a threat which won out either through the British model or violent revolution. A small elite cannot endure if the majority feel exploited.

The Bilderberg Conference should look to the past and learn from the mistakes committed. Neoclassicism will eventually impoverish them

1nn1t -> UnevenSurface , 8 Jun 2013 03:53

@UnevenSurface - Multinationals need to recognise that paying tax is an investment. Without that tax, their markets will slowly evaporate.

"Multinationals need to recognise that paying tax is an investment. Without that tax, their markets will slowly evaporate." However, the gains for the transnational rich are immediate and enormous, while the failure of their markets is slow and, so far, almost entirely painless.
EllisWyatt -> UnevenSurface , 8 Jun 2013 03:52
@UnevenSurface - I think corporation tax is becoming obsolete given globalization and the increasing dominance of online / global distribution.

Amazon, Starbucks (and to a lesser extent Google) need to have people on the ground in their market, for customer service, distribution, warehouse staff, baristas etc. So they'll pay employer taxes etc.

The question is is that enough? I think we are missing a trick with the UK market due to outdated tax legislation that hasn't really changed in 30 years.

After the US the UK is arguably the most attractive market in the world. Large, homogenous, wealthy with a low propensity to save and a rapid rate of adoption of new technology / products. We need to think about how we can exploit this in relation to corporate taxes because even though I am far from left wing, we have a real problem with corporations that have a default setting of minimise taxes through ever more complex structures.

It can't be beyond the wit of HMRC to reduce the complexity of the tax legislation and make it harder to avoid? The prize is continued access to the UK market

bluebirds , 8 Jun 2013 03:42
Accountants now hold the whip hand in government and business. They know the price of everything but the value of nothing. They advocate selling off industries, outsourcing to low wage economies, zero hours contracts and deregulation (under the bogus campaign line of cutting red tape).

All of these policies will ultimately end up with capitalism destroying itself. Low wage stagnation will result in penniless consumers which results in no growth which results in cuttin wages to maintain shareholder returns which results in penniless consumers etc etc etc. All our institutions are gradually eroded and life for the average citizen will become more and more unpleasant.

Willsmodger , 8 Jun 2013 03:42
Profit share may be a way forward, it's not perfect, companies can effectively use it to freeze wages and benefit from unpaid overtime, that creates unemployment as four people working a couple of hours extra ever day are denying someone else a job, but used in the right way it could ensure people get a share in the wealth they help create.

At the sharp end it's tough, at the company I worked at, all the managers were summoned to a meeting in September and told they had until Christmas to increase turnover and profits, or they would be out of a job.

At the same company, one of my managers complained that a successful manager at another branch was a crook. The CEO replied 'Yes, but he's a crook that makes a million pounds in profit every year'. I wonder how Deborah's article would have gone down with him?

peterfieldman , 8 Jun 2013 03:42
Everything was easier when the U S and Europe ran the world's economies with Bank regulations, currency controls and only the establishment could avoid income, capital gains and IHT taxes and grow wealthy generation after generation. Today there are simply too many players in the global arena and the rules have been torn up. We are in a jungle where greed is rife and only the powerful and corrupt survive, shipping and burying their loot in offshore havens.

We need a new global order with a change of mentality and more morality among the world's politicians, banking and corporate leaders. Unless we end corruption and exploitation of natural resources in the poor nations and a fairer distribution of the economic wealth the world faces economic and social collapse

Febo , 8 Jun 2013 03:41

Google, Amazon and Apple haven't taught anyone in this country to read. But even though an illiterate market wouldn't be so great for them, they avoid their taxes, because they can , because they are more powerful than governments.

Is it beyond the wit of government to close these (perfectly legal) loopholes? Otherwise, what you are asking for is for these companies to make charitible donations to government - nothing wrong with that per se, but let's not hide behind the misleading term 'tax avoidance' - companies are obliged to minimise taxes within the law, face it.

Liquidity Jones -> NicholasB , 8 Jun 2013 03:35
@NicholasB -

It is perfectly clear that in much of the EU public expenditure has been horribly inefficient and far too high

If you invent a set of rules that says a country that deficit spends above an arbitrary percentage of its GDP is horribly inefficient and far too high then it should not be a surprise that when that happens, it is described as such.

Whether that has any basis in reality or, as I suspect, is only relevant within its own ridiculous framework, is surely the question.

NotAgainAgain -> Fachan , 8 Jun 2013 03:32
@Fachan -

Deborah Orr is established writer for the Guardian and Married to a Will Self whose is almost certainly a millionaire. She is one of the rich. The idea that envy is driving her politics is just utterly absurd, and suggests a total lack of reflection.

finnkn , 8 Jun 2013 03:31

But the basic problem is this: it costs a lot of money to cultivate a market – a group of consumers – and the more sophisticated the market is, the more expensive it is to cultivate them. A developed market needs to be populated with educated, healthy, cultured, law-abiding and financially secure people

Not really; Amazon is just as happy to sell us trashy films, multipacks of chocolate, obesity drugs and baseball bats to stove our neighbour's head in. There's certainly an argument to be made that companies should have a duty to invest in the infrastructure that enables their product to be transported, stored etc...but they shouldn't be expected to give a toss if their customers are unhealthy ignoramuses. A market's a market.

NotAgainAgain -> NicholasB , 8 Jun 2013 03:24
@NicholasB -

But some countries manage to do this much more efficiently and effectively than others.

In Europe it would appear to be the Social Democratic Nordic countries and Germany which has very strong employment rights. Korea's economic growth was based on government investment and a degree of protectionism. These are precisely the ideas that neoliberalism opposes.

Liquidity Jones , 8 Jun 2013 03:23
If they had adopted The Keynes Plan at the 1944 Bretton Woods conference then the IMF and the World Bank would never have been set up. We most likely would not have had the euro crisis and the problem of trade imbalances between counties would most likely have gone away.

Now that is what I call 'Keynesian'. Feel free to continue to make up your own definitions though.

kingcreosote , 8 Jun 2013 03:19
Socialism for the 1% with the rest scraping around for the crumbs in an ever more divided world run by The Bilderbergers who play the politicians like puppets.
RedHectorReborn -> emkayoh , 8 Jun 2013 03:18
@emkayoh - I am not sure its in its death throes, I think what we are seeing is capitalism attempting to transform itself again. The success of that transformation will depend on how willing people across the western world to put up with reduced welfare, poverty pay and almost no employment rights. If we say no and make things too hot for the ruling class we have a chance to take control of the future direction of our world, if not then what's the point.
NicholasB , 8 Jun 2013 03:16
This is a strange rant. Everyone agrees that free markets need to be nurtured by appropriate state institutions. But some countries manage to do this much more efficiently and effectively than others. It is perfectly clear that in much of the EU public expenditure has been horribly inefficient and far too high.

There is no contradiction between being in favour of free markets and believing that markets and societies should be nurtured appropriately. We think people should be free and all accept that they should be nurtured.

UnevenSurface , 8 Jun 2013 03:10

So why, exactly, given the huge amount of investment needed to create such a market, should access to it then be "free"?

Corporate taxation is best explained as the license that business pays to access the market -- which is in turn created through the schools, hospitals, roads, etc. that the tax pays for. Unfortunately the new Corporate Social Irresponsibility being acted out by multinationals today neatly avoids paying that license, and sooner or later will damage them. Multinationals need to recognize that paying tax is an investment. Without that tax, their markets will slowly evaporate.

emkayoh , 8 Jun 2013 03:09
The economic model we have is bankrupt and in its death throes is gobbling up the last scintilla of surplus that can be extracted from the poor ( anyone not independently wealthy).

[Dec 03, 2018] Neoliberalism is a modern curse. Everything about it is bad and until we're free of it, it will only ever keep trying to turn us into indentured labourers. It's acolytes are required to blind themselves to logic and reason to such a degree they resemble Scientologists or Jehovah's Witnesses more than people with any sort of coherent political ideology, because that's what neoliberalism actually is... a cult of the rich, for the rich, by the rich... and it's followers in the general population are nothing but moron familiars hoping one day to be made a fully fledged bastard.

Highly recommended!
Notable quotes:
"... What sticks in the neoliberalism craw is that the state provides these services instead of private businesses, and as such "rob" them of juicy profits! The state, the last easy cash cow! ..."
"... Who could look at the way markets function and conclude there's any freedom? Only a neoliberal cult member. They cannot be reasoned with. They cannot be dissuaded. They cannot be persuaded. Only the market knows best, and the fact that the market is a corrupt, self serving whore is completely ignored by the ideology of their Church. ..."
"... when Thatcher and Reagan deregulated the financial markets in the 80s, that's when the trouble began which in turn led to the immense crash in 2008. ..."
"... Neo-liberalism is just another symptom of liberal democracy which is government by oligarchs with a veneer of democracy ..."
"... The state has merged with the corporations so that what is good for the corporations is good for the state and visa versa. The larger and richer the state/corporations are, the more shyster lawyers they hire to disguise misdeeds and unethical behavior. ..."
"... If you support a big government, you are supporting big corporations as well. The government uses the taxpayer as an eternal fount of fresh money and calls it their own to spend as they please. Small businesses suffer unfairly because they cannot afford the shyster lawyers and accountants that protect the government and the corporations, but nobody cares about them. ..."
"... Deborah's point about the illogical demands of neoliberalism are indeed correct, which is somewhat ironic as neoliberalism puts objective rationality at the heart of its philosophy, but I digress... ..."
"... There would not be NHS, free education etc. without socialism; in fact they are socialism. It took the Soviet-style socialism ("statism") 70 years to collapse. The neoliberalistic capitalism has already started to collapse after 30 years. ..."
"... I'm always amused that neoliberal - indeed, capitalist - apologists cannot see the hypocrisy of their demands for market access. Communities create and sustain markets, fund and maintain infrastructure, produce and maintain new consumers. Yet the neolibs decry and destroy. Hypocrites or destructive numpties - never quite decided between Pickles and Gove ..."
"... 97% of all OUR money has been handed over to these scheming crooks. Stop bailing out the banks with QE. Take back what is ours -- state control over the creation of money. Then let the banks revert to their modest market-based function of financial intermediaries. ..."
"... The State can't be trusted to create our money? Well they could hardly do a worse job than the banks! Best solution would be to distribute state-created money as a Citizen's Income. ..."
"... To promote the indecent obsession for global growth Australia, burdened with debt of around 250 billion dollars, is to borrow and pay interest on a further 7 billion dollars to lend to the International Monetary Fund so as it can lend it to poorer nations to burden them with debt. ..."
Dec 03, 2018 | www.theguardian.com
szwalby , 8 Jun 2013 06:03
This private good, public bad is a stupid idea, and a totally artificial divide. After all, what are "public spends"? It is the money from private individuals, and companies, clubbing together to get services they can't individually afford.

What sticks in the neoliberalism craw is that the state provides these services instead of private businesses, and as such "rob" them of juicy profits! The state, the last easy cash cow!

TedSmithAndSon , 8 Jun 2013 06:01
Neoliberalism is a modern curse. Everything about it is bad and until we're free of it, it will only ever keep trying to turn us into indentured labourers. It's acolytes are required to blind themselves to logic and reason to such a degree they resemble Scientologists or Jehovah's Witnesses more than people with any sort of coherent political ideology, because that's what neoliberalism actually is... a cult of the rich, for the rich, by the rich... and it's followers in the general population are nothing but moron familiars hoping one day to be made a fully fledged bastard.

Who could look at the way markets function and conclude there's any freedom? Only a neoliberal cult member. They cannot be reasoned with. They cannot be dissuaded. They cannot be persuaded. Only the market knows best, and the fact that the market is a corrupt, self serving whore is completely ignored by the ideology of their Church.

It's subsumed the entire planet, and waiting for them to see sense is a hopeless cause. In the end it'll probably take violence to rid us of the Neoliberal parasite... the turn of the century plague.

fr0mn0where -> CaptainGrey , 8 Jun 2013 05:51
@CaptainGrey -

"Capitalism, especially the beneficial capitalism of the NHS, free education etc. has won and countless people have gained as a result."

I agree with you and it was this beneficial version of capitalism that brought down the Iron Curtain. Working people in the former Communist countries were comparing themselves with working people in the west and wanted a piece of that action. Cuba has hung on because people there compare themselves with their nearest capitalist neighbor Haiti and they don't want a piece of that action. North Korea well North Korea is North Korea.

Isn't it this beneficial capitalism that is being threatened now though? When the wall came down it was assumed that Eastern European countries would become more like us. Some have but who would have thought that British working people would now be told, by the likes of Kwasi Kwarteng and his Britannia Unchained chums, that we have to learn to accept working conditions that are more like those in the Eastern European countries that got left behind and that we are now told that our version of Capitalism is inferior to the version adopted by the Communist Party of China?

jazzdrum -> bullwinkle , 8 Jun 2013 05:51
@bullwinkle - No , when Thatcher and Reagan deregulated the financial markets in the 80s, that's when the trouble began which in turn led to the immense crash in 2008.
Eddiel899 , 8 Jun 2013 05:51
Neo-liberalism is just another symptom of liberal democracy which is government by oligarchs with a veneer of democracy.

This type of government began in America about 150 years ago with the Rockefellers, Carnegie, J.P. Morgan, Ford etc who took advantage of new inventions, cheap immigrant labour and financial deregulation in finance and social mores to amass wealth for themselves and chaos and austerity for workers.

All this looks familiar again today with new and old oligarchs hiding behind large corporations taking advantage of the invention of the €uro, mass immigration into western Europe and deregulation of the financial "markets" and social mores to amass wealth for a super-wealthy elite and chaos and austerity for workers.

So if we want to see where things went wrong we need only go back 150 years to what happened to America. There we can also see our future?

WilliamAshbless -> CaptainGrey , 8 Jun 2013 05:49
@CaptainGrey

The beneficial capitalism of the NHS, free education etc. has won

Free education and the NHS are state institutions. As Debbie said, Amazon never taught anyone to read. Beneficial capitalism is an oxymoron resulting from your lack of understanding.

cpp4ever -> CaptainGrey , 8 Jun 2013 05:41
@CaptainGrey -

especially the beneficial capitalism of the NHS, free education etc. has won and countless people have gained as a result.

At one and the same time being privatized and having their funding squeezed, a direct result of the neoliberal dogma capitalism of austerity. Free access is being eroded by the likes of ever larger student loans and prescription costs for a start.

ATrueFinn -> SpinningHugo , 8 Jun 2013 05:41
@ SpinningHugo 08 June 2013 10:02am .

Nah. They achieved this by copying the west.

I would not go that far. The Western Capitalist Party is only now getting to be as powerful as CCP and China started the "reforms" in the late 1970s.

succulentpork , 8 Jun 2013 05:36

they avoid their taxes, because they can, because they are more powerful than governments

Let's not get carried away here. Let's consider some of the things governments can do, subject only to a 5 yearly check and challenge:

  1. force people upon pain of imprisonment to pay taxes to them
  2. pay out that tax money to whomever they like
  3. spend money they don't have by borrowing against obligations imposed on future taxpayers without their agreement
  4. kill people in wars, often from the comfort of a computer screen thousands of miles away
  5. print money and give it to whomever they like,
  6. get rid of nation state currencies and replace them with a single, centrally controlled currency
  7. make laws and punish people who break them, including the ability to track them down in most places in the world if they try and run away.
  8. use laws to create monopolies and favour special interests

Let's now consider what power apple have...

- they can make iPhones and try to sell them for a profit by responding to the demands of the mass consumer market. That's it. In fact, they are forced to do this by their owners who only want them to do this, and nothing else. If they don't do this they will cease to exist.

generalelection , 8 Jun 2013 05:26
The state has merged with the corporations so that what is good for the corporations is good for the state and visa versa. The larger and richer the state/corporations are, the more shyster lawyers they hire to disguise misdeeds and unethical behavior.

If you support a big government, you are supporting big corporations as well. The government uses the taxpayer as an eternal fount of fresh money and calls it their own to spend as they please. Small businesses suffer unfairly because they cannot afford the shyster lawyers and accountants that protect the government and the corporations, but nobody cares about them. Remember, that Green Energy is big business, just like Big Pharma and Big Oil. Most government shills have personally invested in Green Energy not because they care about the environment, only because they know that it is a safe investment protected by government for government. The same goes for large corporations who befriend government and visa versa.

... ... ...

finnkn -> NeilThompson , 8 Jun 2013 05:20
@NeilThompson - It's all very well for Deborah to recommend that the well paid share work. Journalists, consultants and other assorted professionals can afford to do so. As a self-employed tradesman, I'd be homeless within a month.
finnkn -> SpinningHugo , 8 Jun 2013 05:17
@SpinningHugo - Interesting that those who are apparently concerned with prosperity for all and international solidarity are happy to ignore the rest of the world when it's going well, preferring to prophesy apocalypse when faced with government spending being slightly reduced at home.
sedan2 -> Fachan , 8 Jun 2013 05:11
@Fachan -

Dont see a lot of solutions in this article - as long as our sentiments revolve around envy of the rich, we wont get very far

Yeah, there actually wasn't anything in this article which even smelled of "envy of the rich". Read it again.

KingOfNothing -> 1nn1t , 8 Jun 2013 05:03
@1nn1t - That is a point which just isn't made enough. This is the first group of politicians for whom a global conflict seems like a distant event.

As a result we have people like Blair who see nothing wrong with invading countries at a whim, or conservatives and UKIP who fail to understand the whole point of the European Court of Human Rights.

They seem to act without thought of our true place in the world, without regard for the truly terrible capacity humanity has for self destruction.

REDLAN1 , 8 Jun 2013 05:03
Deborah's point about the illogical demands of neoliberalism are indeed correct, which is somewhat ironic as neoliberalism puts objective rationality at the heart of its philosophy, but I digress...

The main problem with replacing neoliberalism with a more rational, and fairer system, entails that people like Deborah accept that they will be less wealthy. And that my friends is the main problem. People like Deborah, while they are more than happy to point the fingers at others, are less than happy to accept that they are also part of the problem.

(Generalisation Caveat: I don't know in actuality if Deborah would be unhappy to be less wealthy in exchange for a fairer system, she doesn't say)

Herbolzheim , 8 Jun 2013 04:49
Good critique of conservative-neoliberalism, unless you subscribe to it and subordinate any morals or other values to it. She mentions an internal tension and I think that's because conservatism and neoliberal market ideology are different beasts.
NotAgainAgain -> CaptainGrey , 8 Jun 2013 04:47
@CaptainGrey -

There are different models of capitalism quite clearly the social democratic version in Scandinavia or the "Bismarkian" German version have worked a lot better than the UKs.

DavidPavett , 8 Jun 2013 04:45

Yet, mealy-mouthed and hotly contested as this minor mea culpa is, it's still a sign that financial institutions may slowly be coming round to the idea that they are the problem.

How is it a sign of that? We are offered no clues.

What they don't seem to acknowledge is that the merry days of reckless lending are never going to return;

Try reading a history of financial crashes to dislodge this idea.

... even if they do, the same thing will happen again, but more quickly and more savagely.

This may or may not be true but here it is mere assertion.

The IMF exists to lend money to governments, so it's comic that it wags its finger at governments that run up debt.

At this point I start to have real doubts as to whether Deborah Orr has actually read even the Executive Summary of the Report this article is ostensibly a response to.

All the comments that follow about the need for public infrastructure, education, regulated markets and so on are made as if they were a criticism of the IMF and yet the IMF says many of those same things itself. The IMF position may, of course, be contradictory - but then that is something that would need to be demonstrated. It seems that Deborah has not got beyond reading a couple of Guardian articles on the issues she discusses and therefore is in no position to do this.

Thus, for example in its review of world problems of Feb 2013 the IMF comments favorably that in Bangladesh in order to boost competitiveness

Efforts are being made to narrow the skills gap with other countries in the region, as the authorities look to take full advantage of Bangladesh's favorable demographics and help create conditions for more labor-intensive led growth. The government is also scaling up spending on education, science and technology, and information and communication technology.

Which seems to be the sort of thing Deborah Orr is calling for. She should spend a little time on the IMF website before criticising the institution. It is certainly one that merits much criticism - but it needs to be informed.

And the solution to the problems? For Deborah Orr the response

... from the start should have been a wholesale reevaluation of the way in which wealth is created and distributed around the globe, a "structural adjustment", as the philosopher John Gray has said all along.

Does anyone have any idea what this is supposed to mean? There are certainly no leads on this in the link given to "the philosopher" John Gray. And what a strange reference that is. John Gray, in his usual cynical mode, dismisses the idea of progress being achieved by the EU. But then I suppose that is consistent from a man who dismisses the idea of progress itself.

... Conservative neoliberalism is entirely without logic.

The first step in serious political analysis is to understand that the people one opposes are not crazy and are not devoid of logic. If that is not clearly understood then all that is left is the confrontation of assertion and contrary assertion. Of course Conservative neoliberalism has a logic. It is one I do not agree with but it is a logic all the same.

The neoliberalism that the IMF still preaches pays no account to any of this [the need for public investment and a recognition of the multiple roles that individuals have].

Wrong again.

It insists that the provision of work alone is enough of an invisible hand to sustain a market.

And again.

This stuff can't be made up as you go along on the basis of reading a couple of newspaper articles. You actually have to do some hard reading to get to grip with the issues. I can see no signs of that in this piece.

EllisWyatt -> NotAgainAgain , 8 Jun 2013 04:43
@NotAgainAgain - We are going off topic and that is in no small part down to my own fault, so apologies. Just to pick up the point, I guess my unease with the likes of Buffet, Cooper-Hohn or even the wealthy Guardian columnists is that they are criticizing the system from a position of power and wealth.

So its easy to advocate change if you feel that you are in the vanguard of defining that change i.e. the reforms you advocate may leave you worse off, but at a level you feel comfortable with (the prime example always being Polly's deeply relaxed attitude to swingeing income tax increases when her own lifestyle will be protected through wealth).

I guess I am a little skeptical because I either see it as managed decline, a smokescreen or at worst mean spiritedness of people prepared to accept a reasonable degree of personal pain if it means other people whom dislike suffer much greater pain.

Again off topic so sorry about that

NotAgainAgain -> mountman , 8 Jun 2013 04:43
@mountman -

The critical bit is this

"There is a clear legal basis in Germany for the workplace representation of employees in all but the very smallest companies. Under the Works Constitution Act, first passed in 1952 and subsequently amended, most recently in 2001, a works council can be set up in all private sector workplaces with at least five employees."

http://www.worker-participation.eu/National-Industrial-Relations/Countries/Germany/Workplace-Representation

The UK needs to wake up to the fact that managers are sometimes inept or corrupt and will destroy the companies they work for, unless their are adequate mechanisms to hold poor management to account.

ATrueFinn -> SpinningHugo , 8 Jun 2013 04:42
@ SpinningHugo 08 June 2013 9:26am

More people lifted out of poverty in China over the last 25 years than the entire population of South America.

Maybe we need the Chinese Communist Party to take over the world?

ATrueFinn -> CaptainGrey , 8 Jun 2013 04:40
@ CaptainGrey 08 June 2013 8:43am

Capitalism, especially the beneficial capitalism of the NHS, free education etc. has won

There would not be NHS, free education etc. without socialism; in fact they are socialism. It took the Soviet-style socialism ("statism") 70 years to collapse. The neoliberalistic capitalism has already started to collapse after 30 years.

irishaxeman , 8 Jun 2013 04:40
I'm always amused that neoliberal - indeed, capitalist - apologists cannot see the hypocrisy of their demands for market access. Communities create and sustain markets, fund and maintain infrastructure, produce and maintain new consumers. Yet the neolibs decry and destroy. Hypocrites or destructive numpties - never quite decided between Pickles and Gove, y'see.
EllisWyatt -> JamesValencia , 8 Jun 2013 04:38
@JamesValencia - Actually on reflection you are correct and I was wrong in my attack on the author above. Having re-read the article its a critique of institutions rather than people so my points were wide of the mark.

I still think that well heeled Guardian writers aren't really in a position to attack the wealthy and politically connected, but I'll save that for a thread when they explicitly do so, rather than the catch all genie of neoliberalism.

bullwinkle -> bluebirds , 8 Jun 2013 04:38
@bluebirds -

@CaptainGrey - deregulated capitalism has failed. That is the product of the last 20 years. The pure market is a fantasy just as communism is or any other ideology. In a pure capitalist economy all the banks of the western world would have bust and indeed the false value "earned" in the preceding 20 years would have been destroyed.

If the pure market is a fantasy, how can deregulated capitalism have failed? Does one not require the other? Surely it is regulated capitalism that has failed?

snodgrass , 8 Jun 2013 04:36
97% of all OUR money has been handed over to these scheming crooks. Stop bailing out the banks with QE. Take back what is ours -- state control over the creation of money. Then let the banks revert to their modest market-based function of financial intermediaries.

The State can't be trusted to create our money? Well they could hardly do a worse job than the banks! Best solution would be to distribute state-created money as a Citizen's Income.

EllisWyatt -> 1nn1t , 8 Jun 2013 04:35
@1nn1t - Some good points, there is a whole swathe of low earners that should not be in the tax system at all, simply letting them keep the money in their pocket would be a start.

Second the minimum wage (especially in the SE) is too low and should be increased. Obviously the devil is in the detail as to the precise rate, the other issue is non compliance as there will be any number of businesses that try and get around this, through employing people too ignorant or scared to know any better or for family businesses - do we have the stomach to enforce this?

Thirdly there is a widespread reluctance to separate people from the largesse of the state, even at absurd levels of income such as higher rate payers (witness child tax credits). On the right they see themselves as having paid in and so are "entitled" to have something back and on the left it ensures that everyone has a vested interest in a big state dipping it hands into your pockets one day and giving you something back the next.

Broken system

1nn1t -> Uncertainty , 8 Jun 2013 04:34

@Uncertainty - Which is why the people of the planet need to join hands.

The only group of people in he UK to see that need were the generation that faced WW2 together. It's no accident that, joining up at 18 in 1939, they had almost all retired by 1984.
BruceMullinger , 8 Jun 2013 04:31
To promote the indecent obsession for global growth Australia, burdened with debt of around 250 billion dollars, is to borrow and pay interest on a further 7 billion dollars to lend to the International Monetary Fund so as it can lend it to poorer nations to burden them with debt.

It is entrapment which impoverishes nations into the surrender of sovereignty, democracy and national pride. In no way should we contribute to such economic immorality and the entire economic system based on perpetual growth fuelled by consumerism and debt needs top be denounced and dismantled. The adverse social and environmental consequence of perpetual growth defies all sensible logic and in time, in a more responsible and enlightened era, growth will be condemned.

[Dec 03, 2018] The banks put their own short-term interests above their long-term interests of financial stability

Notable quotes:
"... Socialism for the 1% with the rest scraping around for the crumbs ..."
"... Don't you think a global recession and massive banking collapse should be classified as 'crash and burn'? ..."
"... It's one of the major contradictions of modern conservatism that the raw, winner-takes-all version of capitalism it champions actually undermines the sort of law abiding, settled communities it sees as the societal ideal. ..."
"... Rich people have benefited from this more than most: they need workers trained by a state-funded education system and kept healthy by a state-funded healthcare system; they depend on lending from banks rescued by the taxpayer; they rely on state-funded infrastructure and research, and – like all of us – on a society that does not collapse. Whether they like it or not, they would not have made their fortunes without the state spending billions of pounds ..."
"... You have to be careful when you take on the banksters. Abe Lincoln John Kennedy and Hitler all tried or (in Kennedy's case planned) on the issuance of money via the state circumventing the banks. All came to a sticky end. No wonder politicians run scared of them. ..."
"... Now, that's a novel interpretation! The working people in "Communist" countries had free healthcare and education, guaranteed employment and heavily subsidized housing. The reason we have healtcare and free education is that working people in Capitalist countries would otherwise have revolted to have Socialism. In the absence of competition, there is no benefit for the Capitalist to be "beneficial". ..."
"... The banks could plainly see that they were stoking a bubble, but chose not to pass on the increased risk of lending to consumers by raising their interest rates and coolling the market. Why? Because they were making a handsome short-term profit. The banks put their own short-term interests above their long-term interests of financial stability. When the house of cards came tumbling down - we bailed them out. It was idiotic banks who failed to properly control their risk of lending that caused the crash, not interventionist politicians. ..."
Jun 08, 2013 | www.theguardian.com
JFBridge , 8 Jun 2013 08:21
Virtually everyone knows what went wrong, with the exception only of uncontrollable ultra-right neoliberal buffs who try and put the blame on everyone else with various out and out lies and deceptions, and they are thankfully petering and dying out by the day, including deluded contributors to CiF, who seem to be positively and cruelly reveling in the suffering their beloved thesis has and is causing.

So, now that we know the symptoms, what about the cure? The coalition want to make the poor and vulnerable suffer even more than they have done over the last three decades or so while still refusing to clamp down and wholly regulate the bankers, corporates and free markets, who still hold too much power like the unions in the 70's,while Ed Miliband and 'One Nation Labour' merely suggest in mild, diffident terms about financial regulation and a more balanced economy, while still not wanting to upset those nice bankers too much.

It's time they were upset though, and made to pay for their errors and recklessness; while they still award themselves bonuses and take advantage of Gideon's recent tax cut, the poor and vulnerable who were never responsible for the long recession now have money taken off them and struggle to feed, pay bills and clothe themselves and their families, supported by the Daily Fail and co. who look on them as scrounging, lazy, criminal, violent, drunken, drug addicted and promiscuous sub-humans, who deserve their fate.

There's quite a few in the middle/professional classes (many bankers) if they didn't know, but they don't bother with such, do they?

MatthewBall -> emkayoh , 8 Jun 2013 08:20
@emkayoh -

The economic model we have is bankrupt and in its death throes

I am not sure if this is true. We have the same economic system (broadly speaking, capitalism) as nearly every country in the world, and the world economy is growing at a reasonable rate, at around 3-4% for 2013-14 (see http://www.imf.org/external/pubs/ft/weo/2013/01/pdf/c1.pdf for more details).

We perceive a problem in (most of) Europe and North America because our economies are growing more slowly than this, and in some cases not at all. The global growth figure comes out healthy because of strong growth in the emerging countries, like China, Brazil and India, who are narrowing the gap between their living standards and ours. So, the world as a whole isn't broken, even if our bit of it is going through a rough patch.

This is pertinant to a discussion of Deborah Orr's article, because in it she calls for global changes:

The response from the start should have been a wholesale reevaluation of the way in which wealth is created and distributed around the globe, a "structural adjustment", as the philosopher John Gray has said all along.

My point is: I don't think this argument will work, because I don't see why the emerging countries would want wholesale change to what, for them, is quite a successful recipe, just because it going down badly in Europe. Instead, European countries need to do whatever it takes to fix their banking systems; but also learn to live within their means, and show some more of the discipline and enterprise that made them wealthy in the first place.

jazzdrum -> Uncertainty , 8 Jun 2013 08:12
@Uncertainty - I`m not defending philanthropy, i am saying in answer to some personal attacks on Miss Orr below the line, that her status as either rich or poor is irrelevant, it is her politics that count .
Tony Benn and Polly Toynbee both receive much abuse in this manner on Cif.
00000010 -> colonelraeburn , 8 Jun 2013 08:10
@colonelraeburn - You really are under the quaint illusion you are in a democracy...
MickGJ -> kingcreosote , 8 Jun 2013 08:08

@kingcreosote - Socialism for the 1% with the rest scraping around for the crumbs

And yet the rest have more crumbs than under any other conceivable system. Look at the difference that even limited market liberalisation has made to poverty in China. No loaf, no crumbs. You can always throw the loaf out of the window if you don't like the inequality and then no-one can have anything.

That's fair, isn't it?

Uncertainty -> jazzdrum , 8 Jun 2013 07:57
@jazzdrum - I don't have much time for those rich who feel guilty about their greed and do 'charity' to salve their souls. Oh and get a Knighthood as a result.

The more honest giver is the person who gives of what little they have in their purse and go without as a result. Not a tax dodge re-branded as philanthropy.

Also, such giving from the rich often has strings and may be tailored to what they think are the 'deserving poor'. I don't like that either.

Uncertainty -> CaptainGrey , 8 Jun 2013 07:54
@CaptainGrey - That is not capitalism. You cannot point to the benefits of socialism and call it capitalism.

Don't you think a global recession and massive banking collapse should be classified as 'crash and burn'?

liberalcynic -> Herbolzheim , 8 Jun 2013 07:52
@Herbolzheim - It's one of the major contradictions of modern conservatism that the raw, winner-takes-all version of capitalism it champions actually undermines the sort of law abiding, settled communities it sees as the societal ideal.
Rainborough , 8 Jun 2013 07:51
"Why, you have to ask yourself, is this vast implausibility, this sheer unsustainability, not blindingly obvious to all?"

- asked the journalist employed by an organ of the capitalist press, with an implausible air of puzzlement.

liberalcynic -> szwalby , 8 Jun 2013 07:50
@szwalby -

The state, the last easy cash cow!

Damn, you've just revealed Richard Branson's secret business plan.
AndyPerry , 8 Jun 2013 07:39
More and more people are beginning to understand this as a fundamentally political problem ( ref. @XerXes1369). The 'left' prefers to concentrate on the role of a financial elite (which is supposed to be exerting some kind of malign supernatural force on the state), to divert attention from what mainstream 'left' poltics in this society has turned out to be.
szwalby -> colonelraeburn , 8 Jun 2013 07:26
@colonelraeburn -

When the state is taking over 60% of the income of even those on minimum wages we se how, from the very top to the very bottom, that the state is the problem.

It's become a monster that will destroy us all.

I would query where you get these figures from, but where it not for the state, do you really think that somebody on the minimum wage, keeping 100% of their wages, would be able to afford, out of these wages, health care, schooling for their children, infrastructure maintenance, their own police force and army, their own legal system? This from an article in the Independent:

Rich people have benefited from this more than most: they need workers trained by a state-funded education system and kept healthy by a state-funded healthcare system; they depend on lending from banks rescued by the taxpayer; they rely on state-funded infrastructure and research, and – like all of us – on a society that does not collapse. Whether they like it or not, they would not have made their fortunes without the state spending billions of pounds.

So the state, although not perfect benefit all of us, get over it!
outragedofacton , 8 Jun 2013 07:23
You have to be careful when you take on the banksters. Abe Lincoln John Kennedy and Hitler all tried or (in Kennedy's case planned) on the issuance of money via the state circumventing the banks. All came to a sticky end. No wonder politicians run scared of them.
CaptainGrey -> WilliamAshbless , 8 Jun 2013 07:04
@WilliamAshbless -

Free education and the NHS are state institutions. As Debbie said, Amazon never taught anyone to read. Beneficial capitalism is an oxymoron resulting from your lack of understanding.

Yes they are state institutions and the tax system should be changed to prevent Amazon et al from avoiding paying their fair share. But beneficial capitalism is not an oxymoron, it is alive and present in virtually every corner of the world. Rather than accuse me of not understanding, I think you would do well to take the beam out of your eye.
ATrueFinn -> fr0mn0where , 8 Jun 2013 07:02
@ fr0mn0where 08 June 2013 10:51am

I agree with you and it was this beneficial version of capitalism that brought down the Iron Curtain. Working people in the former Communist countries were comparing themselves with working people in the west and wanted a piece of that action.

Now, that's a novel interpretation! The working people in "Communist" countries had free healthcare and education, guaranteed employment and heavily subsidized housing. The reason we have healtcare and free education is that working people in Capitalist countries would otherwise have revolted to have Socialism. In the absence of competition, there is no benefit for the Capitalist to be "beneficial".

s0lar1 -> colonelraeburn , 8 Jun 2013 06:33
@colonelraeburn -

The banks couldn't stop property hyperinflation, at 20% a year for well over a decade.

The banks could plainly see that they were stoking a bubble, but chose not to pass on the increased risk of lending to consumers by raising their interest rates and coolling the market. Why? Because they were making a handsome short-term profit. The banks put their own short-term interests above their long-term interests of financial stability. When the house of cards came tumbling down - we bailed them out. It was idiotic banks who failed to properly control their risk of lending that caused the crash, not interventionist politicians.

[Dec 03, 2018] The classic form of neoliberal corruption: The rotating door betweens banks and intelligence agencies brass

This is the key feature of modern National Security State. Note where Mueller was after his retirement and before becoming the Special Procecutor.
Dec 03, 2018 | discussion.theguardian.com

MysticFish -> gbru2505 , 8 Jun 2013 16:23

@gbru2505 -

Last week there was a story where HSBC have taken on a senior ex-MI5 person to shore up their money laundering 'problems'. They're being fined over a billion dollars by the fed for taking blood money from murderers, drug dealers and corrupt politicians.

Not the Security Services' Director General by any chance?

-- In a filing to the Bermuda Stock Exchange ("BSX"), HSBC Holdings plc (Ticker: HSBC.BH), announced the appointment of Sir Jonathan Evans to the Board of Directors.

The filing stated:

Sir Jonathan Evans (55) has been appointed a Director of HSBC Holdings plc with effect from 6 August 2013. He will be an independent non-executive Director and a member of the Financial System Vulnerabilities Committee.

Sir Jonathan's career in the Security Service spanned 33 years, the last six of which as Director General. During his career Sir Jonathan's experience included counter-espionage, protection of classified information and the security of critical national infrastructure. His main focus was, however, counter-terrorism, both international and domestic including, increasingly, initiatives against cyber threats. As Director General he was a senior advisor to the UK government on national security policy and attended the National Security Council.

He was appointed Knight Commander of the Order of the Bath (KCB) in the 2013 New Year's Honours List and retired from the Service in April 2013.

http://www.bsx.com/NewsArticle.asp?articleID=1100794622

gbru2505 , 8 Jun 2013 16:13
I think there's some really good points in the article.

Last week there was a story where HSBC have taken on a senior ex-MI5 person to shore up their money laundering 'problems'. They're being fined over a billion dollars by the fed for taking blood money from murderers, drug dealers and corrupt politicians.

Their annual fee for this guy with 20 years experience to tackle a billion dollar fine and the disfunction in their organisation? A lousy 100 k. Fee to UK for training him? 0.

Ridiculous! It should have been 10 times that for him and a finders fee of perhaps 10 million to the state.

Realistically, the state has NO clue about it's real value, or the real value of the UK population. And the example above, I think, demonstrates banks' attitude to the global demand that they clean up their act. We neef to take this lot to the cleaners before the stench gets any worse.

[Dec 03, 2018] Neoliberalism is a secular religion because it relies of beliefs (which in this case are presented using the mathematical notation of neoclassic economics)

Like bolshevism this secular regions is to a large extent is a denial of Christianity. While Bolshevism is closer to the Islam, Neoliberalism is closer to Judaism.
The idea of " Homo economicus " -- a person who in all his decisions is governed by self-interest and greed is bunk.
Notable quotes:
"... There is not a shred of logical sense in neoliberalism. You're doing what the fundamentalists do... they talk about what neoliberalism is in theory whilst completely ignoring what it is in practice. ..."
"... In theory the banks should have been allowed to go bust, but the consequences where deemed too high (as they inevitable are). The result is socialism for the rich using the poor as the excuse, which is the reality of neoliberalism. ..."
"... Neoliberalism is based on the thought that you get as much freedom as you can pay for, otherwise you can just pay... like everyone else. In Asia and South America it has been the economic preference of dictators that pushes profit upwards and responsibility down, just like it does here. ..."
"... We all probably know the answer to this. In order to maintain the consent necessary to create inequality in their own interests the neoliberals have to tell big lies, and keep repeating them until they appear to be the truth. They've gotten so damn good at it. ..."
"... Neoliberalism is a modern curse. Everything about it is bad and until we're free of it, it will only ever keep trying to turn us into indentured labourers. ..."
"... It's acolytes are required to blind themselves to logic and reason to such a degree they resemble Scientologists or Jehovah's Witnesses more than people with any sort of coherent political ideology, because that's what neoliberalism actually is... a cult of the rich, for the rich, by the rich... and it's followers in the general population are nothing but moron familiars hoping one day to be made a fully fledged bastard ..."
"... Who could look at the way markets function and conclude there's any freedom? Only a neoliberal cult member. They cannot be reasoned with. They cannot be dissuaded. They cannot be persuaded. Only the market knows best, and the fact that the market is a corrupt, self serving whore is completely ignored by the ideology of their Church. ..."
Dec 03, 2018 | discussion.theguardian.com
TedSmithAndSon -> theguardianisrubbish , 8 Jun 2013 12:24
@theguardianisrubbish -

Unless you are completely confused by what neoliberalism is there is not a shred of logical sense in this.

There is not a shred of logical sense in neoliberalism. You're doing what the fundamentalists do... they talk about what neoliberalism is in theory whilst completely ignoring what it is in practice.

In theory the banks should have been allowed to go bust, but the consequences where deemed too high (as they inevitable are). The result is socialism for the rich using the poor as the excuse, which is the reality of neoliberalism.

Savers in a neoliberal society are lambs to the slaughter. Thatcher "revitalised" banking, while everything else withered and died.

Neoliberalism is based on the thought of personal freedom, communism is definitely not. Neoliberalist policies have lifted millions of people out of poverty in Asia and South America.

Neoliberalism is based on the thought that you get as much freedom as you can pay for, otherwise you can just pay... like everyone else. In Asia and South America it has been the economic preference of dictators that pushes profit upwards and responsibility down, just like it does here.

I find it ironic that it now has 5 year plans that absolutely must not be deviated from, massive state intervention in markets (QE, housing policy, tax credits... insert where applicable), and advocates large scale central planning even as it denies reality, and makes the announcement from a tractor factory.

Neoliberalism is a blight... a cancer on humanity... a massive lie told by rich people and believed only by peasants happy to be thrown a turnip. In theory it's one thing, the reality is entirely different. Until we're rid of it, we're all it's slaves. It's an abhorrent cult that comes up with purest bilge like expansionary fiscal contraction to keep all the money in the hands of the rich.

Jacobsadder , 8 Jun 2013 11:35
Bloody well said Deborah!

Why, you have to ask yourself, is this vast implausibility, this sheer unsustainability, not blindingly obvious to all?

We all probably know the answer to this. In order to maintain the consent necessary to create inequality in their own interests the neoliberals have to tell big lies, and keep repeating them until they appear to be the truth. They've gotten so damn good at it.

iluvanimals54 , 8 Jun 2013 07:58
Today all politicians knee before the Altar that is Big Business and the Profit God, with his minions of multinational Angels.
TedSmithAndSon , 8 Jun 2013 06:01
Neoliberalism is a modern curse. Everything about it is bad and until we're free of it, it will only ever keep trying to turn us into indentured labourers.

It's acolytes are required to blind themselves to logic and reason to such a degree they resemble Scientologists or Jehovah's Witnesses more than people with any sort of coherent political ideology, because that's what neoliberalism actually is... a cult of the rich, for the rich, by the rich... and it's followers in the general population are nothing but moron familiars hoping one day to be made a fully fledged bastard.

Who could look at the way markets function and conclude there's any freedom? Only a neoliberal cult member. They cannot be reasoned with. They cannot be dissuaded. They cannot be persuaded. Only the market knows best, and the fact that the market is a corrupt, self serving whore is completely ignored by the ideology of their Church.

It's subsumed the entire planet, and waiting for them to see sense is a hopeless cause. In the end it'll probably take violence to rid us of the Neoliberal parasite... the turn of the century plague.

[Dec 03, 2018] Margaret Thatcher Against Friedrich von Hayek's Pleas for a Lykourgan Dictatorship in Britain Hoisted from the Archives

Dec 03, 2018 | www.bradford-delong.com

Thatcher (aka "Milk Snatcher" ) pushed neoliberalism and globalization as the solution of New Deal Capitalism problems. Now the UK arrived at the dead end of this "1 Neoliberal Road" and now needs to pay the price. So much for TINA.

From a pure propaganda standpoint, Neoliberalism is just a sanitized-sounding expression, to cover-up the fact that what we really see here is re-branded corporatist ideology.

That's why the crisis of neoliberalism created Renaissance for far-right movements in Europe, which now threaten to destroy its "globalization" component and switch to "national neoliberalism" (aka Trumpism) as the solution to the current crisis of neoliberalism ( aka "secular stagnation" which started in 2008).

Ideology is as dead as Bolshevik's ideology became in early 60th. And I see Trump as a somewhat similar figure to Khrushchev. An uneducated reformer with huge personal flaws, but still a reformer of "classic neoliberalism." Which was rejected by voters with Hillary Clinton, was not it ?

As financial oligarchy is pretty powerful and, as we now see, have intelligence agencies as a part of their "toolset", the trend right now is to rely on "patriotic military" and far-right nationalism to counter neoliberal globalization.

We will see where it would get us, but with oil over $100 Goldman employees might eventually really find themselves under fire like in Omaha beach.

Hayek, while a second rate economist, proved to be a talented theologian, and he managed to create what can be called "civil religion" not that different from Mormonism or Scientology.

It was mostly based on Trotskyism rebranded for financial elite instead of the proletariat and the network of think tanks instead of "professional revolutionaries" of the Communist Party ("Financial oligarchy of all countries unite", "All power to Goldman Sacks and Bank of America," etc.).

Pope Francis did a pretty good theological analysis of this secular religion in his Evangelii Gaudium, Apostolic Exhortation of Pope Francis, 2013. Rephrasing Oscar Wilde, we can say that "objective analysis is the analysis of ideologies we do not like".

He pointed out that neoliberalism explicitly rejects the key idea of Christianity -- the idea of equal and ultimate justice for all sinners as a noble social goal. The idea that a human being should struggle to create justice ( including "economic justice") in this world even if the ultimate solution is beyond his grasp. "Greed is good" is as far from Christianity as Satanism.

As Reinhold Niebuhr noted a world where there is only one center of power and authority (financial oligarchy under neoliberalism) "preponderant and unchallenged... its world rule almost certainly violate the basic standard of justice".

Here are selected quotes from Evangelii Gaudium, Apostolic Exhortation of Pope Francis, 2013

... Such a [neoliberal] economy kills. How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points? This is a case of exclusion. Can we continue to stand by when food is thrown away while people are starving? This is a case of inequality. Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.

Human beings are themselves considered consumer goods to be used and then discarded. We have created a "disposable" culture which is now spreading. It is no longer simply about exploitation and oppression, but something new. Exclusion ultimately has to do with what it means to be a part of the society in which we live; those excluded are no longer society's underside or its fringes or it's disenfranchised – they are no longer even a part of it. The excluded are not the "exploited" but the outcast, the "leftovers."

54. In this context, some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting. To sustain a lifestyle which excludes others, or to sustain enthusiasm for that selfish ideal, a globalization of indifference has developed.

Almost without being aware of it, we end up being incapable of feeling compassion at the outcry of the poor, weeping for other people's pain, and feeling a need to help them, as though all this were someone else's responsibility and not our own. The culture of prosperity deadens us; we are thrilled if the market offers us something new to purchase; and in the meantime, all those lives stunted for lack of opportunity seem a mere spectacle; they fail to move us.

[Nov 30, 2018] NYC's Highest Paid Employee - A Predatory-Debt-Collecting Marshal - Made $1.7 Million Last Year

Nov 30, 2018 | www.zerohedge.com

A brand new expose by Bloomberg shines light on modern day loan sharks: city officials that are armed with badges like Vadim Barbarovich, who earned $1.7 million last year, easily giving him the most lucrative job within the government of New York City. His official title is City Marshal, and he's one of 35 that the mayor has appointed to compete for fees from recovering debts. While traditionally marshals evict tenants and tow cars, Barbarovich has found his place in part of a debt collection industry that allows them to use their legal authority on behalf of predatory lenders.

It's a practice that dates back to the 17th century. Back then, jobs across the Hudson River for marshals yielded the highest fees. Under current law, marshals are entitled to keep 5% of cash that they collect. The city also has a Sheriff's office that does similar work, but those employees get a salary. Several mayors have called for an end to the marshal system over the last few decades, but nobody has been successful in getting the state legislature to act upon it.

While Barbarovich's jurisdiction is supposed to end at city limits, he has worked to recover debts from places like California and Illinois, among others nationwide.

One person he "recovered" debt money from, to the tune of $56,000, Jose Soliz, asked: "How could they pull all that money? I've never even been to New York."

When asked about Barbarovich's practices, a spokesman for the New York City Marshals Association said that marshals simply "enforce court judgments".

The genesis of these judgments are often lenders who advance money to people at rates that can sometimes top 400% annualized. They have found a loophole around loansharking rules by stating that they are instead buying the money that businesses will likely make in the future at a discounted price. Courts have been supportive of this distinction and, as such, the "merchant cash advance" industry has grown to about $15 billion a year.

As soon as lenders see that borrowers have fallen behind they call marshals, whose job is to force the banks to handover whatever cash is left. They do this by using a court order stamped by a clerk that's obtained without going before a judge. Banks generally comply immediately, without checking if the marshal has the right to actually take the funds. The borrower often doesn't understand what's going on until the money is gone.

Prior to becoming a marshal, Barbarovich worked in property control earning about $70,000 a year and sometimes volunteered as a Russian translator. Upon starting as a marshal in 2013, he earned about $90,000. When cash advance companies discovered the power he had, his income skyrocketed and his earnings increased almost 20 fold.

His financial disclosures show that his work enforcing Supreme Court property judgments skyrocketed dramatically over the last two years, as did the amount of cash he recovered. In some respects, the collection process is like the wild west: marshals don't draw a salary, earn fees from customers and are encouraged to compete with one another, which can catalyze aggressive behavior.

Avery Steinberg, a lawyer in White Plains, New York, who represents a few clients whose accounts were seized by Barbarovich, told Bloomberg: "He goes about it in any which way he can. He has a reputation of being a bully."

The Bloomberg article tells the story of Jose Soliz, whose company builds concrete block walls for schools and stores in the Texas Panhandle. He had started borrowing from cash advance companies several years ago and found himself trapped in a cycle of debt.

He eventually wound up taking out a $23,000 loan that he agreed to pay back within nine weeks – to the tune of $44,970 : an 800% annualized interest rate.

He says that the fees were more than expected, so he stopped payment. When he went to go pay his employees a couple days later, he noticed that his Wells Fargo account had been frozen and his paychecks bounced.

He found out the hard way that cash advance companies like the one he used required him to sign a document agreeing in advance that if there's a legal dispute, the borrower will automatically lose, rendering any type of judicial review useless.

Those who are signing these agreements don't often realize the power that they are waiving. Based on these agreements, the lender can accuse the borrower of defaulting, without proof, and have a court judgment signed by a clerk on the same day.

This is exactly what happened to Soliz. His lender obtained such a judgment against him in Buffalo, New York and called in Barbarovich to collect. Even though his Wells Fargo account was opened in Texas, and the judgment was only valid in New York State, the bank turned over $56,764 to the marshal. The rule is supposedly that marshals can go after out of state funds as long as they serve demands at a bank location in New York City, according to the New York City Department of Investigation.

On the other hand, it's not clear whether or not banks have to comply with these orders. Some banks reject these demands but most have a policy of following any legal order they receive so as to avoid the hassle of reviewing them and not to ruffle any feathers.

Wells Fargo, when contacted by Bloomberg, stated that it "carefully review[s] each legal order to ensure it's valid and properly handled."

Barbarovich claims that he serves all legal orders by hand, though that is disputed by Soliz's lawyer.

The Department of Investigation reportedly "continues to review" Barbarovich's work and offered few specifics to Bloomberg.

The Department has stated that they're conducting multiple investigations into the enforcement of judgments and focusing on whether not marshals are serving orders by hand.


RubberJohnny , 5 minutes ago link

Another Shylock invented money lending scheme.

Everywhere you turn they have their greedy clutches in you .Best philosophy is "neither a lender nor a borrower be."

If you believe this is goal is unattainable then you are a weak-willed excuse for a man.

Owe money and get fucked?

Don't bitch.

otschelnik , 15 minutes ago link

Reminds me of another 'vishibalo' (shakedown artist) Benjamin 'Bugsy' Siegel who's parents hailed from Odessa, Ukraine (a city which until today is still run by the Jewish mafia) and his boyhood friend Meyer Lansky (who came from Belarus), who formed the first Jewish criminal group in New York. Fiddler on the Roof: "If I were a rich man...... Tradition! Tradition! "

maxblockm , 19 minutes ago link

All these ZH'ers bitching. I thought you wanted the gov to enforce contract law.

Don't take out payday loans.

If you do, then default, and your bank account is seized, don't complain. You agreed to it, signature right there.

Blue Vervain , 27 minutes ago link

(((Barbarovich))) is an evil "Russian".

I Am Jack's Macroaggression , 1 hour ago link

His jurisdiction ends in NY, bank in Texas has no reason to comply, Soliz could suecthe bank and sue the 'marshall' - he has no legal authority outside of nyc to seize funds absent a court order in that jurisdiction.

Guy has a property interest of some sort in his funds being available. At very least due process rights that were ignored.

https://www.law.cornell.edu/uscode/text/42/1983

Sue this **** in federal court in Texas and you'll see him lose bigly.

desertboy , 2 hours ago link

Wells Fargo, when contacted by Bloomberg, stated that it "carefully review[s] each legal order to ensure it's valid and properly handled."

Anybody who has done business with Wells Fargo will laugh at this claim.

The "marshall" bit is another inside scam for the bankers' nephews.

HRH of Aquitaine 2.0 , 2 hours ago link

We Will **** You Hard Bank doesn't give a **** about customers.

I am part of a local Savings and Loan that has been extant for more than 100 years. Local place with experience. That's the cred I want from a bank.

non_anon , 2 hours ago link

My state had a loan shark running multiple easy cash joints and spending the money on all sorts of properties and businesses. Voters capped his interest on loans and he left the state.

HRH of Aquitaine 2.0 , 2 hours ago link

"It's a practice that dates back to the 17th century."

Incorrect. This was a method used in ancient Rome to collect taxes. It's the reason landowners and farmers abandoned their land. Excessive taxation and the capacity to acquire wealth by collecting taxes from the state. By the way, the IRS pays 10%.

Justin Case , 2 hours ago link

February 21, 1871 and the Forty-First Congress is in session. I refer you to the "Acts of the Forty-First Congress," Section 34, Session III, chapters 61 and 62. On this date in the history of our nation, Congress passed an Act titled: "An Act To Provide A Government for the District of Columbia." This is also known as the "Act of 1871." What does this mean? Well, it means that Congress, under no constitutional authority to do so, created a separate form of government for the District of Columbia, which is a ten mile square parcel of land.

In essence, this Act formed the corporation known as THE UNITED STATES. Note the capitalization, because it is important. This corporation, owned by foreign interests, moved right in and shoved the original "organic" version of the Constitution into a dusty corner. With the "Act of 1871," our Constitution was defaced in the sense that the title was block-capitalized and the word "for" was changed to the word "of" in the title. The original Constitution drafted by the Founding Fathers, was written in this manner:

"The Constitution for the united states of America".

The altered version reads: "THE CONSTITUTION OF THE UNITED STATES OF AMERICA". It is the corporate constitution. It is NOT the same document you might think it is. The corporate constitution operates in an economic capacity and has been used to fool the People into thinking it is the same parchment that governs the Republic. It absolutely is not.

Capitalization -- an insignificant change? Not when one is referring to the context of a legal document, it isn't. Such minor alterations have had major impacts on each subsequent generation born in this country. What the Congress did with the passage of the Act of 1871 was create an entirely new document, a constitution for the government of the District of Columbia. The kind of government THEY created was a corporation. The new, altered Constitution serves as the constitution of the corporation, and not that of America. Think about that for a moment.

HRH of Aquitaine 2.0 , 2 hours ago link

FOAD. I hate barristers. Take that bar and shove it up your ***.

Sneaker98 , 4 hours ago link

"He found out the hard way that cash advance companies like the one he used required him to sign a document agreeing in advance that if there's a legal dispute, the borrower will automatically lose, rendering any type of judicial review useless."

Am I supposed to feel sorry for them?

[Nov 24, 2018] The Global Financial Crime Wave Is No Accident by Nat Dyer

Notable quotes:
"... By Nat Dyer, a freelance writer based in London. He was previously an investigator and campaigner at Global Witness, an anti-corruption group. He tweets at @natjdyer. Originally published at openDemocracy ..."
Nov 24, 2018 | www.nakedcapitalism.com

By Nat Dyer, a freelance writer based in London. He was previously an investigator and campaigner at Global Witness, an anti-corruption group. He tweets at @natjdyer. Originally published at openDemocracy

There was a little bit of good news this month for those worried about a tidal wave of McMafia-style financial crime. A new UK government agency tasked with fighting it – the National Economic Crime Centre (NECC) – opened its doors.

I say "little" because financial crime is far more deeply rooted in our financial and political systems than we like to acknowledge.

From the LIBOR-rigging scandal to the offshore secrets of the Panama Papers and 'dark money' in the Brexit vote , it is everywhere. In my recent work with anti-corruption group Global Witness , I saw first-hand how ordinary people in some of the world's poorest countries suffer the consequences of corruption and financial crime. We exposed suspicious mining and oil deals in Central Africa, in which over a billion dollars of desperately-needed public finances were lost offshore. The story is about the West as much as Africa. The deals were routed through a dizzying web of offshore shell companies in the British Virgin Islands, often linked to listed companies in London, Toronto and elsewhere. Even if the NECC is given enough resources and collaborates widely, it has got its work cut out.

One reason all this financial crime is tolerated is that thinkers who shine a light on its systemic nature have been erased from the record. Top of my list of neglected economic superstars is Professor Susan Strange of the London School of Economics, one of the founders of the field of international political economy. In a series of ground-breaking books – States and Markets, The Retreat of the State and Mad Money – Strange showed how epidemic levels of financial crime were a consequence of specific political decisions.

"This financial crime wave beginning in the 1970s and getting bigger in later years is not accidental," Strange wrote.

It would have hardly been possible to design a system, she said, "that was better suited than the global banking system to the needs of drug dealers and other illicit traders who want to conceal from the police the origin of their large illegal profits."

For Strange, money laundering, tax evasion and public embezzlement were a result of the collapse in the 1970s of the post-war financial order. Here are four ways she showed how politics and the financial crime epidemic were intimately connected.

1) Money Is Global, Regulation Is National

There was nothing inevitable about financial globalisation, Strange said. It was born out of a series of political decisions. It means that global money can skip freely across borders beyond the reach of national laws and supervision. For smart operators tax, regulations, and compliance become a choice, not an obligation. Strange argued that international organisations lack the power to control global money, only coordination between the world's major economies can rein it in.

2) Tax Havens Are an Open Invitation to Embezzlement

Unless you have somewhere to stash the cash, the looting of public money and state enterprises can only go so far.

Tax havens give "open invitations", Strange said, to corrupt politicians to steal from their people.

Banking secrecy in the havens allows money from tax evasion, drug trafficking and public embezzlement to mix together until they become indistinguishable from legitimate business.

3) Extravagant Banker Bonuses Contaminate Politics

For Strange the "obscenely large" bonuses paid to those in financial markets leads to a kind of "moral contamination", she wrote which has "reinforced and accelerated the growth of the links between finance and politics". Strange recognised that corruption and bribery were a problem in London and New York as well as Asia, Africa and Latin America. "Bribery and corruption in politics are not new at all. It is the scale and extent of it that have risen, along with the domination of finance over the real economy," she wrote.

4) Money Is Political Power

Globalisation has redefined politics, Strange argued. Political power is not just what happens in governments, but money and markets also have power. As legitimate and illegitimate private operators grow richer, they increase their power to shape the world system. States starved of tax revenues grow weaker and retreat, in a reinforcing spiral. National politics becomes captured by global money markets.

In the twenty years since Susan Strange's death in 1998, these trends have only bedded down. Bankers' bonuses have continued to skyrocket and in 2018 reached their pre-crisis peak .

Columbia University professor James S Henry estimates tha t in 2015 a scarcely imaginable $24 trillion to $36 trillion of the world's financial wealth was held offshore. Much of that is money from legitimate businesses but contributes to a system where financial crime can prosper.

We cannot hope to get out of the morass of financial crime, and out-of-control financial markets, without understanding how they relate to one another. The genie of globalised money cannot be put back into the bottle, but Strange would argue that we should challenge banking secrecy, and through coordinated action of the world's large economies close down tax havens.

Finance and crime was only one strand of her work, but it contributed to her unnerving, perhaps prophetic, conclusion that unless we rein in the financial system it could sweep away the entire Western liberal order. One only has to glance at the combination of financial chicanery and violent rhetoric that characterises the Trump presidency to see that her concerns could hardly be more contemporary.

Strange would tell us that we need more than a new government agency to turn back the tide of financial crime. We need nothing less than a new approach to political economy at national and global level.

[Nov 24, 2018] Update on the Comparison with Prior Notable Declines

Nov 24, 2018 | jessescrossroadscafe.blogspot.com

[Nov 19, 2018] Is Israel turning a blind eye as Israeli scammers swindle victims in France, US, elsewhere by Alison Weir

Nov 19, 2018 | www.unz.com

The Israelis were extradited to the U.S., where the prosecutor described them as "a predatory group that targeted elderly people in the U.S., conning them into believing they were lottery winners. Preying on their victims' dreams of financial comfort, [they] bilked them out of substantial portions of their life savings." According to the U.S. Attorney's office :

"The defendants operated multiple boiler rooms that used the names of various sham law firms purportedly located in New York, including law firms named 'Abrahams Kline,' 'Bernstein Schwartz,' 'Steiner, Van Allen, and Colt,' 'Bloomberg and Associates," and 'Meyer Stevens.' The defendants further used various aliases and call forwarding telephone numbers to mask the fact that the defendants were located in Israel. The defendants also possessed bank accounts in Israel, Cyprus, and Uganda, to which illegal proceeds were wired."
The ringleaders, Avi Ayache and Yaron Bar, were eventually convicted, and the U.S. prosecutor announced that they would "spend a substantial portion of their lives in prison." Ayache was sentenced in 2014 to 13 years in prison and Bar to 12. Yet, prison records indicate the two were released the next year.

Other members of the ring also appear to have been released after extraordinarily little time. If these men did serve only a tiny portion of their U.S. sentences, as public records and phone calls and emails to the Bureau of Prisons indicate, this may be due to the fact that Israelis are allowed to be imprisoned in Israel instead of in the U.S. Their sentences then are determined by Israel and, as we will see below, are often far shorter than they would be in the U.S. Gery Shalon – hundreds of millions of dollars

In 2015 Gery Shalon and two other Israelis were charged with utilizing hacked data for 100 million people to spam them with "pump and dump" penny stocks, netting hundreds of millions of dollars.

The money was then laundered through an illegal bitcoin exchange allegedly owned by Shalon (more on bitcoin below). Shalon was considered the ringleader of what U.S. prosecutors called a " sprawling criminal enterprise. " He faced decades behind bars.

However, he was instead given a plea deal in which he escaped any prison sentence whatsoever. Worth $2 billion, Shalon was to pay a $403 million fine.

republic , says: November 19, 2018 at 6:05 pm GMT

...The ringleaders, Avi Ayache and Yaron Bar, were eventually convicted, and the U.S. prosecutor announced that they would "spend a substantial portion of their lives in prison." Ayache was sentenced in 2014 to 13 years in prison and Bar to 12. Yet, prison records indicate the two were released the next year. Other members of the ring also appear to have been released after extraordinarily little time.

So if the US government is secretly releasing Federal prisoners, and if that is the case then American justice is on par with the Mexican penal system, where such occurrences are routine.

Can anyone here verify if those two are in prison in Israel or free?

[Nov 19, 2018] Michael Hudson's primary mission is to untangle the mysterious processes by which the financial oligarchs maintain their power and by which they continually strip the working class of everything they own

Nov 19, 2018 | www.moonofalabama.org

AntiSpin , Nov 18, 2018 3:27:57 PM | link

b --

Thanks for highlighting Michael Hudson's work. Those who wish to understand Hudson himself can find his autobiography at his web site --
http://michael-hudson.com/2018/08/life-thought-an-autobiography/
You will find that his primary mission in his economic life (though there are several) is to untangle the mysterious processes by which the oligarchs maintain their power and by which they continually strip the working class of everything they own.

I have been reading his articles for years, and once had the honor of being asked to edit a chapter in one of his recent books, which I did.

If from time to time you have the choice of doing anything else in the world or reading some of Hudson's works, choose Hudson every time. You will be very glad that you did.

//

A few years ago, while I was searching the interwebs for some appropriate children's videos for the small daughter of some friends of mine, I came across the "Masha and the Bear" videos.

I have to confess that I was utterly entranced, and ended up watching all that were available at the time. Utterly charming! The contention that they are Putin propaganda is possibly the single most absurd assertion that I have ever encountered.

//

Thanks for all this, and all the other work that you do in bringing us probably the single most enlightening site on the web -- at least as far as international relations and the outrages of the ruling classes are concerned.


temporary-11/3 , Nov 18, 2018 3:28:14 PM | link

There is a renegade school of thought according to which Jesus did not exist. There are multiple variations. A common idea is that there were one or more Hellenistic cults in the region of Judea around or even before the 1st century CE that believed that Christ, son of God the Father, in something like a cosmic practical joke was sent down in disguise from the 7th Heaven by God the Father into the lower realms because the demons/angels/lesser gods running things there/here were screwing up and needed to be put in their place. This Christ got crucified in disguise, probably in a lesser heaven rather than on Earth, and then ascended triumphant in full glory. Later the various Christian stories -- were written and rewritten by various factions, getting their final form to include a Jesus on Earth in the 2nd to 4th century CE. Some Christian works are presented by this school of thought as novel-like allegories or even at times parodies. This sort of thinking was presented at least as early as about 1930 (Couchoud). Mainstream divinity school scholars, even the atheists, hate it. Prominent proponents include RG Price and Richard Carrier, whose works I haven't read. I do not know it well. I read about it for entertainment on vridar.org which may or may not be the best place to go to to read about it.

A related concept is that Judaism may be best seen as a Hellenistic cult as well; that it may be far more recent than commonly thought (not much older than Christianity); and that it may not have become distinct from Christianity until several centuries CE. Again, I just skim this stuff for entertainment and don't know so don't rely on me. (A current post at vridar.org I haven't read I think is one of many that notes similarities of Old Testament contents to Plato.)

temporary-11/3 , Nov 18, 2018 3:29:25 PM | link
Different denominations use "debts" vs "trespasses" in the US for the Lord's Prayer. I believe translators have put a lot of work into which word to use dating back to circa 1600. I do not know whether there was a difference in the original Greek texts. I once read about it but am not going to look it up now.
uncle tungsten , Nov 18, 2018 3:41:47 PM | link
Australia totally blew its respect and relationship with south pacific nations under John Howard. He coerced, blackmailed and then bluntly stole the oil reserves from East Timor in the years following their liberation. EVERYBODY was watching this hideous theft of natural resources from the smallest, poorest, and suffering nation on earth. Just like the yankee carpetbaggers.

Nowadays Australia continues to totally screw up its relations with most Pacific Island neighboring states. It can't even get the independence referendum underway as Papua New Guinea just ignores it. China would no doubt be absolutely focussed on that opportunity.

james , Nov 18, 2018 3:43:42 PM | link
hey, we have people chopping off dissidents heads in ksa.. i have no problem imaging some barbaric people from a few thousand years ago nailing someone to a cross... not saying i know anything for sure, but reality as practiced in ksa is more strange then anything i would like to have to witness directly... speaking of which - trump doesn't want to listen to the suffering tape, yet he wants to continue his support for this headchopper cult.. interesting dude trump... or, strange what money will do to a persons brain..
Zachary Smith , Nov 18, 2018 4:13:19 PM | link
@ 19
...'The Bible Unearthed' by Israel Finkelstein and Neil Asher Silverman, two Israeli archaeologists and biblical scholars

I found that to be fantastically good read. As you say, lots of others will be disturbed by what they see there.

Jackrabbit , Nov 18, 2018 4:14:25 PM | link
Circe @27:
Zionists wanted Trump to win the election ... betraying millions of voters on the Left to forward the Zionist agenda

Thanks for the link. The Schumer info is important. But the contextualization of Schumer's craven, complicit behavior is all wrong. To bemoan Schumer, Obama, or Hillary's betrayal of the left is to accept the ruse that they actually represent the left.

It should be clear by now that the Democratic Party's primary mission is to protect the establishment. They drip-feed just enough small changes - like bathroom rights - to keep their claim to be "left" alive. Just look at tax cuts: Clinton, Bush, Obama, and Trump have all cut taxes.

Likewise, to say that "Zionists" wanted to elect Trump is confusing and counterproductive as most people (wrongly) see Zionism as being only about Israel and associate "Zionism" with Jews (only). It should be clear by now that most of the American establishment (aka the 'people that matter') is 'Zionist' and that these 'Zionists' are not only pro-Israel but pro-MIC and pro-oligarchy too.

It was the US establishment that wanted Trump despite pretending to hate him. MAGA is not a Trump invention but a POLICY RESPONSE to the challenge from Russia and China. Trump was selected as the best person to lead that response.

I've been saying for some time now that the 2016 Presidential election was a complete set-up. Most people reject that 'conspiracy theory' out of hand until they are reminded that Hillary: ran against two old friends (Sanders and Trump); she snubbed the progressives by bringing DWS into her campaign and selecting Tim Kaine as her running mate while also including moderate whites with her "deplorables" comment, -AND- she didn't campaign in the three crucial states that would decide the election. Meanwhile, new-comer Trump did everything right: the only Republican to run as a populist, the only republican to champion veterans, etc.

temporary-11/3 , Nov 18, 2018 4:22:03 PM | link
Up around #34 in discussing the "mythicist" school of thought about Jesus (ie, did not exist--Christianity based on myth even deliberate fiction-writing later reworked back and forth by various factions into its current form) I neglected the name of a 3d major author whose works I have not read interested people might go to: Earl Doherty. I do not know this stuff other than as a curious passerby, but it does seem erudite and well-argued to my naive mind.
tony , Nov 18, 2018 4:24:16 PM | link
That Jesus was a rebel in conflict with authority is obvious to any child who can read.

Flipping the tables of merchants in church is pretty hard to misinterpret right?! It blows my mind they weren't more creative with some of the rewrites, the 'bad guys' of the story are priests...

dh-mtl , Nov 18, 2018 4:34:14 PM | link
My grand-daughter loves Masha. I watch it regularly with her.

As far as I can see, if there is a central message, it is in favor of independent thinking and initiative.

I have no doubt that the Brithish neo-cons feel threatened by such radical ideas.

Bart Hansen , Nov 18, 2018 4:52:38 PM | link
I'll post this piece again for those new to Hudson -

http://michael-hudson.com/2017/01/the-land-belongs-to-god/

A good thumbnail look at the scope of his research, especially on deror, or debt.

And, how many people who read the Lord's Prayer understand the historical meaning of trespass?

Circe , Nov 18, 2018 5:09:41 PM | link
@ 40

Correct. But just for those who still don't get it, you should add that even though Trump campaigned as a populist; he's really a faux populist who in fact cares squat about Veterans; he prefers not to get his hair wet than honor them. What he likes to do is pretend that because he invested close to a billion U.S. funds in the MIC, that constitutes honoring Veterans when we all know what is driving that investment, bases, proxy civil wars and invasions on behalf of regime change, especially in Iran, for now, and the Empire's expansion.

John Merryman , Nov 18, 2018 5:59:37 PM | link
Jesus was the Jewish Martin Luther. That goes to the underlaying dynamic of renewal. Which was the original source of the Trinity, the Greek Year Gods. Father, Son, Holy Ghost = Past, Present, Future.
Read Gilbert Murray's; The Five Stages of Greek Religion: http://www.gutenberg.org/files/30250/30250-h/30250-h.htm

James,
We live in interesting times. The powers that be are throwing everything on the fire to keep the status quo going. So when it does totally blow up, the system will be that much more vulnerable. Then the question will be, what changes are possible?
The most profound would be understanding time is not a real dimension, from past to future, but change turning future to past. More like temperature, pressure, color, etc, than space. This dissolves the idea of history as singular and that everyone has to conform to the dominant narrative.
The Eastern view of time is the past is in front of the observer and the future behind, as what is in front and past are known and the future and what is behind are unknown. Which conforms to the Eastern philosophy of the individual as part of its context, given we do see events after they occur. The Western view is of the future in front and past behind, because we see ourselves as autonomously moving through our context. Both are effectively true, as we are moving in and part of our context.
Which then gets to the idea of God, as "all-knowing absolute," in the words of Pope John Paul 2. A spiritual absolute(source of consciousness), would be an essence of sentience, from which we rise, not an ideal of wisdom, from which we fell. Analogous to the raw awareness of the new born, rather than the wisdom of the old man. The religious deity is a political construct; The father figure ruler. Yet in the wrong hands, it becomes treating one's cultural assumptions as absolute and that results in extremism. Which the various monotheisms seem quite adept at.
If those two dominos could be tipped over, than resetting money as a social contract, rather than a commodity, would be almost be easy. We would own money like we own the section of road we are driving on. Neither entirely public or private, as our notion of public and private has been networked into a larger dynamic. Two sides of a larger coin. Node and network.
So that is how I see the coming explosion; Both destruction of the old, but opening up the possible.

karlof1 , Nov 18, 2018 6:34:20 PM | link
The Outlaw US Empire's inability to coerce other nations to adopt its lie-filled draft declaration for the APEC-CEO Conference caused it to accuse China of being the stuck-up nation; so, unlike the ASEAN and Asia-Summit Conferences which didn't include the Outlaw Empire and had no difficulty reaching consensus on their Declarations, no APEC Declaration was agreed upon for publication. We do have an idea of what was discussed thanks to Medvedev's attendance. Here's his speech with his primary pitch excerpted so readers will understand what the Outlaw US Empire opposes:

"First of all, the global economy needs clear and transparent rules of trade. Therefore, a key goal is to combine efforts to improve the effectiveness of the World Trade Organisation and its regulatory role.

"Like many countries, we recognise that the organisation needs to be modernised, but without weakening its influence or undermining the fundamental principles of its work, let alone its dismantling, which would mean a collapse of civilised trade.

"The institutional foundations of international trade formed by the WTO also need to be preserved to condition further deepening of regional economic integration. Russia strongly believes that transparent WTO rules incorporating the specifics of each Asia-Pacific, each APEC economy, are essential for creating an Asia-Pacific free trade zone, making it a truly open market, rather than a narrow-format system of collective protectionism.

"I would suggest the Eurasian Economic Union as an example of such an integration platform, an alliance which Russia and its partners are developing in strict accordance with the WTO principles. It is one of the largest regional associations in terms of market capacity and a single market with uniform rules for doing business.

"We are cooperating with other integration projects and are now working on aligning it with the well-known Chinese Belt and Road initiative. We are working in close contact as part of the Shanghai Cooperation Organisation. We also have strong ties with ASEAN. President of Russia Vladimir Putin has launched an initiative to create the Greater Eurasian Partnership, based on openness and mutual trust between states, and uniform rules of the game.

"Asia-Pacific countries joining this format would help harmonise the multi-level integration architecture that is being formed on the continent. We invite our colleagues and stakeholders to collectively develop the landscape for such work.

"We believe that a similar principle could underlie the Asia-Pacific free trade zone concept. This would promote truly comprehensive and indivisible economic growth in Eurasia and the Asia-Pacific region."

Much more follows, and it's easy to see why the Empire's on the defensive as it's now exposed as the Reactionary Power it's always been while hiding its true nature behind self-laudatory rhetoric and propaganda.

About the only thing to admire about Trump is his ability to stand naked before the world without a hint of embarrassment. The future lies in Eurasia and Asia-Pacific as does the rediscovery of the past and its actual history, not the contrived, distorted narrative fed to most everyone over the past 2K+ years to service the power of the money-lenders--The Living-Breathing Satans.

PhilK , Nov 18, 2018 6:54:40 PM | link
Masha the Bear -- Putin propaganda, LOL. The lunatics propagating this pathetic drivel have probably raised their children, and were probably raised themselves on pure, innocent and surely non-propagandistic cartoons from Walt Disney!

From the wiki article on Ariel Dorfman and Armand Mattelart's How to Read Donald Duck :

According to [Sophia A.] McClennen, the Disney comics are insidious, masquerading themselves as innocent and light-hearted entertainment. How to Read Donald Duck set out to reveal the ideological message of the comics, their support of capitalism and imperialism.[9] The writers questioned why there are no parents in Disney comics, only uncles and cousins. This means the concept of the family is destroyed within their context. There is no potential dialectic between a father and his son, a mother and her daughter.[9] The children of the stories never grow up to become parents in their own right. Consequently, social authority is depicted as ever-lasting and never challenged.[9] There is both a lack of parents and absence of any hint of sexual reproduction within the stories. This is connected to another element missing from them, the depiction of material production. All characters apparently work in the service sector of the economy. There is no real workforce.[9] Characters who gain wealth, have only managed to do so through treasure hunting and looting.[9] The only depictions of an exchange of commodities, involve crafty imperialists who take advantage of ignorant savages. When Donald and his family travel to foreign lands, they fool the locals into trading precious resources for useless items.[9] There is a depiction of both wealthy and poor nations. But the poverty of the latter is attributed to the ignorance of the barbarians who inhabit them.[9] There is no labor, and no real leisure either. Donald Duck is frequently depicted as bored with his life and dreaming of his next adventure. His adventures invariably depict him using deception against other characters. Donald's antics are depicted as innocent fun.[9]
charles , Nov 18, 2018 6:54:50 PM | link
sir charles drake talked here about schlomo sand and the inventions
talked of douglas reeds problem with zion
talked of the book the 13th tribe by ashkanazi author talked of eutace mullins.
it is nice too know that even after all the deletions and forum memory holing
history will absolve this great man.
he may be a bot program but he is a lover of the children of jesus the semites of gaza and west bank.
charles believes ask a nazi should go home and rebuild khazaria in mongolia deserta
Mishko , Nov 18, 2018 7:10:13 PM | link
@ VK #25:

I wonder how much meat there be on them thar bones. I am inclined to assume F all.
Both the UK and Germany have the nasty habit of infiltrating organisations that show
any modicum of abillity to put words into action that may affect the supremacy
of the state. Same goes for the other NATO members.
So these efforts are either permitted to proceed until they are not,
or cancelled continuation of new/renewed Gladio cells.
Strategy Of Tension part infinity.

Jen , Nov 18, 2018 7:22:32 PM | link
James @ 17: One way in which finance becomes public is for the banking system (or whatever replaces it) to become public. Instead of privately owned banks lending to individuals, families or small businesses, community-owned banks or banks controlled by local councils, trade unions, student unions or grassroots organisations would lend money. These banks would draw their funds from savings and day-to-day business accounts operated by the same groups of people they lend to. They could also be funded by national governments.

You ask if all land is public, then who controls it? Answer must be that some kind of government (national, regional, local) must control it on behalf of the people who support that government. One presumes young couples (newly married perhaps or with documents to support their having been together for a defined period) get first preference in applying for (let's say) a 50-year lease on a dwelling which can be renewed once, maybe twice. If the couple divorces or one of them dies, the lease would return to the government. Perhaps the divorcee or the widowed survivor must show evidence that the lease should be renewed.

Similarly all businesses must lease land from the government and be able to renew the lease once, maybe twice.

Major infrastructure projects would only take place if governments controlling the land where these projects take place agree to cooperate or transfer / sell the land to the national government. The national government "pays" for the land by offering jobs in the project to the people living or working in the areas of the projects.

Incidentally the world's largest irrigation project was funded entirely by a government and its banking system, without any financial help from the World Bank.
http://www.great-man-made-river.algaddafi.org/great-man-made-river-gmmr--english

Pft , Nov 18, 2018 7:49:21 PM | link
Problem with Hudsons book is it cost 30 bucks (not including international shipping) for 336 pages of paperback and is already out of stock and NOT available on kindle. Not going to be widely read I don't think unless something changes.

Anyways, Christianity was a split in Judaism designed by elites and executed by their agents. Christians were then allowed to be fair game for the money lenders who could charge interest and not forgive them their debts (unlike with fellow Jews). Christians forbid charging usury to all. However, they also did not forgive debts to appease the ruling class that allowed them to exist. An uneasy truce in the early years before Christianity was formally adopted by Rome. This required a rewrite of the bible, which was easy to do before the printing press as few copies were in circulation and most of the flock illiterate. After Rome fell the non church elite (nobles and such) used Jews to collect taxes and when in need of a loan borrowed money at interest from them. To pay the interest they had to raise taxes. Another reason for their unpopularity.


The church (thanks to a rogue Pope) eventually succumbed to borrowing at interest, although somewhat constrained, but the indulgences sold to pay the interest led to the Reformation which was backed by the money lenders. This split the church and opened the flood gates for heavenly usury and debt, and spilled much blood in wars that required debt to be fought . This also enriched the money lenders ( Christians and Jews) who loaned to both sides of the wars, and led them to eventually seize control of money creation, and thus control over government.

Free of the church leaders who enforced "Gods" law , which could not be amended by men outside the church (Reformation gave states control of the religion and allowed reinterpretation), man was liberated and free to create his own laws. That made it possible to legally break Gods laws (as Hitler and Stalin both said, everything they did was legal under their laws) . Thus slavery, war, drugs, usury and debt were free to expand (we know it as Free Trade).


Ort , Nov 18, 2018 7:49:59 PM | link
@ b | Nov 18, 2018 1:45:54 PM | 28

Re: The Christian religions defused the revolutionary aspect when they changed the target of his teaching from real life issues towards a more spiritual perspective.
_____________________________________________

I know someone in the religious life, a theologian who generally shares my high regard for Hudson, and also shares my penchant for "alternative" news and analysis. I am well aware that, despite his leftist politics, my friend is actually a conservative, traditional-minded Roman Catholic.

Anyway, my friend was horrified some months ago, when we discussed a short video we'd both seen of Hudson outlining the topic of this book. My friend was more sorrowful than angry, but emphatically deplored Hudson's perspective as a tragic case of a worthy scholar making a fool of himself by-- well, pontificating-- outside of his area of expertise.

My friend knows that I am always attracted to contrarian research and iconoclastic theories that challenge settled narratives. When I protested that Hudson's interpretation of the Lord's Prayer had the ring of truth, he strenuously demurred.

He could understand why a "non-believer", especially a cynic like me, would be intrigued by the idea that the Fathers of the institutional church "tweaked" Jesus's words and meanings to suit their theological purposes. But he insisted that of course Jesus was speaking metaphorically about spiritual matters, and wasn't trying to be a secular economics "revolutionary".

I'm not sure how generally well-known Hudson is, but I wonder if he'll be subjected to vicious criticism and even harassment for daring to even suggest that Jesus might've been, at least in part, preaching a gospel of economic or financial salvation. I presume that devout Christian critics-- especially clergy and theologians-- will, you should pardon the expression, crucify him.

John Merryman , Nov 18, 2018 8:03:09 PM | link
karlof1,
Yet would that integration of the Eurasian continent have happened, without the threat and pressure of the Empire?
The Empire has peaked and the integration of the Old World will continue, for survival, so the question will be the future of the Americas. That is the real blank slate.

Jen,
Government is the central nervous system of the community. It is the Chief and the council of elders, mutated to the king and lords, to presidents and legislatures. Finance, on the other hand, is the circulation system of the economy. Banks and money are the arteries and blood. Yet we have become parasites and mine value out of this medium, with those most obsessive in the practice able to create feedback loops and take more and more. It would be as if the head and heart told the hands and feet they don't need so much blood and should work harder for what they do get.
Necessarily though, the nervous system and the circulation system are distinct and serve different functions, even though they both serve the entire body. Politicians succeed by how much hope they give the community and we experience money as quantified hope, so there is a natural tendency to inflate the money supply, when other promises cannot be fulfilled. The dawn of modern capitalism was when the Rothschild's took over control of the royal treasury, from Charles 1 and created the Bank of England. For better or worse, it worked magnificently. Now bankers are just running their own ponzi scheme and have no vision beyond it.
The two poles of social control are hope and fear. Money is quantified hope and when the system fails, the pendulum will swing to fear and the police and military will be in control. Likely quite a few bankers will be used as pinatas, to appease the masses. How do we really get beyond that, is the real question.

Zachary Smith , Nov 18, 2018 8:06:43 PM | link
@ 44: Bart Hansen
And, how many people who read the Lord's Prayer understand the historical meaning of trespass?

I sure didn't! And nobody has ever made a point of drawing my attention to the issue. Just made a search for the "official" Lord's Prayer at the Vatican site and found this:

Our Father who art in heaven, hallowed be thy name. Thy kingdom come. Thy will be done on earth, as it is in heaven. Give us this day our daily bread, and forgive us our trespasses, as we forgive those who trespass against us, and lead us not into temptation, but deliver us from evil.

To me it's an odd coincidence Michael Hudson is talking about the "Prayer" at the same time the current Pope is speaking of plans to modify one of the lines. NOT the one about "trespass", but rather the one speaking of "temptation".

Catholic Church Poised to Correct 'Flaws' in Historic Lord's Prayer

If I was a betting man, I'd wager the Vatical won't be messing with the "tresspass" language. Vague and misleading for ages, and just the way that one ought stay.

ben , Nov 18, 2018 8:39:20 PM | link
Don't know who said it, but, "Religion is the greatest fomenter of hatred the world has ever known", has much truth to it.

Why not just make up your own, they did.

I've always thought the "golden rule" was cool.

"Do unto others as you would have others do unto you".

That sounds reasonable, unless you happen to be a masochist

Thanks for the therapy b...

Jen , Nov 18, 2018 8:51:53 PM | link
John Merryman @ 54: Thanks for your biological analogy. May I suggest though that the analogy may not be entirely apt and one problem with it is that it would too easy for people to think of society entirely in biological terms such as you describe, with the result that to think of society as something other than in biological metaphors becomes a barrier to thinking of creative solutions in dealing with particular problems?

Your metaphor seems to take for granted that government is centralised and the finance industry is also centralised (whether in parallel centralised networks or joined together).

I would suggest that we need to have decentralised systems of finance, each centred on particular communities perhaps, with their own currencies and institutions, all linked in a network. Rather like the Internet, I suppose. Yes, redundancy will be built into the network but is that necessarily a bad thing?

Likewise we would have decentralised politics and governments, with the flatter hierarchies and greater public participation in political decision-making that such decentralisation might suggest.

Lochearn , Nov 18, 2018 8:53:43 PM | link
@54

The banking system in England was never magnificent for industrialists and mid/small businesses which were starved of cash and generally looked down upon by bankers who got much better returns from overseas investment. Part of the success of Germany and Japan post WWII was due to a recognition of the importance of engineers to economic success and the ease with which companies could obtain loans from commercial, not investment banks. A ten or twenty year loan by a local commercial bank ties the firm's fortunes into the bank's own interests. Capital in these countries thus thinks or thought more in the mid-to-long term.

The key for me is the joint stock or public company which is totally at the mercy of investment bankers. Private firms not listed on the stock market like IKEA or Mars or even Trump's own business are not under the slightest obligation to the stock market. According to Time magazine 84% of the stocks in the US are owned by the top 10% of the population, so the stock exchange exists to make rich people richer and subject public (which are most of the largest) companies to continual blackmail to produce outsize profits at the expense of the workforce or else executives can find themselves having to land, albeit with their golden parachutes, on the street.

Hope , Nov 18, 2018 8:56:41 PM | link
Evidence of sad decline in what was once a reputable newspaper of record - blatant line-pushing in the Times :
https://ssscsgsfsdg.wordpress.com/2018/11/13/syria-is-the-times-feeding-us-regime-propaganda/comment-page-1/#comment-235

Hilariously, the repeated attempts to bludgeon their readers into accepting the government line is couched as a reprimand to some UK fact-seekers (who were actually prepared to travel to find facts) for being stooges for Syrian propaganda!

james , Nov 18, 2018 9:00:14 PM | link
i see some other responses to john and jens posts have happened since i wrote this!

@46 john merryman.. thanks for articulating a fascinating view on time and history in an innovative way that i hadn't seen before! you're right that we can't see the future, so in a sense it is behind us out of view... the past is staring us in the face, but could be interpreted countless ways, and could have spun a number of different ways too, depending on many factors, some of which we can know of, and others that we can't.. regardless - we will have to wait and see, as i am prone to saying.. i really enjoy the way you articulate your ideas..

@ 51 jen.. thanks for your response! i see i made a small typo in my post - 'but' instead of 'not'... i think it is possible - public finance, and i know examples abound as you show.. who would control the release of it is where i get anxious.. perhaps it is my own paranoia... it seems if one knows someone on the inside, they have a better chance.. our dream of an egalitarian system where fairness rules, is subject to human nature with all it's foibles.. granted, public finance, as opposed to private is worth going for, as the system we have at present is clearly broken for 99% of the world today..

here where i live in b.c. - what land the gov't didn't hand over to corporations, they let them use in such a way that doesn't spread the wealth to the locals... and the locals aren't given the same opportunities to use the land either.. so, public land use is in the hands of the gov't... i suppose in theory, the idea is good, but as it presently stands - the corporations have the favour of gov'ts.. perhaps this also goes into the private, verses public finance issue.. if the gov't wasn't beholden to private finance - it might change all this..

finally - caitlin johnstones latest on assange and usa "resistance"..

james , Nov 18, 2018 9:11:00 PM | link
@43 john.. regarding your comments to jen- again, i am drawn to your perspective and agree with the importance of the question you end with.. i personally don't know..

@57 jen.. i agree that decentralization is necessary.. anything that is big, is usually out of touch with local needs - federal, verses local is how this works..

it would appear we have to wait for everything to collapse.. have we evolved beyond the darwinian concept of the survival of the strongest to where we are interested in sharing with others in some type of egalitarian way? would be nice... presently the financial world is stacked in the usa's favour, but this appears to be changing... it seems conflicts with power - who has it and who wants more of it - are a fertile ground for war.. that seems to be where we are at present with the usa threatening china and russia more regularly today... how much of that is power wanting to retain it's position? it seems like a lot to me.. public finance would be very different and is worth pursuing, but it will have to be pursued by gov'ts and leaders that are not beholden to corporations.. we have a ways to go..

ben , Nov 18, 2018 9:38:21 PM | link
My favorite economist Richard D. Wolff

https://www.rdwolff.com/

psychohistorian , Nov 18, 2018 9:59:11 PM | link
There are lots of comments to respond to so let me just expand on my public finance concept.

I am advocating for totally public finance and no private banking.
I am also advocating, as others have commented, for a limit on the "ownership" of private property. I like the 50 year lease proposed earlier and have read that China has 99 year leases.
I also would advocate for limits on inheritance to inhibit future concentration of "wealth".

And, yes, I am advocating for government to manage debt reconciliation and not the God of Mammon owners.

It is time for humanity to grow up beyond the feudal insanity that has lived way beyond its cultural imperative. The myth we are living is that these global historical elite are moving the levers of power behind the curtain of Capitalism to provide most with war and slavery. I am saying very clearly that I prefer the socialism with a Chinese face approach over the Western private finance motivated one.

China has created and executed 13 5-year plans. Somewhere within the bowels of that huge government is a group of people charged with managing China's finances. Given what I have seen of the way China is handling corruption I can only expect that the folks making macro economic/finance decisions put the pluralist goals of the country ahead of any oligarch bribes or pressure. In the Western world, global finance is a profit center for the elite and the rest of us be dammed.

Back to more components of a new social contract

New evolving definition of responsibility to and benefits from government (mandatory voting and regular participation in government operation/management, free education/balanced with social payback, ongoing evolution of mix of sharing/competition in provision of goods and services as well as regulation to insure safety and advertised value).

AntiSpin , Nov 18, 2018 10:09:38 PM | link
@ Jen 51 – 7:22 p.m.

"the world's largest irrigation project was funded entirely by a government and its banking system, without any financial help from the World Bank.
http://www.great-man-made-river.algaddafi.org/great-man-made-river-gmmr--english "

And it was deliberately destroyed by Hillary Clinton. In fact, she wanted so desperately to make sure that she got full credit for the complete destruction of Libya (she thought it would help her win her presidential campaign) and the slaughter of 40,000 Libyans, that she kept riding her staff for assurances and evidences that could be put in front of the world that, yes indeed, it had been all her doing.

One document – "Tick Tock on Lybia" – tells the whole story. Read it here –
https://wikileaks.org/clinton-emails/emailid/23898

Debsisdead , Nov 18, 2018 10:11:43 PM | link
If we are pointing out the mendacity of englander fishwraps, the Grauniad which has once again albeit in a new way covered itself in the slimy patina of hypocrisy by enjoining it's shrinking readership to 'get behind' May's abortion of a brexit strategy wins the prize of scummiest journalism of the decade.

A bit like the obese and useless cat my neighbor claims to 'own' now he has vivisected it to his taste, May's brexit is neither Arthur nor Martha.
May's plan gets england outta the EU but leaves it shackled to that organisation forced to obey the rules but without the right to advocate or take part in changes as only members of the EU can do that.

If May doesn't get her mess through parliament she will lose her gig and a general election will inevitably follow, one which despite what the dodgy polls claim the Tories will inevitably lose, meaning Mr Corbyn will be PM. That is a fate worse than death for zionists, mega capitalists and the theiving banks, consequently the graun's editors are in panic mode as they praise their former nemesis and repeat her lies about "Getting back control of our borders". Playing the race card straight off the top of the deck.

[Nov 19, 2018] The easiest way for them to keep this power is to block a true central bank or strong public sector from interfering with their monopoly of credit creation

Notable quotes:
"... Michael Hudson is actually a pretty strong proponent of public finance. ..."
"... He is more in the 'positive money' camp than most MMTers but that mostly reflects his disgust at the abuses of private credit creation. ..."
Nov 19, 2018 | www.moonofalabama.org

financial matters , Nov 18, 2018 1:34:52 PM | 26 ">link

Hudson

""As economies polarize between debtors and creditors, planning is shifting out of public hands into those of bankers. The easiest way for them to keep this power is to block a true central bank or strong public sector from interfering with their monopoly of credit creation. The counter is for central banks and governments to act as they were intended to, by providing a public option for credit creation""

Michael Hudson is actually a pretty strong proponent of public finance.

He is more in the 'positive money' camp than most MMTers but that mostly reflects his disgust at the abuses of private credit creation.

[Nov 17, 2018] Goldman Sachs CEO is "personally outraged" at criminal behavior in his bank

I guess he thinks Lloyd Blankfein god is a real greedy thief that would screw people for a dollar.
Nov 17, 2018 | caucus99percent.com
disreputable behavior in his bank.

... ... ...

Ah, yes. Goldman Sachs is famous for their "good work and integrity".

The US Department of Justice (DOJ) has said about $4.5 billion was misappropriated from 1MDB, including some money that Goldman Sachs helped raise, by high-level officials of the fund and their associates from 2009 through 2014.

US prosecutors filed criminal charges against 2 former Goldman Sachs bankers earlier this month. One of them, Tim Leissner, pleaded guilty to conspiracy to launder money and conspiracy to violate the Foreign Corrupt Practices Act.

I'm sure it was just a "few bad apples", like Goldman Sachs's Ex-CEO Lloyd Blankfein , who was personally involved in the transaction.
You might remember Lloyd from his doing "God's Work" .

[Nov 17, 2018] Goldman's reputation

Notable quotes:
"... @HenryAWallace ..."
Nov 17, 2018 | caucus99percent.com

@HenryAWallace

"Reputationally, it is a disaster for Goldman,"

After you posted this I did a Google search, and guess what I found ?

'Great vampire squid' no longer -- Goldman Sachs has finally rehabbed its reputation, 10 years after the financial crisis

That's literally the headline of the article. No tongue-in-cheek.

[Nov 17, 2018] The Damnable Cult of the Stock Market and the Istanbul Bonesaw Massacre by David Stockman

Nov 17, 2018 | original.antiwar.com

According to Save the Children, upwards of 50,000 children died from hunger and disease in 2017 alone, while the UN estimates that at least 16,000 civilians have been killed or maimed by the Saudi air attacks.

So we called a spade a spade on the matter, only to have our Fox host retort as follows:

" ..not making a judgment on the moral right or wrong of the matter but if we crack down hard with sanctions and such, are you telling us you don't think there is a financial market impact?"

Of course that wasn't what we were saying. But what we were thinking was: Really?

Apparently this Foxified stock market cult-boy assumes even America's foreign policy should be driven by the divine right of the casino to be pleasured by rising stock prices each and every day.

https://www.youtube.com/embed/-7_s2M-T2L4

Then again, it looks like Fox's greatest Fan-boy is slouching in the same direction and for the same reason. That is, to keep what he has now embraced as the Trump Bubble levitated come hell or high water.

As the Middle East Eye noted this morning, it would appear that Jared Kushner and/or the Donald have seized upon a solution. Namely, that the hotheaded 33-year old MBS, who has created the greatest murder spectacle since O.J. Simpson's wild ride in the Bronco, could benefit from the steadying hand of, well, his 28-year old brother, Khalid bin Salman!

"In DC the talk is about Khalid becoming a deputy crown prince to show the world that MBS is basically opening up his autocratic and self-centered leadership to include others and create more accountability.

We don't know whether this prospective Salman Brothers duo can make the Istanbul Bonesaw Massacre go away or not, or keep the stock market rising on its appointed ascent. But we can at least hope the MBS contretemps will stir a modicum of thought in the Imperial City about the larger issue involved.

Namely, that the biggest state sponsor of terror in the Middle East is Saudi Barbaria, not the Iranians. And that the house of Saud's corrupt bargain with its own medieval Wahhabi clerics is the true source of jihadi terrorism in the region, not the Shiite/Alawite communities of Iran, Syria and Lebanon.

The truth of the matter is that it was the Iran-led Shiite coalition – with the help of the Russian Air Force – which essentially extinguished the barbaric Islamic State in Syria and Iraq.

So not only has Washington long been on the wrong side of the Shiite/Sunni divide, but owing to the Donald and Jared's bromance with MBS, the Trump administration has taken the US right off the deep-end with its vicious attack on the Iran nuke deal and the ruling regime in Tehran.

And that's the real evil being perpetrated by MBS. His infantile yet bloodthirsty vendetta against Iran is the driving force behind much that roils the middle east at present.

Thus, MBS' political and economic attack on Qatar was motivated not only by the Muslim Brotherhood friendly policies of its ruler, but more especially by Qatar's friendly relations and diplomatic recognition of Iran, with which it shares the largest natural gas field in the world.

Likewise, he recently kidnapped, roughly interrogated and humiliated Prime Minister Hariri of Lebanon for being too soft on Hezbollah. Never mind that the latter controls the largest bloc in Lebanon's parliament and is a participant in the nation's constitutionally prescribe three-way split of power – wherein the Shiite elect the Speaker of the Parliament, the Sunnis name the Prime Minister and the Chrisitians select the country's President.

But none of this mattered because MBS is determined to confront Tehran and its allies from one end of the Mideast to the other. And that's the real reason for his genocidal attack on Yemen.

The latter is among the poorest, most industrially backward redoubts in the entire world and doesn't remotely have the capacity to threaten Riyadh. Its GDP of just $18 billion or a paltry $650 per capita is less than 3% of Saudi's stupendous oil-fueled GDP, which funds the fourth largest military budget in the world.

And now Yemen's polity has been completely shattered, too, by civil war and the relentless Saudi bombing campaigns.

The west and north are controlled by the Houthi government, which sized power during 2015 in the country's capital city of Sana'a. So doing, they inherited a large cache of American weapons left behind by the fleeing official government.

At the same time, the south and east are fragmented between former President's Hadi's Saudi puppet government and regions controlled by al-Qaeda, the Muslim Brotherhood and various tribal potentates and small time warlords – some or all of whom are warring with each other as well as with the Houthi.

In a sane world it would be instantly obvious that America has no dog in this fratricidal bloodletting in one of the true armpits of the planet. But the Houthis, who have long dominated their region of the country, practice a form of Shiite Islam. In turn, that makes them a confessional ally of Iran and therefore a convenient target for MBS' proxy war on Tehran.

That's the sum and substance of the Yemen catastrophe: It's a genocide launched three years ago by the then 30-year old Defense Minister of Saudi Arabia and son of its dementia-enfeebled king for no other purpose than to kick the Iranians in the shins.

But one thing has led to another – including the aforementioned bromance of the Donald and his son-in-law with a reckless power-hungry young tyrant who has gotten the White House to fall hook, line and sinker for his anti-Iranian agenda. And that didn't take much doing – since Bibi Netanyahu had already polluted their thin grasp of the region with his own demonization of Tehran.

The irony is palpable. The boys and girls on Wall Street may get by accident that which they desperately do not want: Namely, a material oil outage in the Persian Gulf and a temporary surge in oil prices back to $150 per barrel.

That eventuality would make no matter in the longer run because world supply and demand would adjust, and high-cost deep water oil and shale production would get an added incentive, as would conservation and all the various flavors of alternative energy.

But a Persian Gulf oil interruption would instantly shatter an egregious stock market bubble that is being held aloft on fumes and awaits only for a windshield on which to splatter.

At the end of the day, however, that may well be the silver lining.

The Donald's demented sanctions campaign to reduce Iran's oil exports to zero after November had already threatened to upset the applecart in the global oil market; and, apparently, it had also given the reckless Crown Prince the impression that he could operate with impunity, and that no act of thuggery was to brazen to be eschewed.

But now the Khashoggi imbroglio threatens to get totally out of hand. Mohammed bin Salman's recklessness in Istanbul may yet send the house of Saud into an existential crisis – especially if the Donald's stubby little hands are forced to severely punish the Saudi's owing to the overwhelming sentiment of the world community.

That is to say, along with the collapse of the stock market we could also see the collapse of the monarchy, and the seizure or sabotage of its Persian Gulf oil fields. After all, they happen to lie in the eastern region of the country which is heavily populated by Shiites, who have been brutally prosecuted by MBS.

Needless to say, you will be worse for the wear if you hang around the casino in the face of this potential double collapse.

But the world will be far better off on both counts.

David Stockman was a two-term Congressman from Michigan. He was also the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street. He's the author of three books, The Triumph of Politics: Why the Reagan Revolution Failed , The Great Deformation: The Corruption of Capitalism in America and TRUMPED! A Nation on the Brink of Ruin And How to Bring It Back . He also is founder of David Stockman's Contra Corner and David Stockman's Bubble Finance Trader .

[Nov 11, 2018] LaRouche, Soros, and the New York Times A Strange S ance on 43rd Street LaRouchePAC

Nov 11, 2018 | larouchepac.com

The flailing New York Times attempted, frantically, to reassemble George Soros into something resembling a respectable person in its November 1st edition. The made-up claims and artifices used by the Gray Lady in this respect would tickle Edgar Allen Poe who chronicled such an effort in his short story, "The Man Who Was All Used Up." If you know Poe's story, he encounters a pile of clothing and artificial limbs lying on the floor which begins speaking to him. A man then slowly assembles himself using all artificial parts. As is typical of this newspaper, the actual George Soros is nowhere to be found in the article.

The Times describes Soros' fanatical drive to turn the United States into an opium den as "drug reform." His disgusting crusade which looted Russia and subverted its intelligentsia on behalf of the City of London is described as "service" on behalf of the United States. His currency speculations which also destroyed whole countries are described as "intriguing" investment decisions. The Times goes out of its way to mischaracterize Soros' confessed adolescent role under the Nazis, working under forged identity papers in his native Hungary, to confiscate the property of his fellow Jews. In a CBS 60 Minutes interview about this perfidy, Soros admitted it, and stated that he had no guilt or regrets. Had he not acted in this way somebody else would have, he said. The experience formed his character. The Times' only reference to this well-known but inconvenient reality is to state that Soros lived under the Nazis as a "Christian." But, what can you expect from a newspaper which openly praised Adolph Hitler in his early incarnations?

The central purpose of the Times piece is name calling: pinning an anti-Semitic label on those who think Soros is evil, particularly President Donald Trump. The fact that Soros is funding British spy Christopher Steele's post-FBI existence, and the fact of Soros' continued direction, participation, and funding of the regime change operation against the President including many of the operations of RESIST, of course, have nothing to do with Trump's dislike of George and are never mentioned to the reader. In this exercise, the Times also omits the Israeli government's recent characterization of George Soros. While condemning recent anti-Semitic incidents in Hungary, the Israeli Foreign Ministry emphasized that its statement was not "meant to delegitimize criticism of George Soros, who continuously undermines Israel's democratically elected governments by funding organizations that defame the Jewish state and seek to deny it the right to defend itself." Finally, the Times asserts that all of the facts now in circulation about George Soros are attributable to Lyndon LaRouche and unnamed Eastern European tyrants. They link to the New York Times coverage of LaRouche's criminal conviction. But even the footnote to that linked article makes clear that the Grey Lady can't even do straight news coverage of a court case when it comes to their bete noire, Lyndon LaRouche. As the corrective footnote explains, LaRouche was not convicted of substantive fraud charges, like the Times article about that event asserted. Rather, the footnote explains, LaRouche was convicted of a broad conspiracy. In truth, this was exactly the same type of Klein conspiracy Robert Mueller is now using against the Russians he indicted for an alleged small bore social media campaign in 2016. Klein conspiracies are famously abusive uses of the conspiracy laws which allow prosecutors to cheat and convict people of made up crimes.

The Times' futile reconstruction effort of course fails, miserably. Soros is, simply, a man who is all used up. The stuff people recount about him is provably and devastatingly true. The only error made by his detractors is to believe he has any kind of power anymore. He only has his money and such fame as comes from being a thoroughly British project –an aging and overused hitman for the failing City of London.

[Nov 05, 2018] In the New Gilded Age, Capital is not for Investment

Notable quotes:
"... only 90% of 12 month trailing operating earnings of $1,197 billion ..."
Nov 05, 2018 | angrybearblog.com

Ken Houghton | October 17, 2018 11:19 pm

US/Global Economics Many years ago, Goldman Sachs published research showing that, from about 1995 to 2004, more money had been taken out of S&P 500 companies in dividends and share buybacks than the companies had earned during that period.

You would think Boards of Directors and Shareholders would know better than to do it again. You would be wrong (registration required):

Stock buyback activity in US equity markets is simply staggering at present: $646 billion for the 12 months ending June 2018 for the companies of the S&P 500. Total dividend payments aren't far behind, at $436 billion. The bright spot: the total of the two is $1,082 billion, only 90% of 12 month trailing operating earnings of $1,197 billion . That's a better buffer than existed in 2015/2016, and an underappreciated positive for US stocks .

Unlike 2015/2016 , the companies of the S&P 500 are no longer spending 100% or more of their operating profits on buybacks-plus-dividends. In those years, the ratios were 108% and 102%, respectively.[all emphases mine]

Companies are not re-investing. Anyone who expects productivity growth in such an environment is probably going to be gulled into believing there is a Great Stagnation, and not the Return of the Robber Barons.

Bert Schlitz , October 18, 2018 5:27 pm

That is because there is nothing to invest in. Capitalism is spent. It needs another Industrial Revolution Consumer Revolution,Digital Revolution to spur investment. Without it, it requires huge amounts of debt to 'grow'.

Emily B. , October 19, 2018 2:53 pm

Is there any argument left for trickle-down economics?

[Nov 01, 2018] The 2018 Globie Crashed by Joseph Joyce

Notable quotes:
"... Crashed: How a Decade of Financial Crises Changed the World ..."
"... Grave New World: The End of Globalization, the Return of History ..."
"... Global Inequality ..."
"... Currency Power: Understanding Monetary Rivalry ..."
"... The Shifts and the Shocks: What We've Learned–and Have Still to Learn–from the Financial Crisis ..."
Nov 01, 2018 | angrybearblog.com

Each year I choose a book to be the Globalization Book of the Year, i.e., the "Globie". The prize is strictly honorific and does not come with a check. But I do like to single out books that are particularly insightful about some aspect of globalization. Previous winners are listed at the bottom.

This year's choice is Crashed: How a Decade of Financial Crises Changed the World by Adam Tooze of Yale University . Tooze, an historian, traces the events leading up to the crisis and the subsequent ten years. He points out in the introduction that this account is different from one he may have written several years ago. At that time Barak Obama had won re-election in 2012 on the basis of a slow but steady recovery in the U.S. Europe was further behind, but the emerging markets were growing rapidly, due to the demand for their commodities from a steadily-growing China as well as capital inflows searching for higher returns than those available in the advanced economies.

But the economic recovery has brought new challenges, which have swept aside established politicians and parties. Obama was succeeded by Donald Trump, who promised to restore America to some form of past greatness. His policy agenda includes trade disputes with a broad range of countries, and he is particularly eager to impose trade tariffs on China. The current meltdown in stock prices follows a rise in interest rates normal at this stage of the business cycle but also is based on fears of the consequences of the trade measures.

Europe has its own discontents. In the United Kingdom, voters have approved leaving the European Union. The European Commission has expressed its disapproval of the Italian government's fiscal plans. Several east European governments have voiced opposition to the governance norms of the West European nations. Angela Merkel's decision to step down as head of her party leaves Europe without its most respected leader.

All these events are outcomes of the crisis, which Tooze emphasizes was a trans-Atlantic event. European banks had purchased held large amounts of U.S. mortgage-backed securities that they financed with borrowed dollars. When liquidity in the markets disappeared, the European banks faced the challenge of financing their obligations. Tooze explains how the Federal Reserve supported the European banks using swap lines with the European Central Bank and other central banks, as well as including the domestic subsidiaries of the foreign banks in their liquidity support operations in the U.S. As a result, Tooze claims:

"What happened in the fall of 2008 was not the relativization of the dollar, but the reverse, a dramatic reassertion of the pivotal role of America's central bank. Far from withering away, the Fed's response gave an entirely new dimension to the global dollar" (Tooze, p. 219)

The focused policies of U.S. policymakers stood in sharp contrast to those of their European counterparts. Ireland and Spain had to deal with their own banking crises following the collapse of their housing bubbles, and Portugal suffered from anemic growth. But Greece's sovereign debt posed the largest challenge, and exposed the fault line in the Eurozone between those who believed that such crises required a national response and those who looked for a broader European resolution. As a result, Greece lurched from one lending program to another. The IMF was treated as a junior partner by the European governments that sought to evade facing the consequences of Greek insolvency, and the Fund's reputation suffered new blows due to its involvement with the various rescue operations.The ECB only demonstrated a firm commitment to its stabilizing role in July 2012, when its President Mario Draghi announced that "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro."

China followed another route. The government there engaged in a surge of stimulus spending combined with expansionary monetary policies. The result was continued growth that allowed the Chinese government to demonstrate its leadership capabilities at a time when the U.S. was abandoning its obligations. But the ensuing credit boom was accompanied by a rise in private (mainly corporate) lending that has left China with a total debt to GDP ratio of over 250%, a level usually followed by some form of financial collapse. Chinese officials are well aware of the domestic challenge they face at the same time as their dispute with the U.S. intensifies.

Tooze demonstrates that the crisis has let loose a range of responses that continue to play out. He ends the book by pointing to a similarity of recent events and those of 1914. He raises several questions: "How does a great moderation end? How do huge risks build up that are little understood and barely controllable? How do great tectonic shifts in the global world order unload in sudden earthquakes?" Ten years after a truly global crisis, we are still seeking answers to these questions.

Previous Globie Winners:

[Oct 30, 2018] Credit Suisse chief US equity strategist: You're going to get all of the market losses back

The financial crushes under neoliberalism are given, that's the feature of this social system. But the next crash always come inexpectantly...
Oct 30, 2018 | finance.yahoo.com

Jonathan Golub, Credit Suisse chief U.S. equity strategist, and Margaret Patel, Wells Fargo Asset Management senior portfolio manager, join 'Squawk on the Street' to discuss markets rebounding after last week's sell-off.

[Oct 19, 2018] Naked Capitalism Ten Years After Lehman by Marshall Auerback

Notable quotes:
"... By Marshall Auerback, a market analyst and commentator ..."
"... Tim Geithner, Hank Paulson, Ben Bernanke and Larry Summers to this day resist the idea that adopting FDIC style reforms, which would have provided a rational resolution to the foreclosure crisis (albeit, at a cost of destroying the capital base of the big Wall Street banks). Summers dismissed these ideas as something akin to "socialism " ..."
"... Faced with the choice of preserving the financial industry as it was or embracing far-reaching reforms that would have served the interests of those who voted for him, Barack Obama, the "change you can believe in" President, chose the former. Not only did that taint every government initiative undertaken in the aftermath of the bailouts (such as healthcare), but it created an undercurrent of cynicism, political disillusionment and anger that ultimately paved the way for Donald Trump. ..."
Oct 19, 2018 | www.nakedcapitalism.com

October 19, 2018 By Marshall Auerback, a market analyst and commentator

I'll readily admit this is a personal post. One of the few, if not the only, good things to come out of the 2008 financial crisis was my introduction to "Naked Capitalism" and its proprietor, Yves Smith. In contrast to virtually all of the Pollyannish commentary out there (remember when Ben Bernanke estimated that losses from the sub-prime mortgage crisis in the United States would be around $100bn? ), NC gave a much better read of the extent of the problems well before the MSM, as well as identifying and excoriating all sorts of perps, by name (like Robert Khuzami, who was the SEC's head of enforcement under Obama, now making news as the prosecutor who nailed Michael Cohen). Naked Capitalism also documented multiple legal theories that were eminently well-suited to prosecuting TBTF executives. The more I came to read her blog, the more impressed I came to be with the scope of breadth of the coverage of the mounting crisis, as well forming a friendship with a person, whose integrity and scholarship is second to none. So I hope you will give generously to Naked Capitalism; the Tip Jar tells you how .

It's wrong to say that Naked Capitalism's coverage ultimately made a difference, if one is to judge by the state of affairs today. But history will treat Yves's accounts much more kindly, especially when the next crisis comes, as it most assuredly will.

Why do I express unhappy confidence that a new crisis will soon be upon us? Because if one is to read the voluminous commentaries that have emerged in the last few weeks, as the aftermath of Lehman's demise has been recounted. Most disturbing has been the reticence of policy makers at the time, with the benefit of hindsight, to recognize that there was a better approach than simply restoring the status quo ante via bank bailouts which demanded nothing of private creditors, but punished private debtors – socialism for the rich, capitalism for the rest of us.

As George Soros and the President of the Institute for New Economic Thinking (INET), Rob Johnson have argued : "a critical opportunity was missed when the balance of the burden of adjustment was tilted heavily in favor of creditors relative to debtors in the response to the crisis and that this contributed to the prolonged stagnation that followed the crisis. The long-term social and political ramifications of this missed opportunity have been profound." Unlike the Savings & Loan crisis, there was no private sector loss recognition. Then Treasury Secretary Geithner falsely claimed that there were only 2 options: bailouts or letting the system collapse.

That was a false choice. As Soros & Johnson point out, much more effective and fair use of taxpayers' money would have been to reduce the value of mortgages held by ordinary Americans to reflect the decline in home prices and to inject capital into the financial institutions that would become undercapitalized. Yes, this might have exposed the full extent of the banks' liabilities and might well have forced FDIC style restructurings, which ultimately would have resulted in changed management, and a break-up of Too Big To Fail Banks (and likely no "To Big to Jail" bank executives). Tim Geithner, Hank Paulson, Ben Bernanke and Larry Summers to this day resist the idea that adopting FDIC style reforms, which would have provided a rational resolution to the foreclosure crisis (albeit, at a cost of destroying the capital base of the big Wall Street banks). Summers dismissed these ideas as something akin to "socialism "

Faced with the choice of preserving the financial industry as it was or embracing far-reaching reforms that would have served the interests of those who voted for him, Barack Obama, the "change you can believe in" President, chose the former. Not only did that taint every government initiative undertaken in the aftermath of the bailouts (such as healthcare), but it created an undercurrent of cynicism, political disillusionment and anger that ultimately paved the way for Donald Trump. Of course, Trump's cabinet of corrupt billionaires has done no better. But even as #TheResistance has risen to protest the rise of his profoundly corrupt presidency, we should not pretend it is replacing something that was popular or effective. The old normal was not working . The nostalgia for the Obamas in the White House is not a yearning for Obama's policies.

In today's highly tribalised environment, it is hard to get many in the mainstream media to recognize this fundamental truth. Criticism of any financial reforms undertaken by the Obama Administration is now seen as de facto endorsement of Trump or #MAGA. It's nothing of the sort and Naked Capitalism is one of the few publications that has managed to maintain its moral bearings and speak truth to power, even when it is unpopular to do so. In this day of "fake news", not only does NC remain worthy of your support, but essential to provide ongoing financial support so that Yves and her colleagues can continue their important mission.

There's no question that articulating a view that diverges widely from a prevailing consensus can be painful. Heaven knows, as an ardent and vocal supporter of Modern Monetary Theory in the blogosphere, it was often personally painful, exhausting and dispiriting for me (and others, such as Randy Wray, Warren Mosler, Rob Parenteau, Scott Fullwiler, and many more) taking on anonymous trolls, who substituted debate for mendacity and vicious personal attacks of the worst kind. But it was always good to know that I had a supportive editor like Yves, who always had my back as well as the intellectual self-confidence (and, indeed, brilliance) to help me and others take on the onslaught.

Later she was joined by some great people like Matt Stoller, Dave Dayen, Lambert Strether, and others, all of them helped to make Naked Capitalism a intelligent platform which encouraged free but fair-minded debate, a venue where new ideas could be debated honestly and intelligently. And in many respects helped move the debate forward in a very positive direction. Yves Smith deserves a huge amount of credit for making NC that kind of venue and for that reason, she shall always have my loyalty, friendship, and support for this blog going forward. It's been 10 years since we've collaborated together and become good friends as an additional bonus. Long may it continue! Please do your part to make sure it does. Share articles and what you learn here with people you know. And give generously to this fundraiser . Whatever you can contribute, $5, $50, or $5000, all helps keep Naked Capitalism an important voice for all of us.

P Fitzsimon , October 19, 2018 at 12:29 pm

I was reading in "Crashed" by Adam Tooze about the conference called by John McCain in September 2008. McCain halted his campaign for the presidency to address the financial crisis. He hardly spoke at the conference whereas Obama managed to put forth the right ideas aligned with the true "money bag" republicans and the Wall Street tycoons. At that point Obama and the Democrats became the party of the bailout. McCain was caught in a vice between the Tea Party anti-bailouts and big Republican donors who wanted a bailout, hence, he kept quiet.

[Oct 16, 2018] There is a unified, interconnected world of the global financial elites who control and dominate currency and credit issuance worldwide through a handful of unaccountable international banking institutions

Oct 16, 2018 | www.moonofalabama.org

donkeytale , Oct 15, 2018 7:57:09 AM | link

"Money Talks and Bullshit Walks"

We live in a multipolar reality. That is, there is a unified, interconnected world of the global financial elites who control and dominate currency and credit issuance worldwide through a handful of unaccountable international banking institutions and there is also a subordinate world of national politics of many countries also controlled and dominated by the same elites (and their lackeys) whose job it is to "educate", "explain" and "rationalise" the fact of its debt enslavement to .998 of the world's population.

The most naked exposition of the dissonant aspects of this divergence between globalism for the rich and nationalism for the rest of us is found within the EU but it is in fact the same duality in existence everywhere for all of us.

Most people can only comprehend and identify with the national characteristics of this dissonant, dual belief system. Most people, the overwhelming majority at the moment, simply don't care as long as food is on the table, and the babies and the elderly are attended too. Some believe the solution to the ills of our indebtedness is to be found in a populist, nationalist politics which can free us from control by wealthy internationists. We see Brexit and "Amerikkka First" as leading examples of this plebian desire.

The many must be convinced to understand their enslavement by the system before any change of lasting consequence can occur. This likely will take the starvation of our babies and the euthanasia of our elderly before we will wake up to our enslavement.

The international financial system will crush the illusions of the Brexiteers and the Amerikkkan Firsters (this in fact has largely already occurred). Currency control and indebtedness will not vanish simply with a breakdown of any nationalist political order. One cannot eat money as the old saying goes and this is true no matter what colour is printed on the bank notes.

Others comprehend the true enemy as a system which must be destroyed with the accumulated "wealth of nations" (which in reality is privately-held by an international sliver) must be redistributed equitably among the .998.

Still, what is hoped for by the intelligentsia is still a nationalist solution to a global problem. What isn't reconciled within this viewpoint is the elasticity of global financiers to accommodate any change in the world's political re-ordering, short of the destruction of capitalism itself. The finacial system serves one function, and doesn't in fact care which individuals, national currencies, banks or corporations gain or lose from the machinations.

This international system was created out of the ruins of WWI. The system survived the Great Depression when socialism reached its zenith of political popularity in the industrialised world, and in turn survived (and in fact greatly accommodated and assisted) the extreme Nazi nationalist dream of international political control.

Today we see the increasing impact of the once isolationist Chinese openly participating in the globalist system and in time through sheer weight of numbers Asia will come to dominate the system. Until this day arrives the Chinese are very comfortable operating within the old Eurocentric structure as teh current system works functions quite well for their elites.

In reality, it doesn't matter whether the international currency is dollar, yuan or Euro denominated. The illusion that it does matter is a figment of a nationalist mindset which invests morality where none in fact exists. Sanctions have a temporary, terrible impact on national banking structures it is true but mainly to the detriment of the .998 while the .002 have already moved their personal assets out of harms way (for tax reasons unrelated to sanctions).

The Russians and Chinese for domestic political purposes now talk about creating a separate system of wealth through competing banking systems. This is mostly the nationalist political order providing false hopes to their own subjects.

Merely the thought of a competing globalist banking system is absurd on its face and should be enough for any intelligent layman to understand the occurrence of systemic change can happen only as the greater bulk of real wealth underlying a currency grows great enough over time to supercede the wealth represented by current denominations.

This will by necessity be a long, extemely slow process because none of the Amerikkkan, Euro, Russian or Chinese elites will risk substantial amounts of their current fortunes simply to placate their own subjugated populations with anything other than ongoing, nationalist political rhetoric.

[Oct 08, 2018] American Caesar Tucker Carlson's Conservative Revolution by Jake Bowyer

Notable quotes:
"... Ship of Fools is no apology for Trumpism. Indeed, Carlson calls Trump "vulgar and ignorant." But he rightly points out that Trump "didn't invade Iraq or bail out Wall Street. He didn't lower interest rates to zero, or open the borders, or sit silently by as the manufacturing sector collapsed and the middle class died." Basically, Donald J. Trump is not your average American politician. Thank God. ..."
"... Well, Ship of Fools excoriates finance capitalism and the class that has constantly reaped economic benefits out of the labor of American workers without contributing anything of substance to the American body politic. The Democrats used to be the party of populist rabble rousers like Huey Long and Al Smith. ..."
"... Explicit in this critique of America's Ruling Class is the fact that democracies are unstable and prone to self-destruction. In modern America, the elite do not attend to the population, cynical race-mongering is used to win votes at the cost of internal peace, and chicken hawks like Max Boot and William Kristol still receive adulation in the Main Stream Media despite their disastrous record of cheering on military misadventures that kill thousands of Americans. (To say nothing of their fanatical opposition to Trump -- despite the fact that he won the presidency when their catspaws McCain and Romney ignominiously failed). Ship of Fools correctly notes that this is what an empire looks like in its final days. ..."
"... Jake Bowyer [ Email him ] is the pseudonym of an American college student. ..."
Oct 08, 2018 | www.unz.com
Jake Bowyer October 3, 2018

Since the late fall of 2016, Democrats and other Leftist types have been decrying President Donald J. Trump as "not normal" and a "threat to democracy." Of course, this is hogwash of the most rank sort. The same people lambasting Trump for his supposed " authoritarianism " are the same people who have created the modern American oligarchy. Tucker Carlson , the popular Fox News who wrote the single most brilliant and prescient Main Stream Media article on the Trump phenomenon: Donald Trump Is Shocking, Vulgar and Right | And, my dear fellow Republicans, he's all your fault, by Tucker Carlson, Politico, January 28, 2016.

That was written before, let it be noted, Trump's double-digit triumph in the New Hampshire primary -- has continued to speak verboten things . Now he takes aim at America's oligarchic class in his just-released book Ship of Fools: How a Selfish Ruling Class Is Bringing America to the Brink of Revolution.

For Carlson, moral and social rot in the United States starts at the very top -- the place where Democrats and Republicans https://vdare.com/posts/they-want-to-lose-gop-congress-sounds-retreat-on-border-wall-funds-democratic-priorities to maintain unpopular elite rule. Carlson compares this American elite to blind drunk captains steering a sinking ship. Making matters worse: the fact that, in keeping with Carlson's nautical parallel, "Anyone who points out the consequences of what they're [the elite] doing gets keelhauled." Gavin McInnes (banned from Twitter ) and Alex Jones (banned from everything ) would agree.

Ship of Fools is no apology for Trumpism. Indeed, Carlson calls Trump "vulgar and ignorant." But he rightly points out that Trump "didn't invade Iraq or bail out Wall Street. He didn't lower interest rates to zero, or open the borders, or sit silently by as the manufacturing sector collapsed and the middle class died." Basically, Donald J. Trump is not your average American politician. Thank God.

For much of Ship of Fools , Carlson comes off sounding like someone with his heart in the center-left. Some cheeky Twitter users might even dub Carlson's latest book National Bolshevism.

Why? Well, Ship of Fools excoriates finance capitalism and the class that has constantly reaped economic benefits out of the labor of American workers without contributing anything of substance to the American body politic. The Democrats used to be the party of populist rabble rousers like Huey Long and Al Smith.

But Carlson points out that "the Democratic Party is now the party of the rich." Rather than attacking mega-wealthy people like Amazon's Jeff Bezos or Apple's Tim Cook , the modern American Left is completely in thrall to money and corporate power. This hurts every American not in the upper income bracket.

Republicans are no better. They remain wedded to the idea of being the party of business, and as such many Republican elected officials support Open Borders because that would provide their donors with an endless supply of cheap labor. This support comes at the cost of angering a majority of Republican voters.

In sum, both parties have given up on the native-born American workers. And, beginning in 2016, American workers began pushing back at the ballot box.

Ship of Fools is a bleak book. It is also much better than the usual fluff penned (or signed) by Fox News pundits. Carlson tells uncomfortable truths and engages with topics that until very recently were only considered fit for the fringe Right (like VDARE.com ).

Take for instance the displacement of white Americans, especially white working-class Americans. America is a nation of 200 million white people. Native-born whites pay more in taxes, provide the majority of America's soldiers, sailors, Marines, and airmen, and are the offspring of the people who built this country. For this hard work and loyalty, foreign-born editors at the New York Times tweet "#CancelWhitePeople." Hordes of Antifa types cheer on the displacement of native-born whites, while the political elite do nothing to combat rising drug overdose deaths and suicides in the Midwest, rural Northeast, and South. As Carlson warns, " White identity politics will be a response to a world in which identity politics is the only game there is."

And, as anti-white vitriol increases and whites are demoted from majority status, Carlson predicts that white interest groups will form and flex their muscles when they feel that their backs are up against the wall.

At several points in Ship of Fools , Carlson sincerely grieves for the lost Liberal-Left of his childhood. He misses the environmentalists who cared about littering, not about some abstract thing called climate change. He misses those Leftists who cried about injustice in the world rather than ranting and raving at the behest of the elite class. Without an honest Left, America could further descend into corporate anarcho-tyranny -- a place where businesses control free speech and only a small sliver of people enjoy the benefits of the modern and high-tech economy.

Ship of Fools ends with a warning: either practice democracy or be prepared for authoritarian rule.

"In order to survive, democracies must remain egalitarian," Carlson argues."When all the spoils seem to flow upward, the majority will revolt in protest."

Explicit in this critique of America's Ruling Class is the fact that democracies are unstable and prone to self-destruction. In modern America, the elite do not attend to the population, cynical race-mongering is used to win votes at the cost of internal peace, and chicken hawks like Max Boot and William Kristol still receive adulation in the Main Stream Media despite their disastrous record of cheering on military misadventures that kill thousands of Americans. (To say nothing of their fanatical opposition to Trump -- despite the fact that he won the presidency when their catspaws McCain and Romney ignominiously failed). Ship of Fools correctly notes that this is what an empire looks like in its final days.

In this sense the elites may be right to characterize President Trump as a populist. After all, Julius Caesar gave the common man order, security, and bread in the face of a cold and sterile system. By attempting to dismantle the elite consensus, Trump, Trumpism , and America First may just be the first entries in a new age of all-American Caesarism.

We should only be so lucky!

Jake Bowyer [ Email him ] is the pseudonym of an American college student.

KenG , says: October 7, 2018 at 6:36 am GMT

I enjoyed the book immensely even though I'm a socialist myself. Tucker's disdain for wars, technology companies, and the ruling class are a breath of fresh air. I also enjoy his show but I do wish he wouldn't talk over the guests he disagrees with.
AlreadyPublished , says: October 7, 2018 at 4:39 am GMT
There must be a reason why people like j g strijdom and curmudgeon, with their slimy unsubstantiated charges, despise Tucker Carlson. I suspect it is this:

[Sep 20, 2018] The western financial system is on shaky ground for many reasons, never having recovered from the 2008 crisis.

Sep 20, 2018 | www.moonofalabama.org

financial matters , Sep 19, 2018 2:41:52 PM | link

The western financial system is on shaky ground for many reasons, never having recovered from the 2008 crisis.

Ellen Brown has a great article up about how central banks are actively participating in the stock market. This is not for the common good.

Central Banks Have Gone Rogue, Putting Us All at Risk

""The two most aggressive central bank players in the equity markets are the Swiss National Bank and the Bank of Japan. The goal of the Bank of Japan, which now owns 75% of Japanese exchange-traded funds, is evidently to stimulate growth and defy longstanding expectations of deflation. But the Swiss National Bank is acting more like a hedge fund, snatching up individual stocks because "that is where the money is." About 20% of the SNB's reserves are in equities, and more than half of that is in US equities.""

""Abolishing the central banks is one possibility, but if they were recaptured as public utilities, they could serve some useful purposes. A central bank dedicated to the service of the public could act as an unlimited source of liquidity for a system of public banks, eliminating bank runs since the central bank cannot go bankrupt. It could also fix the looming problem of an unrepayable federal debt, and it could generate "quantitative easing for the people," which could be used to fund infrastructure, low-interest loans to cities and states, and other public services.""

------------------------

This Ellen Brown article was referenced in Michael Hudson's latest article

The Lehman 10th Anniversary spin as a Teachable Moment


""Today's financial malaise for pension funds, state and local budgets and underemployment is largely a result of the 2008 bailout, not the crash. What was saved was not only the banks – or more to the point, as Sheila Bair pointed out, their bondholders – but the financial overhead that continues to burden today's economy.

Also saved was the idea that the economy needs to keep the financial sector solvent by an exponential growth of new debt – and, when that does not suffice, by government purchase of stocks and bonds to support the balance sheets of the wealthiest layer of society. The internal contradiction in this policy is that debt deflation has become so overbearing and dysfunctional that it prevents the economy from growing and carrying its debt burden.""

""The beneficiaries are the stockholders who are concentrated in the wealthiest percentiles of the population. Governments are not underwriting homeownership or the solvency of labor's pension plans, but are underwriting the value of collateral backing the savings of the narrow financial class.""

[Sep 15, 2018] A shyster attorney that I had the unfortunate experience in working with, did tell the truth once when he said that there is no such thing as a justice system but there is a legal industry.

Sep 15, 2018 | thenewkremlinstooge.wordpress.com

Patient Observer September 14, 2018 at 9:16 am

If not always fair or flexible, it seems efficient – attorneys collecting large fees in a justice system designed to enrich attorneys.

A shyster attorney that I had the unfortunate experience in working with, did tell the truth once when he said that there is no such thing as a justice system but there is a legal industry.

[Sep 10, 2018] Pigs Want To Feed at the Trough Again: Bernanke, Geithner and Paulson Use Crisis Anniversary to Ask for More Bailout Powers

Sep 10, 2018 | www.nakedcapitalism.com

After a decade of writing about the crisis, we are now subjected to an orgy of yet more chatter with not much insight. It speaks volumes that the likes of Ben Bernanke, Timothy Geithner, and Hank Paulson are deemed fit to say anything about it, let alone pitch the need for the officialdom to have more bank bailout tools in a New York Times op-e titled What We Need to Fight the Next Financial Crisis .

The fact that they blandly depict crises that demand extraordinary interventions as to be expected confirms that greedy technocrats like them are a big part of the problem. Their call for more help for financiers confirms that they have things backwards. How about doing more to make sure that future crises aren't meteor-killing-the-dinosaurs level events, and foisting more costs and punishments on the financiers who got drunk and rich on too much risk-taking? The first line of defense should be stronger regulations, including prohibition of certain activities.

As the Financial Times' Martin Wolf pointed out in a recent crisis retrospective , the response of central bankers and financial regulators to the crisis was to restore the status quo ante, and not engage in root and branch reform, as took place in the Great Depression. But as we've pointed out, the response to the crisis represented the greatest looting of the public purse in history. The post-crisis era of super-low interest rates represented an additional transfer of income from savers to the financial system. In the US, the so-called "get out of massive mortgage securitization liability for almost free" card otherwise known as the National Mortgage Settlement represented a not-widely recognized second bailout of banks and mortgage servicers. No wonder banksters are seeking a rinse and repeat.

An overfinancialized economy is good for no one save banksters and their paid retainers. Economists in recent years have been describing how larger financial systems hurt growth. For instance, the IMF found that the optimal development of a financial system was roughly where Poland is. The IMF conceded that it might be possible to have a larger banking system not drag down the economy if it were well regulated. Other studies have found that economies with large financial sectors typically have more inequality, and inequality is separately seen as a negative for growth. So there's no sound policy reason to coddle banks rather than cut them down to size.

But the winners get to write the histories, and the friends of Big Finance came out on top. Despite the press occasionally listing the economists like Michael Hudson and Steve Keen who saw the crisis coming, they have only marginally higher profiles now than they did a decade ago. Nassim Nicholas Taleb wrote bestsellers, yet his blistering descriptions of how financial risk analysts and managers are intellectual frauds has had virtually no impact on practice.

Similarly, Andy Haldane, the Bank of England's executive director of financial stability, is often called one of the most creative and insightful economists of his generation, but his studies and speeches on what went wrong and what might be done, like forcing more specialization and diversity among financial firms, are regularly praised in academia and the press and ignored as guides for reform. 1

And none other than the New York Fed's William Dudley came up with a way to bring partnership-type incentive structures back to big banks by requiring executives and producers to have a high percentage of their bonuses retained in the firms as a type of junior equity to be the first funds tapped in the event of losses or large legal settlements. Not only would this lead key players to be far more concerned about risk, but as Dudley pointed out, it would also lead everyone to be far more concerned if they saw another business unit engaged in dodgy practices that they might wind up paying for, and apply pressure to have them shut down. Predictably, this idea made far too much sense to get any traction.

By contrast, Bernanke was a true believer in the Great Moderation, the mid-2000s self-congratulatory mainstream economist view that they had produced the best of all possible worlds. Bernanke in fact continued the so-called Greenspan put which incentivized investors and bankers to take on financial risks, since they knew if anything bad happened, the Fed would rush to their rescue. The Fed, and Bernanke in particular, were badly behind the curve. In May 2007, Bernanke said that subprime was contained , and in July 2008, gave Fannie and Freddie clean bills of health.

Geithner, when he was head of the New York Fed, did acknowledge that the brave new world of slicing, dicing, and distributing risk might make it more difficult to manage a crisis, but then insisted that there was no way to roll the clock back. Linear projections of trends is naive but a great excuse for inaction. Geithner said nary a peep when banks who had just been bailed out gave a raised middle finger to the American public by paying their executives and staffs record bonuses in 2009 and 2010 rather than rebuilding their balance sheets. The Bush Administration considerately left $75 billion of TARP monies unspent for the Obama Administration to use to fund mortgage modifications. Funny how the Treasury never took that up. Instead, Geithner instituted supposed mortgage assistance programs like HAMP whose purpose, as Geithner put it to SIGTARP head Neil Barofsky, was to "foam the runway" for banks by spreading out when foreclosures would happen rather than preventing them. Recall that 9 million homes were foreclosed upon. Many had missed only a payment or two due to job loss or hours cutbacks; some were victims of bad servicing. Giving borrowers with viable levels of income mortgage modifications would have been a win for investors too. But the Treasury never cared about borrowers and convinced itself that taking care of banks would help the real economy, in a Wall Street variant of trickle-down theory.

And Paulson? Although he wasn't on the scene as long as Bernanke and Geithner, recall that Treasury staffer Neel Kashkari whipped up a 50,000 foot "How do we deal with a crisis" think piece that Paulson & Co. deemed to be just terrific and tossed in a drawer. Recall that Paulson's first TARP proposal was a mere 3 pages demanding $700 billion, more than the hard costs of the Iraq War, and even worse, put the Treasury beyond the rule of law with this provision:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

At the time, we called it a financial coup d'etat .

So the bailer-outers-in-chief are keen to prescribe more of what they foisted on the American public. It should come as no surprise that they didn't pump for stronger financial reforms, were perfectly content to allow the Fed to authorize banks subject to stress tests to pay dividends and bonuses rather than have them build up much bigger capital cushions, and in Bernanke's case, call for a resumption of austerity policies in 2012.

Each one of this terrible trio has a much longer rap sheet. But the mere fact that they have the temerity to subject the public to their cronyistic blather, and worse, the New York Times dignifies it, shows that, as Talleyrand said of the Bourbons, that policymakers and pundits have learned nothing and forgotten nothing.

____

1 Haldane, with former Bank of England governor Mervyn King and Adair Turner at the FSA, did fight hard for a Glass-Steagall type bank breakup, but the UK Treasury succeeded in watering down their proposal to mere ring-fencing.

Darius , September 10, 2018 at 7:39 am

Geithner cured me of calling myself a Democrat. That little pipsqueak is worse than Paulson. To be fair, his boss was famous for his awesome awesomeness.

[Sep 09, 2018] Revisiting Privatization s Claims

Notable quotes:
"... Fourth, privatization was supposed to reduce public sector monopolies, but there is often little evidence of significant erosion of the monopolies enjoyed by privatized SOEs. Arguably, technological change and innovation, e.g., in telecommunications, were far more significant in eroding privatized monopolies and reducing costs to consumers, than privatization per se. ..."
"... Also, natural monopolies (such as public utilities) are often deemed inefficient due to the monopolistic nature of the industry or market. The question which arises then is whether private monopoly is better, even with regulation intended to protect the public interest. ..."
Sep 06, 2018 | www.nakedcapitalism.com
Jerri-Lynn here. This short post usefully debunks arguments advanced to promote the privatization fairy. The author's reminds us that state ownership, when done properly, as in Singapore, can offer its own benefits and " is recognized there as the reason for public accountability, better governance and management."

By Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development. Originally published at Inter Press Service

KUALA LUMPUR, Malaysia, Sep 4 2018 (IPS) – Several arguments have been advanced to justify privatization since the 1980s. Privatization has been advocated as an easy means to:

  1. Reduce the government's financial and administrative burden, particularly by undertaking and maintaining services and infrastructure;
  2. Promote competition, improve efficiency and increase productivity in providing public services;
  3. Stimulate private entrepreneurship and investment to accelerate economic growth;
  4. Help reduce the public sector's presence and size, with its monopolistic tendencies and bureaucratic support.

Moot case for privatization

First, privatization is supposed to reduce the government's financial and administrative burdens, particularly in providing services and infrastructure. Earlier public sector expansion was increasingly seen as the problem, rather than part of the solution. Thus, reducing the government's role and burden was expected to be popular.

Second, privatization was believed by some to be a means to promote competition, improve efficiency and increase productivity in service delivery. This belief was naïve, confusing the question of ownership with that of promoting competition.

It was believed that privatization would somehow encourage competition, not recognizing that competition and property rights are distinct, and not contingent issues. Associated with this was the presumption that competition would automatically result in greater efficiency as well as improved productivity, not recognizing economies of scale and scope in many instances.

Third, privatization was expected to stimulate private entrepreneurship and investment. There is also a popular, but naïve belief that privatization was going to stimulate private entrepreneurship when, in fact, the evidence is strong, in Malaysia and elsewhere, that privatization often crowds out the likelihood of small and medium-sized enterprises actually emerging to fill the imagined void, presumed to exist following privatization.

Admittedly, there is scope for new entrepreneurship with privatization as new ways and ideas offered by the private sector are considered – or reconsidered – as the new privatized entity seeks to maximize the profits/rents to be secured with privatization.

However, the private purchase of previously public property, in itself, does not augment real economic assets. Private funds are thus diverted, to take over SOEs, and consequently diminished, rather than augmented. Hence, private funds are less available for investing in the real economy, in building new economic capacities and capabilities.

Fourth, privatization was supposed to reduce public sector monopolies, but there is often little evidence of significant erosion of the monopolies enjoyed by privatized SOEs. Arguably, technological change and innovation, e.g., in telecommunications, were far more significant in eroding privatized monopolies and reducing costs to consumers, than privatization per se.

From the 1980s, if not before, various studies have portrayed the public sector as a cesspool of abuse, inefficiency, incompetence and corruption. Books and articles, often with clever titles such as 'vampire state', 'bureaucrats in business' and so on, provided the justification for privatization.

Undoubtedly, there were some real horror stories, which have been conveniently and frequently cited as supposedly representative of all SOEs. But other experiences can also be cited to show that SOEs can be run quite efficiently, even on commercial bases, confounding the dire predictions of the prophets of public sector doom.

Has privatization improved efficiency?

Although some SOEs have been better run and are deemed more efficient after privatization, the overall record has hardly been consistent. Thus, it is important to ascertain when and why there have been improvements, or otherwise. It is also important to remember that better-run privatized SOEs, in and of themselves, do not necessarily serve the national or public interest better.

Undoubtedly, most SOEs can be better run and become more efficient. But this is not always the case as some SOEs are indeed already well run. For instance, very few privatization advocates would insist that most SOEs in Singapore are poorly run.

As its SOEs are generally considered well-run, public ownership is not used there to explain poor governance, management or abuse; instead, public ownership is recognized there as the reason for public accountability, better governance and management.

Principal-agent managerial delegation dilemma

Hence, in different contexts, with appropriately strict supervision, SOEs can be and have indeed been better run. Privatization, in itself, does not solve managerial delegation problems, i.e., the principal-agent problem, as it is not a problem of public ownership per se.

With SOEs, the principal is the state or the government while the agents are the managers and supervisors, who may -- or may not -- pursue the objectives intended by the principal.

This is a problem faced by many organizations. It is also a problem for private enterprises or corporations, especially large ones, especially where the principal (shareholders) may not be able to exercise effective supervision or control over the agent.

Also, natural monopolies (such as public utilities) are often deemed inefficient due to the monopolistic nature of the industry or market. The question which arises then is whether private monopoly is better, even with regulation intended to protect the public interest.

The answer needs to be ascertained analytically on the basis of evidence, and cannot be presumed a priori. If an industry is a natural monopoly, what does privatization achieve? Often, it means a transfer to private hands, which can be problematic and possibly dangerous for the public interest.

[Sep 09, 2018] Financial interests dominate politics at least since 1902

Sep 09, 2018 | www.unz.com

alley cat , says: September 9, 2018 at 2:48 pm GMT

These great businesses -- banking, brokering, bill discounting, loan floating, company promoting -- form the central ganglion of international capitalism. United by the strongest bonds of organization, always in closest and quickest touch with one another, situated in the very heart of the business capital of every state, controlled, so far as Europe is concerned, chiefly by men of a single and peculiar race , who have behind them many centuries of financial experience, they are in a unique position to manipulate the policy of nations. No great quick direction of capital is possible save by their consent and through their agency. Does anyone seriously suppose that a great war could be undertaken by any European state, or a great state loan subscribed, if the house of Rothschild and its connections set their face against it? . There is not a war, a revolution, an anarchist assassination, or any other public shock, which is not gainful to these men; they are harpies who suck their gains from every new forced expenditure and every sudden disturbance of public credit . These men are the only certain gainers from the [Boer] war, and most of their gains are made out of the public losses of their adopted country or the private losses of their fellow-countrymen.

Prescient words written by J.A. Hobson in his classic study of imperialism in 1902. In over a century, little has changed. If anything, the power of these harpies has grown. They are currently orchestrating a concerted attack on democracy itself in both Britain and the U.S. The assault is being spearheaded not by the IDF, but by a captured, weaponized, news media and corrupt politicians. If the Zionists are successful in their campaign to criminalize the truth, who will heed their cries for help if ever the tables are turned?

[Sep 03, 2018] Why the whole banking system is a scam

Sep 03, 2018 | www.unz.com

Agent76 , says: Next New Comment September 3, 2018 at 2:20 pm GMT

May 21, 2013 Why the whole banking system is a scam

Godfrey Bloom MEP • European Parliament, Strasbourg, 21 May 2013 • Speaker: Godfrey Bloom MEP, UKIP (Yorkshire & Lincolnshire).

The Federal Reserve Explained In 7 Minutes

soviet crash , says: Next New Comment September 3, 2018 at 2:28 pm GMT

https://www.sott.net/article/390915-Grand-Deception-The-1990s-Raid-on-Russia

TG , says: Next New Comment September 3, 2018 at 2:29 pm GMT

Indeed. Especial kudos for mentioning that the bailout cost way way more than the "Tarp" program. Some additional thoughts though.

1. Our financial economy is now so subsidized and rigged, I wonder if it is even possible to have a traditional financial-style collapse? I mean, the stock market is high only because the companies are borrowing like crazy to boost their stock prices, and the Federal Reserve will manufacture unlimited money to boost and bail out financial firms. However, on its own this won't cause hyperinflation, because this money is mostly not making it back onto Main Street, it's just money chasing money in the the clouds. I suggest that perhaps the next collapse will be triggered by physical matters, as massive immigration fuels continued population growth, and the real economy is starved of the massive physical investment needed to deal with this and our own industrial base is gutted by free trade agreements. A physical collapse cannot be papered over by financial manipulation

2. There will be no revolution, sorry. Look at Barack Obama, for eight years he was as corrupt a whore to big money as any US politician, and the man is still treated as a secular saint. The Democrats are for Wall Street bailouts and eternal pointless wars etc.etc. but people will keep voting for them because Trump is a fascist, a racist, "literally Hitler." I mean, CNN told them so, so it must be true. Meanwhile, even though it looked like the Republicans for a moment were going to deal with reality, they too have mostly been co-opted into mindlessly supporting Trump because the Democrats are "socialists" (hah! Lenin would have had a good laugh at that one) and Nancy Pelosi is weird.

We're doomed.

Agent76 , says: Next New Comment September 3, 2018 at 2:30 pm GMT

Mar 20, 2017 US Debt of $20 Trillion Visualized in Stacks of Physical Cash

Showing stacks of physical cash in following sequence: $100, $10,000, $1 Million, $2 Billion, $1 Trillion, $20 Trillion

Wizard of Oz , says: September 3, 2018 at 3:01 pm GMT
@Miggle

I think you'll find what common sense might predict, namely, that deaths by shooting have declined in per capita terms. Maybe people still manage to commit suicide as reliably by other means but there can have been no substitute for accidental shootings.

[Sep 03, 2018] Tenth Anniversary of Financial Collapse, Preparing for the Next Crash by Kevin Zeese and Margaret Flowers

Notable quotes:
"... Many of the root causes of the crisis remain today, making another economic downturn or collapse possible. The New Yorker reports that little has changed since 2008, with Wall Street banks returning to risky behavior and the inadequate regulation of Dodd-Frank being weakened. Big finance is more concentrated and dominant than it was before the crash. Inequality and debt have expanded, and despite the capital class getting wealthier in a record stock market with corporate profits soaring, real wages are stuck at pre-crisis levels . ..."
"... So, when the next crash comes. Let's put forward a People's Agenda. Let's be like Iceland and mobilize for policies that put people first. Collectively, we have the power to overcome the political elites and their donor class. ..."
Sep 02, 2018 | www.unz.com

Ten years ago, there was panic in Washington, DC, New York City and financial centers around the world as the United States was in the midst of an economic collapse. The crash became the focus of the presidential campaign between Barack Obama and John McCain and was followed by protests that created a popular movement, which continues to this day.

Banks: Bailed Out; The People: Sold Out

On the campaign trail, in March 2008, Obama blamed mismanagement of the economy on both Democrats and Republicans for rewarding financial manipulation rather than economic productivity. He called for funds to protect homeowners from foreclosure and to stabilize local governments and urged a 21st Century regulation of the financial system. John McCain opposed federal intervention, saying the country should not bail out banks or homeowners who knowingly took financial risks.

By September 2008, McCain and Obama met with President George W. Bush and together they called for a $700 billion bailout of the banks, not the people. Obama and McCain issued a joint statement that called the bank bailout plan "flawed," but said, "the effort to protect the American economy must not fail." Obama expressed "outrage" at the "crisis," which was "a direct result of the greed and irresponsibility that has dominated Washington and Wall Street for years."

By October 2008, the Troubled Asset Relief Program (TARP), or bank bailout, had recapitalized the banks, the Treasury had stabilized money market mutual funds and the FDIC had guaranteed the bank debts. The Federal Reserve began flowing money to banks, which would ultimately total almost twice the $16 trillion claimed in a federal audit. Researchers at the University of Missouri found that the Federal Reserve gave over $29 trillion to the banks.

This did not stop the loss of nine million jobs , more than four million foreclosures and the deep reduction in wealth among the poor, working and middle classes. A complete banking collapse was averted, but a deep recession for most people was not.

The New Yorker described the 2008 crash as years in the making, writing:

" the crisis took years to emerge. It was caused by reckless lending practices, Wall Street greed, outright fraud, lax government oversight in the George W. Bush years, and deregulation of the financial sector in the Bill Clinton years. The deepest source, going back decades, was rising inequality. In good times and bad, no matter which party held power, the squeezed middle class sank ever further into debt."

Before his inauguration, Obama proposed an economic stimulus plan, but, as Paul Krugman wrote, "Obama's prescription doesn't live up to his diagnosis. The economic plan he's offering isn't as strong as his language about the economic threat."

In the end, the stimulus was even smaller than what Obama proposed. Economist Dean Baker explained that it may have created 2 million jobs, but we needed 12 million. It was $300 billion in 2009, about the same in 2010, and the remaining $100 billion followed over several years -- too small to offset the $1.4 trillion in annual lost spending.

New York Magazine reports the stimulus was "a spending stimulus bigger without being required to admit guilt or having their cases referred for prosecution. The fines were paid by shareholders , not the perpetrators.

Protest near Union Square in New York, April, 2010. Popular Resistance

Still at Risk

Many of the root causes of the crisis remain today, making another economic downturn or collapse possible. The New Yorker reports that little has changed since 2008, with Wall Street banks returning to risky behavior and the inadequate regulation of Dodd-Frank being weakened. Big finance is more concentrated and dominant than it was before the crash. Inequality and debt have expanded, and despite the capital class getting wealthier in a record stock market with corporate profits soaring, real wages are stuck at pre-crisis levels .

People are economically insecure in the US and live with growing despair, as measured by reports on well-being . The Federal Reserve reported in 2017 that "two in five Americans don't have enough savings to cover a $400 emergency expense." Further, "more than one in five said they weren't able to pay the current month's bills in full, and more than one in four said they skipped necessary medical care last year because they couldn't afford it."

Positive Money writes: "Ten years on, big banks are still behaving in reckless, unfair and neglectful ways . The structural problems with our money and banking system still haven't been fixed. And many experts fear that if we don't change things soon, we're going to sleepwalk into another crash ."

William Cohen, a former mergers and acquisitions banker on Wall Street, writes that the fundamentals of US economy are still flawed. The Economist describes the current situation: "The patient is in remission, not cured."

The Response Of the Popular Movement

Larry Eliott wrote in the Guardian , "Capitalism's near-death experience with the banking crisis was a golden opportunity for progressives." But the movement in the United States was not yet in a position to take advantage of it.

There were immediate protests. Democratic Party-aligned groups such as USAction, True Majority and others organized nationwide actions . Over 1,000 people demonstrated on Wall Street and phones in Congress were ringing wildly. While there was opposition to the bailout, there was a lack of national consensus over what to do.

Protests continued to grow. In late 2009, a "Move Your Money" campaign was started that urged people to take their money out of the big banks and put it in community banks and credit unions. The most visible anti-establishment rage in response to the bailout arose later in the Tea Party and Occupy movements . Both groups shared a consensus that we live in a rigged economy created by a corrupt political establishment. It was evident that the US is an oligarchy, which serves the interests of the wealthy while ignoring the necessities of the people.

The anti-establishment consensus continues to grow and showed itself in the 2016 presidential campaigns of Senator Bernie Sanders and Donald Trump. They were two sides of the same coin of populist anger that defeated Jeb Bush and Hillary Clinton. Across the political spectrum, there is a political crisis with both mainstream, Wall Street-funded political parties being unpopular but staying in power due to a calcified political system that protects the duopoly of Democrats and Republicans.

Preparing for the Next Collapse

When the next financial crisis arrives, the movement is in a much stronger position to take advantage of the opportunity for significant changes that benefit people over Wall Street. The Occupy movement and other efforts since then have changed the national dialogue so that more people are aware of wealth inequality, the corruption of big banks and the failure of the political elites to represent the people's interests.

There is also greater awareness of alternatives to the current economy. The Public Banking movement has grown significantly since 2008. Banks that need to be bailed out could be transformed into public banks that serve the people and are democratically controlled. And there are multiple platforms, including our People's Agenda , that outline alternative solutions.

We also know the government can afford almost $30 trillion to bail out the banks. One sixth of this could provide a $12,000 annual basic income, which would cost $3.8 trillion annually, doubling Social Security payments to $22,000 annually, which would cost $662 billion, a $10,000 bonus for all US public school teachers, which would cost $11 billion, free college for all high school graduates, which would cost $318 billion, and universal preschool, which would cost $38 billion. National improved Medicare for all would actually save the nation trillions of dollars over a decade. We can afford to provide for the necessities of the people.

We can look to Iceland for an example of how to handle the next crisis. In 2008 , they jailed the bankers, let the banks fail without taking on their debt and put controls in place to protect the economy. They recovered more quickly than other countries and with less pain.

How did they do it? In part, through protest. They held sustained and noisy protests, banging pots and pans outside their parliament building for five months. The number of people participating in the protests grew over time. They created democratized platforms for gathering public input and sharing information widely. And they created new political parties, the Pirate Party and the Best Party, which offered agendas informed by that popular input.

So, when the next crash comes. Let's put forward a People's Agenda. Let's be like Iceland and mobilize for policies that put people first. Collectively, we have the power to overcome the political elites and their donor class.

[Sep 03, 2018] New Book Gives Credence to US Ambassador's Claim That Israel Tried to Assassinate Him in 1980

Notable quotes:
"... Rise and Kill First ..."
"... Danger Zones, ..."
"... Thanks to Donald Johnson. ..."
Sep 03, 2018 | www.unz.com

PHILIP WEISS AUGUST 22, 2018 1,900 WORDS 16 COMMENTS REPLY RSS

John Gunther Dean, now 92, and a former American ambassador to five countries, has long maintained that Israel was behind his attempted assassination on August 28, 1980, in a suburb of Beirut, which was attributed to a rightwing Lebanese group. Dean and his wife and daughter and son-in-law were in a motorcade and narrowly escaped serious injury.

Dean said that he was targeted because he was doing something regarded as antithetical to Israel's interest: consulting with the Palestine Liberation Organization and its head, Yasser Arafat, at a time when such contacts were the third rail in US politics. He was also outspokenly critical of Israeli attacks on Lebanon.

A new book offers backing to Dean's claim. But while that book has been highly-publicized, the question of whether Israel attacked our ambassador has gotten no attention in the press. That is not a surprise; for Dean has asserted that the case itself was never thoroughly investigated by the U.S. government.

Let's begin this story where I first heard about it, from historian Remi Brulin's twitter thread on May 30:

"On August 28, 1980, the three-car motorcade of John Gunther Dean, the American Ambassador to Lebanon, was attacked on the motorway by several assailants armed with automatic rifles as well as light anti-tank weapons or LAWs. The ambassador and his wife escaped unscathed.

"This attack is in RAND's 'terrorism' database . Entry states that 'responsibility for attack was later claimed by the Front for the Liberation of Lebanon from Foreigners, a shadowy right-wing group.' Various media outlets at the time reported on FLLF taking credit for the attack

"Over the years Ambassador Dean has repeatedly argued that Israel was behind the August 1980 attempt on his life. In a n interview for the Oral History Project in September 2000, he explained how the Lebanese Intelligence services had managed to retrieve the empty canisters of two of the light anti-tank weapons (LAWs) that had been used during the attack on his motorcade and, during raiding a house by the intersection where the assault had taken place, found 8 more. Dean collected the numbers on the 10 missiles & sent them to Washington to be traced.

"Three weeks (and one angry phone call) later, the US Ambassador finally learned 'where the light anti-tank weapons came from, where they were shipped to, on what date, who paid for them, and when they got to their destination.'

"The LAWs had been manufactured in the US and 'were sold and shipped to Israel in 1974.' In this interview , Dean further states that he "did find out a great deal about this incident' over the following years, and calls this assassination attempt 'one of the more unsavory episodes in our Middle Eastern history' and ends by noting that 'our Ambassador to Israel, Sam Lewis, took up this matter with the Israeli authorities.'

"Dean concludes: 'I know as surely as I know anything that Mossad, the Israeli intelligence agency, was somehow involved in the attack. Undoubtedly using a proxy, our ally Israel had tried to kill me.' [Haaretz covered Dean's claim, made in his 2009 autobiography ; so did The Nation ]

"All of this has been known for years, although it is very rarely discussed in the US media. When discussed, Dean's assertions/accusations are dismissed as conspiracy theories.

"In January however, a book was published that appears to reinforce the plausibility of Dean's position. The book is Ronen Bergman's Rise and Kill First . It has received rave reviews in the US press, and its author has been interviewed countless times since the book was published. The book focuses on Israeli 'targeted assassinations' and it contains one truly remarkable revelation.

"In 1979, [Rafael] Eitan and [Meir] Dagan [both brass in the Israel Defense Forces] created the Front for the Liberation of Lebanon from Foreigners, and ran that fictitious group from 1979 to 1983. In 1981 and 1982, Ariel Sharon used that Front to conduct a series of indiscriminate car bombings that killed hundreds of civilians.

"The objective of this massive 'terrorist' car bombing campaign was to 'sow chaos' amongst the Palestinian & Lebanese civilian population" and, in 1981-82, to provoke the PLO into resorting to 'terrorism,' thus providing Israel with an excuse to invade Lebanon.

"The FLLF operation is described in great details in Bergman's book. His account is based solely on first hand accounts from Israeli officials involved in the operation or who were aware of it at the time. It is also described in detail in my article here [ in Mondoweiss in May: The remarkable disappearing act of Israel's car-bombing campaign in Lebanon or: What we (do not) talk about when we talk about 'terrorism'].

"As I show in this article, not a SINGLE review of Bergman's book in the US media has mentioned the FLLF operation. Nor has it been mentioned in a SINGLE of the countless interviews he has given on the topic over the last few months. The US media has thus been fully silent about the fact that Israeli officials directed a major & fully indiscriminate car bombing campaign that killed 100s of civilians in Lebanon. This silence also means that the US media has failed to notice the possible implications of this revelation about the Dean case.

"Bergman himself does not mention the assassination attempt against Dean. But we know that the FLLF took credit for this attack at the time. That Dean's own investigation pointed to Israel & to its Lebanese proxies. And we now know that the FLLF was CREATED and RUN by Israel.

"None of this is absolutely conclusive, of course. Nonetheless, this topic might warrant investigation from US journalists (who might also want to write about the FLLF car bombing campaign, ie about Israeli officials resorting to 'terrorism.'"

Brulin subsequently added this important comment:

Bergman does note on several occasions in his book that he is not allowed to write and talk about a lot of the operations that his sources talked to him about. I wonder if this FLLF operation vs Dean is one of those.

Let us add some details and context. Dean was born to a Jewish family in Germany in 1926 and escaped the Holocaust to the United States in 1938, later graduating from a Kansas City high school. It goes without saying that being ambassador to five countries, Cambodia, Denmark, Lebanon, Thailand and India, is a stellar career in foreign service.

I reached out to Dean and did not hear from him, but in his oral history, the ambassador says that the attack was a "horrible experience" that scarred his daughter.

The road at that stretch was wide and a Mercedes car was parked below a small hill overlooking the road. As we turned, our convoy took 21 rifle bullets and two grenades anti-tank fired against the car I was in. My wife threw herself on top of me and said: "Get your head down" because I was trying to look out and was stunned by the "fireworks". When you have these light anti-tank weapons (LAWs) explode, there are a lot of sparks and explosions. The two LAWs fired at my car bounced off the rear of the car. I also noticed that on the window of my armored car there were some shots all very well centered where I was sitting, but they had not penetrated because the plastic windows were bullet-proof.

In his autobiography Danger Zones, Dean says he urged the State Department to investigate, but: "No matter how hard I tried, I could not get a straight answer from the State Department about what the U.S. had discovered in its investigations I was simply told to resume my duties as ambassador. That was not so easy when I learned what the Lebanese intelligence agency found out [using the numbers on the weapons]."

Dean says he was clearly understood to be an enemy of Israel because on repeated occasions he had publicly condemned Israel's attacks on Lebanon's borders and air space, a stance the State Department usually did not take.

Scurrilous attacks on me in the Israeli Knesset and the Israeli press just prior to the assassination attempt indicate that the Israeli authorities were unhappy with the activist role I played in Lebanon, defending Lebanese sovereignty and maintaining an active relationship with the PLO–the very policies I was given to pursue by the president of the United States. The venomous talk in the Israeli Knesset by the right-wing parties portrayed me as a tool of the Palestinians. Because I was willing, even eager, to talk with all the factions in Lebanon's civil war, I was suspected of being anti-Israel.

Dean said he had a "close working relationship" with the PLO– including calling on Yasser Arafat to help broker the release of 13 of 66 American hostages held by Iranians in Tehran in November 1979, those 13 being the women and African-Americans. "On a number of occasions the PLO helped me to get Americans released American authorities considered the PLO a valid interlocutor for discussing ways of finding a nonmilitary solution to the Israeli-Palestinian conflict."

At that time, the PLO was verboten in official policy circles. Andrew Young was forced to resign as Jimmy Carter's ambassador to the U.N. in 1979 after the Israelis leaked the fact that he had met with a representative of the PLO. In 1977, Ted Koppel and Marvin Kalb wrote a thriller that turned on a US official having a supersecret meeting with a fictitious Palestinian group, and it leaking and the official being charged with betraying Israel. In 1976, the dissident Jewish peace group Breira came apart after Wolf Blitzer, who was at the time also working for the Israel lobby group AIPAC, reported in the Jerusalem Post that Breira members had met with PLO officials.

Dean had a reputation for being free-thinking in Washington circles. In 1988, when Dean was ambassador to India, Pakistani President Muhammad Zia-ul-Haq died in Pakistan when his plane was sabotaged. Dean maintained that Israel was behind the assassination because it did not want Pakistan to obtain nuclear weapons, which it was then developing. Dean's speculation was based in part on the fact that pro-Israel congressmen (Stephen Solarz and Tom Lantos) had visited him in New Delhi and pressed him to support Israel's ally India over Pakistan and to seek to thwart Pakistan's path toward nukes.

"The more I pushed for answers, the more officials from the Reagan administration pushed back," he wrote. Within a year, Dean, 63, retired amid official questions about his sanity under "strain." "The department's first thought was to send me to an asylum." Instead he was sent to Switzerland for "recuperation," he writes in his autobiography. "This was the kind of technique that the Stalinist regime used to silence its critics in the Soviet Union."

Ronen Bergman's new book on the Israeli assassination and terrorism campaign contains no reference to the John Gunther Dean attack. I asked him via a twitter message why he had left it out, noting that his revelation about Israeli security officials establishing the Front for the Liberation of Lebanon from Foreigners gives credence to Dean's claim. He did not respond.

The Israeli investigative reporter is now working for the New York Times, and lately reported in the Times on the killing of a Syrian rocket scientist in a car bomb attack in northwestern Syria on the night of August 4, evidently by Israel.

P.S. The US government has had a miserable record of investigating known Israeli attacks on Americans– on the USS Liberty in 1967 and Rachel Corrie in 2003.

Thanks to Donald Johnson.

sarz , says: August 25, 2018 at 5:51 pm GMT

Good to see Dean being taken seriously after so long in the wilderness.

The throwaway line about Dean, a Jew, being born in Germany and escaping the Holocaust when his family went to America in 1938, is a bit much, but serves to remind us what a challenge it is for those of Tribal consciousness such as friend Weiss, to hew to the truth when the opposing lie is so consequential.

[Sep 03, 2018] Who Wins in the Financial Casino? by Yves Smith

Notable quotes:
"... maximizing current extractable value ..."
"... maximizing current extractable value ..."
"... This business model is also a managerial nightmare. ..."
Sep 18, 2014 | www.nakedcapitalism.com

I received a message last week from a savvy reader, a former McKinsey partner who has also done among other things significant pro-bono work with housing not-for-profits (as in he has more interest and experience in social justice issues than most people with his background). His query:

We both know that financialization has, among so many other things, turned large swaths of the capital markets into a casino

Here's my thought/question: is there a house?

The common wisdom is that the 'house wins' in casinos

In all likelihood, at least in the great financial crisis, the TBTF banks were the 'house' yet, it's at least a bit different from a casino house because, absent the bailouts, those banks would not have won.

So, who or what was really the 'house'? Was it the Fed? Did the Fed actually 'win'?

Maybe the 'house' is the 1% . or, more precisely, the .01%???

I have included this fetching image to give you the opportunity to formulate your own answer before scrolling down.

My reply:

The producers in finance: the managing directors and heads of trading desks at major banks, the more senior managers who are along for the ride, the hedgies, guys in private equity.

The "house" is individuals, not institutions. That is how looting works.

Remember, the question is not merely who wins from our current hypertrophied financial system, but who is set up to be the house, as in to win no matter what. The answer in this case is intrinsically linked to looting.

The concept of looting is so important that it pays to revisit the seminal 1993 George Akerlof and Paul Romer paper that set forth this concept. The key section (emphasis ours):

an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations. Bankruptcy for profit occurs most commonly when a government guarantees a firm's debt obligations. The most obvious such guarantee is deposit insurance, but governments also implicitly or explicitly guarantee the policies of insurance companies, the pension obligations of private firms, virtually all the obligations of large banks, student loans, mortgage finance of subsidized housing, and the general obligations of large or influential firms. . . .

Because net worth is typically a small fraction of total assets for the insured institutions, . . . bankruptcy for profit can easily become a more attractive strategy for the owners than maximizing true economic values. If so, the normal economics of maximizing economic value is replaced by the topsy-turvy economics of maximizing current extractable value , which tends to drive the firm's economic net worth deeply negative. Once owners have decided that they can extract more from a firm by maximizing their present take, any action that allows them to extract more currently will be attractive -- even if it causes a large reduction in the true economic net worth of the firm).

The difference between the classic Akerlof/Romer notion of looting, where the owner ssyphoned off funds and left the company so fragile that eventual bankruptcy was almost inevitable, is that the evolution of Wall Street has produced a much broader class of individuals who are treated as if they have claims on profit streams. That puts them in a quasi-ownership position.

These "producers" are typically perceived to have enough control over a revenue stream as to have leverage over the institution. That includes anyone who runs a profit center (and remember, a profit center can be as small as one trader and a trading assistant), as well as individuals on the more-team-oriented investment banking side of the house that have strong enough client relationships that they could take some business with them (and perhaps other members of their team) if they left. As we explained in ECONNED:

In the financial services industry version of looting, we instead have firms where operational authority, is decentralized, vested in senior business managers, or "producers." As a result of industry evolution and perceived competitive pressures, these producers, as a result of formal incentives plus values held widely within the industry, focused solely on producing the maximum amount possible in the current bonus period. The formal and informal rewards system thus tallies exactly with the topsy-turvy scheme of " maximizing current extractable value ."

This behavior in the past was positive, indeed highly productive, as long as it was contained and channeled via tough-minded oversight, meaning top management who could properly supervise the business. The main mechanisms are management reporting systems, risk management, and personal understanding of and involvement in day-to-day operations, plus external checks, such as regulations and criminal penalties. For a host of reasons, the balance of power has shifted entirely toward the forces that encourage looting. And because the damage that results cannot clearly be pinned on the top brass it is difficult to ascertain from the outside whether the executives merely unwittingly enabled this process or were active perpetrators.

Notice this excessive extraction that led to business failure took place even though these firms had high levels of employee stock ownership. At Bear Stearns, members of the firm owned roughly one-third of the shares. At Lehman, they held nearly 30%, and the average managing director owned shares worth on average two times his annual take. Economic theory says that share ownership by employees and managers should lead them to produce the best long-term results for the enterprise. Yet those assumptions were shown to be flawed on Wall Street, as they were with Enron, in which 62% of the 401(k) assets were invested in Enron stock, and senior management also had significant share ownership.

Just as we have seen in Corporate America, using equity to align the interests of managers and shareholders has produced the converse of what the theorists expected, a pathological fixation on short-term results. On Wall Street, where the business model and rewards systems already had an intrinsic propensity to emphasize the quick kill, widespread employee ownership was an ineffective counter at best and more likely served to reinforce the fixation on current performance, irrespective of the true cost of achieving it.

The very worst feature of looting version 2.0 is that it has created doomsday machines. In the old construct, the CEO fraudsters would drain a business, let it fail, and move on. The fact of bankruptcy assured that the trail of wreckage would catch up with them sooner or later. But here, the firms, due to their perceived systemic importance, are not being permitted to fail. So there are no postmortems, in particular criminal investigations, to determine to what extent fraud, as opposed to mere greed and rampant stupidity, led to what would otherwise have been their end.

Now mind you, these producers aren't the Ayn Randian rugged individualists that they often envision themselves to be. Their success depends on institutional infrastructure: concentrated capital and information flows, access to cheap leverage, risk control systems, a back office, etc. Quite a few successful Goldman traders have flopped when trying to launch their own hedge fund. John Meriwether, a storied Salomon trader, has presided over a series of hedge fund failures in his later life, the most spectacular being LTCM. Former Goldman CEO Jon Corzine is another high profile example of a supposedly successful trader and trading manager who came a cropper when given more degrees of freedom at MF Global than at his former home.

But while these individuals' ability to succeed on a stand-alone basis or in different type of firm is subject to question, they nevertheless hold their employers hostage. If they decamp to a competitor, they not only take some (or a lot) of their revenues with them, but they can damage the ability to be competitive in closely aligned businesses. Senior people cannot be replaced quickly and each unit's activity is so specialized that employees from other area can't pinch hit for the recently departed producer or team. And if the loss is significant enough, competitors will poach on other business units, which in a worse case scenario can put a firm in a downspiral.

And the worst is given the present structure of these firms, there is no simple way to curb the leverage these staffers have over their employers. Again from ECONNED:

On paper, capital markets enterprises look like a great opportunity. The firms that are at the nexus of global money flows participate in a very high level of transactions. Enough of them are in complex products or not deeply liquid markets so as to allow firms to find ways to uncover, in many cases create, and capture profit opportunities. New, typically sophisticated products often provide particularly juicy returns to the intermediary. And in theory, clever, adaptive, narrowly skilled staff can stay enough ahead of the game so that the amount captured off this huge transaction flow is handsome.

Once again, however, the real world deviates in important respects from the fantasy. Why? This business model is also a managerial nightmare.

We have a paradox: "success" and profitability in the investment banking context entails giving broad discretion to individuals with highly specialized know-how. But the businesses have outgrown the ability to monitor and manage these specialists effectively. The high frequency, meaningful stakes, and large absolute number of decisions made at the operational level, the geographic span of these firms, and the often imperfectly understood interconnections among business risks make effective supervision well-nigh impossible.

What is intriguing about the ex-McKinsey partner's question is that even after reading extensively about the crisis, he was unable to see the true locus of power in the financial services industry. Yet the answer is obvious to anyone who has worked in or closely with major capital markets firms.

And the conundrum we have outlined means the people who call for prosecutions of individuals are exactly right. Punishing firms is ineffective. Firms are fluid; key players can and often do move around. And the culpability for bad practices typically resides both at the producer level (the manager immediately responsible for the unit in which the bad conduct took place) and more senior management (which typically benefits directly from any ill-gotten profits, in terms of their compensation levels, and needs to be held responsible, even if they were simply derelict in duty, as opposed to actively complicit).

When the SEC was respected and feared, back in the stone ages of the 1970s, the capital markets delivered far better value for society as a whole than they do now. But even though financial services industry looters are the big winners in the capital markets casino, many members of the 0.1% have been along for the ride. Until some of the uber-rich join the great unwashed as victims of financial services industry looting, the house has nothing to worry about.


ArkansasAngie , September 18, 2014 at 6:59 am

Dis-economies of scale. Boards and top management are not owners of the companies they run so for them betting with other people's money is logical.

The fact is it isn't desirable. And we pay a huge price for it. One which should be included in a cost benefit analysis

digi_owl , September 18, 2014 at 1:45 pm

Never mind the whole mess that is "stock options". Talk about putting a big carrot on "pump and dump"

sd , September 18, 2014 at 7:02 am

The euphemism "Producers" is the tell. They produce nothing, they extract.

R Foreman , September 18, 2014 at 9:03 am

The 'employers' give the business controls over to individuals who destroy the business, for the Big Win.

agkaiser , September 18, 2014 at 7:26 am

From "How Does That Work: A View From the Bottom"

"Consider this analogy: In a hypothetical casino card game the house takes 5% of every pot. If 10% of the money at the table is on average played on each hand, then the house takes 0.5% of the money in the game on each rake. After 200 hands, 100% of the money that is on average at the table has been taken by the house. The only way the game may continue is to have new money come to it. The winners, of course, smell the new blood and even anticipate it greedily. And the biggest winner over a time is always the house. Until the free market ideologues took over, the biggest difference between a casino bank and finance was that the gaming house took a bigger cut of the handle.

"The media have played up the CDS and futures gambling aspect of derivatives, in what they call 'Casino Capitalism.' This distracts from the better casino analogy where the principal players are the house that always wins. The fundamental function of the big hedge funds, banks, brokerages, private equity firms [formerly venture capitalists] investors and insurance companies is to take a cut of almost every transaction and enterprise through interest on finance and profit on investment, banking, debt and credit card fees, etc. Even if some of them did lose a little on the derivatives frenzy and didn't pass on their losses – to we, the people, their victims, the all time losers – by virtue of the bailout, the biggest just got bigger and only the suckers and small fry got hurt badly or wiped out."

https://www.createspace.com/3852916

QuarterBack , September 18, 2014 at 10:57 am

Good analogy. I see the casino as two camps: 1) Those getting commissions on trades; and 2) those supplying casino credit to players needing help through volitile periods. The house loves volatility because it drives both of these mechanisms for paying the house.

Larry , September 18, 2014 at 7:45 am

Great post Yves. I was taken by this portion near the end:

When the SEC was respected and feared, back in the stone ages of the 1970s, the capital markets delivered far better value for society as a whole than they do now. But even though financial services industry looters are the big winners in the capital markets casino, many members of the 0.1% have been along for the ride. Until some of the uber-rich join the great unwashed as victims of financial services industry looting, the house has nothing to worry about.

I had thought that this had indeed started to happen. The biggest example I can think of is JP Morgan's dealings with Madoff's failed Ponzi scheme. And probing the recesses of my memory and then searching the blog, I came up with these stories:

http://www.nakedcapitalism.com/2014/05/fiduciary-gone-even-rich-people-cant-escape-screwed.html

And this that discusses Les Blavatnik :

http://www.nakedcapitalism.com/2012/07/jp-morgan-treated-its-retail-investors-as-stuffees-accused-of-lying-in-marketing-materials.html

So it would seem that the 1%, dare I say, 0.1% and 0.01% are indeed being hit. But they seem unable to align their material interests with better control over Wall St. Is that because an relatively insignificant portion of the uber wealthy are being hit, or because Wall St. is so deeply embedded in the bodies that should be regulating it?

Yves Smith , September 18, 2014 at 8:07 am

Even among the super-rich, there is a collective action problem. I met with Blavatnik to discuss the idea of broader noise-making about JP Morgan misconduct. He made clear he was not interested in looking like an enemy of banks, that (among other things) as a buyer and seller of companies, he needed them. He was receptive to the idea of narrower action but I concluded the cost of doing it right was probably higher than made sense given the uncertain payoff. But part of it also is that structurally, they are forced to go after the institution. They can't single out the individuals who were the immediate perps (save for describing their role in litigation).

And you also have the problem of denial. Blavanik was so clearly abused, in a way that there was no basis for self-recriminatation that he was clear about taking action, which in his case was suing. But a lot of people are really embarrassed about losing money or being taken advantage of. So even if they might threaten litigation, they won't talk it up among their peers to try to shift opinions and recruit allies.

So I'd hazard things have to get worse before the real economy types start to organize to rein in Wall Street.

Ulysses , September 18, 2014 at 8:41 am

"But a lot of people are really embarrassed about losing money or being taken advantage of. So even if they might threaten litigation, they won't talk it up among their peers to try to shift opinions and recruit allies."
Very well said! This same psychology partly explains why, at the lower end of the socio-economic spectrum, it is so difficult to get workers to go after even egregious cases of wage theft. Plus, these workers rightly understand that, by taking action, they risk gaining a "troublemaker" label that will make it very hard for them to keep earning their daily bread.

Moneta , September 18, 2014 at 9:39 am

And this ties up nicely with the class bigotry post. It's amazing how EVERYTHING is interconnected and keeps the beast alive.

This whole mess is social, political, financial, environmental, physical, chemical, psychological, philosophical. etc.

And society today does not value generalists.

proximity1 , September 18, 2014 at 8:07 am

I agree with Larry– this is a really great, great post of yours. I think I now have to get your book and read it -- soon .

In reading through the fascinating observations, I was reminded of a saying which, in the current context would run, "If you have to ask 'Who is the 'House' in this (gaming operation)?' then it's clear that you and yours don't belong to it."

Jim Haygood , September 18, 2014 at 8:08 am

'Maximizing current extractable value tends to drive the firm's economic net worth deeply negative.'

This is true in spades for governments. Lawrence Kotlikoff has estimated Usgov's negative net worth at minus $200 trillion, or twelve years' worth of GDP.

For those at the top, looting is done indirectly by capitalizing on one's prestige and power after leaving office. Those lifelong public servants, the Clintons, have raked in nearly half a billion this way.

Meanwhile, our corpgov sponsors loot directly via federal expenditures. Our splendid new war in Syria, voted yesterday, is looting in its purest form.

MikeNY , September 18, 2014 at 9:07 am

And certainly our healthcare system is organized around the principle of looting. Cui bono? Well, the insurance companies, hospital groups and pharma companies. Who owns them? The usual plutocrat suspects. Since they make the rules, it's hard to find a game that they lose.

Ben , September 18, 2014 at 10:55 am

It seems to me that there is a sever disconnect between money and value delivered. The whole system seems utterly broken because of the asynchronous nature of debt. You can make a trick look like value by deferring the truth through debt.

"Money" has become too abstract and that we need to move back up the scale towards bartering in order to re-assert the link between reward and value delivered.

craazyman , September 18, 2014 at 8:28 am

This guy is giving people advice? Holy Guacamole.

Here's the correct answer for the mentally challenged to consider: "When the game is played long enough, everybody loses."

But only a lucky few get the Big Bailout$, so they think the actually "won".

Ulysses , September 18, 2014 at 8:33 am

"Investors who lost their life savings in convicted Texas financier R. Allen Stanford's $7 billion Ponzi scheme got their day in court today on the first day of the Supreme Court's 2013 term, but it was unclear whether their plea will pay dividends. Unable to recover their investments from Stanford or his fraudulent entities, including a bank based in Antigua, the plaintiffs filed class-action lawsuits in state and federal courts in Texas and Louisiana. But a law passed by Congress in 1998 was intended to preclude such lawsuits and assert federal jurisdiction. Faced with conflicting lower court rulings, the Supreme Court must decide whether to side with the defrauded investors or the financial institutions, law firms and insurance companies accused of aiding Stanford's scheme. The federal government, seeking to protect the Securities and Exchange Commission's regulatory authority over security fraud claims, is siding with the defendants."
http://www.businessreport.com/section/tagged&tagID=1085&tag=Fraud

I think a lot of very wealthy fraud victims still believe that they have a chance of recovering their losses through legal channels, not realizing how much the game has been rigged to allow the fraudsters to operate with impunity. Perhaps more importantly, I think a lot of wealthy investors are simply unaware of how they are being fleeced. They have very diversified investments, usually managed by other people. They may feel mildly disappointed that their returns are modest in what the media has told them is a historic bull market. Yet as long as some parts of their portfolio do bring decent returns, the overall picture they have of their finances is that of modest growth– so they shrug off the possibility that they have been conned. No one likes to think of themselves as a mark. As long as they still have enough money sloshing around to live in the style to which they're accustomed, why go into all the ugly details?

RUKidding , September 18, 2014 at 10:21 am

You make some valid points about the wealthier investors and not wanting to believe that they're a mark or a victim of some looter. That, plus they're probably connected by family or societal ties to the looters, so they don't want to make waves. Making waves are for the rabble, who'll lose anyway.

Unless or until the looting gets really egregious and/or enough of the very wealthy (upper 2% or 3% but not .1%) starting seeing their wealth dwindling, don't expect them to lift a finger or make a stink.

The court cases against crooks like Madoff and Stanford may (have in the case of Madoff, I believe) result in investors getting some of their money back, but I believe it ends up being pennies on the dollar. Probably worse than the drubbing that investors took from the crash of '08.

Believing that the USA regulatory, administrative and/or "justice" system will serve your needs is what I like to call Magical Thinking. Ain't gonna happen. Most we rubes might get is, as with Madoff's case, pennies on the dollar.

Banger , September 18, 2014 at 8:47 am

Great post and great question–the term "maximizing current extractable value" is a terrific term that should be more generally used about all assets and call it "MCEV." Anyway the term does open up vast horizons. As for who the "House" is I think it is not the key managers and traders who seem to have the world by the short hairs but, instead, the imperial apparatus that consists of a network of oligarchs around the world that make sure the crooked game continues and this would include the crooked dealers; we have to remember that, ultimately the ones who control the guns are always going to be the House.

cnchal , September 18, 2014 at 8:56 am

Who wins in the financial casino? Hardened, unpunished criminals.

I have a couple of questions.

Can a bank lend money to itself, to speculate in the equities market?
If the answer is no, what stops them?

Moneta , September 18, 2014 at 9:29 am

Until some of the uber-rich join the great unwashed as victims of financial services industry looting, the house has nothing to worry about.
-- -- --
It will happen but not on our schedule. Patience is a virtue.

Worker-Owner , September 18, 2014 at 9:31 am

Hear, Hear! Great post! Thanks.

McMike , September 18, 2014 at 9:32 am

I think there's a huge wall of cognitive dissonance and learned frames to overcome.

We have been trained to see the systems as orbits of institutions, and to assume there's structures serving to keep them in line. Even when those break down, we still grant implicit assumption that people work for institutions, not the other way around.

It remains invisible to most of the country that the system has evolved to legalize and enable looting by sociopathic individuals on a massive-widespread-systematic-ongoing scale. It's so simple, so pedestrian.. so un-American.

Yves Smith , September 18, 2014 at 2:52 pm

Yes. A must-read on that issue (the role of loose networks of individuals who play multiple role, and how those alliances have come to dominate the power structure) is Janine Wedel's The Shadow Elite.

http://www.amazon.com/Shadow-Elite-Undermine-Democracy-Government/dp/B003STCNSW

Andrew Foland , September 18, 2014 at 9:46 am

First, largely I agree. It's important to highlight the role of individuals.

Second, the house doesn't win every single hand. It loses often, with very high variance. In a way, that's part of the trick that keeps it from being obvious the house ultimately always wins: because the house only wins on average.

So the TBTF institutions (qua institutions) can also act as the house, even if they had lost the 2008 hand. Which, it should be noted, they didn't. "Absent the bailout, they would have lost" almost misses the whole point.

The heads-I-win-tails-you-lose nature of the social guarantees and bailouts are effectively an extremely valuable option. Whomever is getting those options for free is acting analagous to the house.

The Dork of Cork , September 18, 2014 at 9:49 am

I hate to break it to yee "New Deal "socialists but banking extraction is very much state policy.
The state is the bank and the bank is the state.
We can easily see this as wealth is concentrated.

This is how it has worked since Tudor times.
The King is no longer divine and all that jazz.
The bank took its seat inside the Tabernacle.
And as they say the rest is history or was it the end of history ?

jefemt , September 18, 2014 at 9:50 am

McMike un-American, or quintessentially American? Better yet, pandemic through history, regardless of Empire? The hoorah Kool-Aid we get in our early years is strong stuff when we cling to a false paradigm, such as , "American", it prevents us from moving into a new paradigm and order. I mention how arcane our Constitution is to folks, how we can and should re-tool for the 21st century and beyond, and folks recoil in horror. Is my concept, or their reaction un-American? BTW, I can't imagine Chris Hedges, Sarah Palin, Karl Rove, Noam Chomsky all in the same room hammering out a new Constitution. Why would they get the invite? Do we have to abdicate our thinking to Proxy? Sure is easy to have little-and-declining hope these days if one is paying even a bit of attention back to, Dancing with the Master Chefs! The Kardashian-Jenners are guests!!

RUKidding , September 18, 2014 at 10:24 am

It is interesting how small a percentage of the citizenry is able to really remove the Kool Aid induced veil over our eyes and really accept what this country is. I have friends who have directed me NOT to discuss these "UnAmerican" issues with them ever again. They simply will not countenance any discussion about how badly we are being ripped off by our elected officials (and others, of course) in the District of Criminals. It doesn't matter how some vote – not a partisan issue – it's the majority. Hooray for the Red, White & Blue is, apparently, very compelling for the majority. Pass the clicker!

beene , September 18, 2014 at 10:10 am

One of the better examples of short term extraction vs company future.

At Simmons, Bought, Drained and Sold, Then Sent to Bankruptcy

Oct 4, 2009 Left, the Simmons Bedding Company in early days. Right, Zalmon Its recent
history has been notable, too, but for a different reason. Simmons

http://www.nytimes.com/2009/10/05/business/economy/05simmons.html?pagewanted=all

whine country , September 18, 2014 at 10:50 am

Excellent post with a particularly concise description of the problem. I'm trying to imagine how the system could have evolved to its current state without the repeal of Glass-Steagall, but I can't. Your mention of Meriwether and Corzine makes my point. The "managers" you refer to are able to create profit centers because of the discounted (and subsidized) access to capital that TBTF banks receive from all of us. Left to fend for themselves in the market for access to capital that us mere mortals conduct business, they are no more than average.

Yves Smith , September 18, 2014 at 2:55 pm

The repeal of Glass Steagall was not the key event. Glass Steagall was a dead letter long before it was repealed. Banks were already substantial participants in capital markets by then. Credit Suisse (a bank) bought First Boston (a major investment bank and top bond trader, of Salomon's stature) in 1988, 11 years before Glass Steagall was repealed.

If I had to single change that over time changed the industry most, it was the repeal in 1970 of the New York Stock Exchange rule that required all members to be partnerships.

WhiteShoeGuy , September 18, 2014 at 4:28 pm

For me, an outsider, the big change was the move on Wall Street, from the white shoe, golf club leisure class to the Brooklyn hard scrabble, hungry guy. 1980s? 1970s?

The Brooklyn boys were eager, in a hurry, and had sharp elbows. This may be too broad but – much of the damage done by The Street was perhaps done by such "boys," not the old crowd of [HYP] Harvard-Yale-Princeton guys from top families.

If so, democratization of some industries doesn't always work.

just bill , September 18, 2014 at 8:54 pm

The critical events began much earlier. Nixon closing the gold window and cementing the special relationship with Saudi Arabia that tled the oil market to the dollar, giving the largest banks access to essentially unlimited off shore deposits, as well as a magnificent usury opportunity to plunder oil starved nations, activities which the Fed could not have regulated if it wanted to. Money essentially ceased to exist as a store of value. Mega banks could no longer be resolved, only bailed out. After 1973 only individuals and bit players have been allowed to fail. As the amount of money in circulation mushroomed, it had nowhere to go but transactions escalating asset values, particularly corporate asset values. Successful looters gained control of the transaction machinery.

William C , September 18, 2014 at 11:01 am

On the subject of the rich who lose money to looters, it is worth remembering that the rich are not homogenous. There are the smart, amoral rich who will generally get richer and there are also the dumb rich (sometimes the children of smart amoral rich) who the first category regard as legitimate and extremely tempting prey. And as they are dumb, they probably will never think or know how to do anything to redress their losses.

I came across some who clearly regarded it as a badge of honour to boast how much they had lost through Madoff (presumably because it showed how much they had to lose initially). These are the people who provide the basis for the (sometimes true) saying 'clogs to clogs in three generations'.

These are the

Don Levit , September 18, 2014 at 11:29 am

I have been introduced to a new term – maximum company extractable value.
There seems to be no difference between the thoughts and actions of company leaders who know the firm is going down.
The bailouts I don't think make much difference in their behavior, were the bailouts not available.
I assume the thieves' notion of maximum extractable value means taking every cent out of what is currently available.
Don Levit

WordMonger , September 18, 2014 at 4:18 pm

"Maximum extractable value" -- savor the sounds here -- plenty of masculine consonants to make the neurons stand up and tingle.

There must be an HBS course here. And certainly a B-school paper on the topic with plenty of empiricals, especially gathered since the 2000s, the fertile times.

Also wealth here for a consulting practice built on this pillar. Impressive when a highly paid young consultant throws it at you.

Lune , September 18, 2014 at 11:46 am

Your summary of the Akerlof and Romer paper sounds like an instruction manual for private equity.

And as for who is the house? I remember flying into Las Vegas on Southwest Airlines one day and after landing, the pilot came on and said "Welcome to Vegas! And for all of you getting ready to gamble, please take a look out the right side of the plane. See those big, gleaming, new fancy hotels? They weren't built with money from the winners."

I imagine if you take a similar plane ride into the Hamptons, you'll see equally impressive mansions, and they also weren't built with money from the winners of the Wall St. casino. So what's the difference? The hotels are owned by the casino corporations, while the Hamptons mansions are owned by private individuals

Moneta , September 18, 2014 at 12:24 pm

These hotels were probably built with a little bit of money from the losers and a lot of money from leverage IOW printed money from misallocation of capital if you believe that a city based on gambling is a waste of resources and destructive to society over the mid to long term.

NoseInTheAir , September 18, 2014 at 4:11 pm

"Yeah, but where are the customers' yachts?"

Who said that?

jfleni , September 18, 2014 at 11:51 am

RE: Who Wins in the Financial Casino?

The Finance and Bankster Offal, carefully backed up by "DogPatch-DC", who the ef* else! Believing otherwise is like devoting fervent prayers to the Tooth Fairy! Apparently the rich are often even dumber!

susan the other , September 18, 2014 at 12:30 pm

When the whole system has been so looted for so long – by decades of IBGYBG scam artists – it is a dead man walking. It is time to change it. In a revolutionary fashion. It might be good PR to throw the sleaziest traders in jail, but that isn't gonna change anything fundamentally because fear of prosecution will just make the next gen cleverer. A financial system that is uncorruptible seems like a fantasy though. When has there ever been one? That very question could be the basis of new finance. Since nothing we have tried so far has worked over the long run we need to look at the way human society evolves and stay one step ahead of it – financially. Don't ask me how.

ReadyToDissect , September 18, 2014 at 4:08 pm

Do I hear a tune of desperation here -- "scam artists," "a dead man walking," "sleaziest traders in jail", "fantasy"?

And change in "a revolutionary fashion"?

Actually, I don't think we've really explored economic alternatives here in the USA. Yeah, some talked about socialism during the Real Depression. But mostly we've embroidered and tinkered with our current set-up. So if we don't want socialism and capitalism is broken, what's left?

Alternatives do exist to our current financial and economic systems. Unfortunately they haven't received much in the way of PR, much less public discussion. For example, some here have mentioned Gar Alperovitz.

But there are many other ideas. Maybe NakedCap can help spread these.

Lambert Strether , September 18, 2014 at 7:25 pm

Co-ops; Common Pool Resources as a third form of property, for starters.

Mattski , September 18, 2014 at 2:34 pm

To some real extent, however, hasn't it always been a casino? In fact, the police who ran the first stock traders off of Paris street corners understood this to be a fact, as did those who rioted against them. At least, this is my recollection of. . . someone's account (Henwood's? Maybe I picked this up in a lecture from Tom Weisskopf decades ago. . .) Would love it if someone could point me to early accounts of these dealings because there would be a lot to learn from them. . .

I think there's a tendency of reformist as opposed to structural analysts to posit this perversion of something that was at one time good (the noble stock market has been turned into a casino!). . . nah. Even the original notion of shared risk in the buying and selling of shares is in no way a democratizing function, but a game for the one percent. (Of course, it could be SOLD as such. . . )

fresno dan , September 18, 2014 at 2:57 pm

"And the conundrum we have outlined means the people who call for prosecutions of individuals are exactly right. Punishing firms is ineffective. Firms are fluid; key players can and often do move around. And the culpability for bad practices typically resides both at the producer level (the manager immediately responsible for the unit in which the bad conduct took place) and more senior management (which typically benefits directly from any ill-gotten profits, in terms of their compensation levels, and needs to be held responsible, even if they were simply derelict in duty, as opposed to actively complicit)."

======================================================
So clearly put, so nicely explained. The American way – mistakes were made ..let's not dwell in the past.

Anon , September 19, 2014 at 7:56 am

Seemed like a simple question with simple answer to me: The dealers are the house. Duh. That's why they've been lobbying for this system for so long.

Agree that it's astounding that anyone who worked for McKinsey could be confused about this issue.

You are of course right that there are certain individuals within the dealers who make the most off of the system -- but something tells me you'd find the same basic phenomenon in the casino business. "The house wins" doesn't mean that low-level employees of the house win, and it doesn't mean that shareholders of the house win.

Mattski , September 19, 2014 at 12:14 pm

Came back to post something like this–the "house" is never as clear cut an entity in gambling as it looks, either. Turns out the city fathers take their cut, local interests, the Mafia has its hand in, the pols who cleared the way legally. . .

[Sep 03, 2018] Exposing the Giants- The Global Power Elite by Robert J Burrowes

Aug 31, 2018 | www.informationclearinghouse.info

Developing the tradition charted by C. Wright Mills in his 1956 classic The Power Elite , in his latest book, Professor Peter Phillips starts by reviewing the transition from the nation state power elites described by authors such as Mills to a transnational power elite centralized on the control of global capital.

Thus, in his just-released study Giants: The Global Power Elite , Phillips, a professor of political sociology at Sonoma State University in the USA, identifies the world's top seventeen asset management firms, such as BlackRock and J.P Morgan Chase, each with more than one trillion dollars of investment capital under management, as the 'Giants' of world capitalism. The seventeen firms collectively manage more than $US41.1 trillion in a self-invested network of interlocking capital that spans the globe.

This $41 trillion represents the wealth invested for profit by thousands of millionaires, billionaires and corporations. The seventeen Giants operate in nearly every country in the world and are 'the central institutions of the financial capital that powers the global economic system'. They invest in anything considered profitable, ranging from 'agricultural lands on which indigenous farmers are replaced by power elite investors' to public assets (such as energy and water utilities) to war.

In addition, Phillips identifies the most important networks of the Global Power Elite and the individuals therein. He names 389 individuals (a small number of whom are women and a token number of whom are from countries other than the United States and the wealthier countries of Western Europe) at the core of the policy planning nongovernmental networks that manage, facilitate and defend the continued concentration of global capital. The Global Power Elite perform two key uniting functions, he argues: they provide ideological justifications for their shared interests (promulgated through their corporate media), and define the parameters of action for transnational governmental organizations and capitalist nation-states.

More precisely, Phillips identifies the 199 directors of the seventeen global financial Giants and offers short biographies and public information on their individual net wealth. These individuals are closely interconnected through numerous networks of association including the World Economic Forum, the International Monetary Conference, university affiliations, various policy councils, social clubs, and cultural enterprises. For a taste of one of these clubs, see this account of The Links in New York. As Phillips observes: 'It is certainly safe to conclude they all know each other personally or know of each other in the shared context of their positions of power.'

The Giants, Phillips documents, invest in each other but also in many hundreds of investment management firms, many of which are near-Giants. This results in tens of trillions of dollars coordinated in a single vast network of global capital controlled by a very small number of people. 'Their constant objective is to find enough safe investment opportunities for a return on capital that allows for continued growth. Inadequate capital-placement opportunities lead to dangerous speculative investments, buying up of public assets, and permanent war spending.'

Because the directors of these seventeen asset management firms represent the central core of international capital, 'Individuals can retire or pass away, and other similar people will move into their place, making the overall structure a self-perpetuating network of global capital control. As such, these 199 people share a common goal of maximum return on investments for themselves and their clients, and they may seek to achieve returns by any means necessary – legal or not . the institutional and structural arrangements within the money management systems of global capital relentlessly seek ways to achieve maximum return on investment, and the conditions for manipulations – legal or not – are always present.'

Like some researchers before him, Phillips identifies the importance of those transnational institutions that serve a unifying function. The World Bank, International Monetary Fund, G20, G7, World Trade Organization (WTO), World Economic Forum (WEF), Trilateral Commission, Bilderberg Group , Bank for International Settlements, Group of 30 (G30), the Council on Foreign Relations and the International Monetary Conference serve as institutional mechanisms for consensus building within the transnational capitalist class, and power elite policy formulation and implementation. 'These international institutions serve the interests of the global financial Giants by supporting policies and regulations that seek to protect the free, unrestricted flow of capital and debt collection worldwide.'

But within this network of transnational institutions, Phillips identifies two very important global elite policy-planning organizations: the Group of Thirty (which has 32 members) and the extended executive committee of the Trilateral Commission (which has 55 members). These nonprofit corporations, which each have a research and support staff, formulate elite policy and issue instructions for their implementation by the transnational governmental institutions like the G7, G20, IMF, WTO, and World Bank. Elite policies are also implemented following instruction of the relevant agent, including governments, in the context. These agents then do as they are instructed.Thus, these 85 members (because two overlap) of the Group of Thirty and the Trilateral Commission comprise a central group of facilitators of global capitalism, ensuring that 'global capital remains safe, secure, and growing'.

So, while many of the major international institutions are controlled by nation-state representatives and central bankers (with proportional power exercised by dominant financial supporters such as the United States and European Union countries), Phillips is more concerned with the transnational policy groups that are nongovernmental because these organizations 'help to unite TCC power elites as a class' and the individuals involved in these organizations facilitate world capitalism. 'They serve as policy elites who seek the continued growth of capital in the world.'

Developing this list of 199 directors of the largest money management firms in the world, Phillips argues, is an important step toward understanding how capitalism works globally today. These global power elite directors make the decisions regarding the investment of trillions of dollars. Supposedly in competition, the concentrated wealth they share requires them to cooperate for their greater good by identifying investment opportunities and shared risk agreements, and working collectively for political arrangements that create advantages for their profit-generating system as a whole.

Their fundamental priority is to secure an average return on investment of 3 to 10 percent, or even more. The nature of any investment is less important than whatit yields: continuous returns that support growth in the overall market. Hence, capital investment in tobacco products, weapons of war, toxic chemicals, pollution, and other socially destructive goods and services are judged purely by their profitability. Concern for the social and environmental costs of the investment are non-existent. In other words, inflicting death and destruction are fine because they are profitable.

So what is the global elite's purpose? In a few sentences Phillips characterizes it thus: The elite is largely united in support of the US/NATO military empire that prosecutes a repressive war against resisting groups – typically labeled 'terrorists' – around the world. The real purpose of 'the war on terror' is defense of transnational globalization, the unimpeded flow of financial capital around the world, dollar hegemony and access to oil; it has nothing to do with repressing terrorism which it generates, perpetuates and finances to provide cover for its real agenda. This is why the United States has a long history of CIA and military interventions around the world ostensibly in defense of 'national interests'.

Wealth and Power

An interesting point that emerges for me from reading Phillips thoughtful analysis is that there is a clear distinction between those individuals and families who have wealth and those individuals who have (sometimes significantly) less wealth (which, nevertheless, is still considerable) but, through their positions and connections, wield a great deal of power. As Phillips explains this distinction, 'the sociology of elites is more important than particular elite individuals and their families'. Just 199 individuals decide how more than $40 trillion will be invested. And this is his central point. Let me briefly elaborate.

There are some really wealthy families in the world, notably including the families Rothschild (France and the United Kingdom), Rockefeller (USA), Goldman-Sachs (USA), Warburgs (Germany), Lehmann (USA), Lazards (France), Kuhn Loebs (USA), Israel Moses Seifs (Italy), Al-Saud (Saudi Arabia), Walton (USA), Koch (USA), Mars (USA), Cargill-MacMillan (USA) and Cox (USA). However, not all of these families overtly seek power to shape the world as they wish.

Similarly, the world's extremely wealthy individuals such as Jeff Bezos (USA), Bill Gates (USA), Warren Buffett (USA), Bernard Arnault (France), Carlos Slim Helu (Mexico) and Francoise Bettencourt Meyers (France) are not necessarily connected in such a way that they exercise enormous power. In fact, they may have little interest in power as such, despite their obvious interest in wealth.

In essence, some individuals and families are content to simply take advantage of how capitalism and its ancilliary governmental and transnational instruments function while others are more politically engaged in seeking to manipulate major institutions to achieve outcomes that not only maximize their own profit and hence wealth but also shape the world itself.

So if you look at the list of 199 individuals that Phillips identifies at the centre of global capital, it does not include names such as Bezos, Gates, Buffett, Koch, Walton or even Rothschild, Rockefeller or Windsor (the Queen of England) despite their well-known and extraordinary wealth. As an aside, many of these names are also missing from the lists compiled by groups such as Forbes and Bloomberg , but their absence from these lists is for a very different reason given the penchant for many really wealthy individuals and families to avoid certain types of publicity and their power to ensure that they do.

In contrast to the names just listed, in Phillips' analysis names like Laurence (Larry) Fink (Chairman and CEO of BlackRock), James (Jamie) Dimon (Chairman and CEO of JPMorgan Chase) and John McFarlane (Chairman of Barclays Bank), while not as wealthy as those listed immediately above, wield far more power because of their positions and connections within the global elite network of 199 individuals.

Predictably then, Phillips observes, these three individuals have similar lifestyles and ideological orientations. They believe capitalism is beneficial for the world and while inequality and poverty are important issues, they believe that capital growth will eventually solve these problems. They are relatively non-expressive about environmental issues, but recognize that investment opportunities may change in response to climate 'modifications'. As millionaires they own multiple homes. They attended elite universities and rose quickly in international finance to reach their current status as giants of the global power elite. 'The institutions they manage have been shown to engage in illegal collusions with others, but the regulatory fines by governments are essentially seen as just part of doing business.'

In short, as I would characterize this description: They are devoid of a legal or moral framework to guide their actions, whether in relation to business, fellow human beings, war or the environment and climate. They are obviously typical of the elite.

Any apparent concern for people, such as that expressed by Fink and Dimon in response to the racist violence in Charlottesville, USAin August 2017, is simply designed to promote 'stability' or more precisely, a stable (that is, profitable) investment and consumer climate.

The lack of concern for people and issues that might concern many of us is also evident from a consideration of the agenda at elite gatherings. Consider the International Monetary Conference. Founded in 1956, it is a private yearly meeting of the top few hundred bankers in the world. The American Bankers Association (ABA) serves as the secretariat for the conference. But, as Phillips notes: 'Nothing on the agenda seems to address the socioeconomic consequences of investments to determine the impacts on people and the environment.' A casual perusal of the agenda at any elite gathering reveals that this comment applies equally to any elite forum. See, for example, the agenda of the recent WEF meeting in Davos . Any talk of 'concern' is misleading rhetoric.

Hence, in the words of Phillips: The 199 directors of the global Giants are 'a very select set of people. They all know each other personally or know of each other. At least 69 have attended the annual World Economic Forum, where they often serve on panels or give public presentations. They mostly attended the same elite universities, and interact in upperclass social setting[s] in the major cities of the world. They all are wealthy and have significant stock holdings in one or more of the financial Giants. They are all deeply invested in the importance of maintaining capital growth in the world. Some are sensitive to environmental and social justice issues, but they seem to be unable to link these issues to global capital concentration.'

Of course, the global elite cannot manage the world system alone: the elite requires agents to perform many of the functions necessary to control national societies and the individuals within them. 'The interests of the Global Power Elite and the TCC are fully recognized by major institutions in society. Governments, intelligence services, policymakers, universities, police forces, military, and corporate media all work in support of their vital interests.'

In other words, to elaborate Phillips' point and extend it a little, through their economic power, theGiants control all of the instruments through which their policies are implemented. Whether it be governments, national military forces, 'military contractors' or mercenaries (with at least $200 billion spent on private security globally, the industry currently employs some fifteen million people worldwide) used both in 'foreign' wars but also likely deployed in future for domestic control, key 'intelligence' agencies, legal systems and police forces, major nongovernment organizations, or the academic, educational, 'public relations propaganda', corporate media, medical, psychiatric and pharmaceutical industries, all instruments are fully responsive to elite control and are designed to misinform, deceive, disempower, intimidate, repress, imprison (in a jail or psychiatric ward), exploit and/or kill (depending on the constituency) the rest of us, as is readily evident.

Defending Elite Power

Phillips observes that the power elite continually worries about rebellion by the 'unruly exploited masses' against their structure of concentrated wealth. This is why the US military empire has long played the role of defender of global capitalism. As a result, the United States has more than 800 military bases (with some scholars suggesting 1,000) in 70 countries and territories. In comparison, the United Kingdom, France, and Russia have about 30 foreign bases. In addition, US military forces are now deployed in 70 percent of the world's nations with US Special Operations Command (SOCOM) having troops in 147 countries, an increase of 80 percent since 2010. These forces conduct counterterrorism strikes regularly, including drone assassinations and kill/capture raids.

'The US military empire stands on hundreds of years of colonial exploitation and continues to support repressive, exploitative governments that cooperate with global capital's imperial agenda. Governments that accept external capital investment, whereby a small segment of a country's elite benefits, do so knowing that capital inevitably requires a return on investment that entails using up resources and people for economic gain. The whole system continues wealth concentration for elites and expanded wretched inequality for the masses .

'Understanding permanent war as an economic relief valve for surplus capital is a vital part of comprehending capitalism in the world today. War provides investment opportunity for the Giants and TCC elites and a guaranteed return on capital. War also serves a repressive function of keeping the suffering masses of humanity afraid and compliant.'

As Phillips elaborates: This is why defense of global capital is the prime reason that NATO countries now account for 85 percent of the world's military spending; the United States spends more on the military than the rest of the world combined.

In essence, 'the Global Power Elite uses NATO and the US military empire for its worldwide security. This is part of an expanding strategy of US military domination around the world, whereby the US/ NATO military empire, advised by the power elite's Atlantic Council , operates in service to the Transnational Corporate Class for the protection of international capital everywhere in the world'.

This entails 'further pauperization of the bottom half of the world's population and an unrelenting downward spiral of wages for 80 percent of the world. The world is facing economic crisis, and the neoliberal solution is to spend less on human needs and more on security. It is a world of financial institutions run amok, where the answer to economic collapse is to print more money through quantitative easing, flooding the population with trillions of new inflation-producing dollars. It is a world of permanent war, whereby spending for destruction requires further spending to rebuild, a cycle that profits the Giants and global networks of economic power. It is a world of drone killings, extrajudicial assassinations, death, and destruction, at home and abroad.'

Where is this all heading?

So what are the implications of this state of affairs? Phillips responds unequivocally: 'This concentration of protected wealth leads to a crisis of humanity, whereby poverty, war, starvation, mass alienation, media propaganda, and environmental devastation are reaching a species-level threat. We realize that humankind is in danger of possible extinction'.

He goes on to state that the Global Power Elite is probably the only entity 'capable of correcting this condition without major civil unrest, war, and chaos' and elaborates an important aim of his book: to raise awareness of the importance of systemic change and the redistribution of wealth among both the book's general readers but also the elite, 'in the hope that they can begin the process of saving humanity.' The book's postscript is a 'A Letter to the Global Power Elite', co-signed by Phillips and 90 others, beseeching the elite to act accordingly.

'It is no longer acceptable for you to believe that you can manage capitalism to grow its way out of the gross inequalities we all now face. The environment cannot accept more pollution and waste, and civil unrest is everywhere inevitable at some point. Humanity needs you to step up and insure that trickle-down becomes a river of resources that reaches every child, every family, and all human beings. We urge you to use your power and make the needed changes for humanity's survival.'

But he also emphasizes that nonviolent social movements, using the Universal Declaration of Human Rights as a moral code, can accelerate the process of redistributing wealth by pressuring the elite into action.

Conclusion

Peter Phillips has written an important book. For those of us interested in understanding elite control of the world, this book is a vital addition to the bookshelf. And like any good book, as you will see from my comments both above and below, it raised more questions for me even while it answered many.

As I read Phillips' insightful and candid account of elite behavior in this regard, I am reminded, yet again, that the global power elite is extraordinarily violent and utterly insane: content to kill people in vast numbers (whether through starvation or military violence) and destroy the biosphere for profit, with zero sense of humanity's now limited future. See 'The Global Elite is Insane Revisited' and 'Human Extinction by 2026? A Last Ditch Strategy to Fight for Human Survival' with more detailed explanations for the violence and insanity here: 'Why Violence?' and 'Fearless Psychology and Fearful Psychology: Principles and Practice' .

For this reason I do not share his faith in moral appeals to the elite, as articulated in the letter in his postscript. It is fine to make the appeal but history offers no evidence to suggest that there will be any significant response. The death and destruction inflicted by elites is highly profitable, centuries-old and ongoing. It will take powerful, strategically-focused nonviolent campaigns (or societal collapse) to compel the necessary changes in elite behavior. Hence, I fully endorse his call for nonviolent social movements to compel elite action where we cannot make the necessary changes without their involvement. See 'A Nonviolent Strategy to End Violence and Avert Human Extinction' and Nonviolent Campaign Strategy .

I would also encourage independent action, in one or more of several ways, by those individuals and communities powerful enough to do so. This includes nurturing more powerful individuals by making 'My Promise to Children' , participating in 'The Flame Tree Project to Save Life on Earth' and signing the online pledge of 'The People's Charter to Create a Nonviolent World' .

Fundamentally, Giants: The Global Power Elite is a call to action. Professor Peter Phillips is highly aware of our predicament – politically, socially, economically, environmentally and climatically – and the critical role played by the global power elite in generating that predicament.

If we cannot persuade the global power elite to respond sensibly to that predicament, or nonviolently compel it to do so, humanity's time on Earth is indeed limited.

Robert J. Burrowes has a lifetime commitment to understanding and ending human violence. He has done extensive research since 1966 in an effort to understand why human beings are violent and has been a nonviolent activist since 1981. He is the author of 'Why Violence?' His email address is [email protected] and his website is here .

Watch - Financial Rape of America ;

Former Assistant Secretary of Housing Catherine Austin Fitts warns that the "financial rape of America" is nothing more than "re-engineering" the debt based economy

https://www.youtube.com/embed/1H_trIfTEEc

[Aug 26, 2018] "Creating Wealth" through debt- the West's Finance-Capitalist road by Michael Hudson

Notable quotes:
"... This financial dynamic has hijacked industrial capitalism. It is leading economies to polarize and ultimately collapse under the weight of their debt burden. That is the inherent dynamic of finance capitalism. The debt overhead leads to a financial crisis that becomes an opportunity to impose emergency rule to replace democratic lawmaking. So contrary to Hayek's anti-government "free enterprise" warnings, "slippery slope" to totalitarianism is not by socialist reforms limiting the rentier class's extraction of economic rent and interest, but just the opposite: the failure of society to check the rentier extraction of income vesting a hereditary autocracy whose financial and rent-seeking business plan impoverishes the economy at large. ..."
May 05, 2018 | www.newcoldwar.org

Originally appeared in Counterpunch

Text of Michael Hudson's speech on debt and the world economy, presented at Peking University's School of Marxist Studies, May 5-6, 2018.


Volumes II and III of Marx's Capital describe how debt grows exponentially, burdening the economy with carrying charges. This overhead is subjecting today's Western finance-capitalist economies to austerity, shrinking living standards and capital investment while increasing their cost of living and doing business. That is the main reason why they are losing their export markets and becoming de-industrialized.

What policies are best suited for China to avoid this neo-rentier disease while raising living standards in a fair and efficient low-cost economy? The most pressing policy challenge is to keep down the cost of housing. Rising housing prices mean larger and larger debts extracting interest out of the economy. The strongest way to prevent this is to tax away the rise in land prices, collecting the rental value for the government instead of letting it be pledged to the banks as mortgage interest.

The same logic applies to public collection of natural resource and monopoly rents. Failure to tax them away will enable banks to create debt against these rents, building financial and other rentier charges into the pricing of basic needs.

U.S. and European business schools are part of the problem, not part of the solution. They teach the tactics of asset stripping and how to replace industrial engineering with financial engineering, as if financialization creates wealth faster than the debt burden. Having rapidly pulled ahead over the past three decades, China must remain free of rentier ideology that imagines wealth to be created by debt-leveraged inflation of real-estate and financial asset prices.

Western capitalism has not turned out the way that Marx expected. He was optimistic in forecasting that industrial capitalists would gain control of government to free economies from unnecessary costs of production in the form of rent and interest that increase the cost of living (and hence, the break-even wage level). Along with most other economists of his day, he expected rentier income and the ownership of land, natural resources and banking to be taken out of the hands of the hereditary aristocracies that had held them since Europe's feudal epoch. Socialism was seen as the logical extension of classical political economy, whose main policy was to abolish rent paid to landlords and interest paid to banks and bondholders.

A century ago there was an almost universal belief in mixed economies. Governments were expected to tax away land rent and natural resource rent, regulate monopolies to bring prices in line with actual cost value, and create basic infrastructure with money created by their own treasury or central bank. Socializing land rent was the core of Physiocracy and the economics of Adam Smith, whose logic was refined by Alfred Marshall, Simon Patten and other bourgeois economists of the late 19th century. That was the path that European and American capitalism seemed to be following in the decades leading up to World War I. That logic sought to use the government to support industry instead of the landlord and financial classes.

China is progressing along this "mixed economy" road to socialism, but Western economies are suffering from a resurgence of the pre-capitalist rentier classes. Their slogan of "small government" means a shift in planning to finance, real estate and monopolies. This economic philosophy is reversing the logic of industrial capitalism, replacing public investment and subsidy with privatization and rent extraction. The Western economies' tax shift favoring finance and real estate is a case in point. It reverses John Stuart Mill's "Ricardian socialism" based on public collection of the land's rental value and the "unearned increment" of rising land prices.

Defining economic rent as the unnecessary margin of prices over intrinsic cost value, classical economists through Marx described rentiers as being economically parasitic, not productive. Rentiers do not "earn" their land rent, interest or monopoly rent, because it has no basis in real cost-value (ultimately reducible to labor costs). The political, fiscal and regulatory reforms that followed from this value and rent theory were an important factor leading to Marx's value theory and historical materialism. The political thrust of this theory explains why it is no longer being taught.

By the late 19th century the rentiers fought back, sponsoring reaction against the socialist implications of classical value and rent theory. In America, John Bates Clark denied that economic rent was unearned. He redefined it as payment for the landlords' labor and enterprise, not as accruing "in their sleep," as J. S. Mill had characterized it. Interest was depicted as payment for the "service" of lending productively, not as exploitation. Everyone's income and wealth was held to represent payment for their contribution to production. The thrust of this approach was epitomized by Milton Friedman's Chicago School claim that "there is no such thing as a free lunch" – in contrast to classical economics saying that feudalism's legacy of privatized land ownership, bank credit and monopolies was all about how to get a free lunch, by exploitation.

The other major reaction against classical and Marxist theory was English and Austrian "utility" theory. Focusing on consumer psychology instead of production costs, it claimed that there is no difference between value and price. A price is whatever consumers "choose" to pay for commodities, based on the "utility" that these provide – defined by circular reasoning as being equal to the price they pay. Producers are assumed to invest and produce goods to "satisfy consumer demand," as if consumers are the driving force of economies, not capitalists, property owners or financial managers.

Using junk-psychology, interest was portrayed as what bankers or bondholders "abstain" from consuming, lending their self-denial of spending to "impatient" consumers and "credit-worthy" entrepreneurs. This view opposed the idea of interest as a predatory charge levied by hereditary wealth and the privatized monopoly right to create bank credit. Marx quipped that in this view, the Rothschilds must be Europe's most self-depriving and abstaining family, not as suffering from wealth-addiction.

These theories that all income is earned and that consumers (the bourgeois term for wage-earners) instead of capitalists determine economic policy were a reaction against the classical value and rent theory that paved the way for Marx's analysis. After analyzing industrial business cycles in terms of under-consumption or over-production in Volume I of Capital, Volume III dealt with the precapitalist financial problem inherited from feudalism and the earlier "ancient" mode of production: the tendency of an economy's debts to grow by the "purely mathematical law" of compound interest.

Any rate of interest may be thought of as a doubling time. What doubles is not real growth, but the parasitic financial burden on this growth. The more the debt burden grows, the less income is left for spending on goods and services. More than any of his contemporaries, Marx emphasized the tendency for debt to grow exponentially, at compound interest, extracting more and more income from the economy at large as debts double and redouble, beyond the ability of debtors to pay. This slows investment in new means of production, because it shrinks domestic markets for output.

Marx explained that the credit system is external to the means of production. It existed in ancient times, feudal Europe, and has survived industrial capitalism to exist even in socialist economies. At issue in all these economic systems is how to prevent the growth of debt and its interest charge from shrinking economies. Marx believed that the natural thrust of industrial capitalism was to replace private banking and money creation with public money and credit. He distinguished interest-bearing debt under industrial capitalism as, for the first time, a means of financing capital investment. It thus was potentially productive by funding capital to produce a profit that was sufficient to pay off the debt.

Industrial banking was expected to finance industrial capital formation, as was occurring in Germany in Marx's day. Marx's examples of industrial balance sheets accordingly assumed debt. In contrast to Ricardo's analysis of capitalism's Armageddon resulting from rising land-rent, Marx expected capitalism to free itself from political dominance by the landlord class, as well as from the precapitalist legacy of usury.

This kind of classical free market viewed capitalism's historical role as being to free the economy from the overhead of unproductive "usury" debt, along with the problem of absentee landownership and private ownership of monopolies – what Lenin called the economy's "commanding heights" in the form of basic infrastructure. Governments would make industries competitive by providing basic needs freely or at least at much lower public prices than privatized economies could match.

This reform program of industrial capitalism was beginning to occur in Germany and the United States, but Marx recognized that such evolution would not be smooth and automatic. Managing economies in the interest of the wage earners who formed the majority of the population would require revolution where reactionary interests fought to prevent society from going beyond the "bourgeois socialism" that stopped short of nationalizing the land, monopolies and banking.

World War I untracked even this path of "bourgeois socialism." Rentier forces fought to prevent reform, and banks focused on lending against collateral already in place, not on financing new means of production. The result of this return to pre-industrial bank credit is that some 80 percent of bank lending in the United States and Britain now takes the form of real estate mortgages. The effect is to turn the land's rental yield into interest.

That rent-into-interest transformation gives bankers a strong motive to oppose taxing land rent, knowing that they will end up with whatever the tax collector relinquishes. Most of the remaining bank lending is concentrated in loans for corporate takeovers, mergers and acquisitions, and consumer loans. Corporate capital investment in today's West is not financed by bank credit, but almost entirely out of retained corporate earnings, and secondarily out of stock issues.

The stock market itself has become extractive. Corporate earnings are used for stock buybacks and higher dividend payouts, not for new tangible investment. This financial strategy was made explicit by Harvard Business School Professor Michael Jensen, who advocated that salaries and bonuses for corporate managers should be based on how much they can increase the price of their companies' stock, not on how much they increased or production and/or business size. Some 92 percent of corporate profits in recent years have been spent on stock buyback programs and dividend payouts. That leaves only about 8 percent available to be re-invested in new means of production and hiring. Corporate America's financial managers are turning financialized companies into debt-ridden corporate shells.

A major advantage of a government as chief banker and credit creator is that when debts come to outstrip the means to pay, the government can write down the debt. That is how China's banks have operated. It is a prerequisite for saving companies from bankruptcy and preventing their ownership from being transferred to foreigners, raiders or vultures.

Classical tax and banking policies were expected to streamline industrial economies, lowering their cost structures as governments replaced landlords as owner of the land and natural resources (as in China today) and creating their own money and credit. But despite Marx's understanding that this would have been the most logical way for industrial capitalism to evolve, finance capitalism has failed to fund capital formation. Finance capitalism has hijacked industrial capitalism, and neoliberalism is its anti-classical ideology.

The result of today's alliance of the Finance, Insurance and Real Estate (FIRE) sector with natural resource and infrastructure monopolies has been to reverse that the 20th century's reforms promoting progressive taxation of wealth and income. Industrial capitalism in the West has been detoured along the road to rent-extracting privatization, austerity and debt serfdom.

The result is a double-crisis: austerity stemming from debt deflation, while public health, communications, information technology, transportation and other basic infrastructure are privatized by corporate monopolies that raise prices charged to labor and industry. The debt crisis spans government debt (state and local as well as national), corporate debt, real estate mortgage debt and personal debt, causing austerity that shrinks the "real" economy as its assets and income are stripped away to service the exponentially growing debt overhead. The economy polarizes as income and wealth ownership are shifted to the neo-rentier alliance headed by the financial sector.

This veritable counter-revolution has inverted the classical concept of free markets. Instead of advocating a public role to lower the cost structure of business and labor, the neoliberal ideal excludes public infrastructure and government ownership of natural monopolies, not to speak of industrial production. Led by bank lobbyists, neoliberalism even opposes public regulation of finance and monopolies to keep their prices in line with socially necessary cost of production.

To defend this economic counter-revolution, the National Income and Product Accounts (NIPA) and Gross Domestic Product (GDP) measures now used throughout the world were inspired by opposition to progressive taxation and public ownership of land and banks. These statistical measures depicting finance, insurance and real estate as the leaders of wealth creation, not the creators merely of debt and rentier overhead.

What is China's "Real" GDP and "real wealth creation"?

Rejection of classical value theory's focus on economic rent – the excess of market price over intrinsic labor cost – underlies the post-classical concept of GDP. Classical rent theory warned against the FIRE sector siphoning off nominal growth in wealth and income. The economics of Adam Smith, David Ricardo, J.S. Mill and Marx share in common the view that this rentier revenue should be treated as an overhead charge and, as such, subtracted from national income and product because it is not production-related. Being extraneous to the production process, this rentier overhead is responsible for today's debt deflation and economically extractive privatization that is imposing austerity and shrinking markets from North America to Europe.

The West's debt crisis is aggravated by privatizing monopolies (on credit) that historically have belonged to the public sector. Instead of recognizing the virtues of a mixed economy, Frederick Hayek and his followers from Ayn Rand to Margaret Thatcher, Ronald Reagan, the Chicago School and libertarian Republicans have claimed that any public ownership or regulation is, ipso facto, a step toward totalitarian politics.

Following this ideology, Alan Greenspan aborted economic regulation and decriminalized financial fraud. He believed that in principle, the massive bank fraud, junk-mortgage lending and corporate raiding that led up to the 2008 crisis was more efficient than regulating such activities or prosecuting fraudsters.

This is the neoliberal ideology taught in U.S. and European business schools. It assumes that whatever increases financial wealth most quickly is the most efficient for society as a whole. It also assumes that bankers will find honest dealing to be more in their economic self-interest than fraud, because customers would shun fraudulent bankers. But along with the mathematics of compound interest, the inherent dynamic of finance capitalism is to establish a monopoly and capture government regulatory agencies, the justice system, central bank and Treasury to prevent any alternative policy and the prosecution of fraud.

The aim is to get rich by purely financial means – by increasing stock-market prices, not by tangible capital formation. That is the opposite of the industrial logic of expanding the economy and its markets. Instead of creating a more productive economy and raising living standards, finance capitalism is imposing austerity by diverting wage income and also corporate income to pay rising debt service, health insurance and payments to privatized monopolies. Progressive income and wealth taxation has been reversed, siphoning off wages to subsidize privatization by the rentier class.

This combination of debt overgrowth and regressive fiscal policy has produced two results. First, combining debt deflation with fiscal deflation leaves only about a third of wage income available to be spent on the products of labor. Paying interest, rents and taxes – and monopoly prices – shrinks the domestic market for goods and services.

Second, adding debt service, monopoly prices and a tax shift to the cost of living and doing business renders neo-rentier economies high-cost. That is why the U.S. economy has been deindustrialized and its Midwest turned into a Rust Belt.

How Marx's economic schema explains the West's neo-rentier problem

In Volume I of Capital, Marx described the dynamics and "law of motion" of industrial capitalism and its periodic crises. The basic internal contradiction that capitalism has to solve is the inability of wage earners to be paid enough to buy the commodities they produce. This has been called overproduction or underconsumption, but Marx believed that the problem was in principle only temporary, not permanent.

Volumes II and III of Marx's Capital described a pre-capitalist form of crisis, independent of the industrial economy: Debt grows exponentially, burdening the economy and finally bringing its expansion to an end with a financial crash. That descent into bankruptcy, foreclosure and the transfer of property from debtors to creditors is the dynamic of Western finance capitalism. Subjecting economies to austerity, economic shrinkage, emigration, shorter life spans and hence depopulation, it is at the root of the 2008 debt legacy and the fate of the Baltic states, Ireland, Greece and the rest of southern Europe, as it was earlier the financial dynamic of Third World countries in the 1960s through 1990s under IMF austerity programs. When public policy is turned over to creditors, they use their power for is asset stripping, insisting that all debts must be paid without regard for how this destroys the economy at large.

China has managed to avoid this dynamic. But to the extent that it sends its students to study in U.S. and European business schools, they are taught the tactics of asset stripping instead of capital formation – how to be extractive, not productive. They are taught that privatization is more desirable than public ownership, and that financialization creates wealth faster than it creates a debt burden. The product of such education therefore is not knowledge but ignorance and a distortion of good policy analysis. Baltic austerity is applauded as the "Baltic Miracle," not as demographic collapse and economic shrinkage.

The experience of post-Soviet economies when neoliberals were given a free hand after 1991 provides an object lesson. Much the same fate has befallen Greece, along with the rising indebtedness of other economies to foreign bondholders and to their own rentier class operating out of capital-flight centers. Economies are obliged to suspend democratic government policy in favor of emergency creditor control.

The slow economic crash and debt deflation of these economies is depicted as a result of "market choice." It turns out to be a "choice" for economic stagnation. All this is rationalized by the economic theory taught in Western economics departments and business schools. Such education is an indoctrination in stupidity – the kind of tunnel vision that Thorstein Veblen called the "trained incapacity" to understand how economies really work.

Most private fortunes in the West have stemmed from housing and other real estate financed by debt. Until the 2008 crisis the magnitude of this property wealth was expanded largely by asset-price inflation, aggravated by the reluctance of governments to do what Adams Smith, John Stuart Mill, Alfred Marshall and nearly all 19th-century classical economists recommended: to keep land rent out of private hands, and to make the rise in land's rental value serve as the tax base.

Failure to tax the land leaves its rental value "free" to be pledged as interest to banks – which make larger and larger loans by lending against rising debt ratios. This "easy credit" raises the price of obtaining home ownership. Sellers celebrate the result as "wealth creation," and the mainstream media depict the middle class as growing richer by higher prices for the homes its members have bought. But the debt-financed rise in housing prices ultimately creates wealth mainly for banks and their bondholders.

Americans now have to pay up to 43 percent of their income for mortgage debt service, federally guaranteed. This imposes such high costs for home ownership that it is pricing the products of U.S. labor out of world markets. The pretense is that using bank credit (that is, homebuyers' mortgage debt) to inflate the price of housing makes U.S. workers and the middle class prosperous by enabling them to sell their homes to a new generation of buyers at higher and higher prices each generation. This certainly does not make the buyers more prosperous. It diverts their income away from buying the products of labor to pay interest to banks for housing prices inflated on bank credit.

Consumer spending throughout most of the world aims above all at achieving status. In the West this status rests largely on one's home and neighborhood, its schools, transportation and other public investment. Land-price gains resulting from public investment in transportation, parks and schools, other urban amenities and infrastructure, and from re-zoning land use. In the West this rising rental value is turned into a cost, falling on homebuyers, who must borrow more from the banks. The result is that public spending ultimately enriches the banks – at the tax collector's expense.

Debt is the great threat to modern China's development. Burdening economies with a rentier overhead imposes the quasi-feudal charges from which classical 19th-century economists hoped to free industrial capitalism. The best protection against this rentier burden is simple: first, tax away the land's rising rental valuation to prevent it from being paid out for bank loans; and second, keep control of banks in public hands. Credit is necessary, but should be directed productively and debts written down when paying them threatens to create financial Armageddon.

Marx's views on the broad dynamics of economic history

Plato and Aristotle described a grand pattern of history. In their minds, this pattern was eternally recurrent. Looking over three centuries of Greek experience, Aristotle found a perpetual triangular sequence of democracy turning into oligarchy, whose members made themselves into a hereditary aristocracy – and then some families sought to take the demos into their own camp by sponsoring democracy, which in turn led to wealthy families replacing it with an oligarchy, and so on.

The medieval Islamic philosopher Ibn Khaldun saw history as a rise and fall. Societies rose to prosperity and power when leaders mobilized the ethic of mutual aid to gain broad support as a communal spirit raised all members. But prosperity tended to breed selfishness, especially in ruling dynasties, which Ibn Khaldun thought had a life cycle of only about 120 years. By the 19th century, Scottish Enlightenment philosophers elaborated this rise-and-fall theory, applying it to regimes whose success bred arrogance and oligarchy.

Marx saw the long sweep of history as following a steady upward secular trend, from the ancient slavery-and-usury mode of production through feudalism to industrial capitalism. And not only Marx but nearly all 19th-century classical economists assumed that socialism in one form or another would be the stage following industrial capitalism in this upward technological and economic trajectory.

Instead, Western industrial capitalism turned into finance capitalism. In Aristotelian terms the shift was from proto-democracy to oligarchy. Instead of freeing industrial capitalism from landlords, natural resource owners and monopolists, Western banks and bondholders joined forces with them, seeing them as major customers for as much interest-bearing credit as would absorb the economic rent that governments would refrain from taxing. Their success has enabled banks and bondholders to replace landlords as the major rentier class. Antithetical to socialism, this retrogression towards feudal rentier privilege let real estate, financial interests and monopolists exploit the economy by creating an expanding debt wedge.

Marx's Theories of Surplus Value (German Mehrwert), his history of classical political economy, poked fun at David Ricardo's warning of economic Armageddon if economies let landlords siphon off of all industrial profits to pay land rent. Profits and hence capital investment would grind to a halt. But as matters have turned out, Ricardo's rentier Armageddon is being created by his own banking class. Corporate profits are being devoured by interest payments for corporate takeover debts and related financial charges to reward bondholders and raiders, and by financial engineering using stock buybacks and higher dividend payouts to create "capital" gains at the expense of tangible capital formation. Profits also are reduced by firms having to pay higher wages to cover the cost of debt-financed housing, education and other basic expenses for workers.

This financial dynamic has hijacked industrial capitalism. It is leading economies to polarize and ultimately collapse under the weight of their debt burden. That is the inherent dynamic of finance capitalism. The debt overhead leads to a financial crisis that becomes an opportunity to impose emergency rule to replace democratic lawmaking. So contrary to Hayek's anti-government "free enterprise" warnings, "slippery slope" to totalitarianism is not by socialist reforms limiting the rentier class's extraction of economic rent and interest, but just the opposite: the failure of society to check the rentier extraction of income vesting a hereditary autocracy whose financial and rent-seeking business plan impoverishes the economy at large.

Greece's debt crisis has all but abolished its democracy as foreign creditors have taken control, superseding the authority of elected officials. From New York City's bankruptcy to Puerto Rico's insolvency and Third World debtors subjected to IMF "austerity programs," national bankruptcies shift control to centralized financial planners in what Naomi Klein has called Crisis Capitalism. Planning ends up centralized not in the hands of elected government but in financial centers, which become the de facto government.

England and America set their economic path on this road under Margaret Thatcher and Ronald Reagan by 1980. They were followed by even more pro-financial privatization leaders in Tony Blair's New Labour Party and Bill Clinton's New Democrats seeking to roll back a century of classical reforms and policies that gradually were moving capitalism toward socialism. Instead, these countries are suffering a rollback to neofeudalism, whose neo-rentiereconomic and political ideology has become mainstream throughout the West. Despite seeing that this policy has led to North America and Europe losing their former economic lead, the financial power elite is simply taking its money and running.

So we are brought back to the question of what this means for China's educational policy and also how it depicts economic statistics to distinguish between wealth and overhead. The great advantage of such a distinction is to help steer economic growth along productive lines favoring tangible capital formation instead of policies to get rich by taking on more and more debt and by prying property away from the public domain.

If China's main social objective is to increase real output to raise living standards for its population – while minimizing unproductive overhead and economic inequality – then it is time to consider developing its own accounting format to trace its progress (or shortcomings) along these lines. Measuring how its income and wealth are being obtained would track how the economy is moving closer toward what Marx called socialism.

Of special importance, such an accounting format would revive Marx's classical distinction between earned and unearned income. Its statistics would show how much of the rise in wealth (and expenditure) in China – or any other nation – is a result of new tangible capital formation as compared to higher rents, lending and interest, or the stock market.

These statistics would isolate income and fortunes obtained by zero-sum transfer payments such as the rising rental value of land sites, natural resources and basic infrastructure monopolies. National accounts also would trace overhead charges for interest and related financial charges, as well as the economy's evolving credit and debt structure. That would enable China to measure the economic effects of the banking privileges and other property rights given to some people.

That is not the aim of Western national income statistics. In fact, applying the accounting structure described above would track how Western economies are polarizing as a result of their higher economic rent and interest payments crowding out spending on actual goods and services. This kind of contrast would help explain global trends in pricing and competitiveness. Distinguishing the FIRE sector from the rest of the economy would enable China to compare its economic cost trends and overhead relative to those of other nations. I believe that these statistics would show that its progress toward socialism also will explain the remarkable economic advantage it has obtained. If China does indeed make this change, it will help people both in and out of China see even more clearly what your government is doing on behalf of the majority of its people. This may help other governments – including my own – learn from your example and praise it instead of fearing it.

[Aug 25, 2018] Kunstler -- The Financialization Rackets That Replaced The Real Economy Have Come Unglued

Aug 24, 2018 | www.zerohedge.com

Authored by James Howard Kunstler via Kunstler.com,

The Dogs Of Vengeance

History has a velocity of its own, and its implacable forces will drag the good, the bad, the clueless, the clever, the guilty, the innocent, the avid, and the unwilling to a certain fate. One can easily see a convergence of vectors shoving the nation toward political criticality this autumn.

Mr. Trump is like some unfortunate dumb brute of the ancient Teutonic forests with a bulldog clamped to his nose, the rest of the pack close behind snapping at his hamstrings and soft, swaying underbelly. His desperate bellowing goes unanswered by the indifference of the trees in forest, the cold moon above, and all the other furnishings of his tragic reality.

As these things tend to happen, it looks like the exertions of Robert Mueller have turned from the alleged grave offenses of a foreign enemy to the sequela of consort with a floozie. Down goes Mr. Trump's private attorney, Michael Cohen, in his personal swamp of incriminating files and audio recordings. Enter, stage left, one David Pecker, publisher of the venerable National Enquirer -- the newspaper of wreckage -- on his slime-trail of induced testimony. And there is your impeachable offense: an illegal campaign contribution.

ne way or another , as Blondie used to sing, I'm gonna getcha, getcha, getcha .

Some in this greatest of all possible republics may be asking themselves if this is quite fair play, given the hundreds of millions of dollars washed-and-rinsed through the laundromat known as the Clinton Foundation, and related suspicious doings in that camp of darkness. But remember, another president, Jimmy Carter, once declared to the shock of official Washington that "life is unfair."

What I wonder is what these dogs of vengeance reckon will happen when they achieve their goal of bringing down the bellowing bull and pulling his guts out. Perhaps a few moments of tribal satisfaction, one last war dance around the fire, and when the fire dies out, they will find themselves under the same cold indifferent moon with blood on their snouts and an ill wind blowing in the tree tops.

After two years of fomenting hysteria, the "winners" will discern the reality behind all the melodrama: the financialization rackets that replaced what used to be the economy have come unglued, and institutions begin to fail left and right : banks, pension funds, corporations, state and municipal governments, federal promises to pay this and that, and, in general, the ability of the USA to carry on anything approximating what might be considered normal life.

It will be interesting to see how the impeachment of Donald Trump plays as all this goes down. My guess is that the people warning about a second civil war are not far off the mark. The final consequence of a political-economy based on the proposition that anything goes and nothing matters will be the rueful discovery that consequences actually exist, and consequently that anything can't go and some things really do matter: like whether or not money is actually worth what it says it's worth.

That issue will surely be determined by whether the borrowers of money can possibly pay back what they owe. The discovery that it's impossible will coincide with whatever the legal fate of Donald Trump's presidency might be. The result of all this is apt to be a political nightmare of bankruptcy and bloodshed that makes the first civil war (1861-1865) look like a tale of knighthood in flower.

Our national living arrangements are far too fragile. The players on both sides of this dire game must assume that the trappings of American life are sturdy, and they are quite wrong about that. Personalities are not in control anymore. Murphy's law rules, and we're about to find out how that law differs from the federal election statutes and the humdrum business of indicting ham sandwiches just because they're out there on the table.

[Aug 25, 2018] The warmonger's response to negotiation by Manlio Dinucci

Neocon Thomas Friedman is a typical chichenhawk. His opinion does not matter much -- this is a paid work of a lobbyist for military industrial complex
But the idea that interests of "real manufactures" and financial industry are no longer aligned is valid.
Notable quotes:
"... The conflict between transnational financial capitalism and productive national capitalism has entered into a paroxystic phase. On one side, Presidents Trump and Putin are negotiating the joint defence of their national interests. On the other, the major daily newspaper for the US and the world is accusing the US President of high treason, while the armed forces of the US and NATO are preparing for war with Russia and China. ..."
Jul 26, 2018 | www.voltairenet.org

The conflict between transnational financial capitalism and productive national capitalism has entered into a paroxystic phase. On one side, Presidents Trump and Putin are negotiating the joint defence of their national interests. On the other, the major daily newspaper for the US and the world is accusing the US President of high treason, while the armed forces of the US and NATO are preparing for war with Russia and China.

"You have attacked our democracy. Your well-worn gamblers' denials do not interest us. If you continue with this attitude, we will consider it an act of war." This is what Trump should have said to Putin at the Helsinki Summit, in the opinion of famous New York Times editorialist Thomas Friedman, published in La Repubblica . He went on to accuse the Russian President of having "attacked NATO, a fundamental pillar of international security, destabilised Europe, and bombed thousands of Syrian refugees, causing them to seek refuge in Europe."

He then accused the President of the United States of having " repudiated his oath on the Constitution " and of being an " asset of Russian Intelligence " or at least playing at being one.

What Friedman expressed in these provocative terms corresponds to the position of a powerful internal and international front (of which the New York Times is an important mouthpiece) opposed to USA-Russia negotiations, which should continue with the invitation of Putin to the White House. But there is a substantial difference.

While the negotiations have not yet borne fruit, opposition to the negotiations has been expressed not only in words, but especially in facts.

Cancelling out the climate of détente at the Helsinki Summit, the planetary warmongering system of the United States is in the process of intensifying the preparations for a war reaching from the Atlantic to the Pacific:

The exercise – in which France, Germany and the United Kingdom are also participating – is clearly directed against China, which Admiral Phil Davidson, commander of USINDOPACOM, defines as a "major rival power which is eroding the international order in order to reduce the access of the USA to the region and thus become hegemonic."

When Trump meets Chinese President Xi Jinping, Friedman will no doubt accuse him of connivance not only with the Russian enemy, but also with the Chinese enemy.

[Aug 15, 2018] Talking Turkey: In essence this is an emerging market financial crisis, much like the 1997-98 Asian Financial Crisis

Notable quotes:
"... So why should you care? Why does that matter to you or me? Well, like most emerging market financial crisis there is the danger of contagion . ..."
"... Turkey's economy is four times the size of Greece, and roughly equal in size to Lehman Brothers circa 2008. ..."
"... Turkey's other borders face six nations: Georgia, Iran, Iraq, Syria, Armenia, and Nakhchivan, a territory affiliated with Azerbaijan. Five of those are involved in ongoing armed conflicts or outright war. ..."
"... NATO has long outlived its' usefulness. Cancel its' stipend and bring our soldiers, marines, sailors and airmen and women home! Put them to work here. Fighting fires. ..."
"... NATO only seems to be useful to the hegemony that supports it. Peace is not it's mission. ..."
Aug 15, 2018 | caucus99percent.com

gjohnsit on Tue, 08/14/2018 - 3:46pm

By now you've probably heard that Turkey is having a financial crisis, and Trump appears to be pouring gasoline on it.
But you may not understand what is happening, or you may not know why it's important.
So let's do a quick recap .

Turkey's currency fell to a new record low today. Year to date it's lost almost half its value, leading some investors and lenders inside and outside of Turkey to lose confidence in the Turkish economy.
...
"Ninety percent of external public and private sector debt is denominated in foreign currencies," he said.

Here's the problem. Because of the country's falling currency, that debt just got a lot more expensive.
A Turkish business now effectively owes twice as much as it did at the beginning of the year. "You are indebted in the U.S. dollar or euro, but your revenue is in your local currency," explained Lale Akoner, a market strategist with Bank of New York Mellon's Asset Management business. She said Turkey's private sector currently owes around $240 billion in foreign debt.

In essence this is an emerging market financial crisis, much like the 1997-98 Asian Financial Crisis.

This is all about hot money that has been washing around in a world of artificially low interest rates, and now, finally, an external shock happened. As it always happens .

The bid-ask spread, or the difference between the price dealers are willing to buy and sell the lira at, has widened beyond the gap seen at the depth of the global financial crisis in 2008, following Lehman Brothers Holdings Inc.'s collapse.

So why should you care? Why does that matter to you or me? Well, like most emerging market financial crisis there is the danger of contagion .

The turmoil follows a similar currency crash in Argentina that led to a rescue by the International Monetary Fund. In recent days, the Russian ruble, Indian rupee and South African rand have also tumbled dramatically.

Investors are waiting for the next domino to fall. They're on the lookout for signs of a repeat of the 1997-1998 Asian financial crisis that began when the Thai baht imploded.

A minor currency devaluation of the Thai baht in 1997 eventually led to 20% of the world's population being thrust into poverty. It led to Russia defaulting in 1998, LTCM requiring a Federal Reserve bailout, and eventually Argentina defaulting in 2001.

Turkey's economy is four times the size of Greece, and roughly equal in size to Lehman Brothers circa 2008.

The markets want Turkey to run to the IMF for a loan, but that would require a huge interest rate hike and austerity measures that would thrust Turkey into a long depression. However, that isn't the biggest obstacle .

The second is that Erdogan would have to bury his hatchet with the United States, which remains the IMF's largest shareholder. Without U.S. support, Turkey has no chance of securing an IMF bailout program.

There is another danger, a political one and not so much an economic one, that could have dramatic implications.
If Erdogan isn't overthrown, or humbled, then there is an ironclad certainty that Turkey will leave NATO and the West.

Turkey, unlike Argentina, does not seem poised to turn to the International Monetary Fund in order to stave off financial collapse, nor to mend relations with Washington.

If anything, the Turkish President looks to be doubling down in challenging the US and the global financial markets -- two formidable opponents.
...
Turkey would probably no longer view the US as a reliable partner and strategic ally. Whoever ends up leading the country, a wounded Turkey would most likely seek to shift the center of gravity away from the West and toward Russia, Iran and Eurasia.

It would make Turkey less in tune with US and European objectives in the Middle East, meaning Turkey would seek to assert a more independent security and defense policy.

Erdogan has warned Trump that Turkey would "seek new friends" , although Russia and China haven't yet stepped up to the plate to bat for him.
Russia, Iran and China do have a common interest when in comes to undermining the petrodollar . Pulling Turkey into their sphere of influence would be a coup.

Turkey lies at a historic, strategic crossroad. The bridge between the peaceful West and the war-ridden dictatorships of the East that the West likes to bomb.

On its Western flank, Turkey borders Greece and Bulgaria, Western-facing members of the European Union. A few years ago, Turkey -- a member of NATO -- was preparing the join Europe as a full member.

Turkey's other borders face six nations: Georgia, Iran, Iraq, Syria, Armenia, and Nakhchivan, a territory affiliated with Azerbaijan. Five of those are involved in ongoing armed conflicts or outright war.

Losing Turkey would be a huge setback for NATO, the MIC, and the permanent war machine.

QMS on Tue, 08/14/2018 - 4:59pm

IMF = Poison

more struggling economies are starting to get it. Trade wealth for the rulers (IMF supporters) to be paid by the rest of us. Fight back. Squeeze the bankers balls. Can't have our resources, now way, no how, without a fight.

enhydra lutris on Tue, 08/14/2018 - 6:26pm
Can the BRICS get by without Brazil, perhaps by pulling

in a flailing Turkey? Weren't there some outside potential takers encouraging China when it floated its currency proposal?

Nastarana on Tue, 08/14/2018 - 8:41pm
NATO has long outlived its' usefulness. Cancel its' stipend and bring our soldiers, marines, sailors and airmen and women home! Put them to work here. Fighting fires.

Patrolling our shores for drug running and toxic dumping. Teaching school, 10 kids per class maximum. Refurbishing buildings and housing stock. Post Cold War, an military alliance with Turkey makes no sense.

QMS on Tue, 08/14/2018 - 9:22pm
NATO only seems to be useful to the hegemony that supports it. Peace is not it's mission.

[Aug 13, 2018] Social Unrest Breaks Out In China After Panic Bank Run On Peer-2-Peer Lenders

Aug 13, 2018 | www.zerohedge.com

Social Unrest Breaks Out In China After "Panic" Bank Run On Peer-2-Peer Lenders

by Tyler Durden Sun, 08/12/2018 - 16:29 233 SHARES

One week ago, when discussing the " source of China's next debt crisis ", namely the recent explosion in Chinese household debt which over the past year has soared by over 40% even as credit growth across other debt categories remained relatively stable...

... and which was on the verge of surpassing the nation's corporations as the biggest source of credit demand, we highlighted the one financial sector that has recently emerged as most at risk in China's economy: online peer-to-peer lenders who collect money from retail investors and dispense small loans to consumers, usually without collateral, putting the loans at risk of a default with zero recovery.

We pointed out that outstanding loans on P2P platforms rose 50% just last year to total Rmb1.49 trillion ($215 billion) - making the size of China's P2P industry far bigger than in the rest of the world combined - and due to their lack of collateral, interest rates often are as high as 37%, with additional charges for late payment.

P2P, in which platforms gather funds from retail investors and loan the money to small corporate and individual borrowers, promising high returns, started to flourish nearly unregulated in China in 2011. At its peak in 2015, there were about 3,500 such businesses.

But after Beijing launched a campaign several years ago to defuse debt bubbles and reduce risks in the economy (a campaign which recently reversed once the Trump trade war started getting hot), including the country's enormous non-bank lending sector, cracks began to appear as investors pulled their funds.

As a result, the peer-to-peer lending channel not only got clogged up, but went in reverse. In a recent article, the WSJ reported that a string of Chinese internet lenders have already shut their doors in recent weeks, stranding investors as the economy slows and regulators tighten controls over an unruly side of the fintech sector.

Across China, more than 200 internet-based fund managers since late June have either shut down, closed parts of their operations or are reeling from cash crunches, missing executives and other problems, according to industry tracker Wangdaizhijia.

The tide began to turn even more forcefully against the sector ahead of a late June deadline for new stringent registration regulations. With a slowing economy making it difficult for some companies to pay back loans, many lenders decided to simply shut down. Meanwhile, investors, already souring on the sector, began pulling out funds, further pinching the lending platforms, and as Reuters reports , since June, 243 online lending platforms have gone bust, according to wdzj.com, a P2P industry data provider. In that period, the industry saw its first monthly net fund outflows since at least 2014.

And, as we noted last week, it was only a matter of time before social unrest spread as Chinese investors who had funded these usually small, unregulated P2P operations, found they had lost all their money demanding a bail out.

That's precisely what happened... except for one thing: Beijing was already one step ahead of the protesters.

Take the case of Peter Wang: as Reuters reports , Wang was asleep at his home in Beijing last Monday when police officers arrived before dawn to detain him, saying he had helped organize a protest planned for later that day. Peter wasn't alone, and across Beijing, others who had lost money investing in China's online peer-to-peer (P2P) lending platforms - including some who had traveled from half way across the country - got similar visits from police.

A police officer gestures at the photographer as security patrol outside the headquarters of China's banking regulator, to prevent planned protests by investors who lost money from collapsed peer-to-peer (P2P) online lending platforms

Why the crackdown?

Because by the time they were released, the demonstration they had planned using social media chat groups had fizzled amid a massive security response around the China Banking and Insurance Regulatory Commission (CBIRC) headquarters in the heart of Beijing's financial district. Those protesters who did show up were in for a surprise: instead of demanding that the government bail out the hundreds of collapsed P2P companies, they were forced onto buses and carted away to Jiujingzhuang, a holding center for petitioners on the outskirts of Beijing, according to two Reuters sources.

"Once the police checked your ID cards and saw your petition materials, they knew you are here looking to protect your rights. Then they put you on a bus directly," said Wang, who works at an auto repair shop, and who is a perfect representative of China's prevailing ideology that a government bailout of any investment is a fundamental "right."

Wang did not give up and after his detention he joined a separate, smaller protest in a different part of Beijing. "There was no channel to solve any problems. All they care about was preventing any disturbance."

* * *

The latest burst of anger, which led to the planned protests, flared up ahead of a June 30 deadline for companies to comply with new business practice standards, which are still being finalised, and as noted above, many P2Ps shut down rather than face tougher regulations, Zane Wang, chief executive of online micro-loan provider China Rapid Finance told Reuters.

That caused panic in the broader market. Investors tried to pull funds from P2P companies, causing liquidity problems for many smaller operators, Wang said, although larger ones are faring better. "Some platforms might become a winner out of this, and some platforms, probably a large portion of the platforms, might not be able to make it," he said.

Naturally, to avoid an even bigger panic, no mainland Chinese media - official mainstream papers or more independent-leaning publications - reported the attempts to protest in China's capital. The media blackout took place as China's propaganda machine swung into action as Beijing sought "to reassure people that the Chinese economy and financial markets are healthy" despite a trade war with the United States and steep declines in the value of stock prices and the yuan.

As part of the government's crackdown, many would-be protesters " were forced to give fingerprints and blood samples and prevented from traveling to Beijing. Some were even removed from Beijing-bound trains ahead of the protests, said a Shanghai-based P2P investor who lost 1.3 million yuan ." She declined to be named out of fear for her safety.

What is surprising, is just how worried about the prospect of widespread social unrest Beijing was: even after the demonstrations were effectively snuffed out, hundreds of security personnel patrolled around CBIRC's office, "highlighting authorities' sensitivity to any form of social instability" according to Reuters.

It has reason to be worried: on Sunday, Xinhua reported that the government has proposed 10 measures to reduce risk in the P2P sector, including a strict ban on new P2P companies and online finance platforms, and a blacklist under China's social credit rating system for those who don't repay their loans. This means that P2P investors will soon suffer tens of billions in more losses (although it may well end up being good news for those who borrowed money from the insolvent P2Ps as there will be nobody left to collect).

* * *

This is not the first time China was burned on P2P platforms, which traditionally lend to customers that might be deemed too risky for a commercial bank, which has resulted in liquidity crises when too many investors demand their funds at once if loans appear to be going south.

The most famous case of P2P fraud is Ezubao - a $7.6 billion Ponzi scam involving more than 900,000 investors - which we described in early 2016 , and which led to a similar forceful government crackdown after the public demanded a full bailout. While none has come close to the scale of Ezubao's collapse, there are currently more than 100 publicly listed Chinese companies that are involved in P2P, and 32 of those own more than 30% of a P2P company, according to a July research report by CITIC Securities.

Exacerbating the problems facing the P2P industry, China extended by two years a separate June 30 deadline for an online finance clean-up campaign. But rather than calming matters, it created more uncertainty, market watchers said as CITIC Securities estimated that - under the campaign - only about 100 platforms out of 1,836 would be able to meet even today's regulatory standards and obtain a license. Less than 50 would thrive.

This would amount to hundreds of billions in investor losses, and not even an army could prevent the social outcry that would result.

Meanwhile, the market is starting to price in the worst, and shares of some of the Chinese P2P companies listed in the U.S. have plunged. China Rapid Finance shares have lost 73% in 2018, while Yirendai slumped 71%. PPDai dropped 44%, and Hexindai is down 27%.

And as if to ensure that the peer-2-peer bank run in China gets worse, Tang Ning, founder and chief executive officer of CreditEase, the majority owner of P2P lending platform Yirendai, told Reuters that he was concerned that the "industry-wide panic" would escalate .

He urged regulators to "act with a sense of urgency" to protect good P2P companies while punishing bad players to avoid harming China's financial system and economy.

"Otherwise, it will be 'winter' for the industry. All companies will be hit, both illicit and compliant. Everyone will lose and that's a situation no one wants to see," said Tang. "Small businesses will lose an important, or the most important source of funding. That's not only hurting the financial system but also the real economy."

As for individual investors such as the abovementioned Peter Wan - who was so sure it is his "right" to be bailed out by the government - the pain is acute. He and his family had invested 7 million yuan - their life savings, with which they had planned to use to buy a home at the end of the year - in two P2P platforms that have shut down.

"They recovered none of their investment."

[Aug 10, 2018] On Contact: Casino Capitalism with Natasha Dow Schull

Highly recommended!
This is kind of symbolic and amazing figures: 34 billions are spend in casinos each year. and that's just official figure...
Notable quotes:
"... Casinos and Gambling are a tax on the ignorant and the indigent. ..."
"... Economist, Michael Hudson recently said in an interview that economics trumps politics every time. I am an observer of casinos and gambling in it's many forms. I am someone who has been fleeced by vulture capitalists and unscrupulous financial types as well as government officials in charge of business financial assistance schemes that don't deliver. ..."
"... Another version of how ''Brave New World'' has come to pass. The documentaries: ''The Century of the Self'' and ''HyperNormalisation 2016'' by Adam Curtis explain how we have been subdued. This lady professor is very knowledgable. Excellent episode. ..."
"... Completing the circle of predatory capitalism. Government controlled by oligarchy/plutoracry that see us, the citizens, as enemies of the state. ..."
Mar 25, 2017 | www.youtube.com

On this week's episode of On Contact, Chris Hedges discusses the ramifications of casino culture in America with Professor Natasha Dow Schüll, author of " Addiction by Design: Machine Gambling in Las Vegas". RT Correspondent Anya Parampil examines how gambling has become our premier form of entertainment and escape.


gre999999man , 1 year ago

Casinos and Gambling are a tax on the ignorant and the indigent.

Gerald Comeau , 1 year ago (edited)

Economist, Michael Hudson recently said in an interview that economics trumps politics every time. I am an observer of casinos and gambling in it's many forms. I am someone who has been fleeced by vulture capitalists and unscrupulous financial types as well as government officials in charge of business financial assistance schemes that don't deliver.

Often the two ie the vultures and the government officials work in tandem.

I have extreme distaste for these zombies and an always on the alert. I am bowled over with how an overwhelming number of people in society are scammed day in and day out and having their lives ruined. I fear it will shatter life as we know it not for individuals only but for whole nations. People must pay more attention to attention to what this video says and what Michael Hudson explains in his books .....Killing the Host and Junk Economics are his most recent ones.

PleaseStayTuned , 1 year ago

I liked what she had to say, but I wonder why she didn't go a bit deeper into the operant conditioning aspect considering that's what Skinner's work was based on. Why intermittent rewards work so well, and why the dopamine spike curve is so important in conditioning a behavior in anything with a limbic system. Important because understanding how dopamine and dopamine spikes work came largely from gambling research for slot machines. Technology that was built on Skinner's work by the gov and then business marketing along with gov propaganda, then gambling. If people understood how it worked and where the technology came from they would be much less likely to let gambling addiction happen in the first place.

Darren Swift , 1 year ago

I come from a family of gamblers, at least on my father's side. My dad towed us around to the racetracks and billiards parlors until we were old enough to drive, and card games for money were a frequent family activity for us. I never felt attracted to gambling, and often feel bored by the prospect. Needless to say, with advanced age I now find myself estranged from my remaining siblings. What had occurred to me some time ago is how living life is such a gamble. Outcomes can always vary, from planning and preparing for a career to going to the market for groceries. Games of chance seem to furnish a microcosm of the life experience, where participants are allowed an illusion of greater control and the outcomes tend to be uniformly immediate. It also allows you to ignore your greater life experience. Maybe that's the "zone" so many enjoy. I didn't remember what "March Madness" is. Until all those slots were shown I thought they were talking about something similar to Black Friday. Now that I remember, it hits me that my brother and sister undoubtedly have their bets down in multiple pools.

John E , 1 year ago

Another version of how ''Brave New World'' has come to pass. The documentaries: ''The Century of the Self'' and ''HyperNormalisation 2016'' by Adam Curtis explain how we have been subdued. This lady professor is very knowledgable. Excellent episode.

writernthesky , 1 year ago

And casinos have no windows so that it's difficult to track the time.

Richard Burt , 6 months ago

Skinner on slot machine as metaphor for the Skinner box! incredible.

Joe M , 1 year ago

Completing the circle of predatory capitalism. Government controlled by oligarchy/plutoracry that see us, the citizens, as enemies of the state.

Patricia MacLeod , 1 month ago

23:50 right on. We selfie generation are too busy trolling the media and playing games to think, meditate, analyze, understand and act for our fellow man or a healthier future for our country. It's all about me and my short-term gratifications.

starmanskye , 1 year ago

Casino-Disasterism Capitalism is well named -- All of the engineered mechano-psychological traits used to make longshot escapist-gambling popular, lucrative and addicting, based on the faux-goals of numb indulgence, cultivating of cheap-thrill delights, pandering to the conceits of synthetic wastrel satisfactions and dead-end fatalism -- is evident in the terminal phase of the global corporate deepstate technoracy of Empire Inc. that is pillaging and plundering its way across the planet, securitizing the earth right out from under our feet! ~ ; )

Mechyuda , 1 year ago

Professor Natasha Dow Schüll said Trump won the presidential election, because Trump used his casino expertise to manipulate voters. Based on the news I've seen, Trump was a failed casino owner. Trump is a con-artist who uses his massive inheritance, multiple bankruptcies, privatized large gains, socialized larger losses, and sales hype in order "to win". Trump, Obama, and Bush Jr. are good examples of how the average person lacks the talent, training, and experience to manage his/her own nation. Democracy, majority tyranny, mob rule, or dumb-mock-crazy elections are modern myths.

inessa armand , 1 year ago

The Clinton era, signified so much. Basically, in regard to this aspect, the very ending of any culture whatsoever; gambling casinos took over our down-towns, and our oldest landmarks. I went in once and saw those carpets and nearly puked. Now she tells why they are so ugly. Why any human being would find that appealing reminds me of Kissinger's infamous quote: "We've successfully made the public so dumb, I cannot die. For there is no one to replace me.."

[Aug 10, 2018] When> people use the term Jews they typically mean Financial oligachy

Notable quotes:
"... I never meet Jew haters in my personal life but there sure are a lot on this site. How does less than 2% of the US population utterly dominate the nation? Is each Jew 50 times stronger than every gentile. ..."
"... They tend to be urban dwellers where salaries are higher but standards of living are often lower. Those in my neighborhood are very well assimilated. They put elaborate Christmas lights on their houses. It is not a rich neighborhood. ..."
"... Their earlier history was wretched and included slavery and persecutions for thousands of years. Don't waste much time fearing Jews ..."
Jun 27, 2018 | www.unz.com

Patricus , June 5, 2018 at 11:43 pm GMT

I never meet Jew haters in my personal life but there sure are a lot on this site. How does less than 2% of the US population utterly dominate the nation? Is each Jew 50 times stronger than every gentile.

I meet many Jews but can't recall a single super Jew. Maybe they are clever deceivers? The great majority are middle earners. There are some rich and some poor. Jews dominate Hollywood and certain occupations but they are underrepresented as engineers and architects. So what.

They tend to be urban dwellers where salaries are higher but standards of living are often lower. Those in my neighborhood are very well assimilated. They put elaborate Christmas lights on their houses. It is not a rich neighborhood.

Jewish history does not support the idea of a super race. They only entered middle classes in the nineteenth and twentieth centuries, and only in the western world. Before that they were not allowed to attend universities or even own land in many cases.

Their earlier history was wretched and included slavery and persecutions for thousands of years. Don't waste much time fearing Jews.

[Aug 08, 2018] New 'bubble' looming How dangerous are tech giants that don't make profits (VIDEO)

Notable quotes:
"... "Definitely, there's a bubble, not just in tech stocks but in general stock market itself," ..."
"... "there are signs of financial fragility" ..."
Aug 08, 2018 | www.rt.com

Tech giants like Tesla, Uber, or Spotify are making less and less profit at the moment and experts are worried about their impact on the world. Are we seeing a new economic bubble in the making? RT's Daniel Bushel finds out. American tech corporations are often making headlines nationwide and internationally, although their own performance is far from perfect. They lose more and earn less, and experts warn of a potential "bubble" looming in the horizon.

Tesla, Elon Musk's flagship company, is worth more than Ford or GM, but produces only a small number of cars. Spotify, a music streaming service, as well as Uber, are losing billions of dollars every year.

"Definitely, there's a bubble, not just in tech stocks but in general stock market itself," Jack Rasmus, professor of political economy at St. Mary's College, told RT, warning that "there are signs of financial fragility" that endanger the world

[Aug 08, 2018] How Hedge Fund Activists Coopted Shareholder Democracy

Notable quotes:
"... By Jang-Sup Shin, professor of economics at the National University of Singapore and a senior research associate at the Academic-Industry Research Network. This blog post draws on his INET working paper, "The Subversion of Shareholder Democracy and the Rise of Hedge-Fund Activism," which is in turn part of a forthcoming book with William Lazonick on predatory value extraction. Originally published at the Institute for New Economic Thinking website ..."
Aug 06, 2018 | www.nakedcapitalism.com
By Jang-Sup Shin, professor of economics at the National University of Singapore and a senior research associate at the Academic-Industry Research Network. This blog post draws on his INET working paper, "The Subversion of Shareholder Democracy and the Rise of Hedge-Fund Activism," which is in turn part of a forthcoming book with William Lazonick on predatory value extraction. Originally published at the Institute for New Economic Thinking website

The casual observer can hardly comprehend the value-extracting power of hedge fund activists. Technically, they are no more than minority shareholders. Yet they exert enormous influence, often forcing these companies to undertake fundamental restructuring and to increase stock buybacks and dividends substantially. For instance, Third Point Management and Trian Fund Management, holding only 2% of the outstanding stock of Dow Chemical and DuPont, respectively, engineered a merger-and-split of America's top two chemical giants at the end of 2015 that resulted in both massive layoffs and the closure of DuPont's central research lab, one of the first industrial science labs in the United States.

So how did hedge fund activists gain power so far in excess of their actual shareholdings?

In the 1980s, predatory value extraction was the province of the corporate raiders who flexed their muscles by becoming major shareholders of target companies and staging hostile takeovers. This mode of value extraction was highly risky in two respects. First, the raiders needed to raise substantial amounts of money to purchase enough shares that they could plausibly threaten to take control of the companies they targeted. Second, they frequently faced legal battles with management or incumbent shareholders because nothing less than control of the company was at stake. Being able to influence corporations without taking those risks would be a corporate raider's dream come true.

In the late 1980s and 1990s this dream became a reality. Driven by a clamor for "shareholder democracy" amid a rapid increase in institutional shareholding of public corporations and broadening acceptance of the maximizing shareholder value (MSV) view, the federal government implemented regulatory changes that set the stage for hedge fund activism.

The first set of regulatory changes was put into motion by Robert Monks, who in 1985 set up Institutional Shareholder Services (ISS), the first proxy-advisory firm, upon his resignation from the post of chief pension administrator at the U.S. Department of Labor (DOL). During his sole year in the Labor Department's employ, Monks endeavored to make proxy voting compulsory for pension funds, using his position as a platform for public advocacy of the notion that the funds had an obligation to become responsible "corporate citizens" and actually exercise the power their financial holdings gave them over corporate management. In 1988, his former DOL colleagues established proxy voting as a fiduciary duty of pension funds by the so-called "Avon Letter." Compulsory voting of proxies was later extended to all other institutional investors, including mutual funds, under an SEC regulation in 2003.

Monks and his disciples justified the changes under the pretext of realizing the long-held goal of "shareholder democracy," which, however, was all but irrelevant to proxy voting. A political project that had begun in the early 20 th century, shareholder democracy was intended to lessen public distrust of corporations and to create social cohesion by distributing corporate shares to retail investors who had U.S. citizenship. Institutional investors were simply money-managing fiduciaries who, lacking the status of citizens, had never been seen as having any part in shareholder democracy. Moreover, voting in most countries is not legally compulsory, it is one's right as a citizen. But Monks and his followers appropriated the banner of shareholder democracy to impose the voting of proxies on institutional investors as a fiduciary duty.

The consequence was the creation of a huge vacuum in corporate voting. Most institutional investors remained uninterested in voting and incapable of doing it meaningfully. The situation got worse with the increasing popularity of index funds, currently estimated to hold about one-third of all shares issued by companies listed in the U.S. Faced with the new requirement not only to vote but also to justify their voting decisions, institutional investors became heavily reliant on proxy-advisory firms. But these firms are often no more competent in making voting decisions than the institutional investors that hire them, and, as for-profit entities, are wide open to conflicts of interest. Some large mutual funds and pension funds, responding to public criticism that they are simply outsourcing voting decisions, have set up internal "corporate-governance teams" or "stewardship teams." However, these teams are designed to do no more than pay "lip service" to voting requirements: they are minimally staffed and their decision-making resembles "the corporate governance equivalent of speed dating," as the New York Times phrased it, rather than examining the concrete contexts of individual companies' voting issues. The potential for cooperation with hedge fund activists is great: the current owner of ISS, for example, is itself a private equity fund founded by corporate raiders.

The second set of regulatory changes was proxy-rule changes in 1992 and 1999 that allowed "free communication and engagement" among public shareholders and between public shareholders and management, as well as between public shareholders and the general public. These proxy-rule changes ostensibly aimed at correcting an imbalance between public shareholders and management by making it easier for minority shareholders to aggregate their votes. By that time, however, the balance of power between public shareholders and management was already skewed decisively toward the former. Institutional shareholding of American corporations' stock had already approached 50% by the early 1990s and, by 2017, was to reach nearly 70%. The proxy-rule changes further strengthened the power of public shareholders by allowing them to form de facto investor cartels and freely criticize management. Even if the SEC required those whose holdings of a given company's stock reached a 5% share to disclose the fact publicly, hedge fund activists could easily circumvent that limit by forming "wolf packs": soliciting the participation of other activists, whose holdings had not reached the threshold for reporting, in staging sudden, concerted campaigns against target companies.

Allowing free communication between shareholders and the public, far from evening the supposed imbalance between shareholders and management, intensified the influence of the former. Activist shareholders were freed by the SEC directives to allow them criticize a company's management "as long as the statements [they made were] not fraudulent." In contentious issues, management makes its decisions by weighing the advantages and disadvantages of the options available. But the directives have made it all too easy for activist shareholders to criticize management in public by simply emphasizing some of the disadvantages while remaining within the limit of not perpetrating fraud.

A third set of regulatory changes, which allowed hedge fund activists to gain even more power, followed from the 1996 National Securities Markets Improvement Act (NSMIA). Part of the financial market deregulation that took place during the Clinton administration, NSMIA effectively allowed hedge funds to pool unlimited financial resources from institutional investors without regulations requiring disclosure of their structure or prohibiting overly speculative investments. This threw the door wide open to co-investments between activist hedge funds and institutional investors who put their money into the hedge funds as "alternative investment." For instance, the California Teachers Retirement System (CaLSTRS) cooperated in Trian Fund's campaign against DuPont from the beginning by co-signing a letter supporting the hedge fund's demands in 2015. It later turned out that CaLSTRS, a long-term investor in DuPont, was also one of Trian's major investors.

In combination, these regulatory changes increased the incidence of predatory value extraction in the U.S. economy. For more than a decade, major public corporations have routinely disbursed to shareholders nearly all of their profits, and often sums equivalent to more than their profits, in the form of stock buybacks, dividends, and deferred taxes while investing less for the future and undertaking restructuring simply for the sake of reducing costs. It is now increasingly difficult to find incidents in which management rejects hedge fund activists' proposals outright and risks proceeding to a showdown proxy vote in a shareholder meeting. As Steven Davidoff Solomon wrote in his New York Times column , "companies, frankly, are scared" and "[their] mantra is to settle with hedge funds before it gets to a fight over the control of a company."

If a regulatory change is found to be misguided, it should be reversed or recalibrated. What would that look like in the context of activist hedge funds? Here are some suggestions for rebuilding the U.S. system of proxy voting and shareholder engagement such that it will support sustainable value creation and value extraction:

First, the SEC should make it mandatory, when shareholders make a submission of shareholder proposals to a shareholders' meeting, that they justify their proposals in terms of value creation by and capital formation for the corporation, rather than simply requesting distribution of company funds that could be made available by, for instance, disgorgement of free cash flows. Second, voting should be removed as a fiduciary duty of institutional investors. The compulsory voting of institutional investors, who tend to be both uninterested in voting and incapable of doing so meaningfully, has only given illegitimate power to proxy-advisory firms and hedge fund activists. Third, as a practical enforcement mechanism that will shape the thinking and behavior of shareholders so that they take sustainable value creation and value extraction into account, the regulatory authorities should allow differentiated voting rights that favor long-term shareholders. Fourth, the SEC should make it mandatory for both shareholders and management to disclose to the public what they have discussed in engagement sessions. Free engagement has been reserved to a restricted number of influential investors who have preferred to keep this communication private.

Fifth, hedge funds should be subject to regulations equivalent to those imposed on institutional investors. Hedge funds are already big enough to pose systemic risks to the economy, a lesson that might have been taken from the collapse of Long-Term Capital Management in 1998. Since the passage of the NSMIA in 1996, hedge funds have managed a large portion of institutional investors' funds for the benefit of their ultimate customers, who include ordinary workers and pensioners. There is no plausible reason why hedge funds should be treated as private entities and freed from financial regulations applied to institutional investors when they are functioning as surrogate institutional investors.


cnchal , August 6, 2018 at 6:53 am

From the NYT article linked above

The merger is certainly an impressive feat of financial engineering. It will bring together two companies: DuPont, with 54,000 employees, and Dow Chemical, with 53,000 employees. The two behemoths will merge, and then in the space of two years spit out three newly formed companies, one in agriculture, another in material sciences and a third in specialty products used in such fields as nutrition and electronics.

This plan is one easily understood by a hedge fund activist or investment banker in a cubicle in Manhattan with an Excel spreadsheet . To them, it makes perfect sense to merge a company and then almost immediately split it in three. Doing so will meet the goal to define business lines with precision and, it is hoped, spur growth. Expenses can also be cut, on paper at least.

The companies that the combined entity will create can cut $3 billion in expenses, but the last time I checked, three companies each require a chief executive, general counsel and many other executives, so these savings may be eaten up by new overhead.

Nearly 100,000 employees and their dependents, suppliers, and customers will get the hedge fund roto rooter treatment so a handful of rich bastards make moar. Ain't America great already?

The cherry on top is the public employee pension fund's assist in this certain debacle, when the three spun out entities synergize themselves into dust, taking suppliers and customers with them, while freeing up $3 billion in the short term to grease the looting operation. By the way $3 billion represents 30,000 employees were they paid $100,000 per year.

Whatever the names of the three new entities, append the word 'disaster' to it.

john c. halasz , August 6, 2018 at 10:13 am

Once again, why not just abolish the corporate income tax and make the point of incidence of taxation the wealth and income of the beneficial owners of corporations, the stock and bond holders? (This could be done in a "revenue neutral" way, but obviously greatly increased taxes on top tier wealth and income would be desirable for other reasons). That would obviate the point of such extractive strategies, which is simpler and more plausible than imagining the SEC would suddenly develop teeth and muscle and be able to impose "norms" on the business.

lyman alpha blob , August 6, 2018 at 2:02 pm

Or we could just regulate hedge funds right out of existence. And maybe take care of private equity firms at the same time. I have yet to see any benefit to society at large from either of them.

[Aug 06, 2018] New 'bubble' looming How dangerous are tech giants that don't make profits (VIDEO)

Notable quotes:
"... "Definitely, there's a bubble, not just in tech stocks but in general stock market itself," ..."
"... "there are signs of financial fragility" ..."
Aug 06, 2018 | www.rt.com

Tech giants like Tesla, Uber, or Spotify are making less and less profit at the moment and experts are worried about their impact on the world. Are we seeing a new economic bubble in the making? RT's Daniel Bushel finds out. American tech corporations are often making headlines nationwide and internationally, although their own performance is far from perfect. They lose more and earn less, and experts warn of a potential "bubble" looming in the horizon.

Tesla, Elon Musk's flagship company, is worth more than Ford or GM, but produces only a small number of cars. Spotify, a music streaming service, as well as Uber, are losing billions of dollars every year.

"Definitely, there's a bubble, not just in tech stocks but in general stock market itself," Jack Rasmus, professor of political economy at St. Mary's College, told RT, warning that "there are signs of financial fragility" that endanger the world

[Aug 06, 2018] How Hedge Fund Activists Coopted Shareholder Democracy naked capitalism

Notable quotes:
"... By Jang-Sup Shin, professor of economics at the National University of Singapore and a senior research associate at the Academic-Industry Research Network. This blog post draws on his INET working paper, "The Subversion of Shareholder Democracy and the Rise of Hedge-Fund Activism," which is in turn part of a forthcoming book with William Lazonick on predatory value extraction. Originally published at the Institute for New Economic Thinking website ..."
Aug 06, 2018 | www.nakedcapitalism.com

How Hedge Fund Activists Coopted "Shareholder Democracy" Posted on August 6, 2018 by Yves Smith By Jang-Sup Shin, professor of economics at the National University of Singapore and a senior research associate at the Academic-Industry Research Network. This blog post draws on his INET working paper, "The Subversion of Shareholder Democracy and the Rise of Hedge-Fund Activism," which is in turn part of a forthcoming book with William Lazonick on predatory value extraction. Originally published at the Institute for New Economic Thinking website

The casual observer can hardly comprehend the value-extracting power of hedge fund activists. Technically, they are no more than minority shareholders. Yet they exert enormous influence, often forcing these companies to undertake fundamental restructuring and to increase stock buybacks and dividends substantially. For instance, Third Point Management and Trian Fund Management, holding only 2% of the outstanding stock of Dow Chemical and DuPont, respectively, engineered a merger-and-split of America's top two chemical giants at the end of 2015 that resulted in both massive layoffs and the closure of DuPont's central research lab, one of the first industrial science labs in the United States.

So how did hedge fund activists gain power so far in excess of their actual shareholdings?

In the 1980s, predatory value extraction was the province of the corporate raiders who flexed their muscles by becoming major shareholders of target companies and staging hostile takeovers. This mode of value extraction was highly risky in two respects. First, the raiders needed to raise substantial amounts of money to purchase enough shares that they could plausibly threaten to take control of the companies they targeted. Second, they frequently faced legal battles with management or incumbent shareholders because nothing less than control of the company was at stake. Being able to influence corporations without taking those risks would be a corporate raider's dream come true.

In the late 1980s and 1990s this dream became a reality. Driven by a clamor for "shareholder democracy" amid a rapid increase in institutional shareholding of public corporations and broadening acceptance of the maximizing shareholder value (MSV) view, the federal government implemented regulatory changes that set the stage for hedge fund activism.

The first set of regulatory changes was put into motion by Robert Monks, who in 1985 set up Institutional Shareholder Services (ISS), the first proxy-advisory firm, upon his resignation from the post of chief pension administrator at the U.S. Department of Labor (DOL). During his sole year in the Labor Department's employ, Monks endeavored to make proxy voting compulsory for pension funds, using his position as a platform for public advocacy of the notion that the funds had an obligation to become responsible "corporate citizens" and actually exercise the power their financial holdings gave them over corporate management. In 1988, his former DOL colleagues established proxy voting as a fiduciary duty of pension funds by the so-called "Avon Letter." Compulsory voting of proxies was later extended to all other institutional investors, including mutual funds, under an SEC regulation in 2003.

Monks and his disciples justified the changes under the pretext of realizing the long-held goal of "shareholder democracy," which, however, was all but irrelevant to proxy voting. A political project that had begun in the early 20 th century, shareholder democracy was intended to lessen public distrust of corporations and to create social cohesion by distributing corporate shares to retail investors who had U.S. citizenship. Institutional investors were simply money-managing fiduciaries who, lacking the status of citizens, had never been seen as having any part in shareholder democracy. Moreover, voting in most countries is not legally compulsory, it is one's right as a citizen. But Monks and his followers appropriated the banner of shareholder democracy to impose the voting of proxies on institutional investors as a fiduciary duty.

The consequence was the creation of a huge vacuum in corporate voting. Most institutional investors remained uninterested in voting and incapable of doing it meaningfully. The situation got worse with the increasing popularity of index funds, currently estimated to hold about one-third of all shares issued by companies listed in the U.S. Faced with the new requirement not only to vote but also to justify their voting decisions, institutional investors became heavily reliant on proxy-advisory firms. But these firms are often no more competent in making voting decisions than the institutional investors that hire them, and, as for-profit entities, are wide open to conflicts of interest. Some large mutual funds and pension funds, responding to public criticism that they are simply outsourcing voting decisions, have set up internal "corporate-governance teams" or "stewardship teams." However, these teams are designed to do no more than pay "lip service" to voting requirements: they are minimally staffed and their decision-making resembles "the corporate governance equivalent of speed dating," as the New York Times phrased it, rather than examining the concrete contexts of individual companies' voting issues. The potential for cooperation with hedge fund activists is great: the current owner of ISS, for example, is itself a private equity fund founded by corporate raiders.

The second set of regulatory changes was proxy-rule changes in 1992 and 1999 that allowed "free communication and engagement" among public shareholders and between public shareholders and management, as well as between public shareholders and the general public. These proxy-rule changes ostensibly aimed at correcting an imbalance between public shareholders and management by making it easier for minority shareholders to aggregate their votes. By that time, however, the balance of power between public shareholders and management was already skewed decisively toward the former. Institutional shareholding of American corporations' stock had already approached 50% by the early 1990s and, by 2017, was to reach nearly 70%. The proxy-rule changes further strengthened the power of public shareholders by allowing them to form de facto investor cartels and freely criticize management. Even if the SEC required those whose holdings of a given company's stock reached a 5% share to disclose the fact publicly, hedge fund activists could easily circumvent that limit by forming "wolf packs": soliciting the participation of other activists, whose holdings had not reached the threshold for reporting, in staging sudden, concerted campaigns against target companies.

Allowing free communication between shareholders and the public, far from evening the supposed imbalance between shareholders and management, intensified the influence of the former. Activist shareholders were freed by the SEC directives to allow them criticize a company's management "as long as the statements [they made were] not fraudulent." In contentious issues, management makes its decisions by weighing the advantages and disadvantages of the options available. But the directives have made it all too easy for activist shareholders to criticize management in public by simply emphasizing some of the disadvantages while remaining within the limit of not perpetrating fraud.

A third set of regulatory changes, which allowed hedge fund activists to gain even more power, followed from the 1996 National Securities Markets Improvement Act (NSMIA). Part of the financial market deregulation that took place during the Clinton administration, NSMIA effectively allowed hedge funds to pool unlimited financial resources from institutional investors without regulations requiring disclosure of their structure or prohibiting overly speculative investments. This threw the door wide open to co-investments between activist hedge funds and institutional investors who put their money into the hedge funds as "alternative investment." For instance, the California Teachers Retirement System (CaLSTRS) cooperated in Trian Fund's campaign against DuPont from the beginning by co-signing a letter supporting the hedge fund's demands in 2015. It later turned out that CaLSTRS, a long-term investor in DuPont, was also one of Trian's major investors.

In combination, these regulatory changes increased the incidence of predatory value extraction in the U.S. economy. For more than a decade, major public corporations have routinely disbursed to shareholders nearly all of their profits, and often sums equivalent to more than their profits, in the form of stock buybacks, dividends, and deferred taxes while investing less for the future and undertaking restructuring simply for the sake of reducing costs. It is now increasingly difficult to find incidents in which management rejects hedge fund activists' proposals outright and risks proceeding to a showdown proxy vote in a shareholder meeting. As Steven Davidoff Solomon wrote in his New York Times column , "companies, frankly, are scared" and "[their] mantra is to settle with hedge funds before it gets to a fight over the control of a company."

If a regulatory change is found to be misguided, it should be reversed or recalibrated. What would that look like in the context of activist hedge funds? Here are some suggestions for rebuilding the U.S. system of proxy voting and shareholder engagement such that it will support sustainable value creation and value extraction:

Fifth, hedge funds should be subject to regulations equivalent to those imposed on institutional investors. Hedge funds are already big enough to pose systemic risks to the economy, a lesson that might have been taken from the collapse of Long-Term Capital Management in 1998. Since the passage of the NSMIA in 1996, hedge funds have managed a large portion of institutional investors' funds for the benefit of their ultimate customers, who include ordinary workers and pensioners. There is no plausible reason why hedge funds should be treated as private entities and freed from financial regulations applied to institutional investors when they are functioning as surrogate institutional investors.


cnchal , August 6, 2018 at 6:53 am

From the NYT article linked above

The merger is certainly an impressive feat of financial engineering. It will bring together two companies: DuPont, with 54,000 employees, and Dow Chemical, with 53,000 employees. The two behemoths will merge, and then in the space of two years spit out three newly formed companies, one in agriculture, another in material sciences and a third in specialty products used in such fields as nutrition and electronics.

This plan is one easily understood by a hedge fund activist or investment banker in a cubicle in Manhattan with an Excel spreadsheet . To them, it makes perfect sense to merge a company and then almost immediately split it in three. Doing so will meet the goal to define business lines with precision and, it is hoped, spur growth. Expenses can also be cut, on paper at least.

The companies that the combined entity will create can cut $3 billion in expenses, but the last time I checked, three companies each require a chief executive, general counsel and many other executives, so these savings may be eaten up by new overhead.

Nearly 100,000 employees and their dependents, suppliers, and customers will get the hedge fund roto rooter treatment so a handful of rich bastards make moar. Ain't America great already?

The cherry on top is the public employee pension fund's assist in this certain debacle, when the three spun out entities synergize themselves into dust, taking suppliers and customers with them, while freeing up $3 billion in the short term to grease the looting operation. By the way $3 billion represents 30,000 employees were they paid $100,000 per year.

Whatever the names of the three new entities, append the word 'disaster' to it.

john c. halasz , August 6, 2018 at 10:13 am

Once again, why not just abolish the corporate income tax and make the point of incidence of taxation the wealth and income of the beneficial owners of corporations, the stock and bond holders? (This could be done in a "revenue neutral" way, but obviously greatly increased taxes on top tier wealth and income would be desirable for other reasons). That would obviate the point of such extractive strategies, which is simpler and more plausible than imagining the SEC would suddenly develop teeth and muscle and be able to impose "norms" on the business.

lyman alpha blob , August 6, 2018 at 2:02 pm

Or we could just regulate hedge funds right out of existence. And maybe take care of private equity firms at the same time. I have yet to see any benefit to society at large from either of them.

[Jul 29, 2018] The Middle Precariat: The Downwardly Mobile Middle Class by Lynn Parramore

Notable quotes:
"... By Lynn Parramore, Senior Research Analyst at the Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website ..."
"... Squeezed: Why Our Families Can't Afford America ..."
"... You will not do as well as your parents ..."
"... Life is a struggle to keep up. Even if you achieve something, you will live in fear of losing it. America is not your land: it belongs to the ultra-rich. ..."
"... The Vanishing Middle Class ..."
"... Capital in the Twenty-First Century ..."
"... Global Wealth Report ..."
"... Professed as a right for individual freedom and empowerment, in reality it serves to suppress disobedience with shame. If you earn like shit -- it's gotta be because YOU are shit. Just try harder. Don't you see those OTHER kids that did well! ..."
"... I think one crucial thing that has to change is the culture of extreme individualisation. ..."
"... die Plutonomisten und Bolshewisten! ..."
"... That the article brings "fear of robots" into the discussion is a tell that the writer does not want to mention that it is the competition from others in the world wide labor force that depress USA wages. ..."
"... We have been commodified since before we were even born, to the point where opportunities for what Lave and Wenger would call "legitimate peripheral participation" in the kinds of work that yield real, humane, benefits to our communities are scant to nonexistent for most of us. Something has gone deeply awry in this core social function at the worst possible time in human history. ..."
"... That was a wonderful post, very moving, thank you. These kind of testimonies are very important because they show the real human cost of neoliberalism. Neoliberalism is truly a death cult. Please find an alternative to alcohol. Music, art, nature, etc. ..."
"... At least you are self aware. Most people are not. As for the Ship of Status, let it sink. Find a lifeboat where you feel comfortable and batten down for the Roaring (20)40s yet to come. Once you find something to work for, the bad habits will lose much of their hold on you. As long as you don't slide into alcoholism, you have a chance. ..."
"... Neoliberalism, the economic policy that is private sector "free market" driven, giving the owners of capital free, unfettered reign. Created by libertarians like Fredrich von Hayek and Milton Friedman, they sold it to the nation but failed to mention that little peccadillo about how privatization of government would usher in economic fascism. ..."
"... "An extreme form of laissez-faire individualism that developed in the writings of Hayek, Friedman and Nozick they are also referred to as libertarians. They draw on the natural rights tradition of John Locke and champion's full autonomy and freedom of the individual." ..."
"... What they meant was ECONOMIC freedom. They despise social freedom (democracy) because civil, labor, health, food safety, etc., rights and environmental protections put limits on their profits. ..."
"... The "maximizing shareholder value" myth turns people into psychopaths . The entire neoliberal economic policy of the past 40 years is based on the false assumption that self-interest is the driving evolution of humanity. We're not all psychopaths, turns out. We're social beings that have mainly used cooperation to get us through these thousands of years of existence. ..."
"... "If the IMF is to shake its image as an inward-looking, out-of-touch boys club, it needs to start taking the issue seriously. The effect of the male dominance in macroeconomics can be seen in the policy direction of the organisation: female economists are more likely to be in favour of Government-backed redistribution measures than their male counterparts. ..."
"... Of course, the parochial way in which economics is perceived by the IMF, as nothing more than the application of mathematical models, is nothing new. In fact, this is how mainstream economics frequently is taught in universities all over the world. Is it any wonder that the IMF has turned out as it is?" ..."
"... "Economics students are forced to spend so much time with this complex calculus so that they can go to work on Wall St. that there's no room in the course curriculum for the history of economic thought. ..."
"... So all they know about Adam Smith is what they hear on CNN news or other mass media that are a travesty of what these people really said and if you don't read the history of economic thought, you'd think there's only one way of looking at the world and that's the way the mass media promote things and it's a propagandistic, Orwellian way. ..."
"... The whole economic vocabulary is to cover up what's really happening and to make people think that the economy is getting richer while the reality is they're getting poorer and only the top is getting richer and they can only get rich as long as the middle class and the working class don't realize the scam that's being pulled off on them." ..."
"... "I often joke with my fellow country neighbors that it costs a hundred bucks to simply leave the house. It's not a joke anymore. At this point those still fighting for a paltry 15.00 should include a hundred dollar per day walk out your front door per diem." ..."
"... This is a stark and startling reality. This reality is outside the framework of understanding of economic struggle in America that is allowed by the corporate neoliberal culture/media. ..."
"... As the Precariat grows, having watched the .1% lie, cheat and steal – from them, they are more likely to also lie, cheat and steal in mortgage, employment and student loan applications and most importantly and sadly, in their dealings with each other. Everybody is turning into a hustler. ..."
"... Economics was always far too dangerous to be allowed to reveal the truth about the economy. ..."
"... "The labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers." ..."
"... Capitalism had two sides, the productive side where people earned their income and the parasitic side where the rentiers lived off unearned income. The Classical Economists had shown that most at the top of society were just parasites feeding off the productive activity of everyone else. ..."
"... The early neoclassical economists hid the problems of rentier activity in the economy by removing the difference between "earned" and "unearned" income and they conflated "land" with "capital". They took the focus off the cost of living that had been so important to the Classical Economists to hide the effects of rentier activity in the economy. ..."
"... The landowners, landlords and usurers were now just productive members of society again. It they left banks and debt out of economics no one would know the bankers created the money supply out of nothing. Otherwise, everyone would see how dangerous it was to let bankers do what they wanted if they knew the bankers created the money supply through their loans. ..."
"... The cost of living = housing costs + healthcare costs + student loan costs ..."
"... An unexpected consequence of globalization is that a lot of people see how thing are done, elsewhere. ..."
"... Part of me doesn't feel sorry at all for the plight of middle-class Americans. When times were good they were happy to throw poor and working-class people under the bus. I remember when the common answer to complaints about factory closings was "you should have gotten an education, dummy." Now that the white-collar middle class can see that they are next on the chopping block they are finding their populist soul. ..."
Jul 26, 2018 | www.nakedcapitalism.com

By Lynn Parramore, Senior Research Analyst at the Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website

It wasn't supposed to be like this.

The children of America's white-collar middle class viewed life from their green lawns and tidy urban flats as a field of opportunity. Blessed with quality schools, seaside vacations and sleepover camp, they just knew that the American dream was theirs for the taking if they hit the books, picked a thoughtful and fulfilling career, and just, well, showed up.

Until it wasn't.

While they were playing Twister and imagining a bright future, someone apparently decided that they didn't really matter. Clouds began to gather -- a "dark shimmer of constantly shifting precariousness," as journalist Alissa Quart describes in her timely new book " Squeezed: Why Our Families Can't Afford America ."

The things these kids considered their birthright -- reputable colleges, secure careers, and attractive residences -- were no longer waiting for them in adulthood.

Today, with their incomes flat or falling, these Americans scramble to maintain a semblance of what their parents enjoyed. They are moving from being dominant to being dominated. From acting to acted upon. Trained to be educators, lawyers, librarians, and accountants, they do work they can't stand to support families they rarely see. Petrified of being pushed aside by robots, they rankle to see financial titans and tech gurus flaunting their obscene wealth at every turn.

Headlines gush of a humming economy, but it doesn't feel like a party to them -- and they've seen enough to know who will be holding the bag when the next bubble bursts.

The "Middle Precariats," as Quart terms them, are suffering death by a thousand degradations. Their new reality: You will not do as well as your parents . Life is a struggle to keep up. Even if you achieve something, you will live in fear of losing it. America is not your land: it belongs to the ultra-rich.

Much of Quart's book highlights the mirror image of the downwardly mobile middle class Trump voters from economically strained regions like the Midwest who helped throw a monkey wrench into politics-as-usual. In her tour of American frustration, she talks to urbanites who lean liberal and didn't expect to find themselves drowning in debt and disappointment. Like the falling-behind Trump voters, these people sense their status ripped away, their hopes dashed.

If climbing up the ladder of success is the great American story, slipping down it is the quintessential tragedy. It's hard not to take it personally: the ranks of the Middle Precariat are filled with shame.

They are somebodies turning into nobodies.

And there signs that they are starting to revolt. If they do, they could make their own mark on the country's political landscape.

The Broken Bourgeoisie

Quart's book takes a sobering look at the newly unstable bourgeoisie, illustrating what happens when America's off-the-rails inequality blasts over those who always believed they would end up winners.

There's the Virginia accountant who forks over nearly 90% of her take home pay on care for her three kids; the Chicago adjunct professor with the disabled child who makes less than $24,000 a year; and the California business reporter who once focused on the financial hardships of others and now faces unemployment herself.

There are Uber-driving teachers and law school grads reviewing documents for $20 an hour -- or less. Ivy Leaguers who live on food stamps.

Lacking unions, church communities and nearby close relatives to support them, the Middle Precariats are isolated and stranded. Their labor has sputtered into sporadic contingency: they make do with short-term contracts or shift work. (Despite the much-trumpeted low unemployment rate, the New York Times reports that jobs are often subpar, featuring little stability and security). Once upon a time, only the working poor took second jobs to stay afloat. Now the Middle Precariat has joined them.

Quart documents the desperate measures taken by people trying to keep up appearances, relying on 24/7 "extreme day care" to accommodate unpredictable schedules or cobbling together co-living arrangements to cut household costs. They strain to provide things like academic tutors and sports activities for their kids who must compete with the children of the wealthy. Deep down, they know that they probably can't pass down the cultural and social class they once took for granted.

Quart cites a litany of grim statistics that measure the quality of their lives, like the fact that a middle-class existence is now 30% more expensive than it was twenty years ago, a period in which the price of health care and the cost of a four-year degree at a public college nearly doubled.

Squeezed is especially detailed on the plight of the female Middle Precariat, like those who have the effrontery to procreate or grow older. With the extra burdens of care work, pregnancy discrimination, inadequate family leave, and wage disparities, (not to mention sexual harassment, a subject not covered), women get double squeezed. For women of color, often lacking intergenerational wealth to ease the pain, make that a triple squeeze.

The Middle Precariat in middle age is not a pretty sight: without union protection or a reliable safety net they endure lost jobs, dwindled savings, and shattered identities. In one of the saddest chapters, Quart describes how the pluckiest try reinvent themselves in their 40s or 50s, enrolling in professional courses and certification programs that promise another shot at security, only to find that they've been scammed by greedy college marketers and deceptive self-help mavens who leave them more desperate than before.

Quart notes that even those making decent salaries in the United States now see themselves barred from the club of power and wealth. They may have illiquid assets like houses and retirement accounts, but they still see themselves as financially struggling. Earning $100,000 sounds marvelous until you've forked over half to housing and 30% to childcare. Each day is one bit of bad luck away from disaster.

"The spectacular success of the 0.1 percent, a tiny portion of society, shows just how stranded, stagnant, and impotent the current social system has made the middle class -- even the 10 percent who are upper-middle class," Quart writes.

Quart knows that the problems of those who seem relatively privileged compared many may not garner immediate sympathy. But she rightly notes that their stresses are a barometer for the concentration of extreme wealth in some American cities and the widening chasm between the very wealthy and everybody else.

The Dual Economy

The donor-fed establishment of both political parties could or would not see this coming, but some prescient economists have been sounding the alarm.

In his 2016 book The Vanishing Middle Class , MIT economist Peter Temin detailed how the U.S. has been breaking up into a "dual economy" over the last several decades, moving toward a model that is structured economically and politically more like a developing nation -- a far cry from the post-war period when the American middle class thrived.

In dual economies, the rich and the rest part ways as the once-solid middle class begins to disappear. People are divided into separate worlds in the kinds of jobs they hold, the schools their kids attend, their health care, transportation, housing, and social networks -- you name it. The tickets out of the bottom sector, like a diploma from a first-rate university, grow scarce. The people of the two realms become strangers.

French economist Thomas Picketty provided a stark formula for what happens capitalism is left unregulated in his 2015 bestseller, Capital in the Twenty-First Century . It goes like this: when the rate of return on the investments of the wealthy exceeds the rate of growth in the overall economy, the rich get exponentially richer while everyone becomes poorer. In more sensible times, like the decades following WWII, that rule was mitigated by an American government that forced the rich pay their share of taxes, curbed the worst predations of businesses, and saw to it that roads, bridges, public transit, and schools were built and maintained.

But that's all a fading memory. Under the influence of political money, politicians no longer seek a unified economy and society where the middle class can flourish. As Quart observes, the U.S. is the richest and also the most unequal country in the world, featuring the largest wealth inequality gap of the two hundred countries in the Global Wealth Report of 2015.

Who is to Blame?

Over and over, the people Quart interviews tend to blame themselves for their situation -- if only they'd chosen a different career, lived in another city, maybe things wouldn't have turned out this way. Sometimes they point the finger at robots and automation, though they arguably have much more to fear from the wealthy humans who own the robots.

But some are waking up to the fact it is the wealthy and their purchased politicians who have systematically and deliberately stripped them of power. Deprivations like paltry employee rights, inadequate childcare, ridiculously expensive health care, and non-existent retirement security didn't just happen . Abstract words like deregulation and globalization become concrete: somebody actually did this to you by promoting policies that leave you high and dry.

As Quart indicates, understanding this is the first step to a change of consciousness, and her book is part of this shift.

Out of this consciousness, many individuals and organizations are working furiously and sometimes ingeniously to alter the negative trajectory of the Middle Precariat. Quart outlines proposals and developments like small-scale debt consolidation, student debt forgiveness, adequately subsidized day care, and non-traditional unions that could help.

America also has a track record of broad, fundamental solutions that have already proven to work. Universal basic income may sound attractive, but we already have a program that could improve the lot of the middle class if expanded: Social Security.

Right now, a worker stops having to pay Social Security tax on any earnings beyond $128,400 -- a number that is unreasonably low because the rich wish to keep it so. Just by raising that cap, we could the lower the retirement age so that Americans in their 60s would not have greet customers at Walmart. More opportunities would open up to younger workers.

The Middle Precariat could be forgiven for suspecting that the overlords of Silicon Valley may have something other than altruism in mind when they tout universal basic income. Epic tax evaders, they stand to benefit from pushing the responsibility for their low-paid workers and the inadequate safety net and public services that they helped create onto ordinary taxpayers.

Beyond basic income lies a basic fact: the American wealthy do not pay their share in taxes. In fact, American workers pay twice as much in taxes as wealthy investors. That's why infrastructure crumbles, schools deteriorate, and sane health care and childcare are not available.

Most Americans realize that inequality has to be challenged through the tax code: a 2017 Gallup poll shows that the majority think that the wealthy and corporations don't pay enough. Politicians, of course, ignore this to please their donors.

And so the Middle Precariat, like the Trump voters, is getting fed up with them.

From Depressed to Energized

Quart astutely points out that income inequality is being written into the law of the land. Funded the efforts of billionaires like the Koch brothers, politicians have altered laws and constitutions across the country to cement the dual economy through everything from restricting voting rights to defunding public education.

Several Middle Precariats in Squeezed have turned to independent or renegade candidates like Bernie Sanders who offer broad, substantial programs like debt-free college and universal health care that address the fissures in their lives. They are listening to candidates who are not afraid to say that markets should work for human beings, not the other way around.

If Donald Trump's political rise "can be understood as an expression of the gulf between middle-class citizens and America's ruling classes," as Quart observes, then the recent surge of non-establishment Democratic candidates, especially democratic socialists, may be the next phase of a middle class revolt.

Recent surprise victories in Pennsylvania and New York in the Democratic primaries by female candidates openly embracing democratic socialism, including Alexandria Ocasio-Cortez, who bested Democratic stalwart Joe Crowley by running for Congress on a platform of free Medicare and public college tuition for all, may not be the blip that establishment Democrats hope. In New York, democratic socialist Julia Salazar is looking to unseat long-time state senator Martin Dilan. Actress Cynthia Nixon , running against New York Governor Andrew Cuomo, has just proclaimed herself a democratic socialist and promises to raise taxes on the rich and boost funding for public schools. Michelle Goldberg recently announced in the New York Times that " The Millenial Socialists are Coming ," indicating the intense dislike of traditional politics in urban centers. These young people do not think of things like debt-free college or paid family leave as radical: they see it done elsewhere in the world and don't accept that it can't be done in America.

Historically, the more affluent end of the middle class tends to identify with and support the wealthy. After all, they might join their ranks one day. But when this dream dies, the formerly secure may decide to throw their lot in with the rest of the Precariats. That's when you have the chance for a real mass movement for change.

Of course, people have to recognize their common circumstances and fates. The urban denizens of New York and San Francisco have to see what they have in common with middle class Trump voters from the Rust Belt, as well as working class Americans and everybody else who is not ultra-rich.

If the growing ranks of Precariats can work together, maybe it won't take a natural catastrophe or a war or violent social upheaval to change America's unsustainable course of gross inequality. Because eventually, something has to give.


Sergey P , July 26, 2018 at 3:42 am

I think one crucial thing that has to change is the culture of extreme individualization.

Professed as a right for individual freedom and empowerment, in reality it serves to suppress disobedience with shame. If you earn like shit -- it's gotta be because YOU are shit. Just try harder. Don't you see those OTHER kids that did well!

Part of the blame is on New Age with it's quazi-buddhist narrative: basically, everything is perfect, and if you don't feel it that way, it's because you are tainted with envy or weakness.

Thus what is in fact a heavily one-sided battle -- is presented as a natural order of things.

I believe we need a new framework. A sort of mix of Marx and Freud: study of the subconscious of the social economy. The rich not just HAPPEN to be rich. They WANT to be rich. Which means that in some way they NEED others to be poor.

Of course, I'm generalizing. And some rich are just really good at what they do. These rich will indeed trickle down, they will increase the well-being of people. But there are others. People working in insurance and finance. And as their role in the economy grows -- as does their role in politics, their power. They want to have more, while others would have less.

But behind it all are not rational thoughts, not efficiency, but psychological trauma, pain of the soul. Without addressing these matters, we will not be able to change the world.

I'm sorry if my thoughts are somewhat fragmented. It's just something I've been thinking of a lot since I started reading NC, discovering MMT and heterodox approaches in general.

athena , July 26, 2018 at 6:06 am

I enjoyed reading your thoughts, and completely agree with them all. :)

NotTimothyGeithner , July 26, 2018 at 7:53 am

The problem is the perception the Democratic Party is reliable as a partner. The culture wasn't a problem in 2008 when the Democratic candidate was perceived as wanting to raise taxes, pass universal health care, and end the wars.

Louis Fyne , July 26, 2018 at 8:53 am

====Part of the blame is on New Age with it's quazi-buddhist narrative: basically, everything is perfect, and if you don't feel it that way, it's because you are tainted with envy or weakness.

Adam Curtis touched about this (and the 50's/60's "self-actualization movement) in his TV documentary "Century of Self." if i recall correctly. https://www.youtube.com/results?search_query=century+of+self

That's where I first heard of this theoretical link. I think that it's flat out right and post-WWII psycho-babble has seeped into society in pernicious ways (along with everything else, breakdown of nuclear family, etc). Unfortunately, can't prove it like Euclid.

Urizenik , July 26, 2018 at 9:00 am

"A sort of mix of Marx and Freud"– the " Frankfurt School " is a start, with the realization of "the culture industry" as force majeure in the "heavily one-sided battle." And ditto recommendation of "The Century of the Self."

MC , July 26, 2018 at 10:16 am

There's also Zizek.

Left in Wisconsin , July 26, 2018 at 1:00 pm

Both good suggestions.

Responding to Sergey P:
I think one crucial thing that has to change is the culture of extreme individualisation.

There are really only two alternatives to individualism. There is Durkheim-ian "society," in which we are all in this together – interdependent. I think this is still an appropriate lens for a lot of smaller cities and communities where people really do still know each other and everyone wants the community to thrive. And, of course, it is the only way to think about human society nested inside a finite Earth. But it can only work on a larger scale through mediating "institutions" or "associations." All the evidence shows, consistent with the piece, that precariousness by itself weakens social institutions – people have less time and money to contribute to making them work well.

And then there is Marx-ian "class." Which is to say, we are not all individuals but we are not all of one group. There are different groups with different interests and, not infrequently, the interests of different groups are opposed – what is good for one is bad for another – and if power is unequal between groups (either because some groups as groups have more power than others or because individuals with more power all have the same group affinity), then powerful groups will use that power to oppress others. In that case, the only remedy is to try to systematically empower the weak and/or disempower the strong. This also requires collective action – institutions, associations, government – and it is again noted that our collective institutions, most notably unions, have been seriously weakened in the last 40-60 years.

The real world doesn't always fit into neat categories. Trump's America First is an appeal to the "society" of USAmerica. Maybe there will be some improvements for working people. But the argument in the piece, perhaps not as clearly stated as I would like, is that the interests of the (former) middle class – as a class – have diverged from the interests of the upper class. Changing that equation requires collective action.

DolleyMadison , July 26, 2018 at 3:02 pm

Well said

Redlife2017 , July 26, 2018 at 5:08 am

Naturally one must quote the great Frank Herbert from his novel Dune:

"Once men turned their thinking over to machines in the hope that this would set them free. But that only permitted other men with machines to enslave them."

Or shorter: Follow the money.

Jim Haygood , July 26, 2018 at 5:49 am

'We already have a program that could improve the lot of the middle class if expanded: Social Security.'

Never mind expanding it -- even the existing Social Security program is less than 20% funded, headed for zero in 2034 according to its trustees. Scandalously, these trustees owe no fiduciary duty to beneficiaries. Old Frank wanted pensioners to be forever dependent on his D party. How did that work out for us?

Take a look at the transmittal letter for the 2018 trustees report, released last month. Two public trustee positions are "VACANT," just as they were in last year's transmittal letter:

https://ibb.co/mwsxuT

Just above these blank spaces is the signature of one Nancy Berryhill, "Acting Commissioner of Social Security." But wait --

On March 6, 2018, the Government Accountability Office stated that as of November 17, 2017, Berryhill's status violated the Federal Vacancies Reform Act, which limits the time a position can be filled by an acting official; "[t]herefore Ms. Berryhill was not authorized to continue serving using the title of Acting Commissioner after November 16." Berryhill declared, "Moving forward, I will continue to lead the agency from my position of record, Deputy Commissioner of Operations."

https://en.wikipedia.org/wiki/Nancy_Berryhill

By June 5th, Berryhill was still impersonating the Acting Commissioner, legally or not.

Summing up, even the trustees' one-page transmittal letter shows that Social Security is treated as a total and complete Third World joke by the US federal government.

YankeeFrank , July 26, 2018 at 8:34 am

Yeah, yeah. Gubmint can't do nuthin' rite. How about we take our government back from the plutocrats and set SS on solid footing again. There are no impediments other than the will of the people to use our power. Now that the Boomers are moving off all sorts of things, like 'thinking', and 'logic', will become prevalent again.

Kurtismayfield , July 26, 2018 at 8:44 am

Never mind expanding it -- even the existing Social Security program is less than 20% funded, headed for zero in 2034 according to its trustees. Scandalously, these trustees owe no fiduciary duty to beneficiaries. Old Frank wanted pensioners to be forever dependent on his D party. How did that work out for us?

Correct, then the system will eventually be totally reliant on taxes coming in. According to 2011 OASDI Trustees Report

Beginning in 2023, trust fund assets will diminish until they become exhausted in 2036. Non-interest income is projected to be sufficient to support expenditures at a level of 77 percent of scheduled benefits after trust fund exhaustion in 2036, and then to decline to 74 percent of scheduled benefits in 2085

The benefits are never going to go completely away, the benefits will decrease if nothing is done. Things can be done to change this, such as an increasing the the cap on earnings, raising new revenues, etc. This is not exactly an "end of the world" scenario for SSI.

Also, no one complained when the excess SSI tax collected "Social security trust fund" was used to keep interest rates down by purchasing Government bonds.

Jamie , July 26, 2018 at 11:03 am

The whole tax angle is a complete red herring. Raising the cap is not the answer. FICA is "the most regressive tax" the country imposes. Eliminating FICA altogether, doing away with the "trust fund" and the pretense that SS is not the government taking care of it's elderly citizens but is workers taking care of themselves, is the answer. If the emphasis in Quart's book on the rise of a new democratic socialism means anything, it means reconciling with the notion that it is OK for the government to take measures to ensure the welfare of the people. Pay-as-you-go SS can become simply the re-assumption of our collective responsibility to take care of our own, as a society, not as individuals.

Kurtismayfield , July 26, 2018 at 11:29 am

I would be fine with that if I could trust the Federal government to do the right thing. The problem is that we have too many people invested in the system, and I don't trust the Federal government to not screw people over in a new system. You know what will happen, they will set up a two tiered system where people over a certain age will keep their benefits, and the new people will get a system that is completely crapified or means tested.

kgw , July 26, 2018 at 11:39 am

Well-put The only way to eliminate the constant refrain of "but SS is (insert blithering comment on entitlement spending), is to shift resources to people rather than armies for the SuperRich.

Anon , July 26, 2018 at 2:02 pm

Yeah, more Butter–Less Guns!

(Now how do we stop the media hysteria about those big,bad Enemies -- Russia?!)

JCC , July 26, 2018 at 9:52 am

So we should just ignore the fact that our own Govt has "borrowed" $2.8 Trillion, at least, from the SS Trust Fund so far and can't (won't) pay it back?

This "borrowing" should be illegal and I believe that "Old Frank" would be rolling in his grave if he knew that would happen.

And I sincerely doubt his intentions were to get SS on the books in order to keep us beholden to the Dem Party. And if that were true it is obvious that his party doesn't agree. If they did they wouldn't be assisting in gutting the program.

Grumpy Engineer , July 26, 2018 at 11:00 am

The whole concept of creating and maintaining a multi-trillion dollar "trust fund" was irrevocably flawed. When the surplus payroll taxes were "invested" in government bonds, they entered the government's general fund and were promptly spent. The money is gone. That's why it's on the books as a debt owed to the Social Security administration. There are no actual assets behind the fund. It's just one part of the government owing money to another part of the government.

However, what would the alternative have been? Investing in the crap shoot known as the US stock market? No thanks. Or setting the funds aside in a bank account, where they would cease circulating through the economy? That wouldn't have worked either, as all dollars in circulation would have eventually ended up there, causing massive deflation.

None of these are workable. We should have gone on a strictly pay-as-you-go basis. If payroll taxes generated more revenue than was necessary, we should have cut payroll taxes and/or raised benefits. And if they fall short, we should raise payroll taxes and/or cut benefits.

Today, we cover about 95% of benefits with payroll taxes. The remainder comes from "trust fund redemptions", where general fund monies are given to the SSA to cover the shortfall. Given that our government is already running a deficit, this means more borrowing (or money-printing, depending on how you look at things).

When the "trust fund" is depleted, but SSA will lack the legal authority to claim any more general fund monies, but it would be quite easy for Congress to change the rules to simply state that "any SSA shortfall will be covered by the general fund". And I predict they will do so in 2034, as it would take less than a month of constituents complaining about reduced benefits to force even the strictest of deficit hawks to cave.

Or maybe they'll get creative and instead raise rates on the interest that the trust fund earns. Right now it's a 3% rate, but if Congress were to double or triple it, the trust fund would last much longer. [As would the debt owed to the SSA.] Heck, if they multiplied the interest rate by a factor of 11, then they could theoretically dispense with payroll taxes entirely. Right?

Spring Texan , July 26, 2018 at 1:15 pm

Yes, SS has contributed NOT ONE PENNY to the deficit and the reason it accumulated a surplus was so people could collect later. Now, they want to say that old surplus shouldn't count. That's thievery.

Milton , July 26, 2018 at 10:37 pm

tired old tripe and how much is the US military funded? I can answer that for you. It's ZERO. 0% funded! Take your heterodox BS to a bunch of freshman impressionables – it is only tolerated here because you are a fine writer and interesting as hell and know almost all there is about economic liberalism.

ObjectiveFunction , July 26, 2018 at 6:44 am

Wow. So let's go full SSCodex for a bit and push this trend out to the limit.

While the unwashed masses remain a market for big Ag, big Pharma, big Auto, big (online) Retail, and a few others, it seems like the predatory 'fund' segment of the FIRE elite has moved on to devouring larger prey (capitalist autophagy?). The unbankable precariat are beneath their notice now, like pennies on the sidewalk.

So in that case, the 1% of the 0.1% has evolved beyond 'exploitation' in any Marxist sense. It is now indifferent to the very life or death of the precariat, at home or abroad, still less their security or advancement. It needs them neither for consuming nor producing, nor for building ziggurats.

(Just so long as the pitchforks aren't out – but that's what the credentialed minion 20% is for. And drones).

Here Disposables, have some more plastic and painkillers. Be assured the Alphas will be live tweeting the Pandemic, or Chicxulub 2.0, from Elon's luxury robot-serviced survival capsules (oh, you thought those were for use on Mars? Silly rabble!)

It's like that DKs mosh pit classic: "Uncounted millions whisked away / the rich will have more room to play"

[I exaggerate, of course, for illustration. Slightly.]

Musicismath , July 26, 2018 at 7:29 am

I think you can extend this analysis to the current U.K. Conservative Party. Commentators have started to notice that the Brexiteer wing of the party seems completely impervious to claims Brexit will harm the economy. Are the Tories no longer the natural party of British business, they ask?

Using your logic, we can say that a fund-interest-dominated Tory party simply has no interest in or need for the "ordinary" bits of the British business community anymore. What it wants are shorting and raiding opportunities, and from that vantage point a catastrophic Brexit is very attractive. Put these interests in coalition with a voter base largely living on guaranteed incomes and retirement funds of one sort or another and you have the surreal spectacle of an entire governing party and its supporters who are no longer anchored to the "real" economy at all. Yes, it's an exaggeration but it's an exaggeration that explains a few things, I think.

athena , July 26, 2018 at 7:47 am

You both need to read the 2005 leaked Citigroup "plutonomy memo", if you haven't yet. Very bright minds called it a decade ago, that the global economy isn't even an economy any longer in any traditional sense. This is part one: https://delong.typepad.com/plutonomy-1.pdf

ObjectiveFunction , July 26, 2018 at 8:47 am

"Plutonomy" sounds like some nasal epithet out of a Goebbels speech: " die Plutonomisten und Bolshewisten! "

sharonsj , July 26, 2018 at 4:59 pm

Great link. From page one, Citigroup thinks the global imbalance is a great opportunity. Nothing new here. For years I've been reading about stock and futures manipulations–and vulture capitalists–that cause people to die or kill themselves. The rich don't care; they see it as a way to make more money. And then you wonder why I've been talking revolution for years as well?

Louis Fyne , July 26, 2018 at 8:09 am

"Who is to Blame?"

Answer: Add the US wasting its blood and cash meddling in other countries' affairs. "honest friendship with all nations-entangling alliances with none." bueller ?

Ironic as multilateralist/globalist/fan of US interventions George Soros supposedly provided some of the seed money for the Institute for New Economic Thinking.

athena , July 26, 2018 at 8:17 am

I don't think Soros is diabolical or sadistic. He's just, let's say, "neurologically eccentric" and unimaginably wealthy.

chris , July 26, 2018 at 8:40 am

https://www.youtube.com/watch?v=Iipn6yM43sM

athena , July 26, 2018 at 9:25 am

I just want to not die earlier than necessary because I can't afford health care. I'd also like to stop worrying that I'll spend my golden years homeless and starving because of some disaster headed my way. I gave up on status a long time ago, and am one of those mentioned who has little pity for the top 10%.

ChiGal in Carolina , July 26, 2018 at 11:52 am

Ditto

John B , July 26, 2018 at 8:50 am

Sounds like a good book. I shall have to pick it up from my library, since buying new books is a stretch.

Nearly all income growth in the United States since the 1970s has gone into income obtained by the rich other than wages and salaries, like capital gains, stock options, dividends, partnership distributions, etc. To capture overall economic growth to which the entire society has contributed, Social Security benefits should be tied to economic growth, smoothed for the business cycle. If people believe benefit increases require tax increases, the tax should be applied to all earnings, not just salary/wages. Raising the $128,400 cap on income subject to SS taxes would thus increase taxes on the lower rungs of the upper middle class but not really address the problem.

Daniel F. , July 26, 2018 at 9:32 am

I apologise in advance for being blunt and oversimplifying the matter, but at the end of the day, (in my very humble and possibly uninformed opinion) nothing short of a mass beheading would work. The 0.1% doesn't really seem, uh, willing to let go of their often ill-gotten billions, and when they do (i.e. charities and such), they often end up being some kind of scam. I refuse to believe that the Zuckerberg-types operate their foundations out of genuine philanthropy. Acquisitions and mergers like Disney buying Fox or Bayer gobbling up Monsanto don't contribute anything to the well-being of the 99% either, and I think that's and understatement.

If there's going to be some kind of revolution, it needs to happen before the logical conclusion of rampaging capitalism. the OCP-type megacorp with its own private army. And, if there indeed is a revolution, what's next?

nycTerrierist , July 26, 2018 at 9:47 am

nice gesture:

https://www.washingtontimes.com/news/2018/jul/25/betsy-devos-yacht-untied-causing-10000-damages/

Michael Fiorillo , July 26, 2018 at 10:14 am

Case in point: as a public school teacher who has been opposing so-called education reform for two decades, I can assure you that the "venture/vulture philanthropy" model that infests the education world has absolutely nothing to do with improving education, and everything to do with busting the teachers unions, privatizing the schools and turning them into drilling grounds for training young people to accept the subordination, surveillance, tedium and absurdity that awaits them in the workplace. For those lucky enough to have jobs.

As a result of this phenomena, I periodically suggest a new term on the education blogs I post on: "Malanthropy:" the process of of using tax exempt, publicly subsidized entities to directly and indirectly support your financial and political interests, but which are harmful to the public good"

Newton Finn , July 26, 2018 at 9:36 am

Clear and compelling analysis, although still a little MMT challenged. About to turn 70, I vividly remember living through a sudden sea change in American capitalism. In the late 1970s/early 80s, whatever undercurrents of patriotism and humanitarianism that remained within the postwar economy (and had opened the space for the middle class) evaporated, and almost overnight we were living in a culture without any sense of balance or proportion, a virulent and violent mindset that maxed out everything and knew not the meaning of enough. Not only the business world but also the personal world was infected by this virus, as ordinary people no longer dreamed of achieving a healthy and stable family life but rather became hellbent to "succeed" and get rich. Empathy, compassion, and commitment to social justice was no longer cool, giving way to self-interest and self-promotion as the new "virtues." Men, of course, led the way in this devolution, but there was a time in the 90s when almost every other woman I knew was a real estate agent. I touched upon a small male-oriented piece of this social devolution in an essay I wrote several years ago: Would Paladin Have Shot Bin Laden? For those who might be intrigued, here's the link:

https://newtonfinn.com/2011/12/15/would-paladin-have-shot-bin-laden/

The Rev Kev , July 26, 2018 at 10:06 am

What was needed was a Wyatt Earp, not a Paladin ( https://www.youtube.com/watch?v=tgvxu8QY01s ). His standard procedure in the old West was to use his Colt revolver to pistol-whip an offender. Short, sharp and effective.
But then again there was no way that Bin Laden was ever going to be taken prisoner. That bit on his resume as being a contractor for the CIA was a bit embarrassing after all.

Brooklin Bridge , July 26, 2018 at 10:49 am

I remember the 50's and even under the hue of bright eyes saw that people were just as hell bent to 'get ahead' in their careers as now and that competing with 'the Joneses' in every crude way imaginable was the rage.

Perhaps more precise to say that in the early '80s, Capitalism reached a tipping point where gravity overcame thrust and virtues with latent vice became vices with the optics of virtue. That and the fact that the right actors always seem available -as if out of thin air, but in reality very much part of cause and effect – for a given state of entropy.

Newton Finn , July 26, 2018 at 12:22 pm

No doubt what was somewhat latent in postwar American capitalism became obscenely blatant in or around the Reagan era. It was all there before, of course, in former times like the Gilded Age. But in the midsize, now rustbelt city I grew up in and continue to live in, the upper middle class of my childhood and youth–the doctors, lawyers, corporate exec's, etc.–lived a few blocks away from my working class neighborhood, had nicer homes, drove caddys instead of chevys, and so forth, but their kids went to school with us working class kids, went to the same movies and dances, hung out in the same places, and all of us, generally, young and old, lived in essentially the same world. For example, my uncle, a lawyer, made maybe 3 times what my dad, a factory clerk, made. THAT was the split between the middle and upper middle class back then, at least in a fairly typical Midwestern city. THAT was what drastically and suddenly changed in the late 70s/early 80s and has only intensified thereafter.

BrianStegner , July 26, 2018 at 10:05 am

Terrific article, but with so many "missing" words (words left out)–too many to list, gratis–you make it a serious challenge to consider sharing with literate friends on social media. Seriously, doesn't anyone re-read their work before "posting?"

Expat2uruguay , July 26, 2018 at 10:28 am

Well, at least the missing words in this piece don't make sentences unintelligible. I've seen that happen before.

It's such a shame for authors to put so much work time and effort into their articles, but then allow the lack of an editor or final read-through to tarnish the entire work.

ChiGal in Carolina , July 26, 2018 at 11:40 am

If they're so literate, they can fill in the missing words as the NC commentariat has apparently done with no difficulty.

The substance is well worth sharing, and widely.

David Miller , July 26, 2018 at 10:11 am

One thing that strikes me – a generation ago the talking-point robots of the right could decry "socialized medicine" and all those people supposedly dying while waiting for an operation in foreign, "socialized medicine" places. And they could largely get away with it because relatively few people had personal acquaintances outside their own area.

But now, anyone active in social media probably can interact freely with people all over the world and appreciate how pathetic things really are in the US.

I read on a sports-related forum where an English guy had been watching Breaking Bad and commented offhand that he was amazed at the cost of medical treatment for Mr. White. This turned into a discussion between Brits and Yanks about the NHS. And person after person chimed in "yeah, NHS is not perfect but this kind of thing could never happen here." And you saw the Americans – "yeah, our health care system really is a disgrace."

I'm not a big fan of the social media Borg in general, but here at least seems to be a good effect. It might over time enable more people to wake up as to how jacked up certain things are here.

Eureka Springs , July 26, 2018 at 10:16 am

I'd like to declare us a completely divided, conquered people.

In the last few weeks I've visited with many old friends all of them suffering in silence. Each and every one falling further behind, on the brink of disaster, if not already there. No matter their credentials, many highly credentialed with multiple degrees and or highly experienced in several fields. All with ridiculously high work ethics. All feel maintaining personal integrity is costing them an ability to 'get ahead'.

Many of these friends have multiple jobs, no debt, no car payment, some have insurance which is killing them, medical bills which bury them if they ever have so much as basic health issues, and they are thrifty, from the clothes they wear to the amount of rent they commit themselves. And yet 'staying afloat', is but a dream trumped by guilt and isolationism.

I often joke with my fellow country neighbors that it costs a hundred bucks to simply leave the house. It's not a joke anymore. At this point those still fighting for a paltry 15.00 should include a hundred dollar per day walk out your front door per diem.

A couple months back I gave my camper to an old acquaintance who had no record, found himself homeless after being falsely accused of a crime and locked up for two months. And another friend with full time management position, just gave up her apartment to move into a tent in another friends back yard. Both of these people are bright, hard working, mid forties, white, family peeps with great children. The very kind this article addresses.

The noose tightens and people are committing desperate acts. There is no solidarity. No vision of a way out of this.

Watch a ten dollar parking ticket bring a grown man to terror in their eyes. And he brought in a thousand bucks last week, but has been texting his landlord about past due rent all afternoon.

I feel like I'm on the brink of a million episodes of " Falling Down ".

ChiGal in Carolina , July 26, 2018 at 11:50 am

Indeed. But as consciousness is raised as to the real causes (not personal failure, not robots taking over), hopefully solidarity will grow.

Wonderful article, definitely want to read the book.

John , July 26, 2018 at 11:56 am

I don't think the 0.1% wanted to build a society like this, it is just the way the math works. Somewhere around 1980 the integrity of the US was lost and it became possible for the owning class to divorce themselves from their neighbors and arbitrage labor around the world. Computers and telecommunications made it possible to manage a global supply chain and Republicans changed the tax rules to make it easier to shut down businesses and move them overseas.

A different way to view this: as the wealthy earn profits they can use some of their cash to modify the rules to their benefit. Then they gain more cash which allows them to influence voters and politicians to modify the rules even more in their favor.

If people organized they could change the rules in their favor, but that rarely happens. We used to have unions (imperfect though they were) which lobbied for the working class.

sharonsj , July 26, 2018 at 5:09 pm

I think the 1980s was when I found out my wealthy cousins, who owned a clothing factory in Georgia, had moved it to–get ready for this–Borneo! And of course they are Republicans.

Louis , July 26, 2018 at 10:17 am

The collective decisions to pull up the drawbridge, and a lot middle-class people have supported these decisions are the major reason why there is a housing crisis and higher-education is so expensive.

A lot of people, especially middle-class people, come out with pitchforks every time a new housing development is proposed, screaming about how they don't want "those people" living near them and will vehemently oppose anything that isn't single-family homes which has resulted in the housing supply lagging behind demand, thus affordability issues.

These same people over the years have decided that tax-cuts are more important than adequately funding higher education, so higher education has become a lot more expensive as state support has dwindled.

As the saying goes you made you bed, now you get to sleep in it. Unfortunately so does the younger generation who may not have anything to do with the horrible decision making of the past.

John Wright , July 26, 2018 at 10:33 am

The article stated Americans are "Petrified of being pushed aside by robots".

Maybe I associate with the wrong people, but I don't know any who fear being pushed aside by robots.

But I do know of someone who was being laid off from a tech firm and was finding his job moved overseas.

The deal management presented was, "you can leave now, with your severance package, or get two more weeks pay by training your replacement who will be visiting from overseas."

He trained the new worker for the two weeks.

The American worker is being hit, not by robots, but by outsourcing to other countries and by in-sourcing of labor from other countries.

Robots are expensive and will be avoided if a human can do the job cheaply enough.

That the article brings "fear of robots" into the discussion is a tell that the writer does not want to mention that it is the competition from others in the world wide labor force that depress USA wages.

In the USA, we are witnessing labor arbitrage encouraged by both parties and much of the media as they push USA wages toward world wide levels.

But not for the elite wage earners who gain from this system.

FluffytheObeseCat , July 26, 2018 at 10:58 am

Agreed. The kind of pink collar and barely white collar employees this piece was focused on are not presently threatened by "robots". They are threatened by outsourcing and wage arbitrage.

Brooklin Bridge , July 26, 2018 at 11:11 am

That the article brings "fear of robots" into the discussion is a tell that the writer does not want to mention that it is the competition from others in the world wide labor force that depress USA wages.

You may have a point there, and you are spot on that the vast bulk of job-loss is due to job migration and import of cheaper labor. But regardless of the writer's intent or simple laziness, don't be too fast to poo-poo the effect of Robots.

One problem is that we tend to measure job loss and gain without reference to the actual job loosers and the fact that re-training for them may well be impossible or completely ineffective or, at the very minimum, often extremely painful. So while automation may provide as many new jobs as it takes away old ones, that is cold comfort indeed to the worker who gets left behind.

Another, is that the fear of massive job loss to Robots is almost certainly warranted even if not yet fully materialized.

ambrit , July 26, 2018 at 12:24 pm

When the "Steel Wave" of robot workers comes ashore, I'll be near the head of the queue to join the "Robo Luddites." If the owners of the robot hordes won't pay a fair share of the costs of their mechanominions worker displacement activities, then they should be made to pay an equivalent share in heightened "Production Facility Security Costs." Ford Motors and the River Rouge plant strike comes to mind.
See: http://98937119.weebly.com/strike-at-the-river-rouge-plant-1941.html

Todde , July 26, 2018 at 1:01 pm

The robots are going to be shooting back

Brooklin Bridge , July 26, 2018 at 1:35 pm

It'd be great to be right there with you on that fateful day, Ambrit :-) (And I've even got my gun with the little white flag that pops out and has "Bang!" written on it, all oiled up and ready to go). I suspect however that it will be a silent D Day that probably took place some time ago.

Hard Briexit looks to be baked in the cake
Global Warming disaster looks to be baked in the cake
Water wars look to be baked in the cake.
Massive impoverishment in developed and so called third world nations alike and insane 'last gasp' looting looks to be baked in the cake
[ ]
Why would all manner of robots, the ones too tiny to see along with human looking ones and giant factories that are in reality themselves robots be the exception?

ambrit , July 26, 2018 at 9:45 pm

We'd be facing robots, so that flag would have to go "Bang" in binary code. (Might even work. While they are trying to decipher the flag, we can switch their tubes of graphite lubricant with tubes of carborundum.)
When the technologically capable humans have all died off, will the robots perish likewise for lack of programmers?

G Roller , July 26, 2018 at 4:30 pm

"Robots" are software programs, do-it-yourself online appointments, voice recognition, "press 1 now." What's the point of retraining? All you're good for is to make sure the plug is in the wall.

Arizona Slim , July 26, 2018 at 12:02 pm

The act of training the overseas replacement could become an act of sabotage. Think of the ways that one could train the replacement to do the job incorrectly, more slowly than necessary, or not at all.

Brooklin Bridge , July 26, 2018 at 1:46 pm

Sabotage by miss-training.

In a lot of cases that doesn't require much 'intentional' effort. But the lure of cheap labor seems to conquer all. I've seen software companies take loss after loss on off-shore development team screw ups until they finally get it right. I even saw one such company go out of business trying rather than just calling it quits and going back to what was left of their core developers.

funemployed , July 26, 2018 at 12:19 pm

As I approach 40, having only realized in recent years that the constant soul-ache I've lived with my whole life is not some inherent flaw in my being, but a symptom of a deeply ill society, I desperately wish I could share in the glimmer of hope at the end of this post.

But I cannot. What drives me to despair is not the fragile, corrupt, and unsustainable social/political/economic system we're inheriting; nor is it the poisoned and increasingly harsh planet, nor the often silent epidemic of mental and emotional anguish that prevents so many of us from becoming our best selves. I retain great faith in the resilience and potential of the human spirit. And contrary to the stereotypes, I think my generation and those who have come after are often more intellectually and emotionally mature than our parents and grandparents. At the very least, we have a powerful sense of irony and highly tuned BS detectors.

What drives me to despair is so pathetically prosaic that I want to laugh and cry all at once as I type this. To put it as simply as I know how, a core function of all functional human societies is apprenticeship, by which I mean the basic process whereby deep knowledge and skills are transferred from the old to the young, where tensions between tradition and change are contested and resolved, and where the fundamental human need to develop a sense of oneself as a unique and valuable part of a community can flourish.

We have been commodified since before we were even born, to the point where opportunities for what Lave and Wenger would call "legitimate peripheral participation" in the kinds of work that yield real, humane, benefits to our communities are scant to nonexistent for most of us. Something has gone deeply awry in this core social function at the worst possible time in human history.

... ,,, ,,,

ChristopherJ , July 26, 2018 at 2:03 pm

thank you funemployed, perceptive

lyman alpha blob , July 26, 2018 at 3:31 pm

Sympathies from a fellow traveler – your experience sounds similar to mine. I'm a little older and in my 20s I avoided getting a 'real' job for all the reasons you describe. When I hit my 30s and saw what some of the guys who had been hanging out in the bar too long looked like, and decided I ought to at least try it and see how it would go.

Turns out my 20 year old self had been right.

Gayle , July 26, 2018 at 5:11 pm

"Some quirk of my psychology means doing those things creates an irresistible urge in me to slowly poison myself with alcohol and tobacco."

I think those things and drugs are conscience oblivators. Try gardening. Touch the earth. Grow actual food. Not hemp. Back away from the education racket. Good luck. Quit the poison.

David May , July 26, 2018 at 5:16 pm

That was a wonderful post, very moving, thank you. These kind of testimonies are very important because they show the real human cost of neoliberalism. Neoliberalism is truly a death cult. Please find an alternative to alcohol. Music, art, nature, etc.

ChiGal in Carolina , July 26, 2018 at 7:08 pm

Thank you for sharing your compelling story. As someone who could be your mother, it is painful to me not only that this is your experience, but that you are so acutely aware of it. No blinders. Hence, I guess, the need for alcohol.

You write beautifully. Hope is hard to come by sometimes.

ambrit , July 26, 2018 at 9:58 pm

At least you are self aware. Most people are not. As for the Ship of Status, let it sink. Find a lifeboat where you feel comfortable and batten down for the Roaring (20)40s yet to come. Once you find something to work for, the bad habits will lose much of their hold on you. As long as you don't slide into alcoholism, you have a chance.

Unfettered Fire , July 26, 2018 at 12:25 pm

Life was kinder just 40 years ago, not perfect but way more mellow than it is today. Kids were listening to Peter Frampton and Stevie Wonder, not punk, grunge, rap and industrial music. What changed? Neoliberalism, the economic policy that is private sector "free market" driven, giving the owners of capital free, unfettered reign. Created by libertarians like Fredrich von Hayek and Milton Friedman, they sold it to the nation but failed to mention that little peccadillo about how privatization of government would usher in economic fascism.

"An extreme form of laissez-faire individualism that developed in the writings of Hayek, Friedman and Nozick they are also referred to as libertarians. They draw on the natural rights tradition of John Locke and champion's full autonomy and freedom of the individual."

What they meant was ECONOMIC freedom. They despise social freedom (democracy) because civil, labor, health, food safety, etc., rights and environmental protections put limits on their profits.

The "maximizing shareholder value" myth turns people into psychopaths . The entire neoliberal economic policy of the past 40 years is based on the false assumption that self-interest is the driving evolution of humanity. We're not all psychopaths, turns out. We're social beings that have mainly used cooperation to get us through these thousands of years of existence.

There's nothing wrong with wanting government to protect the public sector from predatory capitalists. Otherwise, society's value system turns upside down sick people are more valued than healthy violent are more valued to fill up the prison factories war becomes a permanent business a filthy, toxic planet is good for the oil industry a corporate governance with no respect for rights or environmental protections is the best capitalism can offer?

Thanks, but no thanks.

The easily manipulated right are getting the full assault. "Run for your lives! The democratic socialists want to use the government bank for everyone, not just the 1%!! They understand how the economy really works and see through our lies!! Before you know it, everyone will be enjoying a better quality of life! AAAAGHHH!!"

Even the IMF is getting a scolding for being so out-of-touch with reality. Isn't economics supposed to factor in conscience?

"If the IMF is to shake its image as an inward-looking, out-of-touch boys club, it needs to start taking the issue seriously. The effect of the male dominance in macroeconomics can be seen in the policy direction of the organisation: female economists are more likely to be in favour of Government-backed redistribution measures than their male counterparts.

Of course, the parochial way in which economics is perceived by the IMF, as nothing more than the application of mathematical models, is nothing new. In fact, this is how mainstream economics frequently is taught in universities all over the world. Is it any wonder that the IMF has turned out as it is?"

Michael Hudson, as usual, was right:

"Economics students are forced to spend so much time with this complex calculus so that they can go to work on Wall St. that there's no room in the course curriculum for the history of economic thought.

So all they know about Adam Smith is what they hear on CNN news or other mass media that are a travesty of what these people really said and if you don't read the history of economic thought, you'd think there's only one way of looking at the world and that's the way the mass media promote things and it's a propagandistic, Orwellian way.

The whole economic vocabulary is to cover up what's really happening and to make people think that the economy is getting richer while the reality is they're getting poorer and only the top is getting richer and they can only get rich as long as the middle class and the working class don't realize the scam that's being pulled off on them."

Newton Finn , July 26, 2018 at 5:10 pm

Unfettered Fire and funemployed: deeply appreciate your lengthy and heartfelt posts. It's a terribly small thing, but I have a suggestion to make that always helps me to feel a bit better about things or should I say to feel a bit better about the possibility of things. If you're game, and haven't already done so, search for the following free online book: "Equality" by Edward Bellamy. Then do no more than read the introduction and first chapter (and slightly into the second) to absorb by far the finest Socratic dialogue ever written about capitalism, socialism, and the only nonviolent way to move from the former to the latter–a way wide open to us, theoretically, right now. I know that's a hell of a qualifier.

Andrew Watts , July 26, 2018 at 12:54 pm

Why do modern intellectuals insist on inventing euphemisms for already known definitions? The middle precariat is merely another term for the petty bourgeoisie. While they may have possessed economic benefits like pensions and owned minuscule amounts of financial assets they were never the dominant ruling class. Their socioeconomic status was always closer in their livelihoods to the working class. After the working class was effectively being dismantled starting in the 1970s, it has become the petty bourgeoisie's turn to be systematically impoverished.

This is the primary economic development of our era of late capitalism. The question is, what does it mean to be American if this country is no longer a land of opportunity?

precariat , July 26, 2018 at 1:36 pm

Because the 'known definitions' do not apply anymore.

The middle has more in common with those below than those above. And here is the scary reason: everyone is to be preyed upon by the wealth extractors who dominate our politics/economy -- everyone. There is no social or educational allegieance, there is only a resource to be ruthlessly plundered, people and their ability to earn and secure.

Mel , July 26, 2018 at 1:44 pm

Right. It's hardly a euphemism. The Middle Precariat are the people in the 9.9% who will not be part of the 8.9%.

Andrew Watts , July 26, 2018 at 5:07 pm

The so-called precariat lacks any sense of class consciousness and as a consequence are incapable of any kind of solidarity. Nor do they perceive any predatory behavior in the economic system. If the article is to be believed they blame themselves for their plight. These traits which include the admiration and imitation of the rich are the hallmarks of the petty bourgeoisie.

This disagreement over semantics is an example of the shallowness and superficiality of new ideas. Marx already predicted that they'd be unceremoniously thrown into the underclass in later stages of economic development at any rate.

ProNewerDeal , July 26, 2018 at 1:16 pm

thanks for this article.

The BigMedia & BigPols ignore the Type 1 Overqualified Underemployed cohort. Perhaps hopefully someone like the new Rep Alexandria Ocasio-Cortez will discuss it, her recently being of this cohort as an economist by degree working as a bartender. Instead we have examples of BigMedia/BigPol crying about "STEM worker shortage" where there already are countless underemployed STEM workers working Uber-ish type McJobs.

Afaict the only occupations (mostly) immune to Type 1 Overqualified Underemployment risk here in Murica are medical pros: physicians/dentists/pharmacists & possibly nurses. Otherwise there are stories of PhD Uber drivers, MBA strippers, & lawyers working Apple store retail, especially in the first few years post 2008-GFC but still present now. In other words, the US labor market "new economy" is resembling "old economy" of Latin America or Russia (proverbial physicist selling trinkets on the Trans-Siberia railway).

precariat , July 26, 2018 at 1:24 pm

From Eureka Springs, this:

"I often joke with my fellow country neighbors that it costs a hundred bucks to simply leave the house. It's not a joke anymore. At this point those still fighting for a paltry 15.00 should include a hundred dollar per day walk out your front door per diem."

This is a stark and startling reality. This reality is outside the framework of understanding of economic struggle in America that is allowed by the corporate neoliberal culture/media.

Jean , July 26, 2018 at 1:34 pm

As the Precariat grows, having watched the .1% lie, cheat and steal – from them, they are more likely to also lie, cheat and steal in mortgage, employment and student loan applications and most importantly and sadly, in their dealings with each other. Everybody is turning into a hustler.

As to dealings with institutions, this comment is apt. I think this came from NC comments a couple of weeks ago. Apologies for not being able to attribute it to its author:

"Why should the worker be subservient to the employer? Citizens owe NO LOYALTY, moral or legal, to a someone else's money making enterprise. And that enterprise is strictly a product of signed commercial legal documents. Commercial enterprise has no natural existence. It is a man-made creation, and is a "privilege", not a "right"; just as a drivers license is a privilege and not an absolute right."

Sound of the Suburbs , July 26, 2018 at 1:38 pm

Economics was always far too dangerous to be allowed to reveal the truth about the economy. The Classical economist, Adam Smith, observed the world of small state, unregulated capitalism around him.

"The labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers."

How does this tie in with the trickledown view we have today? Somehow everything has been turned upside down.

The workers that did the work to produce the surplus lived a bare subsistence existence. Those with land and money used it to live a life of luxury and leisure.

The bankers (usurers) created money out of nothing and charged interest on it. The bankers got rich, and everyone else got into debt and over time lost what they had through defaults on loans, and repossession of assets.

Capitalism had two sides, the productive side where people earned their income and the parasitic side where the rentiers lived off unearned income. The Classical Economists had shown that most at the top of society were just parasites feeding off the productive activity of everyone else.

Economics was always far too dangerous to be allowed to reveal the truth about the economy.

How can we protect those powerful vested interests at the top of society?

The early neoclassical economists hid the problems of rentier activity in the economy by removing the difference between "earned" and "unearned" income and they conflated "land" with "capital". They took the focus off the cost of living that had been so important to the Classical Economists to hide the effects of rentier activity in the economy.

The landowners, landlords and usurers were now just productive members of society again. It they left banks and debt out of economics no one would know the bankers created the money supply out of nothing. Otherwise, everyone would see how dangerous it was to let bankers do what they wanted if they knew the bankers created the money supply through their loans.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

The powerful vested interests held sway and economics was corrupted. Now we know what's wrong with neoclassical economics we can put the cost of living back in.

Disposable income = wages – (taxes + the cost of living)

Employees want more disposable income (discretionary spending). Employers want to pay lower wages for higher profits

The cost of living = housing costs + healthcare costs + student loan costs + food + other costs of living

The neoliberals obsessed about reducing taxes, but let the cost of living soar. The economists also ignore the debt that is papering over the cracks and maintaining demand in the economy. This can never work in the longer term as you max. out on debt.

Lambert Strether , July 26, 2018 at 3:35 pm

> These young people do not think of things like debt-free college or paid family leave as radical: they see it done elsewhere in the world and don't accept that it can't be done in America.

An unexpected consequence of globalization is that a lot of people see how thing are done, elsewhere.

Livius Drusus , July 26, 2018 at 7:46 pm

Part of me doesn't feel sorry at all for the plight of middle-class Americans. When times were good they were happy to throw poor and working-class people under the bus. I remember when the common answer to complaints about factory closings was "you should have gotten an education, dummy." Now that the white-collar middle class can see that they are next on the chopping block they are finding their populist soul.

At the end of the day we need to have solidarity between workers but this is a good example of why you should never think that you are untouchable and why punching down is never a good political strategy. There will always be somebody more powerful than you and after they are done destroying the people at the bottom you will probably be next.

[Jul 25, 2018] Risks are rising that oil prices will cause next recession by Tim Mullaney

Jul 25, 2018 | finance.yahoo.com

Quote extracted from: CNBC July 23, 2018

The last five economic recessions all were preceded by a spike in crude oil prices. The recent rise in the price of oil has raised the likelihood of a recession, according to market forecasts. Oil gained more than 20 percent in the first half of 2018, and odds have been rising that higher crude oil prices will spark the next economic downturn.

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[Jul 23, 2018] Neoliberalism has spawned a financial elite who hold governments to ransom by Deborah Orr

Jun 08, 2013 | www.theguardian.com

The crash was a write-off, not a repair job. The response should be a wholesale reevaluation of the way in which wealth is created and distributed around the globe

he International Monetary Fund has admitted that some of the decisions it made in the wake of the 2007-2008 financial crisis were wrong, and that the €130bn first bailout of Greece was "bungled". Well, yes. If it hadn't been a mistake, then it would have been the only bailout and everyone in Greece would have lived happily ever after.

Actually, the IMF hasn't quite admitted that it messed things up. It has said instead that it went along with its partners in "the Troika" – the European Commission and the European Central Bank – when it shouldn't have. The EC and the ECB, says the IMF, put the interests of the eurozone before the interests of Greece. The EC and the ECB, in turn, clutch their pearls and splutter with horror that they could be accused of something so petty as self-preservation.

The IMF also admits that it "underestimated" the effect austerity would have on Greece. Obviously, the rest of the Troika takes no issue with that. Even those who substitute "kick up the arse to all the lazy scroungers" whenever they encounter the word "austerity", have cottoned on to the fact that the word can only be intoned with facial features locked into a suitably tragic mask.

Yet, mealy-mouthed and hotly contested as this minor mea culpa is, it's still a sign that financial institutions may slowly be coming round to the idea that they are the problem. They know the crash was a debt-bubble that burst. What they don't seem to acknowledge is that the merry days of reckless lending are never going to return; even if they do, the same thing will happen again, but more quickly and more savagely. The thing is this: the crash was a write-off, not a repair job. The response from the start should have been a wholesale reevaluation of the way in which wealth is created and distributed around the globe, a "structural adjustment", as the philosopher John Gray has said all along.

The IMF exists to lend money to governments, so it's comic that it wags its finger at governments that run up debt. And, of course, its loans famously come with strings attached: adopt a free-market economy, or strengthen the one you have, kissing goodbye to the Big State. Yet, the irony is painful. Neoliberal ideology insists that states are too big and cumbersome, too centralised and faceless, to be efficient and responsive. I agree. The problem is that the ruthless sentimentalists of neoliberalism like to tell themselves – and anyone else who will listen – that removing the dead hand of state control frees the individual citizen to be entrepreneurial and productive. Instead, it places the financially powerful beyond any state, in an international elite that makes its own rules, and holds governments to ransom. That's what the financial crisis was all about. The ransom was paid, and as a result, governments have been obliged to limit their activities yet further – some setting about the task with greater relish than others. Now the task, supposedly, is to get the free market up and running again.

But the basic problem is this: it costs a lot of money to cultivate a market – a group of consumers – and the more sophisticated the market is, the more expensive it is to cultivate them. A developed market needs to be populated with educated, healthy, cultured, law-abiding and financially secure people – people who expect to be well paid themselves, having been brought up believing in material aspiration, as consumers need to be.

So why, exactly, given the huge amount of investment needed to create such a market, should access to it then be "free"? The neoliberal idea is that the cultivation itself should be conducted privately as well. They see "austerity" as a way of forcing that agenda. But how can the privatisation of societal welfare possibly happen when unemployment is already high, working people are turning to food banks to survive and the debt industry, far from being sorry that it brought the global economy to its knees, is snapping up bargains in the form of busted high-street businesses to establish shops with nothing to sell but high-interest debt? Why, you have to ask yourself, is this vast implausibility, this sheer unsustainability, not blindingly obvious to all?

Markets cannot be free. Markets have to be nurtured. They have to be invested in. Markets have to be grown. Google, Amazon and Apple haven't taught anyone in this country to read. But even though an illiterate market wouldn't be so great for them, they avoid their taxes, because they can, because they are more powerful than governments.

And further, those who invest in these companies, and insist that taxes should be low to encourage private profit and shareholder value, then lend governments the money they need to create these populations of sophisticated producers and consumers, berating them for their profligacy as they do so. It's all utterly, completely, crazy.

The other day a health minister, Anna Soubry , suggested that female GPs who worked part-time so that they could bring up families were putting the NHS under strain. The compartmentalised thinking is quite breathtaking. What on earth does she imagine? That it would be better for the economy if they all left school at 16? On the contrary, the more people who are earning good money while working part-time – thus having the leisure to consume – the better. No doubt these female GPs are sustaining both the pharmaceutical industry and the arts and media, both sectors that Britain does well in.

As for their prioritising of family life over career – that's just another of the myriad ways in which Conservative neoliberalism is entirely without logic. Its prophets and its disciples will happily – ecstatically – tell you that there's nothing more important than family, unless you're a family doctor spending some of your time caring for your own. You couldn't make these characters up. It is certainly true that women with children find it more easy to find part-time employment in the public sector. But that's a prima facie example of how unresponsive the private sector is to human and societal need, not – as it is so often presented – evidence that the public sector is congenitally disabled.

Much of the healthy economic growth – as opposed to the smoke and mirrors of many aspects of financial services – that Britain enjoyed during the second half of the 20th century was due to women swelling the educated workforce. Soubry and her ilk, above all else, forget that people have multiple roles, as consumers, as producers, as citizens and as family members. All of those things have to be nurtured and invested in to make a market.

The neoliberalism that the IMF still preaches pays no account to any of this. It insists that the provision of work alone is enough of an invisible hand to sustain a market. Yet even Adam Smith, the economist who came up with that theory , did not agree that economic activity alone was enough to keep humans decent and civilised.

Governments are left with the bill when neoliberals demand access to markets that they refuse to invest in making. Their refusal allows them to rail against the Big State while producing the conditions that make it necessary. And even as the results of their folly become ever more plain to see, they are grudging in their admittance of the slightest blame, bickering with their allies instead of waking up, smelling the coffee and realising that far too much of it is sold through Starbucks.

[Jul 22, 2018] Finance capital, imperialism, and the world economy International Socialist Review

Jul 22, 2018 | isreview.org

Tony Norfield's book The City: London and the Global Power of Finance provides readers with an insider's look at the inner workings of London's financial operations and international finance. Norfield is a Marxist, and The City elucidates an explicitly Marxist analysis of the financial system and how it relates to the broader system of global capitalist power, an aspect of imperialism about which there is very little written. Norfield makes a number of important points. First, he disagrees with writers who overemphasize the dominance of US capitalism, arguing that this stance overlooks the interests that other countries hold in the system and how they oppress weaker states. Second, Norfield stresses that the financial system is an integral part of capitalism, not an aberration as some who write about the "financialization" of capital claim. And finally, regarding imperialism and world power, Norfield asserts that access to finance both reflects economic power, and serves as a way of maintaining that power internationally.

Norfield's first point is best illustrated by his description of the UK's relationship to the US following World War II. While Britain has had less power in the global financial system than the US, especially since the war, to view it as merely a "satellite" of US power, Norfield argues, is incorrect. He illustrates how Britain has acted to serve its own economic interests and has found ways to play to its strengths. Throughout this period, the UK's relationship with the United States has been a combination of both rivalry and cooperation, so while Britain accepted the dollar as the international currency following the war, it strove to generate business for British capitalism within the new dollar-dominated system. Norfield's book explains in detail how London was able to maintain its role as the center of world finance, despite Washington's rise to global dominance.

The City also situates global finance as a critical component to the daily workings of capitalist production. Norfield describes productive capitalists' reliance on financial services to obtain funds, facilitate buying and selling, set up payment systems, and acquire foreign exchange for international trade. Financial securities (stocks and bonds), in turn, both assert market attitudes toward companies' future earnings and impose market discipline upon them. Banks also play an important role by distributing capital within different sectors of commerce and industry. Additionally, the book illustrates the highly intertwined nature of industrial and financial capital, recognizing that many industrial firms are active in financial markets as well.

Echoing Marx, Norfield explains that profit is created by workers' exploitation by productive capitalists, though financial earnings do not have to come directly from productive capital. This, he declares, obscures value relations and can lead to the notion that the revenue generated by financial capital has no relation to the productive sphere. Arguments that the 2007-08 economic crisis was a product of global finance run amok arise from this notion that the financial system operates independent from capitalist production. But, Norfield rightly claims that crisis is endemic to the capitalist system, so attempts to reign in the financial sphere will not eliminate crises. "The capitalist laws of the market are only modified, not abolished, by the financial system," he explains. "This can lead to bigger booms, and bigger busts, than might have happened otherwise."

The most crucial point made in Norfield's book is the strong connection between finance and imperialism. Nations that hold a higher place in the global hierarchy of power, Norfield posits, have access to greater financial "privileges." These privileges include access to capital or financial services at a low cost and the use of its own national currency in financial transactions. The ability to offer a wider array and less expensive financial services can attract more business, including foreign company listings, to a nation's financial market. In Britain's case, Norfield highlights that the revenues generated from London's vast financial services have largely offset Britain's trade deficit that emerged in the late 1980s. This is a useful example of how a powerful country can exercise its financial privilege to reinforce its position as a major power in the world. Similarly, being able to use its domestic currency in international transactions can reduce the monetary risk and cost to the company, particularly when exchange rates are volatile. This allows these firms to outcompete companies in weaker markets for lucrative financial deals. Having the dollar as the dominant international currency means that the United States reaps the lion's share of these financial benefits, though other countries assert their own imperial power to establish their national currency for various international transactions.

Because the US dollar is the dominant international currency, the United States can be understood as the provider of global money. This position, Norfield explains, gives Washington a level of economic power unavailable to other nations. For one, the United States has the capacity to cut rival countries off from any transactions denominated in dollars. Another aspect is the Federal Reserve's role in the provision of dollars to other countries that are often dependent on an infusion of dollars during times of market instability. This places them in a vulnerable position where their financial wellbeing is dependent upon US action. From this position, the United States can assert its power over weaker nations and force them to abide by its wishes without the use or even the threat of any military force.

The more powerful a nation is on the global stage the more benefits are available to its national capitalists. Norfield stresses capitalist corporations' dependence on their national state, even the so-called "international" corporations. He argues that a corporation's financial power depends on entitled access to credit markets and its capacity to initiate large-scale transactions. But these aspects of economic power depend on more than the company's own abilities; they rely upon the strength of their own state in securing international transactions in the country's national currency. This is a particular financial advantage, explains Norfield, which differs from the import tariffs and favorable investments or trade deals that a state may be able to leverage to the benefit of national corporations, though all are key ways in which corporations rely upon the state.

Norfield presents the 2000 takeover of the German mobile telecom company Mannesmann by British firm Vodaphone as an illustrative example of how a corporation's connection to dominant imperial power reaps significant benefits. Vodaphone's takeover was facilitated by the preeminence of London's financial market in relation to the weaker Frankfurt, as well as Vodaphone's close links to British and US money-capitalists as shareholders, revealing the corporation's links to imperial power as crucial to its own economic dominance. The privileges that corporations receive from the power and actions of their national states can help to reinforce their position in the global economy, which can, in turn, provide tax revenues and rising employment and income, serving the interests of the state in this reciprocal relationship.

The City is a vital contribution to the Marxist understanding of international finance and how it is integrated within the global web of imperial power. Readers will not only gain a greater sense of how global finance works, but also the critical role it plays in the day-to-day management of power relations between competing nations.

[Jul 16, 2018] Donald Trump s Trade Wars Could Lead to the Next Great Depression by Nomi Prins

Jun 22, 2018 | thenation.com

EDITOR'S NOTE: This article originally appeared at TomDispatch.com .

Leaders are routinely confronted with philosophical dilemmas. Here's a classic one for our Trumptopian times: If you make enemies out of your friends and friends out of your enemies, where does that leave you? What does winning (or losing) really look like? Is a world in which walls of every sort encircle America's borders a goal worth seeking? And what would be left in a future fragmented international economic system marked by tit-for-tat tariffs, travel restrictions, and hyper-nationalism? Ultimately, how will such a world affect regular people? Let's cut through all of this for the moment and ask one crucial question about our present cult-of-personality era in American politics: Other than accumulating more wealth and influence for himself, his children , and the Trump family empire , what's Donald J. Trump's end game as president? If his goal is to keep this country from being, as he likes to complain, " the world's piggy bank ," then his words, threats, and actions are concerning. However bombastic and disdainful of a history he appears to know little about, he is already making the world a less stable, less affordable, and more fear-driven place. In the end, it's even possible that, despite the upbeat economic news of the moment, he could almost single-handedly smash that piggy bank himself, as he has many of his own business ventures . Still, give him credit for one thing: Donald Trump has lent remarkable new meaning to the old phrase "the imperial presidency." The members of his administration, largely a set of aging white men, either conform to his erratic wishes or get fired. In other words, he's running domestic politics in much the same fashion as he oversaw the boardroom on his reality-TV show The Apprentice . Now, he's begun running the country's foreign policy in the same personalized, take-no-prisoners, you're-fired style. From the moment he hit the Oval Office, he's made it clear at home and abroad that it's his way or the highway. If only, of course, it really was that simple. What he will learn, if "learning process" and "President Trump" can even occupy the same sentence, is that "firing" Canada, the European Union (EU), or for that matter China has a cost. What the American working and the middle classes will see (sooner than anyone imagines) is that actions of his sort have unexpected global consequences. They could cost the United States and the rest of the world big-time. If he were indeed emperor and his subjects (that would be us) grasped where his policies might be leading, they would be preparing a revolt. In the end, they -- again, that's us -- will be the ones paying the price in this global chess match.

The Art of Trump's Deals

So far, President Trump has only taken America out of trade deals or threatened to do so if other countries don't behave in a way that satisfies him. On his third day in the White House, he honored his campaign promise to remove the United States from the Trans-Pacific Partnership, a decision that opened space for our allies and competitors, China in particular, to negotiate deals without us. Since that grand exit, there has, in fact, been a boom in side deals involving China and other Pacific Rim countries that has weakened, not strengthened, Washington's global bargaining position. Meanwhile, closer to home, the Trump administration has engaged in a barrage of NAFTA-baiting that is isolating us from our regional partners, Canada and Mexico.

Conversely, the art-of-the-deal aficionado has yet to sign a single new bilateral trade deal. Despite steadfast claims that he would serve up the best deals ever, we have been left with little so far but various tariffs and an onslaught against American trading partners. His one claim to bilateral-trade-deal fame was the renegotiation of a six-year-old deal with South Korea in March that doubled the number of cars each US manufacturer could export to South Korea (without having to pass as many safety standards).

As White House Press Secretary Sarah Sanders put it , when speaking of Kim Jong-un's North Korea, "The President is, I think, the ultimate negotiator and dealmaker when it comes to any type of conversation." She left out the obvious footnote, however: any type that doesn't involve international trade.

In the past four months, Trump has imposed tariffs, exempting certain countries, only to reimpose them at his whim. If trust were a coveted commodity, when it came to the present White House, it would now be trading at zero. His supporters undoubtedly see this approach as the fulfillment of his many campaign promises and part of his classic method of keeping both friends and enemies guessing until he's ready to go in for the kill. At the heart of this approach, however, lies a certain global madness, for he now is sparking a set of trade wars that could, in the end, cost millions of American jobs.

The Allies

On May 31st, Commerce Secretary Wilbur Ross confirmed that Canada, Mexico, and the EU would all be hit with 10 percent aluminum and 25 percent steel tariffs that had first made headlines in March. When it came to those two products, at least, the new tariffs bore no relation to the previous average 3 percent tariff on US-EU traded goods.

In that way, Trump's tariffs, initially supposed to be aimed at China (a country whose president he's praised to the skies and whose trade policies he's lashed out at endlessly), went global. And not surprisingly, America's closest allies weren't taking his maneuver lightly. As the verbal-abuse level rose and what looked like a possible race to the bottom of international etiquette intensified, they threatened to strike back.

In June, President Trump ordered that a promised 25 percent tariff on $50 billion worth of imported goods from China also be imposed. In response, the Chinese, like the Europeans, the Canadians, and the Mexicans, immediately promised a massive response in kind. Trump countered by threatening another $200 billion in tariffs against China. In the meantime, the White House is targeting its initial moves largely against products related to that country's " Made in China 2025 " initiative, the Chinese government's strategic plan aimed at making the country a major competitor in advanced industries and manufacturing.

Meanwhile, Mexico began adopting retaliatory tariffs on American imports. Although it has a far smaller economy than the United States, it's still the second-largest importer of US products, buying a whopping $277 billion of them last year. Only Canada buys more. In a mood of defiance stoked by the president's hostility to its people, Mexico executed its own trade gambit, imposing $3 billion in 15 percent–25 percent tariffs against US exports, including pork, apples, potatoes, bourbon, and cheese.

While those Mexican revenge tariffs still remain limited, covering just 1 percent of all exports from north of the border, they do target particular industries hard, especially ones that seem connected to President Trump's voting "base." Mexico, for instance, is by far the largest buyer of US pork exports, 25 percent of which were sold there last year. What its 20 percent tariff on pork means, then, is that many US producers will now find themselves unable to compete in the Mexican market. Other countries may follow suit. The result: a possible loss of up to 110,000 jobs in the pork industry.

Our second North American Free Trade Agreement (NAFTA) partner (for whose prime minister, Justin Trudeau, there is " a special place in hell ," according to a key Trumpian trade negotiator) plans to invoke tariffs of up to 25 percent on about $13 billion in US products beginning on July 1st. Items impacted range "from ballpoint pens and dishwasher detergent to toilet paper and playing cards sailboats, washing machines, dish washers, and lawn mowers." Across the Atlantic, the EU has similarly announced retaliatory tariffs of 25 percent on 200 US products, including such American-made classics as Harley-Davidson motorcycles, blue jeans, and bourbon.

Trump Disses the Former G7

As the explosive Group of Seven, or G7, summit in Quebec showed, the Trump administration is increasingly isolating itself from its allies in palpable ways and, in the process, significantly impairing the country's negotiating power. If you combine the economies of what might now be thought of as the G6 and add in the rest of the EU, its economic power is collectively larger than that of the United States. Under the circumstances, even a small diversion of trade thanks to Trump-induced tariff wars could have costly consequences.

President Trump did try one "all-in" poker move at that summit. With his game face on, he first suggested the possibility of wiping out all tariffs and trade restrictions between the United States and the rest of the G7, a bluff met with a healthy dose of skepticism. Before he left for his meeting with North Korean leader Kim Jong-un in Singapore, he even suggested that the G7 leaders "consider removing every single tariff or trade barrier on American goods." In return, he claimed he would do the same "for products from their countries." As it turned out, however, that wasn't actually a venture into economic diplomacy, just the carrot before the stick, and even it was tied to lingering threats of severe penalties.

The current incipient trade war was actually launched by the Trump administration in March in the name of American " national security ." What should have been highlighted, however, was the possible "national insecurity" in which it placed the country's (and the world's) future. After all, a similar isolationist stance in the 1920s and the subsequent market crash of 1929 sparked the global Great Depression, opening the way for the utter devastation of World War II.

European Union countries were incredulous when Trump insisted, as he had many times before, that the "U.S. is a victim of unfair trade practices," citing the country's trade deficits, especially with Germany and China. At the G7 summit, European leaders did their best to explain to him that his country isn't actually being treated unfairly. As French President Emmanuel Macron explained , "France runs trade deficits with Germany and the United Kingdom on manufactured goods, even though all three countries are part of the EU single market and have zero tariffs between them."

[Jul 05, 2018] The Birth of Predatory Capitalism by Umair

Yes neoliberalism is deeply predatory. Still is survives as a social system for let's say 40 years (1987-2017) and probably will survive another 20-30 years. And what is coming might be worse. If Trump signify turn to "national neoliberalism" the next step from it might some kind of neofascism.
Notable quotes:
"... But financialization didn't just have a direct cost  --  no value being created, just men in shiny suits betting pebbles on who'd blink first. It also had an opportunity cost. As finance grew to be a larger and larger share of the economy, so the wind got sucked out of the sails of the "real economy", as American economists put it, which simply means people doing the work that actually does create value  --  teachers, nurses, engineers, artisans, bakers, small-town factories, and so on. Think about it simply: the more money that was burned up in speculating, the less that was available for making things of genuine value. So the incomes of all these people  --  those in the "real economy"  --  began to stagnate. New schools and hospitals and energy grids and so on weren't built  --  all the money was going towards speculating on the backs the old ones, sometimes, often, on their failures. A black hole was growing at the heart of the economy  --  but according to pundits, it was the sun itself. Everything was upside down. The bets were indeed about to all go south at once  --  only no one knew understood how or why yet. ..."
"... The third force in the rise of predatory capitalism was the implosion of the institution formerly known as the job. Now, just before peak financialization, beginning in the 1990s, many jobs were "offshored." That's a polite way to say that the speculators above discovered that companies were more profitable when they evaded as much of human civilization as possible. Find a country with no labour laws, no protections, no standards, no rule of law at all, in fact  --  and send jobs there. That way, you wouldn't have to pay for pensions, healthcare, childcare, insurance, and so on. Cost savings! Efficiency! Synergies, even  --  you could make everything in that one sweatshop. ..."
"... We're used to thinking that offshoring "took" jobs in rich countries. But the truth is subtler  --  and more ruinous. They blew apart the idea of a job as we used to know it. As jobs went to countries without good governance, decent labour laws, a boomerang effect happened. ..."
"... Managers began stripping away benefits of every kind, from childcare, to vacations, to healthcare. Until, at last, in a final triumph, the "at-will job" and the "zero-hours contract" were created  --  social contracts that were only "jobs" in name, but offered less than no stability, security, mobility, or opportunity. People who didn't have benefits could now be fired on a whim  --  and so now they bore all the risk. But the risk of what, precisely? ..."
"... Remember those speculators? Taking huge risks, betting billions with each other, on exactly nothing of real value? Risk had come full circle. Now it was the average person in the real economy who bore all the risks of these bets going bad. If the bets with south, who'd take the hit? All those people with zero benefits, no protection, no safety ..."
"... So in had to step governments. They bailed out the banks  --  but didn't "restructure" them, which is to say, fire their managers, wash out their shareholders, and sell off the bad loans and bets. They just threw money at them ..."
"... What does a bankrupt have to do? Liquidate. So governments began to slash investment in social systems of all kinds. Healthcare systems, pension systems, insurance systems, media and energy systems. This was the fourth step in the birth of predatory capitalism: austerity. ..."
"... The only thing keeping the real economy going at this point was investment by the government  --  after all, the speculators were speculating, not investing for the long run. It was governments that were effectively keeping economies afloat, by providing a floor for income, by anchoring economies with a vast pool of stable, safe, real, secure jobs, and investing dollars back in societies short of them. And yet, at the precise moment that governments needed to create more of precisely that, they did just the opposite. ..."
"... It's the once prosperous but now imploded middle which turns on the classes, ethnicities, groups, below it. The people who expected and felt entitled to lives of safety and security and stability  --  who anticipated being at the top of a tidy little hierarchy, the boss of this or that, the chieftain of that or this, but now find themselves adrift and unmoored in a collapsing society, powerless. ..."
"... Predatory capitalism imploding into strange, new forms of old diseases of the body politic ..."
Jul 05, 2018 | eand.co

A (successful) American politician who cries: Neo-nazis in the Bundestag . The extreme right rising in Italy . Poland's authoritarians purging its Supreme Court .

How did we get here? To a world where the forces of intolerance and indecency are on the rise, and those of decency, wisdom, and civilization are waning? Is something like a new Dark Age falling?

I think it has everything to do with predatory capitalism, and so I want to tell you a story. Of how it came to be born, in four steps, which span three decades.

During the 2000s, the economy of the rich world underwent something like a phase transition. It became "financialized", as the jargon goes  --  which simply means that finance came to make up a greater and greater share of the economy. Hedge funds and investment banks and shady financial vehicles of all kinds went from a modest portion of the economy, to making up a huge chunk of it  --  around half, in some countries.

Now, what was "financialization" for? What were all these bankers, hedge fund managers, investors, and so on, doing? The answer is: nothing. Nothing of value, anyways. They were simply placing bets with each other. Bets on bets on bets, meta-bets. Economists, who have something like an inferiority complex, envious of swashbuckling bankers, bought their marketing pitch hog, line, and sinker: "we're going to reduce risk! Everyone will benefit!" But no such thing was happening  --  and anyone could see it. Risk was being massively amplified, in fact, because every time a speculator made a billion dollar bet with another, they were both betting with the same pool of money, essentially. Whose money? It wasn't theirs  --  it was everyone's. Pensions, savings, bank accounts, earnings, retirement funds. All that being bet on bets on bets on bets which amounted to nothing. But what if all the bets went south at once?

First, I want you to really understand that what was happening was a zero-sum game, where one had to lose for another to win. Imagine there are three of us, in a little stone age tribe, with a hundred pebbles each. We spend all day every day finding new ways to lend pebbles to each other, to bet them on who'll blink first, or even bets on those bets, and so on. In our little economy, does anyone ever end up better off? Does anyone, for example, discover antibiotics, or even invent the wheel? Nope. We're just fools, who'll never accomplish, learn, or create anything, sitting around playing a zero-sum game, in which no real value is ever created. The pebbles never become anything more valuable, like, for example, books, symphonies, knowledge, or medicine. All that is exactly what was happening during the phase of financialization.

But financialization didn't just have a direct cost  --  no value being created, just men in shiny suits betting pebbles on who'd blink first. It also had an opportunity cost. As finance grew to be a larger and larger share of the economy, so the wind got sucked out of the sails of the "real economy", as American economists put it, which simply means people doing the work that actually does create value  --  teachers, nurses, engineers, artisans, bakers, small-town factories, and so on. Think about it simply: the more money that was burned up in speculating, the less that was available for making things of genuine value. So the incomes of all these people  --  those in the "real economy"  --  began to stagnate. New schools and hospitals and energy grids and so on weren't built  --  all the money was going towards speculating on the backs the old ones, sometimes, often, on their failures. A black hole was growing at the heart of the economy  --  but according to pundits, it was the sun itself. Everything was upside down. The bets were indeed about to all go south at once  --  only no one knew understood how or why yet.

How was the real economy to survive, then? Another hidden effect of financialization was super-concentration  --  the second force in the rise of predatory capitalism. Mom-and-pop capitalism is a healthy and beautiful thing, an economy of a million little shops, bakeries, artisans  --  but it takes only a modest attachment to a profit motive. But thanks to the rise of massive, global speculation, only aggressive quarterly profit-maximization was allowed. CEO earnings were hitched to share prices, and your share price only went up if your earnings did, relentlessly, illogicaly, crazily, every single quarter, instead of stabilizing at a happy, gentle amount  --  and so the only way left, in the end, to achieve it, was to build titanic monopolies, which could squeeze people for every dime. Once the economy had Macy's, JC Penney, K-Mart, Toys-R-Us and Sears. Now it has Walmart. The story was repeated across every single industry. Amazon, Google, Apple. A new age of monopoly arose.

But monopolies had an effect, too. The third force in the rise of predatory capitalism was the implosion of the institution formerly known as the job. Now, just before peak financialization, beginning in the 1990s, many jobs were "offshored." That's a polite way to say that the speculators above discovered that companies were more profitable when they evaded as much of human civilization as possible. Find a country with no labour laws, no protections, no standards, no rule of law at all, in fact  --  and send jobs there. That way, you wouldn't have to pay for pensions, healthcare, childcare, insurance, and so on. Cost savings! Efficiency! Synergies, even  --  you could make everything in that one sweatshop.

We're used to thinking that offshoring "took" jobs in rich countries. But the truth is subtler  --  and more ruinous. They blew apart the idea of a job as we used to know it. As jobs went to countries without good governance, decent labour laws, a boomerang effect happened. The machine discovered that it could do in rich countries what it had done in poor ones  --  and so it began stripping away everything that made a job "a job." Because the economy was increasingly composed of monopolies, giant companies, banks, and investors had the power to do so with impunity. Speculators began raiding pension funds. Managers began stripping away benefits of every kind, from childcare, to vacations, to healthcare. Until, at last, in a final triumph, the "at-will job" and the "zero-hours contract" were created  --  social contracts that were only "jobs" in name, but offered less than no stability, security, mobility, or opportunity. People who didn't have benefits could now be fired on a whim  --  and so now they bore all the risk. But the risk of what, precisely?

Remember those speculators? Taking huge risks, betting billions with each other, on exactly nothing of real value? Risk had come full circle. Now it was the average person in the real economy who bore all the risks of these bets going bad. If the bets with south, who'd take the hit? All those people with zero benefits, no protection, no safety, all those people for whom "a job" now meant something more like "a temporary soul-crushing way to avoid destitution." They're the ones who'd be fired, instantly, lose what little savings they had, have their already dwindling incomes slashed, be ruined.

And then the bets went bad. As bets tend to do, when you make too many of them, on foolish things. What had the speculators been betting with each other on? As it turns out, largely on property prices. But people without the stable jobs that had kept such a huge property bubble going didn't have growing incomes anymore. Property prices couldn't keep rising. Bang! The financial system fell like a row of dominoes. It turned out that everyone had bet property prices would go on rising  --  and on the other side of that bet was everyone else. All of them had been betting on the same thing  --  "we all bet prices will keep rising forever!" The losses were so vast, and so widespread, that the whole global financial system buckled. The banks didn't have the money to pay each other for these foolish bets  --  how could they have? Each one had bet the whole house on the same thing, and they all would have gone bankrupt to each other. LOL  --  do you see the fatal stupidity of it all yet?

So in had to step governments. They bailed out the banks  --  but didn't "restructure" them, which is to say, fire their managers, wash out their shareholders, and sell off the bad loans and bets. They just threw money at them  --  and took those bad bets onto the nation's books, instead. It was the most foolish decision since the Great Depression. Why?

Well, now governments had trillions in  --  pow!  --  sudden debt. What were they to do? How would they pay it off? Now, you might think that Presidents are very intelligent people, but unfortunately, they are just politicians. And so instead of doing what they should have done  --  printing money, simply cancelling each others' debts to each other, which were for fictional speculation anyways  --  they decided that they were "broke". Bankrupt, even  --  even though a country can't go bankrupt, anymore than you could if you could print your own currency at home, and spend it everywhere.

What does a bankrupt have to do? Liquidate. So governments began to slash investment in social systems of all kinds. Healthcare systems, pension systems, insurance systems, media and energy systems. This was the fourth step in the birth of predatory capitalism: austerity.

But people's incomes were already dwindling, thanks to the first three steps  --  as jobs not just disappeared in quantity, but also imploded in quality, as monopolies grew in power, and as pointless, destructive, zero-sum speculation sucked the life out of the real economy. The only thing keeping the real economy going at this point was investment by the government  --  after all, the speculators were speculating, not investing for the long run. It was governments that were effectively keeping economies afloat, by providing a floor for income, by anchoring economies with a vast pool of stable, safe, real, secure jobs, and investing dollars back in societies short of them. And yet, at the precise moment that governments needed to create more of precisely that, they did just the opposite.

Snap! Economies broke like twigs. The people formerly known as the middle class had been caught in between the pincers of these four forces  --  financialization, monopoly, the implosion of the job, and austerity. Together, they shattered what was left of rich economies  --  to the point that today, incomes are stagnant across the rich world, even in much vaunted Scandinavia, while living standards are falling in many rich countries, like the US and UK.

What do people do as hardship begins to bite  --  especially those who expected comfortable, easy lives? They become reactionary, lashing out violently. They seek safety in the arms of demagogues. That doesn't mean, as American pundits naively think, that "poor people become authoritarians!" Quite the opposite.

It's the once prosperous but now imploded middle which turns on the classes, ethnicities, groups, below it. The people who expected and felt entitled to lives of safety and security and stability  --  who anticipated being at the top of a tidy little hierarchy, the boss of this or that, the chieftain of that or this, but now find themselves adrift and unmoored in a collapsing society, powerless.

That gap between expectation and reality is what ruinous. They retain a desperate need to be atop a hierarchy, to be above someone, the entitled imploded middles  --  and what has happened in history, time and again, is that they turn to those who promise them just that superiority, by turning on those below them. Even if, especially if, it is in the extreme, irrational, yet perfectly logical form of supremacy and dominion over the weak, the despised, and the impure.

And that is what all today's reactionary, extremist movements  --   which I call the Faction  --  really are. Predatory capitalism imploding into strange, new forms of old diseases of the body politic -- ultrauthoritarianism, theosupremacism, kleptofascism, neofeudalism, biodominionism, hatriarchy, technotalitarianism, novel and lethal forms of ruin for a new dark age.

And so here we are, you and I. On the cusp of that age. A time where the shadows in human hearts shine as black and blinding as midnight. And once again, it is the folly and hubris of wise men that led us here.

Umair
July 2018

[Jun 17, 2018] Nomi Prins: The Central Banking Heist That Put The World At Risk by Liam Halligan

Jun 17, 2018 | www.zerohedge.com

Authored by Liam Halligan via Unherd.com,

"The 2008 financial crisis was the consequence of a loosely regulated banking system in which power was concentrated in the hands of too limited a cast of speculators, " Nomi Prins tell me. "And after the crisis, the way the US government and the Federal Reserve dealt with this corrupt and criminal banking system was to give them a subsidy."

Such strong, withering analysis is, perhaps, unexpected from someone who has held senior roles at Wall Street finance houses such as Bear Stearns and Goldman Sachs. But Prins is no ordinary former banker.

The US author and journalist left the financial services industry in 2001. She did so, in her own words, "partly because life was too short", and "partly out of disgust at how citizens everywhere had become collateral damage, and later hostages, to the banking system".

Since then, Prins has chronicled the closed and often confusing world of high finance through the 2008 crisis and beyond. Her writing combines deep insider knowledge with on-the-ground reporting with sharp, searing prose. Alongside countless articles for New York Times , Forbes and Fortune , she has produced six books – including Collusion: how central bankers rigged the world , which has just been published.

Her main target in the new work is "quantitative easing" – described by Prins as "a conjuring trick" in which "a central bank manufactures electronic money, then injects it into private banks and financial markets". Over the last decade, she tells me when we meet in London, "under the guise of QE, central bankers have massively overstepped their traditional mandates, directing the flow of epic sums of fabricated money, without any checks or balances, towards the private banking sector".

Since QE began, in the aftermath of the financial crisis, "the US Federal Reserve has produced a massive $4.5 trillion of conjured money, out of a worldwide QE total of around $21 trillion", says Prins. The combination of ultra-low interest rates and vast monetary expansion, she explains, has caused "speculation to rage... much as a global casino would be abuzz if everyone gambled using everyone else's money".

Much of this new spending power, though, has remained "inside the system", with banks shoring up their balance sheets. "So lending to ordinary firms and households has barely grown as a result of QE," says Prins, "nor have wages or prosperity for most of the world's population". Instead, "the banks have gone on an asset-buying spree", she explains, getting into her stride, "with the vast flow of QE cash from central banks to private banks ensuring endless opportunities for market manipulation and asset bubbles – driven by government support".

Prins describes "the power grab we've seen by the US Federal Reserve, the European Central Bank, the Bank of Japan and other central banks". Using QE, she argues, "these illusionists have altered the nature of the financial system and orchestrated a de facto heist that has enabled the most dominant banks and central bankers to run the world".

She says all this looking me straight in the eye, with the deadpan delivery, supreme confidence and unflinching focus of the senior investment banker she was. But the words are those of an angry and committed activist – someone who is absolutely determined to do what she can to reform global finance, starting in her native country.

Nomi Prins deals in bold statements and fearless analysis. While often accused of hyperbole, her deep research, financial expertise and former 'insider status' means only a fool would dismiss her. She is just at home within academia as she is on the political front line – a regular on the university lecture circuit, Prins was also a member of Senator Bernie Sanders' team of economic experts, advising on central bank reform. Yet, such is her reputation that she commands a place among those she chides – and is regularly consulted, formally and informally, by senior officials at the Fed, the ECB and other major central banks.

Surveying the history of the response to the 2008 financial crisis, Prins tells me that explicit bank bailouts were only a small part of the story. "First, there was the $700bn package agreed in Congress to save the US banks that caused the crisis," she says. "But the real bailout was the trillions of dollars of QE produced by the Fed – a massive subsidy to banks and financial markets, that has created an enormous bubble, a subsidy agreed by unelected officials and barely debated or remarked upon."

After initiating QE in late 2008, the Fed then "exported the idea – and that required the collusion of other major central banks", Prins argues. She points out that even though the Fed and the Bank of England have currently stopped doing QE, new money amounting to hundreds of billions of dollars a month is still being pumped out by central banks elsewhere, not least the ECB and the Bank of Japan.

"When the asset bubble pops, the fragile financial system and the broader economic environment could be thrown into deep depression and turmoil," she says.

"That's why the QE baton has been passed from the US to other nations, and why the central banks are so desperate to collude."

I put to Prins the conventional wisdom: there was no alternative to QE, and without it, the global banking system would have collapsed in 2008, causing untold economic and political damage. While she accepts there was a need for immediate post-crisis action, she argues the time for emergency measures has now long since passed. "If financial markets so much as wobble, the world's leading central banks, between them, do more QE," she says. "The insiders maintain the status quo of subsidies to the financial system – but there is no world war, aliens are not invading our planet, this is totally unjustified."

Prins says that QE has been "a massive deceit and a huge factor in driving inequality – a dedicated effort by institutions with the ability to create money, deciding that it doesn't go to ordinary people". While it was sold "as a massive trickle-down programme, helping the incomes of regular households, the benefits have been focused at the very top".

Stock markets have benefitted, she acknowledges, "but a mere 10% of Americans own 85% of the market". Prins also argues that low interest rates have harmed most Americans. "We need to normalise the rate environment, so ordinary people get some kind of return on their pensions and savings," she says.

QE and low rates, says Prins, have also caused "a debt explosion" – as not only have governments taken on more borrowing but financial institutions have too, keen to boost the scale of their investments in QE-driven markets that look like a one-way bet. US government debt has soared from $9 trillion to over $20 trillion since the financial crisis, Prins observes. "And public and private debt combined amount to a staggering 225% of global GDP – much of it accumulated since the financial crisis," she says.

"The next financial crisis will be sparked by a debt failure somewhere – then this QE bubble will pop very quickly," Prins predicts. "And when the new crisis comes, rates are already low and we have little in the way of fiscal ammunition, so mitigation will be very tough – and it will be ordinary people who suffer the most".

In response to the financial crisis, Prins maintains it would have been far cheaper and more effective for the state to intervene directly, providing explicit assistance to cash-strapped householders struggling to service the distressed mortgages at the heart of the crisis. "There was half a trillion dollars of sub-prime mortgages across the US in 2008," she recalls. "You could have bought up these properties, or just temporarily covered the loans," she says. "That would have cost much less than half a trillion, and would also have helped the banks by turning their junk assets into performing loans."

Prins says the "banks and central banks together" instead concocted QE. "We've allowed a grotesque $21 trillion global subsidy which has seen the bankers not only avoid punishment for the huge mess they created, but then entrench their financial advantage even more."

What we need, she says, is "better regulation" – in particular, a return to the "Glass-Steagall environment where investment banks can't leverage their balance sheets by so much and rely on government support". Since the Depression-era separation between risky investment banking and run-of-the-mill commercial banking was repealed by the Clinton administration in 1997, "a financial crisis was unavoidable", she says. "As long as the deposits of ordinary people and companies can be used by investment bankers as fodder for reckless speculation, in the knowledge those deposits are backed by the state, the world is at risk."

Prins is dismayed at how easily on-going QE, continuing years after the financial crisis, has been accepted by the political and media classes. "There is joint approval across the middle of the left-right spectrum," she says. "The economics profession and almost all commentators don't seem to care that this money is completely unaccountable and untracked – and has caused an enormous bubble." The reason, she observes, is that contemplating the end of QE is too difficult. "The unwind will cause pain and could result in a meltdown, as the markets and the debt mountain collapse."

In Collusion , Prins takes us on a whistle-stop tour of global finance, describing how the leaders of the Banco de México tried to navigate their country's complicated relationship with the Fed and how Brazil has led the charge in challenging the dollar's all-important "reserve currency status". The book goes to China , where we learn how Beijing is using "dark money" to upend dollar-hegemony, helping to drive the country's ascent as a global superpower.

We read how Europe's response to the financial crisis has heightened tension between the ECB and Germany – fuelling intra-EU resentments that have fuelled populism and help explain Brexit. Prins describes how Japan "leverages the rivalry between the US and China", while embarking on "the most ambitious money-conjuring scheme to date".

But it is in the US where the bulk of the narrative is set and it is there the arguments Prins makes will be most keenly read. The Federal Reserve has just lifted interest rates by a quarter point, and signalled that two more increases are likely in 2018. As the world's most important central bank continues the long, gradual march away from emergency measures, and with the ECB also committed soon to ending QE, the warnings in this important book about extent of today's asset price bubbles, and the role central banks have played in causing them, are about to be severely tested.

"What we've witnessed, since 2008, is the unbridled ability of the so-called people at the top to implement socialism for the banks," Prins tells me. "If anyone had said we are going to give $21 trillion to the global banking sector, it would never have happened – so we've had a backdoor process instead, under the pretense it would help ordinary people."

Leaning forward for the first time, Prins ups the ante. "Well, real people don't believe that – and they'll believe it even less as and when we have another crash, a crash off the back of ten years of emergency measures that were supposed to fix the system."

"The issue isn't whether this money-conjuring game can continue," she says as she prepares to leave. "The issue is that central banks have no plan B in the event of another crisis – and that's going to create an even more massively negative view among ordinary people towards those who see themselves as elites."

Listen to Liam Halligan's interview with Nomi Prins here:

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Comments Vote up! 26 Vote down! 0

Oldguy05 Sat, 06/16/2018 - 17:24 Permalink

I love you Nomi ;)

house biscuit -> Oldguy05 Sat, 06/16/2018 - 17:29 Permalink

If she's getting regularly published in the standard MSM rags, then she is leading you down the wrong path; full stop

TBT or not TBT -> house biscuit Sat, 06/16/2018 - 17:32 Permalink

Hers is an absolutely novel thesis, particularly here on ZH, where we think all is going for the best in the best of all possible worlds .

Blue Steel 309 -> house biscuit Sat, 06/16/2018 - 17:39 Permalink

One of her obfuscations is the concentrating on "asset bubbles" rather than the fact that these Banksters are obtaining ownership of the worlds real assets without having to pay for them. As if they didn't have enough power.

Ownership of corporations (and control of them), is one of the subjects carefully avoided by the Rotschild media machine.

There is only one group of people who it is illegal to question in a good number of ethnic European countries.

PhilofOz -> Blue Steel 309 Sat, 06/16/2018 - 18:13 Permalink

Prins describes "the power grab we've seen by the US Federal Reserve, the European Central Bank, the Bank of Japan and other central banks".

Replace "....the US Federal Reserve, the European Central Bank, the Bank of Japan and other central banks" with "....the Rothschild Crime Family" would be a more appropriate comment.

The Rothschild Crime Family own and control every central bank on the planet except three, Iran, North Korea and Cuba, lending money at interest to governments everywhere. Do you have debt, a home loan, a car loan, student debt, credit card debt?! What about the debt your Federal, State and Local governments have on behalf of you, your children and grand-children? Just imagine that over 50% of all that debt is owed and the interest continually paid to the Rothschild clan and their tight knit group of international bankers. Do you feel good about yourself still, being nothing more than a serf to them? Money makes money, and in this case the biggest crime syndicate that will ever exist, one that has the military of various countries continuing their protection racket for them as well as IRS type institutions doing their debt collecting, will never be satisfied until they have everything!

Jack Oliver -> house biscuit Sat, 06/16/2018 - 18:33 Permalink

Alternative thinking would suggest that Prins is spot on ! The reason she gets MSM 'coverage' is because she has not revealed the true enormity of it ! The scenario's she suggests have definitely played out !

Although, she is withholding the TRUE scale of it - it's MASSIVE !

There is NO plan B and there is NO way out !

Apart from WAR !!

TheSilentMajority -> Oldguy05 Sun, 06/17/2018 - 04:21 Permalink

Buy high, sell low, works every time!

GotAFriendInBen Sat, 06/16/2018 - 17:25 Permalink

Same things said here

https://www.rollingstone.com/politics/news/secret-and-lies-of-the-bailo

Juggernaut x2 -> VolAnarchist Sat, 06/16/2018 - 17:46 Permalink

Absolute power corrupts absolutely and that is what the banks have- absolute power- "The banks run this place(Congress)"- Sen Dick Durbin(IL) 2008.

Not if_ But When Sat, 06/16/2018 - 17:48 Permalink

I just received her new book "Collusion: how the central bankers rigged the world" through special order with my library. She is by far the best writer on central banks and the financial crisis. Her "It Takes a Pillage" is superb and easily followed. The problem is, hardly anyone outside of the few who care (or know) read it.

Balance-Sheet Sat, 06/16/2018 - 18:30 Permalink

A 1950s outlook repeated for 6 books. We are not going anywhere near 20th Century anything and this is populist. Glass-Steagall is DEAD but promoting its return sells!

Now the money the Fed creates is "Outside Money" injected to the banking system which creates the "Inside Money" that usually finances the economy. The INTENTION of the "Outside Money" being injected into the banking system is to prevent the banking system from dying after which it would no longer be able to create the "Inside Money" you borrow.

The Fed is NOT going to send individual citizens their mortgage payments. This is also populist tripe.

If this were to be done Congress would have to legislate it and the Fed would assist in arranging the financing for such a deficit.

The Congress DOES send trillions to all the people through various transfer and entitlement programs and this coming year will be 2.8T from the federal level alone as well as arranging all the student and mortgage loans.

As long as it is taken to be entertainment any of this is fine. Oh yeah, NO GOLD Standard, Bimetal money, or any sort of commodity currency EVER again.

[Jun 17, 2018] Neoliberalism as socialism for the banks

Highly recommended!
Notable quotes:
"... I encountered a wonderful concept the other day on the Keiser Report, where they said in passing that the great irony of the Hegemon's position was that it couldn't use its massive financial power because whenever it did, it simply forced alternatives to arise. ..."
"... This is why every financial move by Trump is producing the opposite result. Another ZH article says that the Russian sell-off of US Treasuries was a move to cover Rusal and the sanctions placed on its former CEO, Deripaska. Mr. Trump Attacks Aluminum, Russia Attacks The Debt . ..."
"... Every time the US flaunts its Dollar supremacy, it pushes customers away from the Dollar. ..."
"... The US has power left in the financial sector, but can't use it. The US has no power left in the military area, and cannot show it. Syria, Korea, the theaters are growing where the US has had to step down. ..."
"... Even the fog of propaganda is wearing increasingly thin. The US State Department just issued a warning to its people about traveling to Russia. It's risky, they say. But ticket sales for the World Cup are up by 25% from the US, the largest foreign customer ..."
Jun 17, 2018 | www.moonofalabama.org

psychohistorian | Jun 17, 2018 12:47:46 PM | 2

I was impatient and put this up on last weeks Open Thread about an hour ago....

Nomi Prins: The Central Banking Heist That Put The World At Risk

The take away quote:
"
"What we've witnessed, since 2008, is the unbridled ability of the so-called people at the top to implement socialism for the banks," Prins tells me. "If anyone had said we are going to give $21 trillion to the global banking sector, it would never have happened – so we've had a backdoor process instead, under the pretense it would help ordinary people."

Grieved , Jun 17, 2018 3:26:39 PM | 8
@2 psychohistorian

Excellent article, thanks for the link. Nomi knows all this stuff, and she's right. And Liam Halligan, a financial journalist I greatly respect, wrote the article. Recommended.

~~

I encountered a wonderful concept the other day on the Keiser Report, where they said in passing that the great irony of the Hegemon's position was that it couldn't use its massive financial power because whenever it did, it simply forced alternatives to arise.

This is why every financial move by Trump is producing the opposite result. Another ZH article says that the Russian sell-off of US Treasuries was a move to cover Rusal and the sanctions placed on its former CEO, Deripaska. Mr. Trump Attacks Aluminum, Russia Attacks The Debt .

The tariffs on aluminum compelled the Chinese to create a Yuan-denominated futures contract on industrial metals - convertible to gold at Shanghai, of course. The instability of the overnight tariffs created a more enduring stability than before, resting on gold, which satisfies concerns about transfers between nations.

Every time the US flaunts its Dollar supremacy, it pushes customers away from the Dollar.

~~

But it's not just Trump, nor just the financial markets. It's every theater and every plane of activity. Every use of bullying, drives former allies away. Every posture of aggression runs the supreme risk that the US military will be exposed as ineffective, and if that happens, the Pentagon is finished, and the generals know it.

The US has power left in the financial sector, but can't use it. The US has no power left in the military area, and cannot show it. Syria, Korea, the theaters are growing where the US has had to step down.

Even the fog of propaganda is wearing increasingly thin. The US State Department just issued a warning to its people about traveling to Russia. It's risky, they say. But ticket sales for the World Cup are up by 25% from the US, the largest foreign customer.

I'll have to stop, but fortunately, the examples go on and on.

michael d , Jun 17, 2018 4:02:46 PM | 9
Mate would have got the idea from Stephen Cohen, Russia expert, Nation contributor and husband of the Nation editor. But Cohen has certainly got it from Alt-media - here or similar...

[Jun 06, 2018] Under the immense pressure of the Gatsby Curve, American democracy was on the ropes. The people in charge were the people with the money. Ultimately, what the moneymen of the 1920s wanted is what moneymen always want. And their servants delivered. The Calvin Coolidge administration passed a huge tax cut in 1926, making sure that everyone could go home with his winnings. The rich seemed to think they had nothing else to worry about -- until October 1929.

Jun 06, 2018 | www.theatlantic.com

For months, Colonel Robert W. Stewart dodged the subpoenas. He was in Mexico or South America, undertaking business negotiations so sensitive that revealing his precise location would jeopardize the national interest, or so said his lawyer. Senator Thomas J. Walsh of Montana at last dragged the lawyer to the stand and presented him with clippings from the gossip columns of the Havana newspapers, complete with incriminating photographs. The Colonel, always known to appreciate a good horse, was apparently quite the fixture at the Jockey Club. His smile had also flashed for the cameras at an impressive round of luncheons and dinners, and an evening ball at the Havana Yacht Club.

When the senators finally roped the Colonel in for questioning about those shell-company bonds that had spread like bedbugs through the political ecosystem, he let them know just who was in charge. "I do not think that the line of interrogation by this committee is within the jurisdiction of the committee under the laws of the United States," he declared. Even so, he added, as if proffering a favor, he did not "personally receive any of these bonds." Which was not, on any ordinary construction of the English language, true.

The twilight of the fabled Stewart dynasty was not glorious. A fancy lawyer got the Colonel "aquibbled" from charges of contempt, as one journalist sneered, but Rockefeller Jr. wasn't ready to forgive him the public-relations fiasco. After an epic but futile battle for the hearts of shareholders, the Colonel hung up his spurs and retreated for life to the family compound in Nantucket.

None of which changed the reality that the Teapot Dome scandal, with its bribes and kickbacks and sweetheart deals for rich oilmen, made plain. Under the immense pressure of the Gatsby Curve, American democracy was on the ropes. The people in charge were the people with the money. Ultimately, what the moneymen of the 1920s wanted is what moneymen always want. And their servants delivered. The Calvin Coolidge administration passed a huge tax cut in 1926, making sure that everyone could go home with his winnings. The rich seemed to think they had nothing else to worry about -- until October 1929.

Where were the 90 percent during these acts of plunder? An appreciable number of them could be found at Ku Klux Klan rallies. And as far as the most vocal (though not necessarily the largest) part of the 90 percent was concerned, America's biggest problems were all due to the mooching hordes of immigrants. You know, the immigrants whose grandchildren have come to believe that America's biggest problems now are all due to the mooching hordes of immigrants.

The toxic wave of wealth concentration that arose in the Gilded Age and crested in the 1920s finally crashed on the shoals of depression and war. Today we like to think that the social-welfare programs that were planted by the New Deal and that blossomed in the postwar era were the principal drivers of a new equality. But the truth is that those efforts belong more to the category of effects than causes. Death and destruction were the real agents of change. The financial collapse knocked the wealthy back several steps, and war empowered labor -- above all working women.

That gilded, roaring surge of destruction was by no means the first such destabilizing wave of inequality to sweep through American history. In the first half of the 19th century, the largest single industry in the United States, measured in terms of both market capital and employment, was the enslavement (and the breeding for enslavement) of human beings. Over the course of the period, the industry became concentrated to the point where fewer than 4,000 families (roughly 0.1 percent of the households in the nation) owned about a quarter of this "human capital," and another 390,000 (call it the 9.9 percent, give or take a few points) owned all of the rest.

The slaveholding elite were vastly more educated, healthier, and had much better table manners than the overwhelming majority of their fellow white people, never mind the people they enslaved. They dominated not only the government of the nation, but also its media, culture, and religion. Their votaries in the pulpits and the news networks were so successful in demonstrating the sanctity and beneficence of the slave system that millions of impoverished white people with no enslaved people to call their own conceived of it as an honor to lay down their life in the system's defense.

That wave ended with 620,000 military deaths, and a lot of property damage. It did level the playing field in the American South for a time -- though the process began to reverse itself all too swiftly.

The United States, to be clear, is hardly the most egregious offender in the annals of human inequality. The European nations from which the colonists of North America emigrated had known a degree of inequality and instability that Americans would take more than a century to replicate. Whether in ancient Rome or the Near East, Asia or South America, the plot remains the same. In The Great Leveler , the historian Walter Scheidel makes a disturbingly good case that inequality has reliably ended only in catastrophic violence: wars, revolutions, the collapse of states, or plagues and other disasters. It's a depressing theory. Now that a third wave of American inequality appears to be cresting, how much do we want to bet that it's not true?

The belief in our own novelty is one of the defining characteristics of our class. It mostly means that we don't know our predecessors very well. I had long assumed that the Colonel was descended from a long line of colonels, each passing down his immense sense of entitlement to the next. Aunt Sarah's propaganda was more effective than I knew.

Robert W. Stewart was born in 1866 on a small farm in Iowa and raised on the early mornings and long hours of what Paul Henry Giddens, a historian of Standard Oil of Indiana, politely describes as "very modest circumstances." The neighbors, seeing that the rough-cut teenager had something special, pitched in to send him to tiny Coe College, in the meatpacking town of Cedar Rapids. It would be hard not to believe that the urgent need to win at everything was already driving the train when the scholarship boy arrived at Yale Law School a few years later. The flashbulbs at the Havana Yacht Club captured a pose that was perhaps first glimpsed in a scratchy mirror somewhere in the silent plains of the Midwest.

[Apr 05, 2018] Judge Throws Out 12-Year-Old Lawsuit Against Steve Cohen Zero Hedge

Apr 05, 2018 | www.zerohedge.com

Judge Throws Out 12-Year-Old Lawsuit Against Steve Cohen

by Tyler Durden Wed, 04/04/2018 - 23:40 4 SHARES

More than seven years ago , we reported on the wide-ranging financial conspiracy involving almost every single prominent US-based hedge fund and a Canadian firm called Fairfax Financial Holdings that they schemed to short - and then crush by spreading dubious research and shoddy accounting.

Around the time that a Reuters report on recently declassified court document from 2008, which outlined details of the plot, including Cohen's alleged role.

Now, a New Jersey judge has put an end (for now, at least) to the 12-year-long legal saga by ruling that the lawsuit didn't belong in his court. A state appeals court revived Fairfax's claims last April after they were previously dismissed in 2011 and 2012. Judges have already thrown out claims against Dan Loeb's Third Point and Jim Chanos's Kynikos Associates LP, according to the New York Post .

Billionaire Steven A. Cohen has won the dismissal of an $8 billion lawsuit accusing him and his former firm SAC Capital Advisors LP of conspiring with other hedge funds to spread false rumors about Fairfax Financial Holdings, hoping to "crush" or "kill" the insurer.

In a decision last week, New Jersey Superior Court Judge Frank DeAngelis said the nearly 12-year-old case did not belong in that state's courts because there was no evidence SAC expected or intended to cause injury there while "conspiring to drive down the share price of a Canadian company."

According to Reuters , Fairfax said it was victimized in a coordinated raid.

Fairfax claimed it was victimized by a four-year "bear raid" by hedge funds that engineered bogus accounting claims and biased analyst research, and persuaded reporters to write negative stories about the Toronto-based insurance and investment management company.

It said the funds did this to profit from short sales, or bets its stock price would fall. Fairfax claimed that hedge fund operatives ran the bear raid from New Jersey.

Cohen, whose four-year ban from the securities industry ended in January, is also facing another lawsuit from a former female employee alleging a culture of harassment and "hostility toward women" at Point72.

[Mar 30, 2018] The Death Of The Liberal World Order by Leonid Savin

Highly recommended!
Notable quotes:
"... And, quoting his colleague Archon Fung from the Harvard Kennedy School, " American politics is no longer characterized by the rule of the median voter, if it ever was. Instead, in contemporary America the median capitalist rules as both the Democratic and Republican parties adjust their policies to attract monied interests." And finally Mr. Ringen adds, "American politicians are aware of having sunk into a murky bog of moral corruption but are trapped." ..."
"... Trump merely reflects the dysfunctionality and internal contradictions of American politics. He is the American Gorbachev, who kicked off perestroika at the wrong time. ..."
"... Global financial services exercise monopolistic power over national policies, unchecked by any semblance of global political power. Trust is haemorrhaging. The European Union, the greatest ever experiment in super-national democracy, is imploding ..."
"... Probably this is because the Western model of neoliberalism does not provide any real freedom of commerce, speech, or political activity, but rather imposes a regime of submission within a clearly defined framework. ..."
"... america is going through withdraw from 30 years of trickledown crap. the young are realizing that the shithole they inherit does not have to be a shithole, and the old pathetic white old men who run the show will be dead soon. ..."
"... The liberal order is dying because it is led by criminally depraved Predators who have pauperized the labor force and created political strife, though the populists don't pose much threat to the liberal-order Predators. ..."
"... However by shipping the productive Western economies overseas to Asia, the US in particular cannot finance and physically support a military empire or the required R&D to stay competitive on the commercial and military front. ..."
"... So the US Imperialists are being eclipsed by the Sino-Russo Alliance and wants us to believe this is a great tragedy. Meanwhile the same crew of Liberal -neoCon Deep Staters presses on with wars and tensions that are slipping out of control. ..."
Mar 30, 2018 | www.zerohedge.com

Authored Leonid Savin via Oriental Review,

A few days ago the president of the Council on Foreign Relations, Richard Haass, published an article, titled "Liberal World Order, R.I.P." In it, he states that the current threat to the liberal world order is coming not from rogue states, totalitarian regimes, religious fanatics, or obscurantist governments (special terms used by liberals when referring to other nations and countries that have not pursued the Western capitalist path of development), but from its primary architect -- the United States of America.

Haass writes: " Liberalism is in retreat. Democracies are feeling the effects of growing populism. Parties of the political extremes have gained ground in Europe. The vote in the United Kingdom in favor of leaving the EU attested to the loss of elite influence. Even the US is experiencing unprecedented attacks from its own president on the country's media, courts, and law-enforcement institutions. Authoritarian systems, including China, Russia, and Turkey, have become even more top-heavy. Countries such as Hungary and Poland seem uninterested in the fate of their young democracies

"We are seeing the emergence of regional orders. Attempts to build global frameworks are failing."

Haass has previously made alarmist statements , but this time he is employing his rhetoric to point to the global nature of this phenomenon. Although between the lines one can easily read, first of all, a certain degree of arrogance -- the idea that only we liberals and globalists really know how to administer foreign policy -- and second, the motifs of conspiracy.

"Today's other major powers, including the EU, Russia, China, India, and Japan, could be criticized for what they are doing, not doing, or both."

Probably this list could be expanded by adding a number of Latin American countries, plus Egypt, which signs arms deals with North Korea while denying any violation of UN sanctions, and the burgeoning Shiite axis of Iran-Iraq-Syria-Lebanon.

But Haass is crestfallen over the fact that it is Washington itself that is changing the rules of the game and seems completely uninterested in what its allies, partners, and clients in various corners of the world will do.

" America's decision to abandon the role it has played for more than seven decades thus marks a turning point. The liberal world order cannot survive on its own, because others lack either the interest or the means to sustain it. The result will be a world that is less free, less prosperous, and less peaceful, for Americans and others alike."

Richard Haass's colleague at the CFR, Stewart Patrick, quite agrees with the claim that it is the US itself that is burying the liberal world order . However, it's not doing it on its own, but alongside China. If the US had previously been hoping that the process of globalization would gradually transform China (and possibly destroy it, as happened to the Soviet Union earlier), then the Americans must have been quite surprised by how it has actually played out. That country modernized without being Westernized, an idea that had once been endorsed by the leader of the Islamic revolution in Iran, Ayatollah Khomeini.

Now China is expanding its influence in Eurasia in its own way, and this is for the most part welcomed by its partner countries.

But this has been a painful process for the US, as it is steadily and irrevocably undermining its hegemony.

"Its long-term ambition is to dismantle the U.S. alliance system in Asia, replacing it with a more benign (from Beijing's perspective) regional security order in which it enjoys pride of place, and ideally a sphere of influence commensurate with its power.

China's Belt and Road initiative is part and parcel of this effort, offering not only (much-needed) infrastructure investments in neighboring countries but also the promise of greater political influence in Southeast, South, and Central Asia. More aggressively, China continues to advance outrageous jurisdictional claims over almost the entirety of the South China Sea , where it continues its island-building activities, as well as engaging in provocative actions against Japan in the East China Sea," writes Patrick.

And as for the US:

"The United States, for its part, is a weary titan, no longer willing to bear the burdens of global leadership, either economically or geopolitically.

Trump treats alliances as a protection racket, and the world economy as an arena of zero-sum competition. The result is a fraying liberal international order without a champion willing to invest in the system itself. "

One can agree with both authors' assessments of the changed behavior of one sector of the US establishment, but this is about more than just Donald Trump (who is so unpredictable that he has staffed his own team with a member of the very swamp he was preparing to drain) and North American populism. One needs to look much deeper.

In his book, Nation of Devils: Democratic Leadership and the Problem of Obedience , Stein Ringen, a Norwegian statesman with a history of service in international institutions, notes:

"Today, American democratic exceptionalism is defined by a system that is dysfunctional in all the conditions that are needed for settlement and loyalty...

Capitalism has collapsed into crisis in an orgy of deregulation. Money is transgressing into politics and undermining democracy itself ."

And, quoting his colleague Archon Fung from the Harvard Kennedy School, " American politics is no longer characterized by the rule of the median voter, if it ever was. Instead, in contemporary America the median capitalist rules as both the Democratic and Republican parties adjust their policies to attract monied interests." And finally Mr. Ringen adds, "American politicians are aware of having sunk into a murky bog of moral corruption but are trapped."

Trump merely reflects the dysfunctionality and internal contradictions of American politics. He is the American Gorbachev, who kicked off perestroika at the wrong time. Although it must be conceded that if Hillary Clinton had become president, the US collapse would have been far more painful, particularly for the citizens of that country. We would have seen yet more calamitous reforms, a swelling influx of migrants, a further decline in the nation's manufacturing base, and the incitement of new conflicts. Trump is trying to keep the body of US national policy somewhat alive through hospice care, but what's really needed is a major restructuring, including far-reaching political reforms that would allow the country's citizens to feel that they can actually play a role in its destiny.

These developments have spread to many countries in Europe, a continent that, due to its transatlantic involvement, was already vulnerable and susceptible to the current geopolitical turbulence. The emergence of which, by the way, was largely a consequence of that very policy of neoliberalism.

Stein Ringen continues on that score:

"Global financial services exercise monopolistic power over national policies, unchecked by any semblance of global political power. Trust is haemorrhaging. The European Union, the greatest ever experiment in super-national democracy, is imploding "

It is interesting that panic has seized Western Europe and the US -- the home of transatlanticism, although different versions of this recipe for liberalism have been employed in other regions -- suffice it to recall the experience of Singapore or Brazil. But they don't seem as panicked there as in the West.

Probably this is because the Western model of neoliberalism does not provide any real freedom of commerce, speech, or political activity, but rather imposes a regime of submission within a clearly defined framework. Therefore, the destruction of the current system entails the loss of all those dividends previously enjoyed by the liberal political elites of the West that were obtained by speculating in the stock market, from the mechanisms of international foreign-exchange payments (the dollar system), and through the instruments of supranational organizations (the UN, WTO, and World Bank). And, of course, there are the fundamental differences in the cultural varieties of societies.

In his book The Hidden God, Lucien Goldmann draws some interesting conclusions, suggesting that the foundations of Western culture have rationalistic and tragic origins, and that a society immersed in these concepts that have "abolish[ed] both God and the community [soon sees] the disappearance of any external norm which might guide the individual in his life and actions." And because by its very nature liberalism must carry on, in its mechanical fashion, "liberating" the individual from any form of structure (social classes, the Church, family, society, and gender, ultimately liberating man from his very self), in the absence of any standards of deterrence, it is quite logical that the Western world was destined to eventually find itself in crisis. And the surge of populist movements, protectionist measures, and conservative policies of which Haass and other liberal globalists speak are nothing more than examples of those nations' instinct for self-preservation. One need not concoct conspiracy theories about Russia or Putin interfering in the US election (which Donald Trump has also denied, noting only that support was seen for Hillary Clinton, and it is entirely true that a portion of her financial backing did come from Russia). The baseline political decisions being made in the West are in step with the current crisis that is evident on so many levels. It's just that, like always, the Western elites need their ritual whipping boy(although it would be more accurate to call it a human sacrifice). This geopolitical shake-up began in the West as a result of the implicit nature of the very project of the West itself.

But since alternative development scenarios exist, the current system is eroding away. And other political projects are starting to fill the resultant ideological void -- in both form as well as content.

Thus it's fairly likely that the current crisis of liberalism will definitively bury the unipolar Western system of hegemony.

And the budding movements of populism and regional protectionism can serve as the basis for a new, multipolar world order.

J S Bach Fri, 03/30/2018 - 22:48 Permalink

Oh, Wicked Witch of the West Wing, the cleansing fire awaits thy demise! Those meds can only keep you standing for so long. Keep tripping. Keep stumbling. Satan calls you to him. The day approacheth. Tick tock tick tock. 👹😂

beepbop -> TeamDepends Fri, 03/30/2018 - 23:01 Permalink

The Death Of The Liberal World Order

The Re-Birth Of the Neocon World Disorder

Neocons=Bolsheviks=Zionists. Over 100 years of bloodshed and mayhem.

dogsandhoney2 -> J S Bach Fri, 03/30/2018 - 23:05 Permalink

hillery-cfr neoliberalism is a right-wing politic, actually.

HedgeJunkie -> carbonmutant Fri, 03/30/2018 - 23:04 Permalink

Democracy ultimately melts down into chaos. We have a perfectly good US Constitution, why don't we go back to using it as written? That said, I am for anything that makes the elites become common.

curbjob -> carbonmutant Fri, 03/30/2018 - 23:26 Permalink

Democracy is a form of government. Populism is a movement. Populist movements come about when the current form of government is failing ... historically it seems they seldom choose wisely.

Dilluminati Fri, 03/30/2018 - 22:58 Permalink

Ridiculous cunt Hillary thinks after getting REJECTED by the voters in the USA that somehow being asked to "go the fuck away and shut the fuck up" makes her a women's leader. The cocksucker Soros and some of these other non-elected globalist should keep in mind that while everybody has a right to an opinion: it took the Clinton Crime Family and lots of corruption to create the scandals that sets a Clinton Crime Family member aside, and why Soros was given a free pass on election meddling and not others requires congressional investigation and a special prosecutor. And then there is that special kind of legal and ignorant opinion like David Hogg who I just disagree with, making him in my opinion and many fellow NRA members a cocksucker and a cunt. I'd wish shingles on David Hogg, Hillary Clinton, and Soros.

Theos Fri, 03/30/2018 - 23:02 Permalink

bullshit

america is going through withdraw from 30 years of trickledown crap. the young are realizing that the shithole they inherit does not have to be a shithole, and the old pathetic white old men who run the show will be dead soon.

all i see is a bunch of fleeting old people who found facebook 10 years late are temporarily empowered since they can now connect with other equally impotent old people.

Posa Fri, 03/30/2018 - 23:10 Permalink

The usual self-serving swill from the Best and the Brightest of the Predator Class out of the CFR via Haas.

The liberal order aka the New British Empire, was born 70 years ago by firebombing and nuking undefended civilian targets. It proceeded to launch serial genocidal rampages in the Koreas, SE Asia, Latin America until finally burning down a large portion of the Middle East.

The fact that there has not been a catastrophic nuclear war is pure dumb luck. The Deep State came within seconds of engineering a nuclear cataclysm off the waters of Cuba in 1962. When JFK started dismantling the CIA Deep State and ending the Cold War with the USSR, Dulles dispatched a CIA hit-squad to gun down the President. (RFK and Nixon immediately understood the assassination was a CIA-led wet-works operation since they chaired the assassination committees themselves in the past).

The liberal order is dying because it is led by criminally depraved Predators who have pauperized the labor force and created political strife, though the populists don't pose much threat to the liberal-order Predators.

However by shipping the productive Western economies overseas to Asia, the US in particular cannot finance and physically support a military empire or the required R&D to stay competitive on the commercial and military front.

So the US Imperialists are being eclipsed by the Sino-Russo Alliance and wants us to believe this is a great tragedy. Meanwhile the same crew of Liberal -neoCon Deep Staters presses on with wars and tensions that are slipping out of control.

Yen Cross Fri, 03/30/2018 - 23:17 Permalink

I'll pay extra for a ticket to the George Soros funeral. That's like Game-7 at the Libtard world series!

devnickle Fri, 03/30/2018 - 23:22 Permalink

Death to globalism. It is the Satan World Order.

Grandad Grumps Fri, 03/30/2018 - 23:30 Permalink

Liberalism is anything but liberal... and I suppose that is the problem with it. It aims to do to the western world what Mao did to China and Stalin did to Russia. Many people were murdered or imprisoned and people had no rights, just obligations to dictators and their cronies.

I think this world is past the point where any benefit is gained from having "owners of the people", benevolent or otherwise. And we certainly do not benefit from perverted demonic entities even if they come bearing technology. The price is too high.

Populism goes along with essential freedoms for the human race.-

Yogizuna Fri, 03/30/2018 - 23:30 Permalink

As I told the idiotic retards who argued with me on Prodigy fucking 27 years ago, China will not change because of increased trading and the West making them wealthier. In fact, just the opposite. I wonder if they have caught on yet?

SuzerainGreyMole Fri, 03/30/2018 - 23:40 Permalink

One can understand the demise of the West of many levels. Downfall and then Renewal!

... ... ...

[Mar 12, 2018] Intensifying punishments for the general public yet simultaneously nowhere to be found when it comes to prosecuting those who commit crimes involving high level officials corruption and abuse of power, especially by the financial sector

Mar 12, 2018 | www.nakedcapitalism.com

tempestteacup , March 10, 2018 at 7:10 am

It's an unfortunate irony of the times in which we live that politicians are happy to bask in the glory of Law & Order when it comes to intensifying punishments for the general public yet simultaneously nowhere to be found when it comes to prosecuting those who commit crimes involving corruption, fraud or abuse of power. When ratcheting up the incarceration rate among minorities, the poor and those living in the nation's crumbling urban ghettos, they dutifully repeat the same weary, disproved bromides about deterrence while stuffing their campaign coffers with contributions from one of neoliberalism's most amoral sectors: the for-profit carceral state.

Generally, then, I would reject such arguments – higher sentences, mandatory minimums, decreasing the independence of the judiciary to decide on punishments are all failed policies that have, under the aegis of the War on Drugs, left a trail of destruction, generational poverty, and heartbreak. When it comes to white-collar crimes, political corruption and abuse of power, though, I suspect that hefty sentences actually would serve as a deterrent. If the architects of the Global Financial Crisis were currently sitting alongside Bernie Madoff in Butner (or ADX Florence), you suspect it might cause some of their successors to think twice about indulging in the same wanton speculation.

If the ghouls of the DoD, Pentagon and intelligence community had found themselves where they belonged, in the dock, for their gross abuses of power and war crimes following 9/11, one wonders whether the near-equal ghouls of the Sainted Obama's Administration would have drawn up their illegal kill lists or celebrated the flouting of international law with quite such levity.

All of which, of course, means that we won't ever see it happen – but it does make me think that in some cases it is entirely justified to pursue and forcefully punish those who break the law. It's just unfortunate that the ones whose punishment would be most effective in deterring others are the ones who invariably get off scott free.

  1. JEHR

    What I don't understand is how Michael Shkreli, CEO, is found guilty of financial fraud against investors in 2018 but not one CEO of a bank–not Goldman Sachs's CEO, not Citigroup's CEO, not JP Morgan Chase's CEO, not Wells Fargo's CEO and not Lehman Brothers' CEO–was found guilty of committing Accounting Control Fraud and/or mortgage fraud after the Great Financial Crisis of 2007-8. Amazing! But there's not much satisfaction in such a small price to pay for fraud (7 years) that ruins other people's lives permanently. What is also amazing is that it is not illegal to price a drug out of the reach of most users just for the sake of making a huge profit!

    1. perpetualWAR

      Obama said "actions on Wall Street weren't illegal only immoral." And that set the tone. No one was going to be found guilty of unlawful actions ..even though what Wall Street conducted was a racketeering operation.

      Reply
      1. JBird

        It's not the legality, or even the morality, it's not being blatantly scoffed at.

        Shkreli is a slimy narcissitic toad that used, back stabbed, insulted, and annoyed everyone which is why he got the shiv; just think of the former head of Wells Fargo, Tim Sloan, who did the same and not only to his customers, and low level employees, but also to Congress.

        Who me robbing you? Really, no, I know nothing I see nothing really! Your eyes, they must be lying to you! And you're too stupid to see that!

        That is why they got nailed. People might not like being robbed, but they really don't like being insulted in the doing. Had they done the usual mea culpas, faux apologies, and even token restitution of some kind, one would not be in prison, and the other still CEO.

  1. Andrew Cockburn

    Surely, for the big banks the most significant part of this legislation is the provision allowing them to count municipal bonds as "liquid assets" thus boosting their capital ratio. In reality, of course, these are highly illiquid. Therefore, come the next crash, authorities will be faced with the prospect either of JPM, Citi, etc, attempting to dump said bonds thereby tanking the municipal finance system of the country – unacceptable – or yet again bailing out the banksters to the tune of $trillions. Will the guilty parties be called to account? Don't ask.

[Feb 27, 2018] What is a crime and what is not

Espionage would possibly be Steele's indictment. But nobody was 'formally' spying for another country. He was simply fed leaked info and he put it into a document and sent it back. Is that a crime?
Notable quotes:
"... The facts are there but I see this as an incredibly difficult case to prosecute. ..."
Feb 27, 2018 | theconservativetreehouse.com

EggsX1 , February 25, 2018 at 1:37 pm

The Obama spying is politically terrible but when I consider what is laid out I am not seeing very many crimes that would put people in prison.

This is most likely why this is taking such a long time – and I worry that most if not all conspirators will skate. They will probably be fired and collect their retirement pensions but that may be the end of it.

Though with the next democrat president, they will make sure that all those lose ends that got them caught this time will be perfectly legal. We have only witnessed the beginning of our own homegrown Stazi

phoenixRising , February 25, 2018 at 1:43 pm
You seem to be attempting to lay out a case for the defense a fraudulently constructed one at that

I suggest you take your "probably not a crime" mantras where less intelligent people congregate

Namaste

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EggsX1 , February 25, 2018 at 2:00 pm
We have already seen some of their defense through the dem memo. I am outraged at the spying scheme, but you have to recognize that all these people involved are lawyers. They will have made sure to have possible exits when the shtf. There are still plenty of black hats in all our gov bureaus and there will be a constant tit for tat throughout the process. The facts are there but I see this as an incredibly difficult case to prosecute.

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phoenixRising , February 25, 2018 at 2:06 pm
then try reading the above article and previous ones and there are many cases not simply one again, do your homework.

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EggsX1 , February 25, 2018 at 2:49 pm
Sundance has summarized the scheme quite nicely. Even so, blog posts are very different than an actual indictment. I suppose there must be more substantial crimes if they have been able to get people to flip – crimes we have not been told (I hope).

You say there are many other cases but fail to name any other crimes that have come to light. You could have enlightened me rather than just make accusations against me and told me to 'do my homework'.

I am simply saying they have created a scheme where it is nebulously legal. They could have just leaked the 702 queries but they laundered it through the PDB. This is all done to make it technically legal.

So far I am only seeing leaking, FISA fraud, and conspiracy/racketeering (which is next to impossible to prove). If there are only indictments along leaking, that would easily be seen as political prosecution (dems live under a different rule book than Trump/GoP being hounded by corrupt prosecutors ala Mueller). The Dem memo is trying to politicize the FISA fraud because they recognize that that is the next closest to an open and shut case.

David A , February 25, 2018 at 3:12 pm
You are forgetting 50 percent of the evidence; not the again Trump evidence, but the for HRC whitewash, or " obstruction of justice".

[Feb 17, 2018] One story I think is very relevant that it not getting nearly enough press is the Cuomo aide corruption trial

Notable quotes:
"... I'm also having a hard time not feeling somewhat sorry for Howe, who is the star witness. He was arrested, again, during the trial. He's been accused of any number of pejoratives, by everyone involved. He also seems to be the only one who has really lost anything -- lots of money and a career. ..."
"... They stole over 100 million dollars. Howe lied about one night at a hotel. Howe gets a jumpsuit. Cuomo is still in his office. The COR execs are still being represented by very high priced lawyers, paid for with millions that were stolen. The press gets lots of clickbait about 'ziti' and the 'fat man', that never, ever really gets anywhere near the people who should most be in jail. They have lawyers, you understand. ..."
"... I grew up in NYS and I still know one of the reporters following the trial. Even for me, the scale of the sleaziness is mindboggling. And the evidence seems quite compelling to me. I mean, the wife had a no-show job, nobody even disputes that! Will be interesting to see if guilty verdicts, if there are any, taint Cuomo. Or change anything. ..."
Feb 17, 2018 | www.nakedcapitalism.com

bob , , February 16, 2018 at 12:05 pm

One story I think is very relevant that it not getting nearly enough press is the Cuomo aide corruption trial.

It is hard to follow. The corruption is so deep and systemic that it's producing its own gravity and realities.

I'm also having a hard time not feeling somewhat sorry for Howe, who is the star witness. He was arrested, again, during the trial. He's been accused of any number of pejoratives, by everyone involved. He also seems to be the only one who has really lost anything -- lots of money and a career.

The rest of the filth are just fine. They were all more than fine to start with, and most of that fine is in no jeopardy of ever being taken away, stolen fine included.

They stole over 100 million dollars. Howe lied about one night at a hotel. Howe gets a jumpsuit. Cuomo is still in his office. The COR execs are still being represented by very high priced lawyers, paid for with millions that were stolen. The press gets lots of clickbait about 'ziti' and the 'fat man', that never, ever really gets anywhere near the people who should most be in jail. They have lawyers, you understand.

bob , , February 16, 2018 at 12:16 pm

Let's go ahead and take a look at where the past winners of NY corruption trials have ended up-

https://en.wikipedia.org/wiki/Sheldon_Silver

Convicted. Hasn't spent ONE DAY in Jail.

https://en.wikipedia.org/wiki/Joseph_Bruno

Convicted, hasn't spent ONE DAY in jail.

Both are still very wealthy, also. As if that were ever going to change.

Left in Wisconsin , , February 16, 2018 at 2:45 pm

I grew up in NYS and I still know one of the reporters following the trial. Even for me, the scale of the sleaziness is mindboggling. And the evidence seems quite compelling to me. I mean, the wife had a no-show job, nobody even disputes that! Will be interesting to see if guilty verdicts, if there are any, taint Cuomo. Or change anything.

[Feb 15, 2018] Financial Markets Have Taken Over the Economy. To Prevent Another Crisis, They Must Be Brought to Heel. naked capitalism

Notable quotes:
"... By Servaas Storm, Professor, Department of Economics, Faculty TPM, Delft University of Technology and co-author, with C.W. M. Naastepad, of Macroeconomics Beyond the NAIRU (Cambridge, MA: Harvard University Press), which has just won the Myrdal Prize of the European Association for Evolutionary Political Economy. Originally published at the Institute for New Economic Thinking website ..."
"... Banks have long had undue influence in society. But with the rapid expansion of a financial sector that transforms all debts and assets into tradable commodities, we are faced with something far worse: financial markets with an only abstract, inflated, and destabilizing relationship with the real economy. To prevent another crisis, finance must be domesticated and turned into a useful servant of society. ..."
"... financial markets ..."
"... Homo œconomicus ..."
"... Finance and the Good Society ..."
"... High Net Worth Individuals ..."
"... cheap liquidity on demand ..."
"... asset-backed securities ..."
"... re-hypothecation ..."
Feb 15, 2018 | www.nakedcapitalism.com

Posted on February 14, 2018 by Yves Smith Yves here. Get a cup of coffee. This is an important, one-stop treatment of how financialization has harmed the real economy and increased inequality.

By Servaas Storm, Professor, Department of Economics, Faculty TPM, Delft University of Technology and co-author, with C.W. M. Naastepad, of Macroeconomics Beyond the NAIRU (Cambridge, MA: Harvard University Press), which has just won the Myrdal Prize of the European Association for Evolutionary Political Economy. Originally published at the Institute for New Economic Thinking website

Banks have long had undue influence in society. But with the rapid expansion of a financial sector that transforms all debts and assets into tradable commodities, we are faced with something far worse: financial markets with an only abstract, inflated, and destabilizing relationship with the real economy. To prevent another crisis, finance must be domesticated and turned into a useful servant of society.

The Financialization of Everything

Ours is, without a doubt, the age of finance -- of the supremacy of financial actors, institutions, markets, and motives in the global capitalist economy. Working people in the advanced economies, for instance, increasingly have their (pension) savings invested in mutual funds and stock markets, while their mortgages and other debts are turned into securities and sold to global financial investors (Krippner 2011; Epstein 2018). At the same time, the 'under-banked' poor in the developing world have become entangled, or if one wishes, 'financially included', in the 'web' of global finance through their growing reliance on micro-loans, micro-insurance and M-Pesa-like 'correspondent banking' (Keucheyan 2018; Mader 2018). More generally, individual citizens everywhere are invited to "live by finance", in Martin's (2002, p. 17) evocative words, that is: to organize their daily lives around 'investor logic', active individual risk management, and involvement in global financial markets. Citizenship and rights are being re-conceptualized in terms of universal access to 'safe' and affordable financial products (Kear 2012) -- redefining Descartes' philosophical proof of existence as: 'I am indebted, therefore I am' (Graeber 2011). Financial markets are opening 'new enclosures' everywhere, deeply penetrating social space -- as in the case of so-called 'viaticals', the third-party purchase of the rights to future payoffs of life insurance contracts from the terminally ill (Quinn 2008); or of 'health care bonds' issued by insurance companies to fund health-care interventions; the payoff to private investors in these bonds depends on the cost-savings arising from the health-care intervention for the insurers. Or what to think of 'humanitarian impact bonds' used to profitably finance physical rehabilitation services in countries affected by violence and conflict (Lavinas 2018); this latter instrument was created in 2017 by the International Red Cross in cooperation with insurer Munich Re and Bank Lombard Odier.

Conglomerate corporate entities, which used to provide long-term employment and stable retirement benefits, were broken up under pressure of financial markets and replaced by disaggregated global commodity-chain structures (Wade 2018), operating according to the principles of 'shareholder value maximization' (Lazonick 2014) -- with the result that today real decision-making power is often to be found no longer in corporate boardrooms, but in global financial markets. As a result, accumulation -- real capital formation which increases overall economic output -- has slowed down in the U.S., the E.U. and India, as profit-owners, looking for the highest returns, reallocated their investments to more profitable financial markets (Jayadev, Mason and Schröder 2018).

An overabundance of (cash) finance is used primarily to fund a proliferation of short-term, high-risk (potentially high-return) investments in newly developed financial instruments, such as derivatives -- Warren Buffet's 'financial weapons of mass destruction' that blew up the global financial system in 2007-8. Financial actors (ranging from banks, bond investors, and pension funds to big insurers and speculative hedge funds) have taken much bigger roles on much larger geographic scales in markets of items essential to development such as food (Clapp and Isakson 2018), primary commodities, health care (insurance), education, and energy. These same actors hunt the globe for 'passive' unearthed assets which they can re-use as collateral for various purposes in the 'shadow banking system' -- the complex global chains of credit, liquidity and leverage with no systemic regulatory oversight that has become as large as the regulated 'normal' banking system (Pozsar and Singh 2011; Gabor 2018) and enjoys implicit state guarantees (Kane 2013, 2015).

Pressed by the international financial institutions and their own elites, states around the world have embraced finance-friendly policies which included reducing cross-border capital controls, promoting liquid domestic stock markets, reducing the taxation of wealth and capital gains, and rendering their central banks independent from political oversight (Bortz and Kaltenbrunner 2018; Wade 2018; Chandrasekhar and Ghosh 2018). What is most distinctive about the present era of finance, however, is the shift in financial intermediation from banks and other institutions to financial markets -- a shift from the 'visible hand' of (often-times relationship) regulated banking to the axiomatic 'invisible hand' of supposedly anonymous, self-regulating, financial markets. This displacement of financial institutions by financial markets has had a pervasive influence on the motivations, choices and decisions made by households, firms and states as well as fundamental quantitative impacts on growth, inequality and poverty -- far-reaching consequences which we are only beginning to understand.

Setting the Stage

Joseph Alois Schumpeter (1934, p. 74), the Austrian-American theorist of capitalist development and its eventual demise, called the banker "the ephor of the exchange economy" [2] -- someone who by creating credit ( ex nihilo ) to finance new investments and innovation, "makes possible the carrying out of new combinations, authorizes people, in the name of society as it were, to form them." This same banker has, in Schumpeter's vision, "either replaced private capitalists or become their agent; he has himself become the capitalist par excellence. He stands between those who wish to form new combinations and the possessors of productive means." This way, the banker becomes "essentially a phenomenon of development", as Schumpeter (1934, p. 74) argued -- fostering the process of accumulation and directing the pace and nature of economic growth and technological progress (Festré and Nasica 2009; Mazzucato and Wray 2015). Alexander Gerschenkron (1968) concurred, comparing the importance of investment banks in 19th-century Germany's industrialization drive to that of the steam engine in Britain's Industrial Revolution:

" the German investment banks -- a powerful invention, comparable in its economic effects to that of the steam engine -- were in their capital-supplying functions a substitute for the insufficiency of the previously created wealth willingly placed at the disposal of entrepreneurs. [ ] From their central vantage point of control, the banks participated actively in shaping the major [ ] decisions of individual enterprises. It was they who very often mapped out a firm's path of growth, conceived farsighted plans, decided on major technological and locational innovations, and arranged for mergers and capital increases."

Schumpeter and Gerschenkron celebrated the developmental role played by bank-based financial systems, in which banks form long-run (often personal) relationships with firms, have insider knowledge and (as they are large creditors) are in a position to exert strategic pressure on firms, impose market rationality on their decisions and prioritize the repayment of their debts. However, what Schumpeter left unmentioned is that the absolute power of the 'ephors' could terribly fail: When the wrong people were elected to the 'ephorate', their leadership and guidance did ruin the Spartan state. [3] Likewise, the -- personalized relationship-based -- banking system could ruin the development process: it could fatally weaken the corporate governance of firms, because bank managers would be more reluctant to bankrupt firms with which they have had long-term ties, and lead to cronyism and corruption, as it is relatively easy for bank insiders to exploit other creditors or taxpayers (Levine 2005). Schumpeter's relationship-banker may be fallible, weak (when it comes to disciplining firms), prone to mistakes and errors of judgment and not necessarily immune to corruptible influences -- in short: there are reasons to believe that a bank-based financial system is inferior to an alternative, market-based, financial system (Levine 2005; Demirgüc-Kunt, Feyen and Levine 2012).

This view of the superiority of a 'market-based' financial system rests on Friedrich von Hayek's grotesque epistemological claim that 'the market' is an omniscient way of knowing, one that radically exceeds the capacity of any individual mind or even the state. For Hayek, "the market constitutes the only legitimate form of knowledge, next to which all other modes of reflection are partial, in both senses of the word: they comprehend only a fragment of a whole and they plead on behalf of a special interest. Individually, our values are personal ones, or mere opinions; collectively, the market converts them into prices, or objective facts" (Metcalf 2017). After his 'sudden illumination' in 1936 that the market is the best possible and only legitimate form of social organisation, Hayek had to find an answer to the dilemma of how to reformulate the political and the social in a way compatible with the 'rationality' of the (unregulated) market economy. Hayek's answer was that the 'market' should be applied to all domains of life. Homo œconomicus -- the narrowly self-interested subject who, according to Foucault (2008, pp. 270-271), "is eminently governable ." as he/she "accepts reality and responds systematically to systematic modifications artificially introduced into the environment -- had to be universalized. This, in turn, could be achieved by the financialization of 'everything in everyday life', because financial logic and constraints would help to impose 'market discipline and rationality' on economic decision-makers. After all, borrowers compete with another for funds -- and it is commercial (profit-oriented) banks and financial institutions which do the screening and selection of who gets funded.

Hayek proved to be extremely successful in hiding his reactionary political agenda behind the pretense of scientific neutrality -- by elevating the verdict of the market to the status of a natural fact, while putting any value that cannot be expressed as a price "on an equally unsure footing, as nothing more than opinion, preference, folklore or superstition" (Metcalf 2017). Hayek's impact on economics was transformative, as can be seen from how Lawrence Summers sums up 'Hayek's legacy':

"What's the single most important thing to learn from an economics course today? What I tried to leave my students with is the view that the invisible hand is more powerful than the [un]hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That's the consensus among economists. That's the Hayek legacy." (quoted in Yergin and Stanislaw (1998, pp. 150–51))

This Hayekian legacy underwrites, and quietly promotes, neoliberal narratives and discourses which advocate that authority -- even sovereignty -- be conceded to (in our case: financial) 'markets' which act as an 'impartial and transparent judge', collecting and processing information relevant to economic decision-making and coordinating these decisions, and as a 'guardian', impartially imposing 'market discipline and market rationality' on economic decision-makers -- thus bringing about not just 'socially efficient outcomes' but social stability as well. This way, financialization constitutes progress -- bringing "the advantages enjoyed by the clients of Wall Street to the customers of Wal-Mart", as Nobel-Prize winning financial economist Robert Shiller (2003, p. x) writes. "We need to extend finance beyond our major financial capitals to the rest of the world. We need to extend the domain of finance beyond that of physical capital to human capital, and to cover the risks that really matter in our lives. Fortunately, the principles of financial management can now be expanded to include society as a whole."

Attentive readers might argue that faith in the social efficiency of financial markets has waned -- after all, Hayek's grand epistemological claim was falsified, in a completely unambiguous manner, by the Great Financial Crisis of 2007-8 which brought the world economy to the brink of a systemic meltdown. Even staunch believers in the (social) efficiency of self-regulating financial markets, including most notably former Federal Reserve chair Alan Greenspan, had to admit a fundamental 'flaw in their ideology'.

And yet, I beg to disagree. The economic ideology that created the crash remains intact and unchallenged. There has been no reckoning and no lessons were learned, as the banks and their shareholders were rescued, at the cost of about everyone else in society, by massive public bail-outs, zero interest rates and unprecedented liquidity creation by central banks. Finance staged a major come-back -- profits, dividends, salaries and bonuses in the financial industry have rebounded to where they were before, while the re-regulation of finance became stuck in endless political negotiations. Stock markets, meanwhile, notched record highs (before the downward 'correction' of February 2018), derivative markets have been doing rather well and under-priced risk-taking in financial markets has gathered steam (again), this time especially so in the largest emerging economies of China, India and Brazil (BIS 2017; Gabor 2018). In the process, global finance has become more concentrated and even more integral to capitalist production and accumulation. The reason why even the Great Financial Crisis left the supremacy of financial interests and logic unchallenged, is simple: there is no acceptable alternative mode of social regulation to replace our financialized mode of co-ordination and decision-making.

Accordingly, instead of a long overdue rethinking of Hayek's legacy, the economics profession has gone, with renewed vigour, for an even broader push for 'financial inclusion' (Mader 2018; Chandrasekhar and Ghosh 2018). Backed by the international financial institutions, 'social business' promotors (such as the World Economic Forum) and FinTech corporations, it proposes to extend financial markets into new areas including social protection and poverty alleviation (Lavinas 2018; Chandrasekhar and Ghosh 2018) and climate change mitigation (Arsel and Büscher 2015; Keuchyan 2018). Most economists were already persuaded, by a voluminous empirical literature (reviewed by Levine (2005)), to believe, with ample qualification and due caution, that finance and financial markets do contribute to economic growth -- a proposition that Nobel Laureate financial economist Merton Miller (1998, p. 14) found "almost too obvious for serious discussion". But now greater financialization is argued to be integral to not just 'growth' but 'inclusive growth', as World-Bank economists Demirgüc-Kunt, Klapper and Singer (2017) conclude in a recent review article: "financial inclusion allows people to make many everyday financial transactions more efficiently and safely and expand their investment and financial risk management options by using the formal financial system. This is especially relevant for people living in the poorest 40 percent of households." The way to extend the good life to more people is not to shrink finance nor restrain financial innovation, writes Robert Shiller (2012) in a book titled Finance and the Good Society , but instead to release it. Shiller's book celebrates finance's 'genuine beauty' and exhorts idealistic (sic) young students to pursue careers in derivatives, insurance and related fields.

'Really-Existing' Finance Capitalism

Financialization underwrites neoliberal narratives and discourses which emphasize individual responsibility, risk-taking and active investment for the benefit of the individual him-/herself -- within the 'neutral' or even 'natural' constraints imposed by financial markets and financial norms of creditworthiness (Palma 2009; Kear 2012). This way, financialization morphs into a 'technique of power' to maintain a particular social order (Palma 2009; Saith 2011), in which the delicate task of balancing competing social claims and distributive outcomes is offloaded to the 'invisible hand' which operates through anonymous, 'blind' financial markets (Krippner 2005, 2011). This is perhaps illustrated clearest by Michael Hudson (2012, p. 223):

"Rising mortgage debt has made employees afraid to go on strike or even to complain about working conditions. Employees became more docile in a world where they are only one paycheck or so away from homelessness or, what threatens to become almost the same thing, missing a mortgage payment. This is the point at which they find themselves hooked on debt dependency."

Paul Krugman (2005) has called this a 'debt-peonage society' -- while J. Gabriel Palma (2009, p. 833) labelled it a 'rentiers' delight' in which financialization sustains the rent-seeking practices of oligopolistic capital -- as a system of discipline as well as exploitation, which is "difficult to reconcile with any acceptable definition of democracy" (Mann 2010, p. 18).

In this regime of social regulation, income and wealth became more concentrated in the hands of the rentier class (Saith 2011; Goda, Onaran and Stockhammer 2017) , and as a result, productive capital accumulation gave way before the increased speculative use of the 'economic surplus of society' in pursuit of 'financial-capital' gains through asset speculation (Davis and Kim 2015). This took the wind out of the sails of the 'real' economy, and firms responded by holding back investment, using their profits to pay out dividends to their shareholders and to buy back their own shares (Lazonick 2014). Because the rich own most financial assets, anything that causes the value of financial assets to rise rapidly made the rich richer (Taylor, Ömer and Rezai 2015).

In the U.S., arguably the most financialized economy in the world, the result of this was extreme income polarization, unseen after WWII (Piketty 2014; Palma 2011). The 'American Dream', writes Gabriel Palma (2009, p. 842), was "high jacked by a rather tiny minority -- for the rest, it has only been available on credit!" Because that is what happened: lower- and middle-income groups took on more debt to finance spending on health care, education or housing, spurred by the deregulation of financial markets and changes in the tax code which made it easier and more attractive for households with modest incomes to borrow in order to spend. This debt-financed spending stimulated an otherwise almost comatose U.S. economy by spurring consumption (Cynamon and Fazzari 2015). In the twenty years before the Great Financial Crash, debts and 'financial excess' -- in the form of the asset price bubbles in 'New Economy' stocks, real estate markets and commodity (futures) markets -- propped up aggregate demand and kept the U.S. and global economy growing. "We have," Paul Krugman (2013) concludes, "an economy whose normal condition is one of inadequate demand -- of at least mild depression -- and which only gets anywhere close to full employment when it is being buoyed by bubbles."

But it is not just the U.S. economy: the whole world has become addicted to debt. The borrowings of global households, governments and firms have risen from 246% of GDP in 2000 to 327%, or $ 217 trillion, today -- which is $70 trillion higher than 10 years ago. [4] It means that for every extra dollar of output, the world economy cranks out more than almost 10 extra dollars of debt. Forget about the synthetic opioid crisis, the world's more dangerous addiction is to debt. China, which has been the engine of the global economy during most of the post-2008 period, has been piling up debt to keep its growth process going -- the IMF (2017) expects China's non-financial sector debt to exceed 290% of its GDP in 2022, up from around 140% (of GDP) in 2008, warning that China's current credit trajectory is "dangerous with increasing risks of a disruptive adjustment." China's insatiable demand for debt fueled growth, but also led to a property bubble and a rapidly growing shadow banking system (Gabor 2018) -- raising concerns that the economy may face a hard landing and send shockwaves through the world's financial markets. The next global financial catastrophe may be just around the corner.

How Finance Is Reshaping the 'Rules of the Game'

To understand this debt explosion we must comprehend what is driving the financial hyper-activity -- and how this is changing the way our economies work. For a start, the growth of the financial industry, in terms of its size and power, its incomprehensible complexity and its penetration into the real economy, is inseparably connected to the structural increase in income and wealth inequalities (Foster and McChesney 2012; Storm and Naastepad 2015; Cynamon and Fazzari 2015; Goda, Onaran and Stockhammer 2017). Richer households have a higher propensity to save and are more likely to hold financial wealth in risky assets (such as mutual funds, shares and bonds) and hence, more money ends up in the management of institutional investors or 'asset managers' (Epstein 2018; Gabor 2018). As a result, a small core of the global population, the so-called High Net Worth Individuals (Lysandrou 2011; Goda 2017), controls an increasingly larger share of incomes and wealth (Palma 2011; Saith 2011; Piketty 2014; Taylor, Ömer and Rezai 2015). This trend was strengthened by the shift towards capital-based pension schemes (Krippner 2011) and the structural increase in the liquidity preference of big shareholder-dominated corporations, which came about under pressure from activist shareholders wanting to 'disgorge the cash' within these firms (Lazonick 2014; Epstein 2018; Jayadev et al. 2018). However, with few sufficiently profitable investment opportunities in the "real economy", cash wealth -- originating out of a higher profit share, dividends, shareholder payouts and capital gains on earlier financial investments -- began to accumulate in global centrally managed 'institutional cash pools', the volume of which grew from an insignificant $100 billion in 1990 to a systemic $6 trillion at the end of 2013 (Pozsar 2011, 2015). [5]

OTC derivative trading requires the availability of cheap liquidity on demand (Mehrling 2012) and this means that the 'asset management complex' cannot invest the cash pools into long-term assets, but has to keep the liquidity available -- ready to use when the possibility for a profitable deal arises. But doing so poses enormous risks, because the global cash pools are basically uninsured: they are far too big to fall under the coverage of normal deposit-insurance schemes offered by the traditional banking system (Pozsar 2011). Securing 'principal safety' for the cash pools under their management thus became the main headache of the asset managers -- which proved to be a far greater challenge than generating adequate rates of return for the cash-owners. The reason was that the traditional way of securing principal safety of one's cash was by putting it in very short-term government bonds which were credit-rated as being 'safe' ( e.g. U.S. T-Bills or German Bunds ). This way, the cash pool became 'collateralized' -- backed up by sovereign bonds. But as inequality increased and global institutional cash pools expanded, the demand for safe collateral began to permanently exceed the availability of 'safe' government bonds (Pozsar 2011; Lysandrou and Nesvetailova 2017).

The only way out was by putting the cash into newly developed privately guaranteed instruments: asset-backed securities . These instruments were secured by collateral (Lysandrou and Nesvetailova 2017) -- that is, the cash pools were lent, on a very short term basis (often over-night), to securitization trusts, banks and other asset owners in exchange for safe and secure collateral -- on the agreement that the borrower would repurchase the collateral some time later (often the next day). This is called a repurchase or 'repo' transaction (Gorton and Metrick 2009) or an 'asset-backed commercial paper' deal (Covitz, Lang and Suarez 2013). Normally, the cash loan would be over-collateralized, with the cash provider receiving collateral of a higher value than the value of the cash; the basic workings of the 'repo' market are further explained in Storm (2018). These (short-term) deals are generally done within the shadow banking system, the mostly 'self-regulated' sphere of the financial sector which arose in response to the growing demand for risk intermediation on behalf of -- and the prioritization of a 'safe parking place' for -- the global institutional cash pools (Pozsar 2011; Pozsar and Singh 2011). The repo lender and the securities borrower -- each lends cash and gets back securities -- can re-use those securities as collateral to get repo loans for themselves. And the next cash lender, which gets the same securities as collateral, can re-use them again as collateral to get a repo loan for itself. And so on. This creates a 'chain' in which one set of securities gets re-used several times as collateral for several loans. This so-called re-hypothecation (Pozsar and Singh 2011) means that these securities were increasingly used as 'money', a means of payment in inter-bank deals, within the shadow banking system.

It should be clear that 'securities', which are privately 'manufactured' and guaranteed money market instruments, form the feedstock of this complex and opaque 'profit-generating machine' of inter-bank wheeling and dealing -- both by providing 'insurance' to the global cash pools and by acting as an (privately guaranteed) means of payment in OTC trading. 'Securitization' is the most critical, yet under-appreciated, enabler of financialization (Davis and Kim 2015). What then is securitization? It is the process of taking 'passive' assets with cash flows, such as mortgages held by commercial banks, and commodifying them into tradable securities. Securities are 'manufactured' using a portfolio of hundreds or thousands of underlying assets, all yielding a particular return (in the form of cash flow) and carrying a particular risk of default to their buyers. Due to the law of large numbers, the payoff from the portfolio becomes predictable and suitable for being sliced up in different 'tranches', each having a different risk profile. Storm (2018) provides a simple but illustrative numerical example of how a security is manufactured using a two-asset example. As Davis and Kim (2015) argue, securitization represents a fundamental shift in how finance is done. In the old days of 'originate-and-hold' (before the 1980s), (regulated) commercial banks would originate mortgage loans and keep them on their balance sheets for the duration of the loan period. But now in our era of 'originate-and-distribute', (de-regulated) commercial banks originate mortgages, but then sell them off to securitization trusts which turn these mortgages into 'securities' and vend them to financial investors. Securitization thus turns a concrete long-term relationship between a bank ( i.e. Schumpeter's 'ephor') and the loan-taker into an abstract relationship between anonymous financial markets and the loan-taker (in line with Hayek's legacy). Commercial banks are now mere 'underwriters' of the mortgage (which is quickly sold and securitized), while households which took the mortgage, are now de facto 'issuers of securities' on (global) financial markets. This is the essence of the shift in financial intermediation from banks to financial markets (Lysandrou and Nesvetailova 2017). Kane (2013, 2015) explains how this system is enjoying the implicit back-up of central banks and states and how it is leading to predatory risk-taking by mega-banks.

This securitization fundamentally transformed the 'rules of the capitalist game', often in rather perverse directions. For one, as finance expanded, the demand for 'investment-grade' (AAA-rated) securities grew -- and the result was a hunt for additional collateral akin to earlier gold rushes, write Pozsar and Singh (2011, p. 5): "Obtaining collateral is similar to mining. It involves both exploration (looking for deposits of collateral) and extraction (the "unearthing" of passive securities so they can be re-used as collateral for various purposes in the shadow banking system)." Collateral is the new gold -- and this explains why banks (before the Great Financial Crisis) gave loans to non-creditworthy (sub-prime) customers (Epstein 2018) and why these same banks are now eager to include the poor in the financial system (Mader 2018) and to enclose ever new spaces for profit-making (Arsel and Büscher 2012; Sathyamala 2017; Keucheyan 2018). Mortgage loans (sub-prime or prime) or micro-credit deals derive their systemic importance from the access they provide to the underlying collateral -- either in the form of residential property or of high-return cash flows on micro-loans, made low-risk by peer pressure.

This systemic importance (to the financial system, that is) by far exceeds the value of these loans to the actual borrowers and it has led to and is still leading to an overdose of finance -- with ruinous consequences. Likewise, one cannot understand what is going in commodity and food markets unless one appreciates that trading in 'commodities' and 'food' is not so much related to (present and future) consumption needs, but is increasingly dictated by the market's alternative collateral, store-of-value, and safe-asset role in the global economy (Clapp and Isakson 2018). That is, the commodity option or futures contract derives its value more from its usefulness as 'collateralized securities' to back-up speculative shadow-banking transactions than from its capacity to meet food demand or smoothen output prices for farmers. We can add a fourth law to Zuboff's Laws (2013), namely that anything which can be collateralized, will be collateralized. This even includes 'social policies', because the present value of future streams of cash benefits for the poor can serve as collateral (see Lavinas 2018). And because the major OTC markets require price volatility and spreads, exchange rate volatility and uncertainty, which are 'bad' for the economic development of countries attempting to industrialize (Bortz and Kaltenbrunner 2018), constitute a sine qua non for the profitability of major OTC instruments including forex swaps and credit default swaps (to 'hedge' the risks of the forex swaps). [7] Perverse incentives, excessive risk-taking, fictitious financial instruments -- it appears finance capitalism has reached its nadir. "In the way that even an accumulation of debts can appear as an accumulation of capital," as Marx (1981, pp. 607-08) insightfully observed, "we see the distortion involved in the credit system reach its culmination."

A 'One-Foot' Conclusion

The shift in financial intermediation from banks to financial markets, and the introduction of financial market logic into areas and domains where it was previously absent, have not just led to negative developmental impacts, but also changed the 'rules of the game', conduct and outcomes -- to the detriment of 'inclusive' economic development and in ways that have helped to legitimize -- what Palma (2009) has appositely called -- a 'rentiers' delight', a financialized mode of social regulation which facilitated rent-seeking practices of a self-serving global financial elite and at the same time enabled a sickening rise in inequality. Establishment (financial) economics has helped to de-politicize and legitimize this financialized mode of social regulation by invoking Hayek's epistemological claim that (financial) markets are the only legitimate, reliably welfare-enhancing foundation for a stable social order and economic progress.

It is this complacency of establishment economics which led to the global financial crash of 2008 and ten dire years of economic stagnation, high and rising inequalities in income and wealth, historically unprecedented levels of indebtedness, and mounting uncertainty about jobs and incomes in most nations. The crisis conditions crystalized into a steadily increasing popular dissatisfaction of those supposedly 'left behind by (financial) globalization' with the political and economic status quo; a dissatisfaction which amplified into a 'groundswell of discontent' -- to use the words of the IMF's Managing Director Christine Lagarde (2016). Angry and anxious electorates were transformed by demagogues into election-winning forces, as the British 'Brexit' vote, Trump's (2016) and Erdogan's (2017) election victories in the U.S. and Turkey, and recent political changes (toward authoritarianism) in Brazil, Egypt, the Philippines and India all attest (see Becker, Fetzer and Novy (2017) for an analysis of the Brexit vote; and Ferguson, Jorgenson and Chen (2018) for an assessment of the Trump vote).

We have to confront the Panglossian logic and arguments of (financial) economists, used to legitimize the current financialized global order as the 'best of all possible worlds". We must lay to rest the Hayekian claim that unregulated market-based finance is socially efficient -- as the macro- and micro-economic impacts of the rise to dominance of financial markets on capital accumulation, growth and distribution have overwhelmingly been deleterious (Epstein 2018). Market-based finance is no longer funding the real economy (Epstein 2018; Jayadev, Mason and Schröder 2018), but rather engages in self-serving strategy of rent-seeking (Chandrasekhar and Ghosh 2018; Mader 2018), looting the 'fisc' (Chandrasekhar and Ghosh 2018; Mader 2018), exchange rate and global stock market speculation (Bortz and Kaltenbrunner 2018), OTC derivatives speculation (Keucheyan 2018; Clapp and Isakson 2018) and collateral mining (Gabor 2018; Lavinas 2018) -- asphyxiating economic development.

This does not mean, however, that Schumpeter and Gerschenkron were wrong in calling the banker the 'ephor' of capitalism and a 'phenomenon of development'. Finance can positively contribute to economic development, something which indeed is "almost too obvious for serious discussion" as Miller wrote, but only when the 'ephor' is 'governed' and 'directed' by state regulation to structure accumulation and distribution into socially useful directions (Epstein 2018; Jayadev, Mason and Schröder 2018). The East Asian miracle economies prove the point that finance can be socially efficient if bankers can be made to work within the 'developmental mindset', the institutional arrangements and political compulsions of a 'developmental state', as argued by Wade (2018) -- China's recent move to (securities) market-based finance may be the beginning of unravelling of its growth miracle (Gabor 2018; BIS 2017).

Rather than letting financial markets discipline the rest of the economy and the whole of society, finance itself has to be disciplined by a countervailing social authority which governs it to act in socially desirable directions. One famous account in the Talmud tells about Rabbi Hillel, a great sage, who when he was asked to explain the Torah in the time that he could stand on one foot, replied: "Do not do unto others that which is repugnant to you. Everything else is commentary." If there is a one-foot summary of the literature reviewed in this introduction, it is this: "Finance is a terrible 'ephor', but, if and when domesticated, can be turned into a useful servant. Everything else is commentary."

[Feb 02, 2018] Why Is The Shale Industry Still Not Profitable by Nick Cunningham

Looses of shale companies which hedged oil production for 2018 at 2017 prices can be tremendous.
Notable quotes:
"... Al Rajhi Capital notes that more recently, shale companies ended up locking in hedges at prices that could end up being quite a bit lower than the market price, which could limit their upside exposure should prices continue to rise. ..."
Feb 02, 2018 | oilprice.com
too much hype surrounding U.S. shale from the Saudi oil minister last week, a new report finds that shale drilling is still largely not profitable. Not only that, but costs are on the rise and drillers are pursuing "irrational production."

Riyadh-based Al Rajhi Capital dug into the financials of a long list of U.S. shale companies, and found that "despite rising prices most firms under our study are still in losses with no signs of improvement." The average return on asset for U.S. shale companies "is still a measly 0.8 percent," the financial services company wrote in its report.

Moreover, the widely-publicized efficiency gains could be overstated, at least according to Al Rajhi Capital. The firm said that in the third quarter of 2017, the "average operating cost per barrel has broadly remained the same without any efficiency gains." Not only that, but the cost of producing a barrel of oil, after factoring in the cost of spending and higher debt levels, has actually been rising quite a bit.

Shale companies often tout their rock-bottom breakeven prices, and they often use a narrowly defined metric that only includes the cost of drilling and production, leaving out all other costs. But because there are a lot of other expenses, only focusing on operating costs can be a bit misleading.

The Al Rajhi Capital report concludes that operating costs have indeed edged down over the past several years. However, a broader measure of the "cash required per barrel," which includes other costs such as depreciation, interest expense, tax expense, and spending on drilling and exploration, reveals a more damning picture. Al Rajhi finds that this "cash required per barrel" metric has been rising for several consecutive quarters, hitting an average $64 per barrel in the third quarter of 2017. That was a period of time in which WTI traded much lower, which essentially means that the average shale player was not profitable. Not everyone is posting poor figures. Diamondback Energy and Continental Resources had breakeven prices at about $52 and $37 per barrel in the third quarter, respectively, according to the Al Rajhi report. Parsley Energy, on the other hand, saw its "cash required per barrel" price rise to nearly $100 per barrel in the third quarter.

A long list of shale companies have promised a more cautious approach this year, with an emphasis on profits. It remains to be seen if that will happen, especially given the recent run up in prices. But Al Rajhi questions whether spending cuts will even result in a better financial position. "Even when capex declines, we are unlikely to see any sustained drop in cash flow required per barrel due to the nature of shale production and rising interest expenses," the Al Rajhi report concluded. In other words, cutting spending only leads to lower production, and the resulting decline in revenues will offset the benefit of lower spending. All the while, interest payments need to be made, which could be on the rise if debt levels are climbing.

One factor that has worked against some shale drillers is that the advantage of hedging future production has all but disappeared. In FY15 and FY16, the companies surveyed realized revenue gains on the order of $15 and $9 per barrel, respectively, by locking in future production at higher prices than what ended up prevailing in the market. But, that advantage has vanished. In the third quarter of 2017, the same companies only earned an extra $1 per barrel on average by hedging. Part of the reason for that is rising oil prices, as well as a flattening of the futures curve. Indeed, recently WTI and Brent have showed a strong trend toward backwardation -- in which longer-dated prices trade lower than near-term. That makes it much less attractive to lock in future production.

Al Rajhi Capital notes that more recently, shale companies ended up locking in hedges at prices that could end up being quite a bit lower than the market price, which could limit their upside exposure should prices continue to rise.

In short, the report needs to be offered as a retort against aggressive forecasts for shale production growth. Drilling is clearly on the rise and U.S. oil production is expected to increase for the foreseeable future. But the lack of profitability remains a significant problem for the shale industry.

[Feb 02, 2018] Trump s Financial Arsonists by Nomi Prins

Notable quotes:
"... Wall Street Week ..."
"... Dimon can afford to be brazen. JPMorgan Chase is now the second most profitable company in the country. Why should he be worried about what might happen in another crisis, given that the Trump administration is in charge? With pro-business and pro-bailout thinking reigning supreme, what could go wrong? ..."
"... Rules Don't Apply ..."
"... At the Federal Reserve, Trump's selection for chairman, Jerome Powell (another Mnuchin pick ), has repeatedly expressed his disinterest in bank regulations. To him, too-big-to-fail banks are a thing of the past. And to round out this heady crew, there's Office of Management and Budget (OMB) head Mick Mulvaney now also at the helm of the Consumer Financial Protection Bureau (CFPB), whose very existence he's mocked. ..."
"... As for Joseph Otting, though the Senate confirmed him as the new head of the OCC in November, four key senators called him "highly unqualified for [the] job." He will run an agency whose history snakes back to the Civil War. Established by President Abraham Lincoln in 1863 , it was meant to safeguard the solidity and viability of the banking system. Its leader remains charged with preventing bank-caused financial crashes, not enabling them. ..."
Feb 02, 2018 | www.unz.com

Amid a roaring stock market and a planet of upbeat CEOs , few are even thinking about the havoc that a multi-trillion-dollar financial system gone rogue could inflict upon global stability. But watch out. Even in the seemingly best of times, neglecting Wall Street is a dangerous idea. With a rag-tag Trumpian crew of ex-bankers and Goldman Sachs alumni as the only watchdogs in town, it's time to focus, because one thing is clear: Donald Trump's economic team is in the process of making the financial system combustible again.

Collectively, the biggest U.S. banks already have their get-out-out-of-jail-free cards and are now sitting on record profits after, not so long ago, triggering sweeping unemployment, wrecking countless lives, and elevating global instability. (Not a single major bank CEO was given jail time for such acts.) Still, let's not blame the dangers lurking at the heart of the financial system solely on the Trump doctrine of leaving banks alone. They should be shared by the Democrats who, under President Barack Obama, believed, and still believe, in the perfection of the Dodd-Frank Act of 2010 .

While Dodd-Frank created important financial safeguards like the Consumer Financial Protection Bureau, even stronger long-term banking reforms were left on the sidelines. Crucially, that law didn't force banks to separate the deposits of everyday Americans from Wall Street's complex derivatives transactions. In other words, it didn't resurrect the Glass-Steagall Act of 1933 (axed in the Clinton era).

Wall Street is now thoroughly emboldened as the financial elite follows the mantra of Kelly Clarkston's hit song: "What doesn't kill you makes you stronger." Since the crisis of 2007-2008, the Big Six U.S. banks -- JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley -- have seen the share price of their stocks significantly outpace those of the S&P 500 index as a whole.

Jamie Dimon, chairman and CEO of JPMorgan Chase, the nation's largest bank (that's paid $13 billion in settlements for various fraudulent acts), recently even pooh-poohed the chances of the Democratic Party in 2020, suggesting that it was about time its leaders let banks do whatever they wanted. As he told Maria Bartiromo, host of Fox Business's Wall Street Week , "The thing about the Democrats is they will not have a chance, in my opinion. They don't have a strong centrist, pro-business, pro-free enterprise person."

This is a man who was basically gifted two banks, Bear Stearns and Washington Mutual , by the U.S government during the financial crisis. That present came as his own company got cheap loans from the Federal Reserve, while clamoring for billions in bailout money that he swore it didn't need .

Dimon can afford to be brazen. JPMorgan Chase is now the second most profitable company in the country. Why should he be worried about what might happen in another crisis, given that the Trump administration is in charge? With pro-business and pro-bailout thinking reigning supreme, what could go wrong?

Protect or Destroy?

There are, of course, supposed to be safeguards against freewheeling types like Dimon. In Washington, key regulatory bodies are tasked with keeping too-big-to-fail banks from wrecking the economy and committing financial crimes against the public. They include the Federal Reserve, the Securities and Exchange Commission, the Treasury Department, the Office of the Comptroller of the Currency (an independent bureau of the Treasury), and most recently, under the Dodd-Frank Act of 2010, the Consumer Financial Protection Bureau (an independent agency funded by the Federal Reserve).

These entities are now run by men whose only desire is to give Wall Street more latitude. Former Goldman Sachs partner, now treasury secretary, Steven Mnuchin caught the spirit of the moment with a selfie of his wife and him holding reams of newly printed money "like a couple of James Bond villains." (After all, he was a Hollywood producer and even appeared in the Warren Beatty flick Rules Don't Apply .) He's making his mark on us, however, not by producing economic security, but by cheerleading for financial deregulation.

Despite the fact that the Republican platform in election 2016 endorsed reinstating the Glass-Steagall Act, Mnuchin made it clear that he has no intention of letting that happen. In a signal to every too-big-not-to-fail financial outfit around, he also released AIG from its regulatory chains. That's the insurance company that was at the epicenter of the last financial crisis. By freeing AIG from being monitored by the Financial Services Oversight Board that he chairs, he's left it and others like it free to repeat the same mistakes.

Elsewhere, having successfully spun through the revolving door from banking to Washington, Joseph Otting, a former colleague of Mnuchin's, is now running the Office of the Comptroller of the Currency (OCC). While he's no household name, he was the CEO of OneWest (formerly, the failed California-based bank IndyMac) . That's the bank Mnuchin and his billionaire posse picked up on the cheap in 2009 before carrying out a vast set of foreclosures on the homes of ordinary Americans (including active-duty servicemen and -women) and reselling it for hundreds of millions of dollars in personal profits .

At the Federal Reserve, Trump's selection for chairman, Jerome Powell (another Mnuchin pick ), has repeatedly expressed his disinterest in bank regulations. To him, too-big-to-fail banks are a thing of the past. And to round out this heady crew, there's Office of Management and Budget (OMB) head Mick Mulvaney now also at the helm of the Consumer Financial Protection Bureau (CFPB), whose very existence he's mocked.

In time, we'll come to a reckoning with this era of Trumpian finance. Meanwhile, however, the agenda of these men (and they are all men) could lead to a financial crisis of the first order. So here's a little rundown on them: what drives them and how they are blindly taking the economy onto distinctly treacherous ground.

Joseph Otting , Office of the Comptroller of the Currency

The Office of the Comptroller is responsible for ensuring that banks operate in a secure and reasonable manner, provide equal access to their services, treat customers properly, and adhere to the laws of the land as well as federal regulations.

As for Joseph Otting, though the Senate confirmed him as the new head of the OCC in November, four key senators called him "highly unqualified for [the] job." He will run an agency whose history snakes back to the Civil War. Established by President Abraham Lincoln in 1863 , it was meant to safeguard the solidity and viability of the banking system. Its leader remains charged with preventing bank-caused financial crashes, not enabling them.

Fast forward to the 1990s when Otting held a ranking position at Union Bank NA, overseeing its lending practices to medium-sized companies. From there he transitioned to U.S. Bancorp, where he was tasked with building its middle-market business (covering companies with $50 million to $1 billion in annual revenues) as part of that lender's expansion in California.

In 2010, Otting was hired as CEO of OneWest (now owned by CIT Group). During his time there with Mnuchin, OneWest foreclosed on about 36,000 people and was faced with sweeping allegations of abusive foreclosure practices for which it was fined $89 million . Otting received $10.5 million in an employment contract payout when terminated by CIT in 2015. As Senator Sherrod Brown tweeted all too accurately during his confirmation hearings in the Senate, "Joseph Otting is yet another bank exec who profited off the financial crisis who is being rewarded by the Trump Administration with a powerful job overseeing our nation's banking system."

Like Trump and Mnuchin, Otting has never held public office. He is, however, an enthusiastic proponent of loosening lending regulations . Not only is he against reinstating Glass-Steagall, but he also wants to weaken the "Volcker Rule," a part of the Dodd-Frank Act that was meant to place restrictions on various kinds of speculative transactions by banks that might not benefit their customers.

Jay Clayton, the Securities and Exchange Commission

The Securities and Exchange Commission (SEC) was established by President Franklin Delano Roosevelt in 1934, in the wake of the crash of 1929 and in the midst of the Great Depression. Its intention was to protect investors by certifying that the securities business operated in a fair, transparent, and legal manner. Admittedly, its first head, Joseph Kennedy (President John F. Kennedy's father), wasn't exactly a beacon of virtue. He had helped raise contributions for Roosevelt's election campaign even while under suspicion for alleged bootlegging and other illicit activities.

Since May 2017, the SEC has been run by Jay Clayton, a top Wall Street lawyer . Following law school, he eventually made partner at the elite legal firm Sullivan & Cromwell. After the 2008 financial crisis, Clayton was deeply involved in dealing with the companies that tanked as that crisis began. He advised Barclays during its acquisition of Lehman Brothers' assets and then represented Bear Stearns when JPMorgan Chase acquired it.

In the three years before he became head of the SEC, Clayton represented eight of the 10 largest Wall Street banks, institutions that were then regularly being investigated and charged with securities violations by the very agency Clayton now heads. He and his wife happen to hold assets valued at between $12 million and $47 million in some of those very institutions.

Not surprisingly in this administration (or any other recent one), Clayton also has solid Goldman Sachs ties. On at least seven occasions between 2007 and 2014, he advised Goldman directly or represented its corporate clients in their initial public offerings. Recently, Goldman Sachs requested that the SEC release it from having to report its lobbying activities or payments because, it claimed, they didn't make up a large enough percentage of its assets to be worth the bother. (Don't be surprised when the agency agrees.)

Clayton's main accomplishment so far has been to significantly reduce oversight activities. SEC penalties, for instance, fell by 15.5% to $3.5 billion during the first year of the Trump administration. The SEC also issued enforcement actions against only 62 public companies in 2017, a 33% decline from the previous year. Perhaps you won't then be surprised to learn that its enforcement division has an estimated 100 unfilled investigative and supervisory positions, while it has also trimmed its wish list for new regulatory provisions. As for Dodd-Frank, Clayton insists he won't " attack " it, but thinks it should be "looked" at.

Mick Mulvaney, the Consumer Financial Protection Bureau and the Office of Management and Budget

As a congressman from South Carolina, ultra-conservative Republican Mick Mulvaney, dubbed " Mick the Knife ," once even labeled himself a " right-wing nut job ." Chosen by President Trump in November 2016 to run the Office of Management and Budget, he was confirmed by Congress last February .

As he said during his confirmation hearings, "Each day, families across our nation make disciplined choices about how to spend their hard-earned money, and the federal government should exercise the same discretion that hard-working Americans do every day." As soon as he was at the OMB, he took an axe to social programs that help everyday Americans. He was instrumental in creating the GOP tax plan that will add up to $1.5 trillion to the country's debt in order to provide major tax breaks to corporations and wealthy individuals. He was also a key figure in selling the plan to the media.

When Richard Cordray resigned as head of the Consumer Financial Protection Bureau in November, Trump promptly selected Mick the Knife for that role, undercutting the deputy director Cordray had appointed to the post. After much debate and a court order in his favor, Mulvaney grabbed a box of Dunkin' Donuts and headed over from his OMB office adjacent to the White House. So even though he's got a new job, Mulvaney is never far from Trump's reach.

The problem for the rest of us: Mulvaney loathes the CFPB, an agency he once called "a joke." While he can't unilaterally demolish it, he's already obstructed its ability to enforce its government mandates. Soon after Trump appointed him, he imposed a 30-day freeze on hiring and similarly froze all further rule-making and regulatory actions.

In his latest effort to undermine American consumers, he's working to defund the CFPB. He just sent the Federal Reserve a letter stating that, "for the second quarter of fiscal year 2018, the Bureau is requesting $0." That doesn't bode well for American consumers.

Jerome "Jay" Powell, Federal Reserve

Thanks to the Senate confirmation of his selection for chairman of the board, Donald Trump now owns the Fed, too. The former number two man under Janet Yellen, Jerome Powell will be running the Fed, come Monday morning, February 5th.

Established in 1913 during President Woodrow Wilson's administration, the Fed's official mission is to "promote a safe, sound, competitive, and accessible banking system." In reality, it's acted more like that system's main drug dealer in recent years. In the wake of the 2007-2008 financial crisis, in addition to buying trillions of dollars in bonds (a strategy called "quantitative easing," or QE), the Fed supplied four of the biggest Wall Street banks with an injection of $7.8 trillion in secret loans. The move was meant to stimulate the economy, but really, it coddled the banks.

Powell's monetary policy undoubtedly won't represent a startling change from that of previous head Janet Yellen, or her predecessor, Ben Bernanke. History shows that Powell has repeatedly voted for pumping financial markets with Federal Reserve funds and, despite displaying reservations about the practice of quantitative easing, he always voted in favor of it, too. What makes his nomination out of the ordinary, though, is that he's a trained lawyer, not an economist.

Powell is assuming the helm at a time when deregulation is central to the White House's economic and financial strategy. Keep in mind that he will also have a role in choosing and guiding future Fed appointments. (At present, the Fed has the smallest number of sitting governors in its history .) The first such appointee, private equity investor Randal Quarles, already approved as the Fed's vice chairman for supervision, is another major deregulator .

Powell will be able to steer banking system decisions in other ways. In recent Senate testimony, he confirmed his deregulatory predisposition. In that vein, the Fed has already announced that it seeks to loosen the capital requirements big banks need to put behind their riskier assets and activities. This will, it claims, allow them to more freely make loans to Main Street, in case a decade of cheap money wasn't enough of an incentive.

The Emperor Has No Rules

Nearly every regulatory institution in Trumpville tasked with monitoring the financial system is now run by someone who once profited from bending or breaking its rules. Historically, severe financial crises tend to erupt after periods of lax oversight and loose banking regulations. By filling America's key institutions with representatives of just such negligence, Trump has effectively hired a team of financial arsonists.

Naturally, Wall Street views Trump's chosen ones with glee. Amid the present financial euphoria of the stock market, big bank stock prices have soared. But one thing is certain: when the next crisis comes, it will leave the last meltdown in the shade because our financial system is, at its core, unreformed and without adult supervision. Banks not only remain too big to fail but are still growing , while this government pushes policies guaranteed to put us all at risk again.

There's a pattern to this: first, there's a crash; then comes a period of remorse and talk of reform; and eventually comes the great forgetting. As time passes, markets rise, greed becomes good, and Wall Street begins to champion more deregulation. The government attracts deregulatory enthusiasts and then, of course, there's another crash, millions suffer, and remorse returns.

Ominously, we're now in the deregulation stage following the bull run. We know what comes next, just not when. Count on one thing: it won't be pretty.

Nomi Prins is a TomDispatch regular . Her new book, Collusion: How Central Bankers Rigged the World (Nation Books), will be published this May. Of her six other books, the most recent is All the Presidents' Bankers: The Hidden Alliances That Drive American Power . She is a former Wall Street executive. Special thanks go to researcher Craig Wilson for his superb work on this piece.

[Dec 14, 2017] Tech Giants Trying to Use WTO to Colonize Emerging Economies

Notable quotes:
"... The initiative described in this article reminds me of how the World Bank pushed hard for emerging economies to develop capital markets, for the greater good of America's investment bankers. ..."
"... By Burcu Kilic, an expert on legal, economic and political issues. Originally published at openDemocracy ..."
"... Today, the big tech race is for data extractivism from those yet to be 'connected' in the world – tech companies will use all their power to achieve a global regime in which small nations cannot regulate either data extraction or localisation. ..."
"... One suspects big money will be thrown at this by the leading tech giants. ..."
"... Out of idle curiosity, how could you accurately deduce my country of origin from my name? ..."
Dec 14, 2017 | www.nakedcapitalism.com

December 14, 2017 by Yves Smith Yves here. Notice that Costa Rica is served up as an example in this article. Way back in 1997, American Express had designated Costa Rica as one of the countries it identified as sufficiently high income so as to be a target for a local currency card offered via a franchise agreement with a domestic institution (often but not always a bank). 20 years later, the Switzerland of Central America still has limited Internet connectivity, yet is precisely the sort of place that tech titans like Google would like to dominate.

The initiative described in this article reminds me of how the World Bank pushed hard for emerging economies to develop capital markets, for the greater good of America's investment bankers.

By Burcu Kilic, an expert on legal, economic and political issues. Originally published at openDemocracy

Today, the big tech race is for data extractivism from those yet to be 'connected' in the world – tech companies will use all their power to achieve a global regime in which small nations cannot regulate either data extraction or localisation.

n a few weeks' time, trade ministers from 164 countries will gather in Buenos Aires for the 11th World Trade Organization (WTO) Ministerial Conference (MC11). US President Donald Trump in November issued fresh accusations of unfair treatment towards the US by WTO members , making it virtually impossible for trade ministers to leave the table with any agreement in substantial areas.

To avoid a 'failure ministerial," some countries see the solution as pushing governments to open a mandate to start conversations that might lead to a negotiation on binding rules for e-commerce and a declaration of the gathering as the "digital ministerial". Argentina's MC11 chair, Susana Malcorra, is actively pushing for member states to embrace e-commerce at the WTO, claiming that it is necessary to " bridge the gap between the haves and have-nots ".

It is not very clear what kind of gaps Malcorra is trying to bridge. It surely isn't the "connectivity gap" or "digital divide" that is growing between developed and developing countries, seriously impeding digital learning and knowledge in developing countries. In fact, half of humanity is not even connected to the internet, let alone positioned to develop competitive markets or bargain at a multilateral level. Negotiating binding e-commerce rules at the WTO would only widen that gap.

Dangerously, the "South Vision" of digital trade in the global trade arena is being shaped by a recent alliance of governments and well-known tech-sector lobbyists, in a group called 'Friends of E-Commerce for Development' (FED), including Argentina, Chile, Colombia, Costa Rica, Kenya, Mexico, Nigeria, Pakistan, Sri Lanka, Uruguay, and, most recently, China. FED claims that e-commerce is a tool to drive growth, narrow the digital divide, and generate digital solutions for developing and least developed countries.

However, none of the countries in the group (apart from China) is leading or even remotely ready to be in a position to negotiate and push for binding rules on digital trade that will be favorable to them, as their economies are still far away from the technology revolution. For instance, it is perplexing that one of the most fervent defenders of FED's position is Costa Rica. The country's economy is based on the export of bananas, coffee, tropical fruits, and low-tech medical instruments, and almost half of its population is offline . Most of the countries in FED are far from being powerful enough to shift negotiations in favor of small players.

U.S.-based tech giants and Chinese Alibaba – so-called GAFA-A – dominate, by far, the future of the digital playing field, including issues such as identification and digital payments, connectivity, and the next generation of logistics solutions. In fact, there is a no-holds-barred ongoing race among these tech giants to consolidate their market share in developing economies, from the race to grow the advertising market to the race to increase online payments.

An e-commerce agenda that claims unprecedented development for the Global South is a Trojan horse move. Beginning negotiations on such topics at this stage – before governments are prepared to understand what is at stake – could lead to devastating results, accelerating liberalization and the consolidation of the power of tech giants to the detriment of local industries, consumers, and citizens. Aware of the increased disparities between North and South, and the data dominance of a tiny group of GAFA-A companies, a group of African nations issued a statement opposing the digital ambitions of the host for MC11. But the political landscape is more complex, with China, the EU, and Russia now supporting the idea of a "digital" mandate .

Repeating the Same Mistakes?

The relationships of most countries with tech companies are as imbalanced as their relationships with Big Pharma, and there are many parallels to note. Not so long ago, the countries of the Global South faced Big Pharma power in pharmaceutical markets in a similar way. Some developing countries had the same enthusiasm when they negotiated intellectual property rules for the protection of innovation and research and development costs. In reality, those countries were nothing more than users and consumers of that innovation, not the owners or creators. The lessons of negotiating trade issues that lie at the core of public interest issues – in that case, access to medicines – were costly. Human lives and fundamental rights of those who use online services should not be forgotten when addressing the increasingly worrying and unequal relationships with tech power.

The threat before our eyes is similarly complex and equally harmful to the way our societies will be shaped in the coming years. In the past, the Big Pharma race was for patent exclusivity, to eliminate local generic production and keep drug prices high. Today, the Big Tech race is for data extractivism from those who have yet to be connected in the world, and tech companies will use all the power they hold to achieve a global regime in which small nations cannot regulate either data extraction or data localization.

Big Tech is one of the most concentrated and resourceful industries of all time. The bargaining power of developing countries is minimal. Developing countries will basically be granting the right to cultivate small parcels of a land controlled by data lords -- under their rules, their mandate, and their will -- with practically no public oversight. The stakes are high. At the core of it is the race to conquer the markets of digital payments and the battle to become the platform where data flows, splitting the territory as old empires did in the past. As the Economist claimed on May 6, 2017: "Conflicts over control of oil have scarred the world for decades. No one yet worries that wars will be fought over data. But the data economy has the same potential for confrontation."

If countries from the Global South want to prepare for data wars, they should start thinking about how to reduce the control of Big Tech over -- how we communicate, shop, and learn the news -- , again, over our societies. The solution lies not in making rules for data liberalization, but in devising ways to use the law to reduce Big Tech's power and protect consumers and citizens. Finding the balance would take some time and we are going to take that time to find the right balance, we are not ready to lock the future yet.

Jef , December 14, 2017 at 11:32 am

I thought thats what the WTO is for?

Thuto , December 14, 2017 at 2:14 pm

One suspects big money will be thrown at this by the leading tech giants. To paraphrase from a comment I made recently regarding a similar topic : "with markets in the developed world pretty much sewn up by the tripartite tech overlords (google, fb and amazon), the next 3 billion users for their products/services are going to come from developing world". With this dynamic in mind, and the "constant growth" mantra humming incessantly in the background, it's easy to see how high stakes a game this is for the tech giants and how no resources will be spared to stymie any efforts at establishing a regulatory oversight framework that will protect the digital rights of citizens in the global south.

Multilateral fora like the WTO are de facto enablers for the marauding frontal attacks of transnational corporations, and it's disheartening to see that some developing nations have already nailed the digital futures of their citizens to the mast of the tech giants by joining this alliance. What's more, this signing away of their liberty will be sold to the citizenry as the best way to usher them into the brightest of all digital futures.

Mark P. , December 14, 2017 at 3:30 pm

One suspects big money will be thrown at this by the leading tech giants.

Vast sums of money are already being thrown at bringing Africa online, for better or worse. Thus, the R&D aimed at providing wireless Internet via giant drones/balloons/satellites by Google, Facebook, etc.

You're African. Possibly South African by your user name, which may explain why you're a little behind the curve, because the action is already happening, but more to the north -- and particularly in East Africa.

The big corporations -- and the tech giants are competing with the banking/credit card giants -- have noted how mobile technology leapt over the dearth of last century's telephony tech, land lines, and in turn enabled the highest adoption rates of cellphone banking in the world. (Particularly in East Africa, as I say.) The payoffs for big corporations are massive -- de facto cashless societies where the corporations control the payment systems –and the politicians are mostly cheap.

In Nigeria, the government has launched a Mastercard-branded national ID card that's also a payment card, in one swoop handing Mastercard more than 170 million potential customers, and their personal and biometric data.

In Kenya, the sums transferred by mobile money operator M-Pesa are more than 25 percent of that country's GDP.

You can see that bringing Africa online is technically a big, decade-long project. But also that the potential payoffs are vast. Though I also suspect China may come out ahead -- they're investing far more in Africa and in some areas their technology -- drones, for instance -- is already superior to what the Europeans and the American companies have.

Thuto , December 14, 2017 at 4:58 pm

Thank you Mark P.

Hoisted from a comment I made here recently: "Here in South Africa and through its Free Basics programme, facebook is jumping into bed with unsuspecting ISPs (I say unsuspecting because fb will soon be muscling in on their territory and becoming an ISP itself by provisioning bandwidth directly from its floating satellites) and circumventing net neutrality "

I'm also keenly aware of the developments in Kenya re: safaricom and Mpesa and how that has led to traditional banking via bank accounts being largely leapfrogged for those moving from being unbanked to active economic citizens requiring money transfer facilities. Given the huge succes of Mpesa, I wouldn't be surprised if a multinational tech behemoth (chinese or american) were to make a play for acquiring safaricom and positioning it as a triple-play ISP, money transfer/banking services and digital content provider (harvesting data about users habits on an unprecedented scale across multiple areas of their lives), first in Kenya then expanded throughout east, central and west africa. I must add that your statement about Nigeria puts Mark Zuckerberg's visit there a few months back into context somewhat, perhaps a reconnaissance mission of sorts.

Out of idle curiosity, how could you accurately deduce my country of origin from my name?

Mark P. , December 14, 2017 at 6:59 pm

Out of idle curiosity, how could you accurately deduce my country of origin from my name?

Though I've lived in California for decades, my mother was South African and I maintain a UK passport, having grown up in London.

Mark P. , December 14, 2017 at 3:34 pm

As you also write: "with markets in the developed world pretty much sewn up by the tripartite tech overlords (google, fb and amazon), the next 3 billion users for their products/services are going to come from developing world."

Absolutely true. This cannot be stressed enough. The tech giants know this and the race is on.

Mattski , December 14, 2017 at 3:41 pm

Been happening with food for 50 years.

[Dec 08, 2017] Banking came into existence as a fraud. The fraud was legalized and we've been living with the consequences, both good and bad, ever since.

Notable quotes:
"... Ryan deficit BS there was a commenter ex-SA with a John H. Hotson link that I want to see go viral because it simply explains the history of the Gordian Knot we face as a species ..."
"... "Banking came into existence as a fraud. The fraud was legalized and we've been living with the consequences, both good and bad, ever since. Even so it is also a great invention-right up there with fire, the wheel, and the steam engine." ..."
Dec 08, 2017 | www.moonofalabama.org

psychohistorian , Dec 8, 2017 6:22:05 PM | 18

@ Daniel ending with "This "Clash of Civilizations" type narrative is not encouraging." That is exactly what they want you to focus on as a narrative rather than the simple truth about the demise of private banking. On the previous thread about the Republican: Ryan deficit BS there was a commenter ex-SA with a John H. Hotson link that I want to see go viral because it simply explains the history of the Gordian Knot we face as a species

The link to a 1996 article: Understanding Money by John H. Hotson . The take away quote

"Banking came into existence as a fraud. The fraud was legalized and we've been living with the consequences, both good and bad, ever since. Even so it is also a great invention-right up there with fire, the wheel, and the steam engine."

Clash of Civilizations is as vapid a meme as the common understanding of the Capitalism myth as that article so clearly states. Spread his word far and wide to wake up the zombies. It is time!

[Dec 05, 2017] Controlling speculation in world financial markets Progressive Christians Uniting by Gordon K Douglass

Highly recommended!
Nov 09, 2002 | www.prospect-magazine.co.uk

Financial markets 101
Early history
The Bretton Woods system
The power of financial actors
Consequences of global financial flows
Policy options
Theological and ethical considerations
A new financial architecture
What Christians can do
Want to know more?
Questions For Discussion


"During my whole career at Goldman Sachs - 1967 to 1991 - I never owned a foreign stock or emerging market bonds. Now I have hundreds of millions of dollars in Russia, Brazil, Argentina and Chile, and I worry constantly about the dollar-yen rate. Every night before I go to bed I call in for the dollar-yen quote, and to find out what the Nikkei is doing and what the Hang Seng Index is doing. We have bets in all these markets. Right now Paul [one of my traders] is long [on] the Canadian dollar. We have bets all over the place. I would not have worried about any of these twenty years ago. Now I have to worry about all of them."

Leon Coopermann, hedge fund manager1


Economic globalization is probably the most fundamental transformation of the world's political and economic arrangements since the Industrial Revolution. Decisions made in one part of the world more and more affect people and communities elsewhere in the world. Sometimes the consequences of globalization are positive, liberating inventive and entrepreneurial talents and accelerating the pace of sustainable development. But at other times they are negative, as when many people, especially in less-developed countries, are left behind without a social safety net. Globalization undermines the ability of the nation to tax and to regulate its own economy. This weakens the power of sovereign nations relative to that of large transnational corporations and distorts how social and economic priorities are chosen.

Economic globalization is most often associated with rapid growth in the flow of goods and services across international borders. Indeed, the economic "openness" of a nation is often measured by the value of its exports, imports, or their sum when compared to the size of its economy. Economic globalization also involves large investments from outside each nation, often by transnational corporations. These corporations often combine technology and know-how with their investments that enhance the productive capacity of a nation. Previous position papers of the Mobilization, contained in Speaking of Religion & Politics: The Progressive Church Tackles Hot Topics2, have dealt with globalization primarily in these terms.

But international trade and investment are only part of the openness that has come to be called globalization. Another part, and arguably the most important, is the quickening flow of financial assets internationally. While a small portion of this flow is directly associated with the "real" economy of production and exchange, its vast majority is composed of trades in the "paper" economy of short-term financial markets. This paper economy is enormous: The value of global financial securities greatly exceeds the value of annual world output of goods and services. Moreover, the paper economy often contributes to crises in the real economy. Thus it is important to the well being of humanity and the planet as a whole, yet it is little understood by most people. This essay undertakes to provide a basic understanding of this paper economy, especially as its more speculative features have multiplied during the last two or three decades, so that Christians and others concerned about what is happening in our world can join in an intelligent discussion of how the harmful consequences of financial markets can be controlled.


Financial markets 101

To better understand this paper economy, one first needs to know something about foreign exchange markets, international money markets, and "external" financial markets.

In an open economy, domestic residents often engage in international transactions. American car dealers, for example, buy Japanese Toyotas and Datsuns, while German computer companies sell electronic notebooks to Mexican businessmen. Similarly, Australian mutual funds invest in the shares of companies all over the world, while the treasurer of a Canadian transnational corporation parks idle cash in 90-day Bank of England notes. Most of these transactions require one or more participants to acquire a foreign currency. If an American buys a Toyota and pays the Japanese Toyota dealer in dollars, for example, the latter will have to exchange the dollars for yens in order to have the local currency with which to pay his workers and local suppliers.

The foreign exchange market is the market in which national currencies are traded. As in any market, a price must exist at which trade can occur. An exchange rate is the price of a unit of domestic currency in terms of a foreign currency. Thus, if the exchange rate of the dollar in terms of the Japanese yen increases, we say the dollar has depreciated and the yen has appreciated. Similarly, a decrease in the dollar/yen exchange rate would imply an appreciation of the dollar and a depreciation of the yen.

Foreign exchange markets can be classified as spot markets and forward markets. In spot markets currencies are bought and sold for immediate delivery and payment. In forward markets, currencies are bought or sold for future delivery and payment. A U.S. music company, say, enters into a contract to buy British records for delivery in 30 days. To guard against the possibility of the dollar/pound exchange rate increasing in the meantime, the company buys pounds forward, for delivery in 30 days, at the corresponding forward exchange rate quoted today. This is called hedging.

Of course, there has to be a counterpart to the music company's forward purchase of pounds. Who is the seller of those pounds? The immediate seller would be a commercial bank, as in the spot market. But the bank only acts as an intermediary. The ultimate seller of forward pounds may be another hedger, like the music company, but with a position just its opposite. Suppose, for example, that an American firm or individual has invested in 30-day British securities that it wants to convert back into dollars after the end of 30 days. The investor may decide to sell the pound proceeds forward in order to assure itself of the rate at which the pounds are to be converted back into dollars after 30 days.

Another type of investor may be providing the forward contract bought by the music company. This is the speculator, who attempts to profit from changes in exchange rates. Depending on their expectations, speculators may enter the forward market either as sellers or as buyers of forward exchange. In this particular case, the speculator may have reason to believe that the dollar/pound exchange rate will decrease in the next 30 days, permitting him to obtain the promised pounds at a lower price in the spot market 30 days hence.

The main instruments of foreign exchange transactions include electronic bank deposit transfers and bank drafts, bills of exchange, and a whole array of other short-term instruments expressed in terms of foreign currency. Thus, foreign exchange transactions do not generally involve a physical exchange of currencies across borders. They generally involve only changes in debits and credits at different banks in different countries. Very large banks in the main financial centers such as New York, London, Brussels and Zurich, account for most foreign exchange transactions. Local banks can provide foreign exchange by purchasing it in turn from major banks.

Although the foreign exchange market is dispersed in many cities and countries, it is unified by keen competition among the highly sophisticated market participants. A powerful force keeping exchange rate quotations in different places in line with each other is the search on the part of market participants for foreign exchange arbitrage opportunities. Arbitrage is the simultaneous purchase and sale of a commodity or financial asset in different markets with the purpose of obtaining a profit from the differential between the buying and selling price.

When foreign exchange is acquired in order to engage in international transactions involving the purchase or sale of goods and services, it is said that international trade has taken place in the real economy. When international transactions involve the purchase or sale of financial assets, they are referred to as international financial transactions. They constitute the paper economy.

Financial markets are commonly classified as capital markets or money markets. Capital markets deal in financial claims that reach more than one year into the future. Such claims include shares of stock, bonds, and long-term loans, among others. Money markets, on the other hand, deal in short-term claims, with maturities of less than one year. These include marketable government securities (like Treasury bills), large-denomination certificates of deposit issued by banks, commercial paper (representing short-term corporate debt), money market funds, and many other kinds of short-term, highly liquid (easily transferable) financial instruments. It is these short-term money market securities that account for most of the instability in the global paper economy.

Buying or selling a money market security internationally involves the same kind of foreign exchange risk that plagues buyers or sellers of merchandise internationally. If one wishes to guard against the possibility of an increase or decrease in the foreign exchange rate, one can insure against such fluctuations by "covering" in the forward market. By the same token, the decision about whether to own domestic or foreign money market securities is not simply a comparison of the rates of interest paid on otherwise comparable securities, because one must also take into account the gain (or loss) from purchasing foreign currency spot and selling it forward. Thus, choosing the security with the highest return does not necessarily imply the one with the highest interest rate.

People who trade in international money markets, moreover, need to take into account many other variables, including the costs of gathering and processing information, transaction costs, the possibility of government intervention and regulation, other forms of political risk, and the inability to make direct comparisons of alternative assets. Speculating in international money markets is a risky proposition.

International money markets involve assets denominated in different currencies. External financial markets involve assets denominated in the same currency but issued in different political jurisdictions. Eurodollars, for example, are dollar deposits held outside the United States (offshore), such as dollar deposits in London, Zurich, or even Singapore banks. The deposits may be in banks owned locally or in the offshore banking subsidiaries of U.S. banks. Deutsche mark deposits in London banks or pound sterling deposits in Amsterdam banks also are examples of external deposits. They are referred to as eurocurrency deposits. (The advent of a new common currency in the European Community - the Euro - will require the development of new nomenclature for external financial markets)

External banking activities are a segment of the wholesale international money market. The vast majority of eurocurrency transactions fall in the above $1 million value range, frequently reaching the hundreds of millions (or even billion) dollar value. Accordingly, the customers of eurobanks are almost exclusively large organizations, including multinational corporations, government entities, hedge funds, and international organizations, as well as eurobanks themselves. Like domestic banks, eurobanks that have excess reserves may make loans denominated in eurocurrencies, expanding the supply of eurocurrency deposits. The eurocurrency market funnels funds from lending countries to borrowing countries. Thus, it performs an important function as global financial intermediator.


Early history

The origins of what Karl Polanyi3 called haute finance can be traced to Renaissance Italy, where as early as 1422 there were seventy-two bankers or bill-brokers in or near the Mecato Vecchio of Florence.4 Many combined trade with purely financial business. By the middle of the fifteenth century, the Medici of Florence had opened branches in Bruges, London and Avignon, both as a means of financing international trade and as a way of marketing new kinds of financial assets. Many banking terms and practices still in use today originated in the burgeoning financial centers of Renaissance Europe.

By the early seventeenth century, the Dutch and East India Companies began issuing shares to the public in order to fund imperial enterprises closely linked to Holland and Britain. Their shares were made freely transferable, permitting development of a secondary financial market for claims to future income. Amsterdam opened a stock exchange in 1611, and shortly thereafter, the British government began issuing lottery tickets, an early form of government bonds, to finance colonial expansion, wars and other major areas of state expenditure. A lively secondary market in these financial instruments also emerged.5

Throughout these early years, financial markets were anything but riskless and stable. Consider the famous Dutch tulip mania of 1630, for example. This speculative bubble saw prices of tulip bulbs reach what seemed like absurd levels, yet "the rage among the Dutch to possess them [tulips] was so great that the ordinary industry of the country was neglected." Some investors in Britain and France shared this "irrational exuberance," though it was centered mostly in Holland. Then, not unlike speculative bubbles of more recent vintage, prices crashed6, pushing the economy into a depression and leaving many investors angry and confused.

Paris developed into an early financial center in the eighteenth century, but the Revolution of 1789 dissipated its power. The New York Stock Exchange was formally organized in 1792 and the official London Stock Exchange opened in 1802. The expansion westward of the railroads in the U.S. offered the financial community opportunity to sell railway shares and bonds that quickly became dominant in the financial markets. Indeed, the bond markets of London, Paris, Berlin, and Amsterdam were vehicles for collecting massive amounts of European savings and transferring it at higher returns to the emerging markets of the U.S., Canada, Australia, Latin America and Russia in the century preceding World War I.

Forward markets soon developed, especially in the U.S., in order to counter the impact of long distances and unpredictable weather. As capital and money markets expanded, other new financial instruments came into use. Joint stock companies were formed, enabled by legislation that clarified the distinction between the owners and managers of corporations. This, in turn, helped stimulate the growth of the American stock market in the late nineteenth century. To be sure, financial markets did not grow continuously in the nineteenth century. Lending to the emerging markets was interrupted by defaults in the 1820s, 1850s, 1870s and 1890s, but each wave of default was confined to a relatively small number of countries, permitting growth of financial flows to resume.7

In the four decades leading up to World War I, a truly worldwide economy was forged for the first time, extending from the core of Western Europe and the U.S. to latecomers in Eastern Europe and Latin America and even to the countries supplying raw materials on the periphery. Central to this expansion of trade and investment was an expanding system of finance that girded the globe. The amount was enormous: between 1870 and 1914 something like $30 billion,8 the equivalent in 2002 dollars of $550 billion, was transferred to recipient countries, in a world economy perhaps one-twelfth as large as today's.

During this "Gilded Age" of haute finance, the risks of participating in international trade and investment were generously shared with governments and the banking system. The reason is that foreign exchange rates were kept reasonably stable by the commitment of most governments to the "high" gold standard. In this way, businesses and individuals engaging in international transactions were reasonably certain that the value of their contracts was not going to change before they matured. Their exchange risk was shared with government by its willingness to buy or sell gold in order to keep the exchange rate constant. Because of this assurance, financial flows were reasonably free of regulation.

They were not immune from crises, however. When the sources of financial capital temporarily dried up, capital-importing countries occasionally found they could not expand export earnings sufficiently to avoid suspending interest payments on their debts or abandoning gold parity. On two occasions, the United States faced this possibility. The first was in 1893, when it switched in a sharp economic downturn to bimetallism (which caused William Jennings Bryan to denounce the "cross of gold"), and the second was in 1907, which led to the creation of the Federal Reserve System, handing to the government the function of lender of last resort previously carried out by Wall Street banks under the tutelage of J. Pierpont Morgan.

In his magisterial book The Great Transformation, Karl Polanyi reflected on the pervasive influence of haute finance on the policies of nations even in this "Gilded Age." The globalising financial markets and the gold standard, according to Polanyi, left very little room for states, especially smaller ones, to adopt monetary and fiscal policies independent of the new international order. "Loans, and the renewal of loans, hinged upon credit, and credit upon good behavior. Since, under constitutional government ..., behavior is reflected in the budget and the external value of the currency cannot be detached from the appreciation of the budget, debtor governments were well advised to watch their exchanges carefully and to avoid policies which might reflect upon the soundness of budget positions." Thus, even one hundred years ago the then-dominant world power, Great Britain, speaking as it did so often through the voice of the City of London, "prevailed by the timely pull of a thread in the international monetary network.9

Following World War I, the United States emerged not merely as a creditor country but as the primary source of new international financial flows. At first, the principal borrowers were the national governments of the stronger countries, but as the boom in security underwriting developed in the U.S, numerous obscure provinces, departments and municipalities found it possible to sell their bonds to American investors.10 Just as domestic construction, land, and equity markets went through speculative rises in the 1920s, so too did the U.S. experience a speculative surge in foreign investment. In the aftermath of successive defaults by foreign debtors in 1932, the Senate Committee on Banking and Currency concluded:

The record of the activities of investment bankers in the flotation of foreign securities is one of the most scandalous chapters in the history of American investment banking. The sale of these foreign issues was characterized by practices and abuses that violated the most elementary principles of business ethics.11

Speculation in the stock markets leading up to 1929 offers still another window on the instability of short-term financial flows. A speculative market can be defined as one in which prices move in response to the balance of opinion regarding the future movement of prices rather than responding normally to changes in the demand for and supply of whatever is priced. Helped by the willingness of Wall Street to allow people to buy stocks on margin, people were only too ready to bet prices would rise as long as others thought so too. Day after day and month after month the price of stocks went up in 1927. The gains by later standards were not large, but they had an aspect of great reliability. Then in 1928, the nature of the boom changed. "The mass escape into make-believe, so much a part of the true speculative orgy, started in earnest.12

Following World War I, the gold standard itself took on new form. Nations were allowed to hold their international reserves in either gold or foreign exchange. This worked for a while in the 1920s, but as speculation mounted and balances of payments disequilibria grew, fears of devaluation led central banks to try to replace their foreign-exchange holdings with specie in a "scramble for gold." The worldwide result of these shifts in central bank portfolios was an overall contraction of the supply of money and credit that sapped aggregate demand and forced prices to fall and output levels to shrink. Thus, it can be argued - persuasively in our view - that the Great Depression of the 1930s was as much, if not more, the result of mismanagement of money and credit as it was the result of protectionist policies. Protectionist policies were more likely the result of slowed growth and stalled trade. Countries that broke with the gold-exchange standard early, such as Britain in 1931, and pursued more expansionary monetary policies fared somewhat better.


The Bretton Woods system

During the darkest days of World War II, a radically new economic architecture was designed for the postwar world at a New Hampshire ski resort called Bretton Woods. With the competitive devaluation and protectionist policies of the 1930s still fresh in their minds, the mostly British and American delegates to the conference wanted most of all to design a system with fixed exchange rates that did not rely on national gold hoards to keep exchange rates stable. They decided to depend instead on strict controls of international financial movements. In this way, they hoped to allow countries to pursue full-employment policies through appropriate monetary (money and credit) and fiscal (tax and spending) policies without some of the anxieties associated with open financial markets. The role of monetary and financial stabilizer was given to the International Monetary Fund (IMF), which was provided with modest funds to assist nations to adjust imbalances in their external payments obligations. The International Bank for Reconstruction and Development (IBRD, later the World Bank) assumed the task of helping to finance post-war reconstruction.13

The IMF as it emerged from Bretton Woods had inadequate reserves to advance money for the long periods that many countries require for "soft-landings" from big current-account deficits. It would make only short-term loans. To make sure that borrowing nations were constrained, "conditionality" attached to IMF loans became standard practice, even in the early years of the Fund's operation. Policy limitations and "performance targets" tied to credit lines advanced under "standby agreements" began in the middle 1950s and were universal by the 1960s, long before the notions of "stabilization" and "structural adjustment" came into common parlance.

The Bretton Woods agreement also imposed a foreign exchange standard by which exchange rates between major currencies were fixed in terms of the dollar, and the value of the dollar was tied to gold at a U.S. guaranteed price of thirty-five dollars per ounce. By devising a system that controlled financial movements and assisted with the adjustment of countries' balances of payments, the new system succeeded in keeping exchange rates remarkably stable. They were changed only very occasionally, e.g., as when the value of sterling relative to the dollar was reduced in 1949 and again in 1966. This meant that companies doing business abroad did not need to worry constantly about the risk of exchanging one currency for another.

Among the reasons for this remarkable stability was the willingness of the central banks of other countries to hold an increasing proportion of their official reserves in the form of U.S. dollars. It was an essential part of the system that the dollars held by other countries would be seen as IOUs backed by the U.S. offer to exchange them for gold at a fixed pre-war price. But as the balance-of-payments of the U.S. moved more deeply into deficits in the 1960s, there were more and more U.S. dollars held by other countries, and this so-called "dollar overhang" became disturbingly large.15 General de Gaulle called it "the exorbitant privilege," meaning that the Americans were paying their bills - for defense spending to fight the Vietnam War among other things - with IOUs instead of real resources in the form of exports of goods and services.

Strict control over financial movements began to weaken as early as the 1950s, when the first eurodollar (later eurocurrency) deposits were made in London. At first a trickle, limited originally to Europe, these offshore banking operations soon expanded worldwide. The American "Interest Equalization Tax" (IET) instituted in 1963 raised the costs to banks of lending offshore from their domestic branches.16 The higher external rates led dollar depositors such as foreign corporations to switch their funds from onshore U.S. institutions to eurobanks. Thus, the real effect of the IET was to encourage the dollar to follow the foreigners abroad, rather than the other way around. Eurobanks paid higher interest rates on deposits and loaned eurocurrencies at lower rates than U.S. banks could at home. Still another large inflow of eurodeposits occurred in 1973-74 as the Organization of Petroleum Exporting Countries (OPEC) began "recycling" their surplus dollar earnings through eurobanks. Because of their existence, a country such as Brazil could arrange within a reasonably regulation-free environment to obtain multimillion-dollar loans from a consortium of offshore American, German and Japanese banks and thereby finance its oil imports. Net eurocurrency deposit liabilities that amounted to around $10 billion in the mid-1960s, grew to $500 billion by 1980.

These eurocurrency transactions taught the players in financial markets how to shift their deposits, loans, and investments from one currency to another whenever exchange rates or interest rates were thought to be ready to change. Even the ability of central banks to regulate the supply of money and credit was undermined by the readiness of commercial banks to borrow and lend offshore. Hence, the effectiveness of regulatory mechanisms that had been put in place to implement the Bretton Woods agreement - interest rate ceilings, lending limits, portfolio restrictions, reserve and liquidity requirements - gradually eroded as offshore transactions started to balloon.

The world economy developed at unprecedented rates during the roughly twenty-five years immediately following World War II. Growth and employment rates during these years were at historic highs in most countries. Productivity also advanced rapidly in most developing countries as well as in the technological leaders. These facts suggest that the system devised at Bretton Woods worked reasonably well, despite occasional adjustments. To be sure, it helped to sow the seeds of its own destruction by failing to retain operational control of international financial flows. But the twenty-five years of its survival leading up to August 15, 1971, when President Nixon closed the gold window, have nonetheless come to be called by some economic historians the "Golden Years."

Controlling private risk

Fixed exchange rates did not last long after the U.S. stopped exchanging gold for claims on the dollar held by foreign central banks. The pound sterling was allowed to float against the dollar in July, 1972. Japan set the yen free to float in February, 1973, and most European currencies followed suit shortly thereafter. The Bretton Woods gold-dollar system was doomed.

The fact that exchange rates no longer were fixed meant that companies doing business in different countries had to cope with the day-to-day shifts in the dollar's rate of exchange with other currencies. The risks of unexpected changes in the value of international contracts suddenly had shifted from the public to the private sector. Corporate finance officers now had to hedge against possible exchange losses by buying a currency forward and investing the equivalent in the short-term money market, or by investing in the eurocurrency market. The corporations' banks, in turn, tried to match each foreign currency transaction with another contrary transaction in order not to leave each of the banks exposed to foreign exchange risk overnight. Since no single bank was likely to balance its foreign exchange positions exactly, the need arose to swap deposits in different currencies in order to match corporate hedging transactions and to square the bank's books.

The price of this forward cover on inter-bank transactions - that is to say, the premium or discount on a currency's spot value - has tended to accord with the differences between interest-rates offered for eurocurrency deposits in different currencies. This is the connection between the foreign exchange market and the short-term credit markets, between exchange rates and interest rates. Whenever exchange rates move up or down, therefore, their influence is immediately transmitted through the eurocurrency markets to the credit markets.

It is this scramble to avoid private risk that accounted for the dramatic rise in international financial movements following the demise of the Bretton Woods system. By 1973, daily foreign exchange trading around the world varied between $10 and $20 billion per day. This amount was approximately twice the value of world trade at the time. Bank of International Settlements data suggests that the daily average of foreign exchange trading had climbed by 1980 to about $80 billion, and that the ratio between foreign exchange trading and international trade was more nearly ten to one. The data for 1992 was $880 billion and fifty to one, respectively; for 1995, $l,260 billion and seventy to one; and for 2000, almost $1,800 and ninety to one.

There is very little doubt, therefore, that the lion's share of international financial flows is relatively short-run. Indeed, about eighty percent of foreign exchange transactions are reversed in less than seven business days. Only a very small proportion is used to finance international trade and direct foreign investment. The vast majority must be used with the expectation of gain or to avoid losses that may result from changes in the value of financial assets. In general terms, they are speculative, made in hope of capital gain or to hedge against potential capital loss, or to seek the gains of arbitrage based on slight differences in rates of return in different financial centers.


The power of financial actors17

Foreign exchange markets and markets for money and credit seem remote and abstract to most people. This section introduces the real institutions that operate these markets and assesses the nature of their power.

According to recent work by political scientists, the power of these financial actors is based in part on a complicated "process of multiplication" of loans, assets and transactions. Many investors in financial markets buy financial instruments on very thin margins, based on loans obtained by pledging the assets as collateral. This is called "leverage" in the jargon of financial markets. In turn, the borrowed funds are invested in other financial assets, multiplying the demand for credit and financial assets. As demand rises, more sophisticated financial assets are invented, including many forms of financial derivatives. A major portion of the accumulated debt remains serviceable only as long as the prices of most assets will rise or at least remain relatively stable. If prices turn down, they easily can lead to a chain-reaction. If investors respond instinctively like a herd, they will bring a far-reaching collapse that constitutes a crisis.

As the flow of financial assets climbs, some bankers, brokers, and managers of financial institutions become prominent players in the competition for investor dollars. Some become known for picking profitable places to invest and for promoting their selections successfully. This can influence markets if people have confidence in their advice. A notorious example of the influence of prominent players was the attack on British sterling in 1992 by George Soros' Quantum Fund. Believing that sterling was overvalued, the Fund quietly established credit lines that allowed it to borrow $15 billion worth of sterling and sell it for dollars at the then "overvalued" price. Its purpose, of course, was to pay back the loan with cheaper pounds after they had depreciated. Having gone long on dollars and short on sterling, Soros decided to speak up noisily. He publicized his short-selling and made statements in newspapers that the pound would soon be devalued. It wasn't long before sterling was devalued; he made $1 billion in profit.

The point can be made more generally: financial markets are subject to manipulation because they have become socially structured. Market leaders and financial gurus are admired and followed (at least until very recently). The heavyweights thus dominate the business. An obvious consequence of this is that there is a strong tendency in financial markets for further concentration of resources.

Another source of the power of financial actors is their obvious affinity for the rampant free-market philosophy of neo-liberalism. The freedom with which they move financial capital around depends, of course, on the market-friendly policies of the so-called Washington Consensus.19 As long as they are seen as part of the governing coalition, they derive special powers to regulate themselves rather than be controlled by an independent government agency or civil society. Their power also is reinforced by the activities of several collective associations of financial actors,20 which lobby on their behalf.

One more source of power for the financial actors is their knowledge that if they are big enough and sufficiently interlaced with other financial actors, then the "system" will keep them from failing. Consider the case of Long-term Capital Management, a hedge fund partnership started in 1994. It was able to borrow from various banks the equivalent of forty times its capitalization in order to make bets on changes in the relative prices of bonds in the U.S. and abroad. When the Russian government announced a devaluation and debt moratorium in August, 1998, it produced losses that the fund could not sustain. Nor could some of the banks that had loaned large amounts to the fund. Accordingly, the Federal Reserve Bank of New York, fearful that the risk to the entire system was too high, orchestrated a private rescue operation by fourteen banks and other financial institutions, which re-capitalized the company for $3.5 billion.

Financial actors also have the power indirectly to influence non-financial actors such as firms or states. By providing economic incentives to gamble and speculate on financial instruments, global financial markets divert funds from long-term productive investments. In all probability, they also encourage banks and financial institutions to maintain a regime of higher real interest rates that reduce the ability of productive enterprises to obtain credit. The volatility of global financial markets, moreover, brings uncertainty and volatility in interest rates and exchange rates that are harmful to various sectors of the real economy, particularly international trade.

The above stories about George Soros and Long-term Capital Management are good illustrations of the consequences for non-financial actors of actions by financial actors. Both episodes are examples of games that are basically zero-sum, at least in the short-run. Nothing new was produced; no new values were created. In the 1992 case about speculating against sterling, the Quantum Fund's profits were at the expense of the British government, especially the Bank of England, and British taxpayers. In 1998, the losses suffered by Long-term Capital Management came out of the pockets of the stockholders of the banks that bailed it out, as the stock-market value of their shares depreciated. Hence, the financial system tends to feed itself by drawing more resources from other sectors of the economy, undermining the vitality of the real economy.


Consequences of global financial flows

The dominant economic ideology of the last twenty-five years has been embodied in the so-called Washington Consensus. It is a "market-friendly" ideology that traces its roots to longstanding policies of the IMF that encourage macroeconomic "stabilization;" to adoption by the World Bank of ideas in vogue in Washington early in the Reagan period concerning deregulation and supply-side economics; to the zeal of the Thatcher government in England for privatizing public enterprises; and perhaps most of all to the neo-liberal tendencies of the business community and the economics profession in the U.S. The implementation of these policies of economic "reform," by first "stabilizing" the macro-economy and then "adjusting" the market so that it can perform more efficiently, are supposed to pay off in the form of faster output growth and rising real incomes

Among these policy prescriptions is financial liberalization in both the developed and the developing countries. Domestically it is achieved by weakening or removing controls on interest and credit and by diluting the differences between banks, insurance and finance companies. International financial liberation, on the other hand, demands removal of controls and regulations on both the inflows and outflows of financial instruments that move through foreign exchange markets. It is the implementation of these reforms that is perhaps the single most important cause of the surge in global financial flows. To be sure, the influence of technological advances has broken the natural barriers of space and time for financial markets as twenty-four hour electronic trading has grown. The fact that throughout most of the 1980s and 1990s the developed countries suffered from over-capacity and overproduction in manufacturing may also have led the owners of financial capital to look for alternative profit opportunities.

It now is time to ask whether the implementation of all these reforms, on balance, has produced good or bad results. The focus of this section will be mostly on the consequences of large and expanding international financial flows. After all, they are the main concern of this essay. But first, we should ask whether or not the policies of growth and rising real incomes promoted by the Washington Consensus have borne fruit.

Growth and income

There is little doubt that the introduction of the Washington Consensus' policy mix expanded the volume of international trade. As a result, trade in goods and services has grown at more than twice the rate of global gross domestic product (GDP), and developing countries' share of trade has risen from 23 to 29 percent. Increasing numbers of firms from developing countries, like their industrial-country counterparts, engage in transnational production and adopt a global perspective in structuring their operations. The flow of foreign direct investments and foreign portfolio investments has multiplied even more rapidly than trade, despite the financial instability experienced in Asia, Brazil, Russia, and elsewhere in recent years.

The effects of liberalization have not been uniformly favorable, however. After at least ten full years of experience with the Washington Consensus, several recent studies have begun to assess the consequences for developing countries of this experiment in more open markets.21 Except for the years of crisis in a number of the countries studied, most developing countries achieved moderate growth rates of gross domestic product in the 1990s - considerably higher than in the l980s in Africa and Latin America during the debt crisis, but remarkably unchanged in most other regions. Moreover, average annual growth in the 1990s was slightly lower than in the twenty-five years preceding the debt crisis when a strategy of substituting domestic production for imports was in fullest use. When population growth rates are taken into consideration, the growth rate of per capita income in the developing countries studied during the 1990s also was somewhat lower than in the 1960s and 1970s. Toward the end of the 1990s, growth tapered off in many countries due to emerging domestic financial crises or external events. There is little evidence in these figures, therefore, to suggest the strategy of liberalization boosted growth rates appreciably.

Nor did the distribution of income improve in most developing countries in the 1990s. On the contrary, virtually without exception the wage differentials between skilled and unskilled workers rose with liberalization. The reasons for this varied widely among countries, but one of the most important reasons was the fact that the number of relatively well-paid jobs in sectors of the economy involved with international trade, though growing, was insufficient to absorb available workers, forcing many workers into more precarious and poorly paid employment in the non-traded, informal trade, and service sectors or where traditional agriculture served as a sponge for the labor market. Between the mid-1960s and the late-1990s, the poorest 20 percent of the world population saw its share of income fall from 2.3 to 1.4 percent. Meanwhile, the share of the wealthiest quintile increased from 70 to 85 percent.22

Risk and reward

While all markets are imperfect and subject to failure, financial markets are more prone than others to fail because they are plagued with three particular shortcomings: asymmetric information, herd behavior and self-fulfilling panics. Asymmetric information is a problem whenever one party to an economic transaction has insufficient information to make rational and consistent decisions. In most financial markets where borrowing and lending take place, borrowers usually have better information about the potential returns and risks associated with the investments to be financed by the loans than do the lenders. This becomes especially true as financial transactions disperse across the globe, often between borrowers and lenders of widely different cultures.

Asymmetric information leads to adverse selection and moral hazard. Adverse selection occurs when, say, lenders have too little information to choose from among potential borrowers those who are most likely to use the loans wisely. The lenders' gullibility, therefore, attracts more unworthy borrowers. Moral hazard occurs when borrowers engage in excessively risky activities that were unanticipated by lenders and lead to significant losses for the lender. Yet another form of moral hazard occurs when lenders indulge in lending indiscriminately because they assume that the government or an international institution will bail them out if the loans go awry.

A good illustration of asymmetric information is the story of bank lending following OPEC's large increase in oil prices following 1973. Awash in cash, the oil exporters deposited large amounts in commercial banks that then perfected the Euro-currency loan for developing countries. Eager to put excess reserves to use, the banks spent little time discriminating among potential borrowers, in part because they believed host governments or international agencies would guarantee the loans. At the same time, developing countries found they could readily borrow not only to import oil, but also to increase other kinds of expenditures. This meant they could use borrowed funds to maintain domestic spending rather than be forced to adjust to the new realities of higher prices for necessary imports. There is considerable evidence that moral hazard also was present in the Mexican crises in 1982 and 1994, and in the Southeast Asian crises in 1997-8.

Yet another illustration of asymmetric information is the tendency of financial firms, especially on Wall Street and in the City of London, to invent ever more complex derivatives to shift risk around the financial system. The market for these products is growing rapidly, both on futures and options exchanges (two of the several places where derivatives are traded). A financial engineer, for example, can take the risk in, say, a bond and break it down into a series of smaller risks, such as that inflation will reduce its real value or that the borrower will default. These smaller risks can then be priced and sold, using derivatives, so that the bondholder keeps only those risks he wishes to bear. But this is not a simple task, particularly when it involves assets with risk exposures far into the future and which are traded so rarely that there is no good market benchmark for setting the price. Enron, for instance, sold a lot of these sorts of derivatives, booking profits on them immediately even though there was a serious doubt about their long-term profitability. Stories of huge losses incurred in derivative trading are legion. The real challenge before central banks and regulatory bodies is to curb speculative behavior and bring discipline in derivative markets.

A second source of risk in financial markets is the tendency of borrowers and lenders alike to engage in herd behavior. John Maynard Keynes, writing in the 1930s, suggested that financial markets are like "beauty contests." His analogy was to a game in the British Sunday newspapers that asked readers to rank pictures of women according to their guess about the average choice by other respondents. The winner, therefore, does not express his own preferences, but rather anticipates "what average opinion expects average opinion to be." Accordingly, Keynes thought that anyone who obtained information or signals that pointed to swings in average opinion and to how it would react to changing events had the basis for substantial gain. Objective information about economic data was not enough. Rather, simple slogans "like public expenditure is bad," "lower unemployment leads to inflation," "larger deficits lead to higher interest rates," were then the more likely sources of changes in public opinion. What mattered was that average opinion believed them to be true, and that advance knowledge of, say, more public spending, lower unemployment, or larger deficits, respectively, offered the speculator a special advantage.

A financial market that operates as a beauty contest is likely to be highly unstable and prone to severe changes. One reason for this is that people trading in financial assets, even today, know very little about them. People who hold stock know little about the companies that issued them. Investors in mutual funds know little about the stocks their funds are invested in. Bondholders know little about the companies or governments that issued the bonds. Even knowledgeable professionals are often more concerned with judging how swings in conventional opinion might change market values rather than with the long-term returns on investments. Indeed, since careful analysis of risks and rewards is costly and time consuming, it often makes sense for fund managers and traders to follow the herd. If they decide rationally not to follow the herd, their competence may be seriously questioned. On the other hand, if fund managers follow the herd and the herd suffers losses, few will question their competence because others too suffered losses. When financial markets are operated like a beauty contest, everyone wants to sell at the same time and nobody wants to buy.

The financial markets behaved as predicted shortly after several industrial countries, including the U.S. and Germany, abolished all restrictions on international capital movements in 1973. The new system proved to be highly volatile, with exchange rates, interest rates, and financial asset-prices subject to large short-term fluctuations. The markets also were susceptible to contagion when financial tremors spread from their epicenter to other countries and markets that seemingly had little connection with the initial problem. In less than five years, it already was clear that both the surpluses and the deficits on the major countries' balance of payments were getting larger, not smaller, despite significant changes in the exchange rates.

In some cases, a financial crisis can be self-fulfilling. A rumor can trigger a self-fulfilling speculative attack, e.g. on a currency, that may be baseless and far removed from the economic fundamentals (unlike the Soros story above). This can cause a sudden shift in the herd's intentions and lead to unanticipated market movements that create severe financial crises. Consider, for example, the succession of major financial crises that have pock-marked the recent history of international financial markets, including Latin America's Southern Cone crisis of 1979-81, the developing-country debt crisis of 1982, the Mexican crisis of 1994-95, the Asian crisis of 1997-98, the Russian crisis of 1998, the Brazilian crisis of 1999, and the Argentine crisis of 2001-02.

Perhaps the Asian crisis of 1997-98 is the most interesting in this regard, for there were relatively few signals beforehand of impending crisis. All the main East Asian economies displayed in 1994-96 low inflation, fiscal surpluses or balanced budgets, limited public debt, high savings and investment rates, substantial foreign exchange reserves and no signs of deterioration before the crisis. This background has led many analysts to suppose that the crisis was a mere product of the global financial system. But what could have triggered the herd to stampede out of Asian currencies? No doubt several factors were at work. Before the crisis that started in the summer of 1997, there was a rise in short-term lending to Asians by Western and Japanese banks with little or no premiums, a fact that the Bank for International Settlement raised questions about. Alert investors, especially hedge funds, also noticed that substantial portions of East and Southeast Asian borrowings were going into non-productive assets and real estate that often were linked to political connections. In fact, some of the funds pouring into non-productive assets were coming out of the productive sector, mortgaging the longer-term viability of some real economies. Information about the structure and policies of financial sectors was opaque. Thus, opinions began to change among key lenders about the regulation of financial sectors in several Asian countries and their destabilizing lack of transparency. Suddenly, several important hedge funds reduced their exposure by shorting currency futures, followed quickly by Western mutual funds. The calling of loans led quickly to deep depression in several Asian countries. It has been estimated that the Asian crisis and its global repercussions cut global output by $2 trillion in 1998-2000.

Loss of government autonomy

Both economic theory and the experience of managing the external financial affairs of nations tell us that it is virtually impossible to maintain (1) full financial mobility, (2) a fixed exchange rate, and (3) freedom to seek macro-economic balance (full employment with little inflation) with appropriate monetary and fiscal policies. Only two of these policy objectives can be consistently maintained. If the authorities try to pursue all three, they will sooner or later be punished by destabilizing financial flows, as in the run up to the Great Depression around 1930 and in the months before sterling's collapse 1992. If a government tries to stimulate its economy with lax monetary policy, for example, and players with significant market power like George Soros sense that at a fixed exchange rate, foreigners will be unwilling to lend enough to finance the country's current account deficit, they will begin to flee the home currency in order to avoid the capital losses they will suffer if and when there is a devaluation. If reserve losses accelerate and more players follow suit, crisis ensues. The authorities are forced to devalue, interest rates soar, and the successful attackers sit back to count their profits.

For nations wishing to retain reasonably independent monetary and fiscal authority in order to cater to domestic needs, the solution is to allow the exchange rate to move up or down as conditions in the foreign exchange markets dictate, or to establish some sort of control over the movement of financial instruments in and out of the country, or to devise some combination of these two adjustment mechanisms. The debate over whether fixed or flexible exchange rates is the wiser policy continues to rage in academic quarters and in finance ministries all over the world. For the most part, the international business community prefers reasonably fixed exchange rates in order to minimize their costs of hedging foreign currency positions. Thus instituting some form of control over speculative financial movements may be an appropriate solution to the "trilemma."

The capacity of a nation to levy enough taxes to finance needed public expenditures is another important reason to retain independent authority. A central function of government has been to insulate domestic groups from excessive market risks, particularly those originating in international transactions. This is the way governments have maintained domestic political support for liberalizing trade and finance throughout the postwar period. Yet many governments are less able today to help citizens that are injured by freer markets with unemployment compensation, severance payments, and adjustment assistance because the slightest hint of raising taxes to pay for these vital public services leads to capital flight in a world of heightened financial mobility.

This is a dilemma. Increased integration into the world economy has raised the need of governments to redistribute tax revenues or implement generous social programs in order to protect the vast majority of the population that remains internationally immobile. At the same time, governments find themselves less able to maintain the safety nets needed to preserve social stability. It seems reasonable to suppose, therefore, that doing things that will bolster the ability of governments to levy sufficient taxes - curbing tax avoidance by transnational corporations, controlling offshore tax havens, regulating capital flight - would help make globalization slightly more democratic.

Winners and losers

The people who benefit from speculative financial movements are, for the most part, better educated and wealthier than the vast majority of fellow citizens. They are the elites, whatever the country. As noted above, they have fewer connections to the real economy of production and exchange than most people. And their purpose in trading financial assets, again for the most part, is to make a profit quickly rather than wait for an investment project to mature.

People who do not participate directly in the buying and selling of short-term financial instruments are nonetheless influenced indirectly by the macroeconomic instability and contagion that often accompany interruptions in financial market flows. This is true for people both in developed and developing countries. In developed countries, the voracious appetite of financial markets for more and more resources saps the vitality of the real economy - the economy that most people depend upon for their livelihood. It has been shown that real interest rates rise as a result of the expansion of speculative financial markets. This rise in real interest rates, in turn, dampens real investment and economic growth while serving to concentrate wealth and political power within a growing worldwide rentier class (people who depend for their income on interest, dividends, and rents).23 Rather, the long-term health of the economy depends upon directing investable funds into productive investments rather than into speculation.

In developing countries, attracting global investors' attention is a mixed blessing. Capital market inflows provide important support for building infrastructure and harnessing natural and human resources. At the same time, surges in money market inflows may distort relative prices, exacerbate weakness in a nation's financial sector, and feed bubbles. As the 1997 Asian crisis attests, financial capital may just as easily flow out of as into a country. Unstable financial flows often lead to one of three kinds of crises:

Although these three types of crises sometimes appear singly, they more often arrive in combination because external shocks or changed market expectations are likely to occur simultaneously in the market for government bonds, the foreign exchange market, and the markets for bank assets. Approximately sixty developing countries have experienced extreme financial crises in the past decade.24

The vast majority of people in the developing world suffer from these convulsive changes. They are tired of adjusting to changes over which they exercise absolutely no control. Most people in these countries view Western capitalism as a private club, a discriminatory system that benefits only the West and the elites who live inside "the bell jars" of poor countries. Even as they consume the consumer goods of the West, they are quite aware that they still linger at the periphery of the capitalist game. They have no stake in it, and they believe that they suffer its consequences. As Hernando deSoto puts it, "Globalization should not be just about interconnecting the bell jars of the privileged few."25

Social solidarity

Karl Polanyi in The Great Transformation sought to explain how the "liberal creed" contributed to the catastrophes of war and depression associated with the first half of the twentieth century. Polanyi's central argument, which in fact can be traced back to Adam Smith, is that markets do indeed promote efficiency and change, but that they achieve this through undermining social coherence and solidarity. Markets must therefore be embedded within social institutions that mitigate their negative consequences.

The evidence of more recent times suggests that the global spread of free-market policies has been accompanied by the decline of countervailing institutions of social solidarity. Indeed, a main feature of the introduction of market-friendly policies has been to weaken local institutions of social solidarity. Consider, for example, the top-down policy prescriptions of the IMF and World Bank during the developing world's debt crisis in the 1980s. These policies evolved into an intricate web of expected behaviors by developing countries. In order for developing countries to expect private businesses and financial interests to invest funds within their borders and to boost the growth potential of domestic economies, they needed to drop the "outdated and inefficient" policies that dominated development strategies for most of the postwar period and adopt in their place policies that are designed to encourage foreign trade and freer financial markets. Without significant adjustments in the ways economies were managed, it was suggested, nations soon would be left behind.

The list of Washington Consensus requirements was long and daunting:

In a provocative article, Ute Pieper and Lance Taylor point out that market outcomes often conflict with other valuable social institutions. In addition, they emphasize that markets function effectively only when they are "embedded" in society. The authors then look carefully at the experience of a number of developing countries as they struggled to comply with the policy prescriptions of the IMF and the Fund. In almost every case, they demonstrate conclusively that the impact of these efforts was to make society an "adjunct to the market."26

An appropriate balance is not being struck between the economic and non-economic aspirations of human beings and their communities. Indeed, the evidence is mounting that globalization's trajectory can easily lead to social disintegration - to the splitting apart of nations along lines of economic status, mobility, region, or social norms. Globalization not only highlights and exacerbates tensions among groups; it also reduces the willingness of internationally mobile groups to cooperate with others in resolving disagreements and conflicts.


Policy options

History confirms that free-markets are inherently volatile institutions, prone to speculative booms and busts. Overshooting, especially in financial markets, is their normal condition. To work well, free markets need not only regulation, but active management. During the first half of the post-war era, world markets were kept reasonably stable by national governments and by a regime of international cooperation. Only lately has a much earlier idea been revived and made an orthodoxy - the idea adopted by the Washington Consensus that, provided there are clear and well-enforced rules-of-the-game, free markets can be self-regulating because they embody the rational expectations that participants form about the future.

On the contrary, since markets are themselves shaped by human expectations, their behavior cannot be rationally predicted. The forces that drive markets are not mechanical processes of cause and effect, as assumed in most of economic theory. They are what George Soros has termed "reflexive interactions."27 Because markets are governed by highly combustible interactions among beliefs, they cannot be self-regulating.

The question before us then, is what could be done to better regulate financial markets and to bring active management back into the task of "embedding" markets in society, rather than the other way around? Monetary authorities such as the Federal Reserve System in the U.S. and the central banks of other countries were formed long ago in order to dampen the inherent instabilities of financial market in their home countries. But the evolution of an international regulatory framework has not kept pace with the globalization of financial markets. The International Monetary Fund was not designed to cope with the volume and instability of recent financial trends.

Capital controls

Given the problems outlined above about short-term speculative financial transactions, one might wonder why national policy-makers have not insulated their financial markets by imposing some sort of control over financial capital. The answer, of course, is that some have continued trying to do so despite discouragement from the IMF. For example, some have put limitations on the quantity, conditions, or destinations of financial flows. Others have tried to impose a tax on short-term borrowing by national firms from foreign banks. This is said to be "market-based" because it operates by altering the cost of foreign funds. If such transactions were absolutely prohibited, they would be called "non-market" interventions.

A more extreme form of financial capital controls, one that controls movement of foreign exchange across international borders, also has been tried in a number of countries. This form of control requires that some if not all foreign currency inflows be surrendered to the central bank or a government agency, often at a fixed price that differs from that which would be set in free market. The receiving agency then determines the uses of foreign exchange. The absence of exchange controls means that currencies are "convertible."

The neo-liberal argument opposing financial capital controls asserts that their removal will enhance economic efficiency and reduce corruption. It is based on two basic propositions in economic theory that depend for their proof on perfectly competitive markets in the real economy and perfectly efficient gatherers and transmitters of information in financial markets. Neither assumption is realistic in today's world. Indeed, a number of empirical studies have reported the effectiveness of capital controls in controlling capital flight, curbing volatile capital flows and protecting the domestic economy from negative external developments.

Developing countries have only recently abandoned, or still maintain, a variety of control regimes. Latin American countries traditionally have used market-based controls, putting taxes and surcharges on selected financial capital movements or tying them up in escrow accounts. Non-market based restrictions were more common in Asia until the early 1990s. Many commentators believe that their sudden removal in the early 1990s was a contributing cause to the Asian financial crises in 1997-8. The experience of two countries, Malaysia and Chile, with capital controls is especially instructive.

Malaysia, unlike its Asian neighbors, was reluctant to remove its restrictions on external borrowing by national firms unless they could show how they could earn enough foreign exchange to service their debts. Then when the Asian crises hit, its government imposed exchange controls, in effect making its local currency that was held outside the country inconvertible into foreign exchange. After the ringget was devalued, exporters were required to surrender foreign currency earnings to the central bank in exchange for local currency at the new pegged rate. The government also limited the amount of cash nationals could take abroad, and it prohibited the repatriation of earnings on foreign investments that had been held for less than one year. Thus, Malaysia's capital controls were focused mostly on controlling the outflow of short-term financial transactions. Happily, the authorities were able to stabilize the currency and reduce interest rates, leading to a degree of domestic recovery.28

Chile, on the other hand, tried to limit the inflow of short-term financial transactions. It did so by imposing a costly reserve requirement on foreign-owned capital held in the country for less than one year. Despite attempts to stimulate foreign direct investment of the funds, most of the reserve deposits were absorbed in the form of increased reserves at the central bank. In turn, this created a potential for expanding the money supply, which the government feared would lead to inflation. Rather than allow this to happen, the government "sterilized" the inflows by selling government bonds from its portfolio. But this pushed down the prices of bonds and pushed up the interest rates on them, discouraging business investment. Finally, when prices of copper (Chile's primary export) fell sharply in 1998, the control regime was scrapped.29

The tobin tax

A global tax on international currency movements was first proposed by James Tobin, a Yale University economist, in 1972.30 He suggested that a tax of one-quarter to one percent be levied on the value of all currency transactions that cross national borders. He reasoned that such a tax on all spot transactions would fall most heavily on transactions that involve very short round-trips across borders. In other words, it would be speculators with very short time-horizons that the tax would deter, rather than longer-term investors who can amortize the costs of the tax over many years. For example, the yearly cost of a 0.2 percent round trip tax would amount to 48 percent of the value of the traded amount if the round trip were daily, 10 percent if weekly and 2.4 percent if monthly. Since at least eighty percent of spot transactions in the foreign exchange markets are reversed in seven business days or less, the tax could have a profound effect on the costs of short-term speculators.

Of course, for those who believe in the efficiency of markets and the rationality of expectations, a transactions tax would only hinder market efficiency. They argue that speculative sales and purchases of foreign exchange are mostly the result of "wrong" national monetary and fiscal policies. While we readily admit that national policies sometimes do not accord with desired objectives, they nonetheless have little relevance for speculators focused on the next few seconds, minutes or hours.

Tobin did not intend for his proposal to involve a supranational taxation authority. Rather, governments would levy the tax nationally. In order to make the tax rate uniform across countries, however, an international agreement would have to be entered into by at least the principal financial centers. The revenue obtained from the tax could be designated for each country's foreign exchange reserve for use during periods of instability, or it could be directed into a common global fund for uses like aid to the poorest nations. In the latter case, the feasibility of the tax also would depend on an international political agreement. The revenue potential is sizeable, and could run as high as $500 billion annually.

There are two other advantages often cited by proponents of the Tobin tax. Tobin's original rationale for a foreign exchange transactions tax was to enhance policy autonomy in a world of high financial capital mobility. He argued that currency fluctuations often have very significant economic and political costs, especially for producers and consumers of traded goods. A Tobin tax, by breaking the condition that domestic interest rates may differ from foreign interest rates only to the extent that the exchange rate is expected to change (see p. 10), would allow authorities to pursue different policies than those prevailing abroad without exposing them to large exchange rate movements. More recent research suggests that this is only a very modest advantage.31

An additional advantage of the tax is that it could facilitate the monitoring of international financial flows. The world needs a centralized data-base on all kinds of financial flows. Neither the Bank for International Settlements nor the IMF has succeeded in providing enough information to monitor them all. This information should be regularly shared among countries and international institutions in order to collectively respond to emerging issues.

The feasibility issues raised by the Tobin tax are more political than technical. One of the issues is about the likelihood of evasion. All taxes suffer some evasion, but that has rarely been a reason for avoiding them. Ideally all jurisdictions should be a party to any agreement about a common transactions tax, since the temptation to trade through non-participating jurisdictions would be high. Failing that, one could levy a penalty on transactions with "Tobin tax havens" of, say, double the normal tax rate. Moreover, one could limit the problem of substituting untaxed assets for taxed assets by applying the tax to forwards, swaps and possibly other contracts.

Tobin and many others have assumed that the task of managing the tax should be assigned to the IMF. Others argue that the design of the tax is incompatible with the structure of the IMF and that the tax should be managed by a new supranational body. Which view will prevail depends upon the resolution of other outstanding issues. The Tobin tax is an idea that deserves careful consideration. It should not be dismissed as too idealistic or too impractical. It addresses with precision the problems of excessive instability in the foreign exchange markets, and it yields the additional advantage of providing a means to assist those in greater need.

Reforming the IMF

The IMF was established in 1944 to provide temporary financing for member governments to help them maintain pegged exchange rates during a period of internal adjustment. With the collapse of the pegged exchange rate regime in 1971, that responsibility has been eclipsed by its role as central arbiter of financial crises in developing countries. As noted above (p. 20), these crises may be of three different kinds: fiscal crises, foreign exchange crises, and banking crises.

Under current institutional arrangements, a nation suffering a serious fiscal crisis that could easily lead to default must seek temporary relief from its debts from three different (but interrelated) institutions: the IMF, which is sometimes willing to renegotiate loans in return for promises to adopt more stringent policies (see above); the so-called Paris Club that sometimes grants relief on bilateral (country to country) credits; and the London Club that sometimes gives relief on bank credits. This is an extremely cumbersome process that fails to provide debtor countries with standstill protection from creditors, with adequate working capital while debts are being renegotiated, or with ways to ensure an expeditious overall settlement. The existing process often takes several years to complete.

There is a growing consensus that this problem is best resolved with creation of a new international legal framework that provides for de facto sovereign bankruptcy. This could take the form of an International Bankruptcy Code with an international bankruptcy court, or it could involve a less formal functional equivalent to its mechanisms: automatic standstills, priority lending, and comprehensive reorganization plans supported by rules that do not require unanimous consent. Jeffrey Sachs recommends, for example, that the IMF issue a clear statement of operating principles covering all stages of a debtor's progression through "bankruptcy" to solvency. A new system of emergency priority lending from private capital markets could be developed, he suggests, under IMF supervision. He also feels that the IMF and member governments should develop model covenants for inclusion in future sovereign lending instruments that allow for priority lending and speedy renegotiation of debt claims.32

At the Joint Meeting of the IMF and the World Bank in September, 2002, the policy committee directed the IMF staff to develop by April, 2003, a "concrete proposal" for establishing an internationally recognized legal process for restructuring the debts of governments in default. It also endorsed efforts to include "collective action" clauses in future government bond issues to prevent one or two holdout creditors from blocking a debt-restructuring plan approved by a majority of creditors. The objective of both proposals is to resolve future debt crises quickly and before they threaten to destabilize large regions, as happened in Southeast Asia in 1997-98.

Member countries rarely receive support from the IMF any longer to maintain a particular nominal exchange rate. Because financial capital is so mobile now, pegged exchange rates probably are unsupportable. But there are special times when the IMF still might give such support during a foreign exchange crisis. International lending to support a given exchange rate is legitimate if the government is trying to establish confidence in a new national currency, or if its currency is recovering from a severe bout of hyperinflation. Ordinarily the foreign exchange should be provided from an international stabilization fund supervised by the IMF.

National central banks usually supervise and regulate the domestic banking sector. Thus, banking crises normally are handled by domestic institutions. This may not be possible, however, if the nation's banks hold large short-term liabilities denominated in foreign currencies. If the nation's central bank has insufficient reserves of foreign currencies to fund a large outflow of foreign currencies, there may be circumstances when the IMF or other lenders may wish to act as lenders-of-last-resort to a central bank under siege. Nations like Argentina that have engaged in "dollarization" are learning about the downside risks of holding large liabilities denominated in foreign currencies. The best way to avoid this problem is for governments and central banks to restrict the use of foreign currency deposits or other kinds of short-term foreign liabilities at domestic banks.

Overall, what is most needed is the availability of more capital in developing countries and much quicker responses, amply funded, to emerging financial crises.. George Soros has argued powerfully that the IMF needs to establish a better balance between crisis prevention and intervention.33 The IMF has made some progress in prevention by introducing Contingency Credit Lines (CCLs). The CCL rewards countries that follow sound policies by giving them access to IMF credit lines before rather than after a crisis erupts. But CCL terms were set too high and there have been no takers. Soros also has recommended the issuance of Special Drawing Rights (SDRs) that developed-countries would donate for the purpose of providing international assistance. Its proceeds would be used to finance "the provision of public goods on a global scale as well as to foster economic, social, and political progress in individual countries."34

A growing number of civil society institutions, however, oppose giving more money to the IMF unless it is basically reformed. They point out that it is a committed part of the Washington Consensus, the application of whose policies have made societies adjuncts of the market. They see the IMF as an instrument of the U.S. government and its corporate allies. The conditions it attaches to loans for troubled countries often do more to protect the interests of first world investors than to promote the long-term health of the developing countries. The needed chastening of speculative investors does not occur under these circumstances. There is evidence that in several major crises, IMF requirements for assisting nations have in fact worsened the situation and protracted the crises. The IMF opposed the policies that enabled Malaysia to weather the crisis in Southeast Asia, for example, while it urged the failed policies of other Southeast Asian nations. The vast literature cited by Pieper and Taylor (p. 22) is a convincing chronicle of earlier missteps. For such reasons as these, some civil society institutions argue that, unless IMF policies are changed, giving the institution more money will do more harm than good.

Fortunately, the IMF's policies are beginning to change, partly as a result of criticisms by civil society institutions, but more through recognition of the seriousness of the problems with the present system. In the wake of recent financial crises, leaders in the IMF as well as the World Bank are looking for ways to reform the international financial architecture. Arguably, their emphasis is shifting away from slavish devotion to the prescriptions of the Washington Consensus and toward more state intervention in financial markets. Joseph Stiglitz, the Nobel Laureate who has been particularly critical of the IMF, nonetheless acknowledges that its policy stances are improving.35

The IMF has begun to recognize the importance of at least functional public interventions in markets and the need to provide more supporting revenues. It has realized that controls on external financial movements and prudent regulation can help contain financial crises. It has abandoned the doctrine, long the backbone of structural adjustment policies, that raising the local interest rate will stimulate saving and thereby growth. Both the IMF and the World Bank have rolled over or forgiven the bulk of official debt owed by the poorest economies.

Whether these and other promising changes in IMF thinking and policy formation are sufficient to assure that its future responses to crises will be benign still is not clear. While celebrating what they view as belated improvements, many critics of the IMF among civil society institutions are not convinced that they are sufficiently basic. Even if the IMF avoids repeating some of its more egregious mistakes, some believe that it is likely to continue to function chiefly for the benefit of the international financial community rather than the masses of people. Rather, they believe that, at least in the long term, it would be much better for control over international finance to reside in new institutions under a restructured United Nations. They favor the U.N. because it has a broader mandate, is more open and democratic, and, in its practice, has given much greater weight to human, social, and environmental priorities.

Many civil society institutions want the primary focus of reform to be on taming speculation, restoring the control of their economies to nations, and embedding economies in the wider society. They believe that if these policies are adopted there will be less need for large funding to deal with financial crises. There remains, however, the fact that such crises are occurring and will continue to occur for some time. The IMF is the only institution positioned to respond to these crises. Hence, even for those who sympathize with the goals of the civil society institutions, there is a strong argument for more financing for the IMF.

A world financial authority

A variety of public and private citizens and institutions have recently proposed the establishment of a World Financial Authority (WFA) to perform in the domain of world financial markets what national regulators do in domestic markets. Some believe it should be built upon the foundation of global financial surveillance and regulation that have already been laid by the Bank for International Settlements in Basel, Switzerland. Others regard it as a natural extension of the activities of the IMF. Still others are less interested in the precise institutional form it would take than in the clear delineation of the tasks that need to be done by someone.

Its first task probably should be to provide sufficient and timely financial assistance during crises to avert contagion and defaults. This requires a lender-of-last-resort with sufficient resources and authority to disperse rescue money quickly. Perhaps the best example to date is the bailout loan to Mexico by the U.S. Treasury and the IMF at the end of 1994. It supplied sufficient liquidity for Mexico to make the transition back to stability and to pay back the loans ahead of time. The management of the Asian crises in 1997-8, on the other hand, was badly handled. The bailout packages offered by the IMF were not only significantly smaller than in the Mexico case; they also were constrained with so many conditions that a year later only twenty percent of the funds had been disbursed. This slow response to the crisis probably worsened the contagion. Surprisingly, the error was repeated in the Russian crisis in 1998 and the Brazilian crisis in 1999.

A World Financial Authority also should provide the necessary regulatory framework within which the IMF or a successor institution can develop as a lender-of-last-resort. As long as domestic regulatory procedures function properly, there will be no need for a world authority to be involved, any more than to certify that domestic regulatory procedures are effective. In countries where domestic financial regulation is unsatisfactory, the WFA would assist with regulatory reform. In this way, the WFA could aid financial reconstruction, reduce the likelihood of moral hazard, and give confidence to backers of the operation.

There is little appetite today, especially in Washington, to create a new international bureaucracy. This fact gives support to the idea of building the WFA from the existing infrastructure of the Bank for International Settlements (BIS). The BIS is a meeting place for national central bankers who have constructed an increasingly complicated set of norms, rules and decision-making procedures for handling and preventing future crises. Its committees and cooperative cross-border regulatory framework enjoy the confidence of governments and of the financial community. It may well be the best place to govern an international regulatory authority at the present time.


Theological and ethical considerations

While Christian theology cannot provide us with detailed recommendations on how to correct the adverse consequences of speculative financial movements, it can provide us with an empowering perspective or worldview. Our theological expressions of the faith describe the source of our spiritual energy and hope. They betray our ultimate values and the source of our ethical norms. They shape how we perceive and judge the "signs of the times."

God's world and human responsibilities

Nothing in creation is independent of God. "The earth is the Lord's and all that is in it, the world, and all those who live in it." (Ps. 24:1 NRSV) Thus, no part of the creation - whether human beings, other species, the elements of soil and water, even human-made things - is our property to use as we wish. All is to be treated in accord with the values and ground rules of a loving God, their ultimate owner, who is concerned for the good of the whole creation. All of God's creation therefore deserves to be treated with appropriate care and concern, no matter how remote from one's daily consciousness or existence.

The doctrine of creation reminds us that our ultimate allegiance is not to the nationalistic and human-centered values of our culture, but rather to the values of the loving Maker of heaven and earth. When we seek plenty obsessively, consume goods excessively, compete against others compulsively, or commit ourselves to Economic Fate, we are worshiping false gods. Modern idolatries are often encountered in economic forms, just as in the New Testament's warnings about the spiritual perils of prosperity in the parables of the rich, hoarding fool (Luke 12:15-21) and the rich youth (Matt. 19:16-24 and Luke 18:18-25).

The fact that so much of financial speculation is divorced from the real economy of production and exchange suggests that its paper transactions are more like bets in a casino than an essential component of God's real economy, which seeks the good of all creation. It is wrong to subject people to the effects of wholesale gambling. The fact that the practice of financial speculation is secretive, compulsively competitive, and frequented by lone rangers, moreover, hints at a cult of false idols. Its practitioners, including especially day-traders, seem interested only in exceedingly short-term personal financial advantage, unconcerned about the long-term consequences of their actions or their impact on others. This also indicates a degree of idolatry that contradicts the doctrine of creation.

Image of God

The conviction that human beings have a God-given dignity and worth (Gen. 1:26-28) unites humanity in a universal covenant of rights and responsibilities - the family of God. All humans are entitled to the essential conditions for expressing their human dignity and for participation in defining and shaping the common good. These rights include satisfaction of basic biophysical needs, environmental safety, full participation in political and economic life, and the assurance of fair treatment and equal protection of the laws. These rights define our responsibilities in justice to one another, locally, nationally and - because they are human rights - internationally.

Financial speculation often leads to unmanageable floods of funds into and out of host societies, creating unwanted bubbles and panics. Financial speculators normally ignore the human consequences of their activities on the rights of people in host societies, where economic adjustments are shared widely and painfully. Their primary interest is short-term personal financial gain. The absence of a sense of covenantal unity with their brothers and sisters of the developing world is a sad commentary on the governing ethic of speculators in the capital markets. Their arrogance calls for some form of control over foreign exchange and financial capital markets.

Justice in covenant

The rights and responsibilities associated with the image of God are inextricably tied to the stress on justice in Scripture and tradition. We render to others their due because of our loving respect for their God-given dignity and value. The God portrayed in Scripture is the "lover of justice" (Ps. 99:4, 33:5, 37:28, 11:7; Isa. 30:18, 61:8; Jer. 9:24). Justice is at the ethical core of the biblical message. Faithfulness to covenant relationships, moreover, demands a justice that recognizes special obligations, "a preferential option" to widows, orphans, the poor, and aliens, which is to say the economically vulnerable and politically oppressed. Hence, the idea of the Jubilee Year (Lev. 25) was meant to prevent unjust concentrations of power and poverty. Jesus' ministry embodies concern for the rights and needs of the poor; He befriended and defended the dispossessed and the outcasts.

The fact that the liberalization of trade and finance has failed to improve the distribution of incomes, indeed, that it has widened the gap between rich and poor in virtually every country, is not a sign of distributive justice but of its opposite. The standard of living for the least skilled, least mobile, and poorest citizens of many developing countries has declined absolutely. This, too, is an unjust result of a broken system. The fact that governments that wish to assist the vulnerable and weak of their societies are less able to do so, in part because they no longer can levy sufficient taxes on foreign interests, is a violation of justice in community.

Sin and judgment

Sin is a declaration of autonomy from God, a rebellion against the sovereign source of our being. It makes the self and its values the center of one's existence, in defiance of God's care for all. Sin tempts us to value things over people, measuring our worth by the size of our wealth and the quantity of goods we consume, rather than by the quality of our relationships with God and with others. Sin involves injustice because its self-centeredness defies God's covenant of justice, grasping more than one's due and depriving others of their due.

Sin is manifested not only in individuals, but also in social institutions and cultural patterns. These structural injustices are culturally acceptable ways of giving some individuals and groups of people advantage over others. Because they are pervasive and generally invisible, they compel our participation. They benefit some and harm many others. Whether or not we deserve blame as individuals and churches for these social sins depends in part on whether we defend or resist them, tolerate or reject them.

The fact that the freeing of financial markets has permitted financial speculators to engage in high-risk gambles without regard to the consequences for others is abundant evidence of both individual and institutional sin. The policies of the Washington Consensus frequently lead to adverse consequences for the poor and the environment, even as its proponents gain advantages from the implementation of such policies. They are another serious expression of social sin in our time. These policies inevitably increase the concentration of economic power in fewer hands. The fact that the global spread of free-market policies has led to the decline of countervailing institutions of

social solidarity means that it is easier for the centers of economic power to corrupt governments, control markets, alienate neighbors, manipulate public opinion, and contribute to a sense of political impotency in the public.

The Church's mission and hope

The church is called to be an effective expression of the Reign of God, which Jesus embodied and proclaimed. This ultimate hope is a judgment on our deficiencies

and a challenge to faithful service. God's goal of a just and reconciled world is not simply our final destiny but an agenda for our earthly responsibilities. We are called to be a sign of the Reign of God, on earth as it is in heaven, to reflect the coming consummation of God's new covenant of shalom to the fullest extent possible.


A new financial architecture

In her path-breaking book, Casino Capitalism,36 Susan Strange likens the Western financial system to a vast casino. As in a casino,

"the world of high finance today offers the players a choice of games. Instead of roulette, blackjack, or poker, there is dealing to be done - the foreign-exchange market and all its variations; or in bonds, government securities or shares. In all these markets you may place bets on the future by dealing forward and by buying or selling options and all sorts of other recondite financial inventions. Some of the players - banks especially - play with very large stakes. There are also many quite small operators. There are tipsters, too, selling advice, and peddlers of systems to the gullible. And the croupiers in this global finance casino are the big bankers and brokers. They play, as it were, "for the house.' It is they, in the long run, who make the best living."

She goes on to observe that the big difference between ordinary kinds of gambling and speculation in financial markets is that one can choose not to gamble at roulette or poker, whereas everyone is affected by "casino capitalism." What goes on in the back offices of banks and hedge funds "is apt to have sudden, unpredictable and unavoidable consequences for individual lives."

It is this volatility, this instability in financial markets that has given rise to recurring financial crises. They must be tamed. In the wake of recent financial crises, people are beginning to look for ways to reform the international financial architecture. Although it is difficult to move from general theological convictions to specific proposals, we offer the following suggestions for consideration by Christians and other persons of good will.

Of these recommendations, perhaps the most controversial is that more funds be given to the IMF. We noted above that much of the criticism of the IMF is justified. We also acknowledged that the IMF is improving its policies. We hope that these improvements will continue. Meanwhile, there is no other viable candidate to serve as lender-of-last-resort - an absolutely essential feature of any new financial architecture.

The major reason some civil society institutions resist funding the IMF further is its history of misguided structural adjustment policies, policies that are now widely recognized to have caused widespread suffering. We hope that recent changes will improve this situation as well and enable the IMF to perform the important role we recommend for it.

Along with the World Bank, it is beginning to contextualize its performance criteria and conditionalities, taking much more seriously the unique circumstances of particular economies. It is listening more and nitpicking less. To be sure, the IMF is not likely to abandon its policy of making its loans conditional on the adoption by borrowing countries of mutually agreed economic policies. Even so, there is considerable evidence that when it has had more resources on hand, conditionality has been correspondingly wiser and less draconian.

The IMF now recognizes that it can leave more decisions to developing countries partly because these have better informed and more sophisticated employees than was once the case. Certainly in Latin America and Asia and increasingly in Africa, country economic teams are better qualified technically than the lower rung Ph.D.s from American and European universities to whom the IMF and World Bank entrust their missions. Local economists can do financial programming and standard macroeconomic modeling as well as or better than the people from Washington can; they also know how to do investment project analysis. To be sure, decisions about financial and project plans must include input from many other elements of a society.

We can encourage the IMF (and World Bank) to reverse the typical procedure in setting conditions for multilateral loans. Instead of waiting for it to specify the policies that must be followed to justify additional financing, country economic teams, in consultation with other agencies of their government, should be allowed to propose economic programs to the IMF. Disagreements between Washington staff assessments and the local teams could be resolved directly or by third-party arbitration. The scope of economic conditionality could also be restricted, for example, just to a balance-of-payments target, while the country could pursue its own agenda regarding inflation, income distribution, and growth.


What Christians can do

A primary part of the "principalities and powers" referred to in the Bible is composed of the political-economic institutions and processes that govern how people relate economically to each other and to God's whole creation. The church has a stake in their design. Yet many church members feel powerless to change basic political-economic reality. They think either that the economic conditions of society result "naturally" from the forces of markets that are only marginally within the power of human control, or that economic conditions result from powerful interests that are beyond the reach of ordinary citizens. Thus, there's nothing that can be done about it, or there's nothing we can do about it.

On the contrary, Mobilization for the Human Family believes that the political economy is shaped by deliberate social policy decisions; that conditions at any given time are the result of those decisions; that conditions can be changed by human decisions; and that the will of a nation's and the world's citizens about what the commitments and purposes of the nation and the world should be can be expressed in the political economy through the framework of democratic process provided in our national and transnational polity. Accordingly, we offer below some suggestions for action that may be taken by individual Christians and by our churches and their denominations to correct some correctable flaws of financial globalization.

Actions by individual Christian

Actions by churches and denominations


Want to know more?

Globalization is a vast topic. For a general introduction, see Sarah Anderson and John Cavanagh, Field Guide to the Global Economy (New York: New Press, 2000) and Thomas Friedman, The Lexus and the Olive Tree: Understanding Globalization (New York: Farrar Straus Giroux, 1999). A classic introduction to the financial side of globalization is Susan Strange, Casino Capitalism, (New York: Mnchester University Press, 1986). See also Kavaljit Singh, The Globalisation of Finance: A Citizen's Guide (London: Zed Books, 1999) and John Eatwell and Lance Taylor, Global Finance at Risk: The Case for International Regulation (New York: The New Press, 2000). The best introduction to the Tobin Tax is Mahbub ul Haq et al (eds), The Tobin Tax: Coping with Financial Volatility (New York: Oxford University Press, 1996). For how church people might react, see Pamela Brubaker, Globalization at What Price? (Cleveland: Pilgrim Press, 2001).


Questions For Discussion

  1. How have the linkages and interconnections of international finance impacted your life? On balance, do you regard them as advantages or disadvantages for a healthy Christian life?
  2. The frequency and severity of recent financial crises have fueled calls for a radical redesign of the rules of global finance. If you were the advisor to an international commission asked to design "A New International Financial Architecture," what would you recommend?
  3. Do you favor allowing sovereign nations to declare bankruptcy? What Christian traditions might be invoked to support or deny such an action?
  4. A growing number of civil society institutions oppose giving more money to the IMF. They point out that it is part of the Washington Consensus, the application of whose policies have made societies adjuncts of the market. Yet this paper suggests that the IMF needs more money. As a committed Christian, which view do you favor?
  5. Is it too late to expect justice in a globalizing world? Since much of the direction the global economy has taken is irreversible, how can a balance between market and society be negotiated? How might Christians play a role in those negotiations?

[Dec 05, 2017] Reviews Cowardly capitalism by Daniel Ben-Ami Prospect Magazine December 1998 issue 36

Susan Strange, who died just after the publication of her latest book, was one of the most compelling academic advocates of the view that the global casino is out of control.
Notable quotes:
"... Susan Strange, who died just after the publication of her latest book, was one of the most compelling academic advocates of the view that the global casino is out of control. Although she is not a household name, she played an important role in developing the intellectual framework to support the casino thesis. Her Casino Capitalism (1986) is a Keynesian account of the damage inflicted on the world as a result of financial deregulation which was taken up by many better known writers such as William Greider in the US and Will Hutton in Britain. ..."
"... Mad Money, the sequel to Casino Capitalism, takes into account the impact of information technology and the rise of financial crime. It also places new emphasis on the role of international institutions. For example, she backs George Soros's plan for an international credit insurance corporation as a complement to the IMF. ..."
Dec 01, 1998 | Prospect Magazine

The dominant image of the financial markets is that of a giant casino. Brash young men in red braces, driven by insatiable greed, gamble with huge sums every day. When the bets go wrong the innocent suffer. Reckless financial markets pose an immediate threat to the future prosperity of humanity.

Susan Strange, who died just after the publication of her latest book, was one of the most compelling academic advocates of the view that the global casino is out of control. Although she is not a household name, she played an important role in developing the intellectual framework to support the casino thesis. Her Casino Capitalism (1986) is a Keynesian account of the damage inflicted on the world as a result of financial deregulation which was taken up by many better known writers such as William Greider in the US and Will Hutton in Britain.

With the onset of the Asian financial crisis Strange's account of financial markets has become almost mainstream. Her ideas inform many of the discussions about a "new international financial architecture." Economists who would once have scorned her views now agree with her that deregulation has gone too far and that new forms of regulation are needed. The British government has floated the idea of a world financial authority to regulate global finance.

The IMF, once a bastion of free market economics, has conceded that capital controls may be necessary under some circumstances.

Mad Money, the sequel to Casino Capitalism, takes into account the impact of information technology and the rise of financial crime. It also places new emphasis on the role of international institutions. For example, she backs George Soros's plan for an international credit insurance corporation as a complement to the IMF.

... ... ...

[Nov 30, 2017] Yellen's exit may prompt the Fed to pare its balance sheet sooner rather than later, Goldman says by Javier E. David

Notable quotes:
"... With the Federal Reserve facing a Herculean conundrum in unwinding its crisis-era monetary policy - and a likely leadership transition on the horizon - Goldman Sachs (GS) suggested on Saturday the central bank could move early to reduce the vast sums of government and mortgage-backed securities (MBS) it holds on its books. ..."
"... "This could be important for balance sheet policy because many Republican-leaning economists have criticized quantitative easing (QE) and have expressed a preference for rapid balance sheet rundown, perhaps even through asset sales," wrote Daan Struyven, a Goldman economist. ..."
"... A potential fire sale of Treasurys and mortgage-backed securities by the Fed "could have significantly more adverse effects on financial conditions than gradual runoff, and the mere risk of such an outcome might set up another 'taper tantrum,' " Struyven added. ..."
"... Some market observers have long argued that the Fed has distorted financial conditions with QE, and the central bank faces a huge task trying to pare down its bloated balance sheet. ..."
Mar 19, 2017 | finance.yahoo.com

CNBC

Yellen's exit may prompt the Fed to pare its balance sheet sooner rather than later, Goldman says

Yuri Gripas | Reuters

It's often said that good things come to those who wait - but a bloated $4.5 trillion balance sheet might be a notable exception to that rule.

With the Federal Reserve facing a Herculean conundrum in unwinding its crisis-era monetary policy - and a likely leadership transition on the horizon - Goldman Sachs (GS) suggested on Saturday the central bank could move early to reduce the vast sums of government and mortgage-backed securities (MBS) it holds on its books.

In a research note to clients, the bank pointed to the likelihood that President Donald Trump may "reshape the leadership" of the Federal Open Market Committee (FOMC), the Fed's powerful policy-making body, as the terms of Fed Chair Janet Yellen and Vice Chair Stanley Fischer expire in early 2018.

"This could be important for balance sheet policy because many Republican-leaning economists have criticized quantitative easing (QE) and have expressed a preference for rapid balance sheet rundown, perhaps even through asset sales," wrote Daan Struyven, a Goldman economist.

If the new appointments-especially the new chair-are thought to favor aggressive balance sheet normalization, perhaps even including asset sales, and if all decisions are left up to the incoming team, financial markets might experience heightened uncertainty during the transition."

Goldman suggested there was a "strong 'risk management' case for an announcement of very gradual balance sheet runoff later this year," because of the political risk associated with new leadership at the Fed.

"Our forecast is that the discussion around reinvestment continues for most of this year and the plan is formally announced in December 2017," Struyven said. "At that meeting, we expect the committee to hold the funds rate steady after hiking in both June and September. We expect the quarterly hikes to resume in March 2018."

The economist harked back to 2013's "taper tantrum," in which markets reacted the Fed's suggestions of tighter monetary policy by sending bond yields surging and stocks reeling - albeit temporarily.

A potential fire sale of Treasurys and mortgage-backed securities by the Fed "could have significantly more adverse effects on financial conditions than gradual runoff, and the mere risk of such an outcome might set up another 'taper tantrum,' " Struyven added.

'The uncertainty is substantial'

As the central bank begins a campaign to tighten benchmark interest rates - making a quarter-point hike just last week - it's renewed a debate over how to unwind the Fed's massive bond buying program.

Some market observers have long argued that the Fed has distorted financial conditions with QE, and the central bank faces a huge task trying to pare down its bloated balance sheet.

"The bigger the Fed's credit footprint, the more it interferes with the efficient employment and pricing of credit," wrote George Selgin, a senior fellow and director of the Center for Monetary and Financial Alternatives at the libertarian-leaning Cato Institute, in a blog post last month.

"By directing a large share of savings to purchases of longer-term MBS and Treasury securities, for example, the Fed has artificially raised both the prices of those securities, and the importance of the housing market and the federal government relative to the rest of the U.S. economy," Selgin wrote. "It has also dramatically increased its portfolio's duration gap and, by so doing, the risk that it will suffer losses should it sell assets before they mature."

On Friday, Minneapolis Federal Reserve Bank President Neel Kashkari, the lone dissenter against the U.S. central bank's decision last week to raise interest rates, the U.S. economy is still falling short on employment and inflation.

Kashkari, an alumnus of both Goldman Sachs and the U.S. Treasury who oversaw the government's Temporary Asset Relief Program (TARP) during the financial crisis, believes the Fed should wait on raising interest rates until it publishes a detailed plan for how and when it will reduce its $4.5 trillion balance sheet.

Goldman set forth two scenarios under which the Fed could begin trimming its balance sheet. Under an "early start, passive runoff" scenario, the bank said the Fed "gradually tapers reinvestment in December 2017 over 10 months but does not sell assets."

Conversely, under a "late start, active sales" scenario, Goldman said the Fed could cease reinvesting in bonds in July 2018 "without tapering and actively sells $40bn of assets per month."

Under the latter, the Fed could shrink its balance sheet by about $250 billion per quarter starting in the second half of next year, "with similar contributions from maturing assets and active sales," the bank added.

However, neither scenario is without its risks, Goldman's economist wrote: "While our baseline estimate suggests relatively little tightening from balance sheet rundown, the uncertainty is substantial. The 2013 'taper tantrum' also provides a reminder that the impact of balance sheet policy on financial conditions is uncertain and could be larger than our baseline estimate."

JF -> Anachronism ... Reply Monday, March 20, 2017 at 07:39 AM

Every time the Fed deals with the financial asset trading marketplaces the private parties wish to make a profit, no wonder Goldman is shilling to get the more valuable Fed holdings 'sold' to these parties.

No article on reserves or Fed asset holdings is legitimate unless it also discusses the use of administrative offset with Treasury (whether the bonds are mature and as a result, redeemable at that time, or not, they could all be offset with Treasury now).

The Fed has a lot it can do with the assets they bought with newly created money, but subsidizing the money center banks once again ought to be low on the list (moral hazard rewarded again?). The asset-handling plans should be pursued only after Treasury coordination talks are settled and according to well discussed, publicly known plans.

It is not clear to me who the public should trust here, so open public programming should be expected and press involvement sought after by the Fed. Look at the magnitudes here, no one should be looking the other way on this.

RGC -> JF... March 20, 2017 at 07:55 AM

1. The Fed does QE, buying bonds and MBS and thus raising asset prices.

2. Bond traders sell.

3. The Fed raises interest rates, thus lowering bond prices.

4. The Fed reduces QE, selling bonds and MBS and thus lowering prices.

5. Bond traders buy.

6. The Fed reverses course and lowers interest rates, thus raising bond prices.

7. Bond traders sell.

The Fed trades with public money, the bond traders trade with private money.

JF -> RGC... March 20, 2017 at 09:30 AM

RGC what is your point except to note that private interests sweep monies out of private positions in order to create the cash to buy the bond being offered by the Fed should they sell some. It is a way to sweep excess monies out of the economic system, though that is not a completed end-game unless the Fed destroys the money or it is remitted to Treasury where it covers other claims for payment (reducing the need to borrow anew) turnstiling the monies back into the economy.

It is simpler with regard to Treasury to have both sides agree to osset their position.

But offsets means that Treasury offers none or fewer bonds for sale to outsude interests, including China and other govts or within the banks or elsewhere.

Is the Fed ready to do all of these approaches, and is it coordinated with the oublic's govt via Treasury agreement?

The Fed has instruments with 8 percent coupons, I just don't like the idea of them selling these to the banking segment, at a price that allows them to profit, with little risk, especially when you consider that they were the ones who caused the financial crisis in the first place.

It will be interesting to see what the Feds do, what they do with the cash they get, and what Treasury and the Trump Administration does as more cash remittances come in (and why was this not done to help the Obama Admin look good fiscally before?).

RGC -> to JF... March 20, 2017 at 10:06 AM

I was trying to demonstrate the synergy between Wall Street and the Fed.

You can look at the Fed as an economy-regulating institution, but you can also look at it as a pipeline from public wealth to private wealth.

[Nov 29, 2017] Michael Hudson: The Wall Street Economy is Draining the Real Economy

Highly recommended!
Notable quotes:
"... An interview by Gordon T. Long of the Financial Repression Authority. Originally published at his website ..."
"... One of the most important distinctions that investors have to understand is the difference between secular and cyclical trends Let us begin with definitions from the Encarta® World English Dictionary: ..."
"... Secular – occurring only once in the course of an age or century; taking place over an extremely or indefinitely long period of time ..."
"... Cycle – a sequence of events that is repeated again and again, especially a causal sequence; a period of time between repetitions of an event or phenomenon that occurs regularly ..."
"... Secular stagnation is when the predators of finance have eaten too many sheeple. ..."
"... Real estate rents in this latest asset bubble, whether commercial or residential, appear to have been going up in many markets even if the increases are slowing. That rent inflation will likely turn into rent deflation, but that doesn't appear to have happened yet consistently. ..."
"... Barter has always existed and always will. Debt money expands and contracts the middle class, acting as a feedback signal, which never works over the long term, because the so encapsulated system can only implode, when natural resource liquidation cannot be accelerated. The whole point is to eliminate the initial requirement for capital, work. Debt fails because both sides of the same coin assume that labor can be replaced. The machines driven by dc technology are not replacing labor; neither the elites nor the middle class can fix the machines, which is why they keep accelerating debt, to replace one failed technology only to be followed by the next, netting extortion by whoever currently controls the debt machine, which the majority is always fighting over, expending more energy to avoid work, like the objective is to avoid sweating, unless you are dumb enough to run on asphalt with Nike gear. ..."
"... . . . The whole argument for privatization, for instance, is the opposite of what was taught in American business schools in the 19th century. The first professor of economics at the Wharton School of Business, which was the first business school, was Simon Patten. He said that public infrastructure is a fourth factor of production. But its role isn't to make a profit . It's to lower the cost of public services and basic inputs to lower the cost of living and lower the cost of doing business to make the economy more competitive. But privatization adds interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions . Obviously these financialized charges are factored into the price system and raise the cost of living and doing business . ..."
www.nakedcapitalism.com
April 29, 2016 by Yves Smith An interview by Gordon T. Long of the Financial Repression Authority. Originally published at his website

GORDON LONG: Thank you for joining us. I'm Gordon Long with the Financial Repression Authority. It's my pleasure to have with me today Dr. Michael Hudson Professor Hudson's very well known in terms of the FIRE economy to-I think, to a lot of our listeners, or at least he's recognized by many as fostering that concept. A well known author, he has published many, many books. Welcome, Professor Hudson.

MICHAEL HUDSON: Yes.

LONG: Let's just jump into the subject. I mentioned the FIRE economy cause I know that I have always heard it coming from yourself-or, indirectly, not directly, from yourself. Could you explain to our listeners what's meant by that terminology?

HUDSON: Well it's more than just people getting fired. FIRE is an acronym for Finance, Insurance and Real Estate. Basically that sector is about assets, not production and consumption. And most people think of the economy as being producers making goods and services and paying labor to produce them – and then, labour is going to buy these goods and services. But this production and consumption economy is surrounded by the asset economy: the web of Finance, Insurance, and Real Estate of who owns assets, and who owes the debts, and to whom.

LONG: How would you differentiate it (or would you) with what's often referred to as financialization, or the financialization of our economy? Are they one and the same?

HUDSON: Pretty much. The Finance, Insurance, and Real Estate sector is dominated by finance. 70 to 80% of bank loans in North America and Europe are mortgage loans against real estate. So instead of a landowner class owning property clean and clear, as they did in the 19 th century, now you have a democratization of real estate. 2/3 or more of the population owns their own home. But the only way to buy a home, or commercial real estate, is on credit. So the loan-to-value ratio goes up steadily. Banks lend more and more money to the real estate sector. A home or piece of real estate, or a stock or bond, is worth whatever banks are willing to lend against it

As banks loosen their credit terms, as they lower their interest rates, take lower down payments, and lower amortization rates – by making interest-only loans – they are going to lend more and more against property. So real estate is bid up on credit. All this rise in price is debt leverage. So a financialized economy is a debt-leveraged economy, whether it's real estate or insurance, or buying an education, or just living. And debt leveraging means that a larger proportion of assets are represented by debt. So debt equity ratios rise. But financialization also means that more and more of people's income and corporate and government tax revenue is paid to creditors. There's a flow of revenue from the production-and-consumption economy to the financial sector.

LONG: I don't know if you know Richard Duncan. He was with the IMF, etc, and lives in Thailand. He argues right now that capitalism is no longer functioning, and really what he refers to what we have now is "creditism." Because in capitalism we have savings that are reinvested into productive assets that create productivity, which leads to a higher level of living. We're not doing that. We have no savings and investments. Credit is high in the financial sector, but it's not being applied to productive assets. Is he valid in that thinking?

HUDSON: Not as in your statement. It's confused.

LONG: Okay.

HUDSON: There's an enormous amount of savings. Gross savings. The savings we have that are mounting up are just about as large as they've ever been – about, 18-19% of the US economy. They're counterpart is debt. Most savings are lent out to borrowers se debt. Basically, you have savers at the top of the pyramid, the 1% lending out their savings to the 99%. The overall net savings may be zero, and that's what your stupid person from the IMF meant. But gross savings are much higher. Now, the person, Mr. Duncan, obviously-I don't know what to say when I hear this nonsense. Every economy is a credit economy.

Let's start in Ancient Mesopotamia. The group that I organized out of Harvard has done a 20-study of the origins of economic structuring in the Bronze Age, even the Neolithic, and the Bronze Age economy – 3200 BC going back to about 1200 BC. Suppose you're a Babylonian in the time of Hammurabi, about 1750 BC, and you're a cultivator. How do you buy things during the year? Well, if you go to the bar, to an ale woman, what she'd do is write down the debt that you owe. It was to be paid on the threshing floor. The debts were basically paid basically once a year when the income was there, on the threshing floor when the harvest was in. If the palace or the temples would advance animals or inputs or other public services, this would be as a debt. It was all paid in grain, which was monetized for paying debts to the palace, temples and other creditors.

The IMF has this Austrian theory that pretends that money began as barter and that capitalism basically operates on barter. This always is a disinformation campaign. Nobody believed this in times past, and it is a very modern theory that basically is used to say, "Oh, debt is bad." What they really mean is that public debt is bad. The government shouldn't create money, the government shouldn't run budget deficits but should leave the economy to rely on the banks. So the banks should run and indebt the economy.

You're dealing with a public relations mythology that's used as a means of deception for most people. You can usually ignore just about everything the IMF says. If you understand money you're not going to be hired by the IMF. The precondition for being hired by the IMF is not to understand finance. If you do understand finance, you're fired and blacklisted. That's why they impose austerity programs that they call "stabilization programs" that actually are destabilization programs almost wherever they're imposed.

LONG: Is this a lack of understanding and adherence to the wrong philosophy, or how did we get into this trap?

HUDSON: We have an actively erroneous view, not just a lack of understanding. This is not by accident. When you have an error repeated year after year after year, decade after decade after decade, it's not really insanity doing the same thing thinking it'll be different. It's sanity. It's doing the same thing thinking the result will be the same again and again and again. The result will indeed be austerity programs, making budget deficits even worse, driving governments further into debt, further into reliance on the IMF. So then the IMF turns them to the knuckle breakers of the World Bank and says, "Oh, now you have to pay your debts by privatization". It's the success. The successful error of monetarism is to force countries to have such self-defeating policies that they end up having to privatize their natural resources, their public domain, their public enterprises, their communications and transportation, like you're seeing in Greece's selloffs. So when you find an error that is repeated, it's deliberate. It's not insane. It's part of the program, not a bug.

LONG: Where does this lead us? What's the roadmap ahead of us here?

HUDSON: A thousand years ago, if you were a marauding gang and you wanted to take over a country's land and its natural resources and public sector, you'd have to invade it with military troops. Now you use finance to take over countries. So it leads us into a realm where everything that the classical economists saw and argued for – public investment, bringing costs in line with the actual cost of production – that's all rejected in favor of a rentier class evolving into an oligarchy. Basically, financiers – the 1% – are going to pry away the public domain from the government. Pry away and privatize the public enterprises, land, natural resources, so that bondholders and privatizers get all of the revenue for themselves. It's all sucked up to the top of the pyramid, impoverishing the 99%.

LONG: Well I think most people, without understanding economics, would instinctively tell you they think that's what's happening right now, in some way.

HUDSON: Right. As long as you can avoid studying economics you know what's happened. Once you take an economics course you step into brainwashing. It's an Orwellian world.

LONG: I think you said it perfectly well there. Exactly. It gets you locked into the wrong way of thinking as opposed to just basic common sense. Your book is Killing the Host . What was the essence of its message? Was it describing exactly what we're talking about here?

HUDSON: Finance has taken over the industrial economy, so that instead of finance becoming what it was expected to be in the 19 th century, instead of the banks evolving from usurious organizations that leant to governments, mainly to wage war, finance was going to be industrialized. They were going to mobilize savings and recycle it to finance the means of production, starting with heavy industry. This was actually happening in Germany in the late 19 th century. You had the big banks working with government and industry in a triangular process. But that's not what's happening now. After WW1 and especially after WW2, finance reverted to its pre-industrial form. Instead of allying themselves with industry, as banks were expected to do, banks allied themselves with real estate and monopolies, realizing that they can make more money off real estate.

The bank spokesman David Ricardo argued against the landed interest in 1817, against land rent. Now the banks are all in favor of supporting land rent, knowing that today, when people buy and sell property, they need credit and pay interest for it. The banks are going to get all the rent. So you have the banks merge with real estate against industry, against the economy as a whole. The result is that they're part of the overhead process, not part of the production process.

LONG: There's a sense that there's a crisis lying ahead in the next year, two years, or three years. The mainstream economy's so disconnected from Wall Street economy. What's your view on that?

HUDSON: It's not disconnected at all. The Wall Street economy has taken over the economy and is draining it. Under what economics students are taught as Say's Law, the economy's workers are supposed to use their income to buy what they produce. That's why Henry Ford paid them $5 a day, so that they could afford to buy the automobiles they were producing.

LONG: Exactly.

HUDSON: But Wall Street is interjecting itself into the economy, so that instead of the circular flow between producers and consumers, you have more and more of the flow diverted to pay interest, insurance and rent. In other words, to pay the FIRE sector. It all ends up with the financial sector, most of which is owned by the 1%. So, their way of formulating it is to distract attention from today's debt quandary by saying it's just a cycle, or it's "secular stagnation." That removes the element of agency – active politicking by the financial interests and Wall Street lobbyists to obtain all the growth of income and wealth for themselves. That's what happened in America and Canada since the late 1970s.

LONG: What does an investor do today, or somebody who's looking for retirement, trying to save for the future, and they see some of these things occurring. What should they be thinking about? Or how should they be protecting themselves?

HUDSON: What all the billionaires and the heavy investors do is simply try to preserve their wealth. They're not trying to make money, they're not trying to speculate. If you're an investor, you're not going to outsmart Wall Street billionaires, because the markets are basically fixed. It's the George Soros principle. If you have so much money, billions of dollars, you can break the Bank of England. You don't follow the market, you don't anticipate it, you actually make the market and push it up, like the Plunge Protection Team is doing with the stock market these days. You have to be able to control the prices. Insiders make money, but small investors are not going to make money.

Since you're in Canada, I remember the beginning of the 1960s. I used to look at the Treasury Bulletin and Federal Reserve Bulletin figures on foreign investment in the US stock market. We all used to laugh at Canada especially. The Canadians don't buy stocks until they're up to the very top, and then they lose all the money by holding these stocks on the downturn. Finally, when the market's all the way at the bottom, Canadians decide to begin selling because they finally can see a trend. So they miss the upswing until they decide to buy at the top once again. It's hilarious to look at how Canada has performed in the US bond market, and they did the same in the silver market. I remember when silver was going up to $50. The Canadians said, "Yes, we can see the trend now!" and they began to buy it. They lost their shirts. So, basically, if you're a Canadian investor, move.

LONG: So the Canadian investors are a better contrarian indicator than the front page cover, you're saying.

HUDSON: I'd think so. Once they get in, you know the bubble's over.

LONG: Absolutely on that one. What are you currently writing? What is your current focus now?

HUDSON: Well, I just finished a book. You mentioned Killing the Host . My next book will be out in about three months: J is for Junk Economics . It began as a dictionary of terms, so I can provide people with a vocabulary. As we got in the argument at the beginning of your program today, our argument is about the vocabulary we're using and the words you're using. The vocabulary taught to students today in economics – and used by the mass media and by government spokesmen – is basically a set of euphemisms. If you look at the television reports on the market, they say that any loss in the stock market isn't a loss, it's "profit taking". And when they talk about money. the stock market rises – "Oh that's good news." But it's awful news for the short sellers it wipes out. Almost all the words we get are kind of euphemisms to conceal the actual dynamics that are happening. For instance, "secular stagnation" means it's all a cycle. Even the idea of "business cycles": Nobody in the 19 th century used the word "business cycle". They spoke about "crashes". They knew that things go up slowly and then they plunge very quickly. It was a crash. It's not the sine curve that you have in Josef Schumpeter's book on Business Cycles . It's a ratchet effect: slow up, quick down. A cycle is something that is automatic, and if it's a cycle and you have leading and lagging indicators as the National Bureau of Economic Research has. Then you'd think "Oh, okay, everything that goes up will come down, and everything that goes down will come up, just wait your turn." And that means governments should be passive.

Well, that is the opposite of everything that's said in classical economics and the Progressive Era, when they realized that economies don't recover by themselves. You need a-the government to step in, you need something "exogenous," as economist say. You need something from outside the system to revive it. The covert idea of this business cycle analysis is to leave out the role of government. If you look at neoliberal and Austrian theory, there's no role for government spending, and no role of public investment. The whole argument for privatization, for instance, is the opposite of what was taught in American business schools in the 19 th century. The first professor of economics at the Wharton School of Business, which was the first business school, was Simon Patten. He said that public infrastructure is a fourth factor of production. But its role isn't to make a profit. It's to lower the cost of public services and basic inputs to lower the cost of living and lower the cost of doing business to make the economy more competitive. But privatization adds interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions. Obviously these financialized charges are factored into the price system and raise the cost of living and doing business.

LONG: Well, Michael, we're-I thank you for the time, and we're up against our hard line. I know we didn't have as much time as we always like, so we have to break. Any overall comments you'd like to leave with our listeners who might be interested this school of economics?

HUDSON: Regarding the downturn we're in, we're going into a debt deflation. The key of understanding the economy is to look at debt. The economy has to spend more and more money on debt service. The reason the economy is not recovering isn't simply because this is a normal cycle. And It's not because labour is paid too much. It's because people are diverting more and more of their income to paying their debts, so they can't afford to buy goods. Markets are shrinking – and if markets are shrinking, then real estate rents are shrinking, profits are shrinking. Instead of using their earnings to reinvest and hire more labour to increase production, companies are using their earnings for stock buybacks and dividend payouts to raise the share price so that the managers can take their revenue in the form of bonuses and stocks and live in the short run. They're leaving their companies as bankrupt shells, which is pretty much what hedge funds do when they take over companies.

So the financialization of companies is the reverse of everything Adam Smith, John Stuart Mill, and everyone you think of as a classical economist was saying. Banks wrap themselves in a cloak of classical economics by dropping history of economic thought from the curriculum, which is pretty much what's happened. And Canada-I know since you're from Canada, my experience there was that the banks have a huge lobbying power over government. In 1979, I wrote for the IRPP Institute there on Canada In the New Monetary Order . At that time the provinces of Canada were borrowing money from Switzerland and Germany because they could borrow it at much lower interest rates. I said that this was going to be a disaster, and one that was completely unnecessary. If Canadian provinces borrow in Francs or any other foreign currency, this money goes into the central bank, which then creates Canadian dollars to spend. Why not have the central bank simply create these dollars without having Swiss francs, without having German marks? It's unnecessary to have an intermediary. But the more thuggish banks, like the Bank of Nova Scotia, said, "Oh, that way's the road to serfdom." It's not. Following the banks and the Austrian School of the banks' philosophy, that's the road to serfdom. That's the road to debt serfdom. It should not be taken now. It lets universities and the government be run by neoliberals. They're a travesty of what real economics is all about.

LONG: Michael, thank you very much. I learned a lot, appreciate it; certainly appreciate how important it is for us to use the right words on the right subject when we're talking about economics. Absolutely agree with you. Talk to you again?

HUDSON: Going to be here.

LONG: Thank you for the time.

Donald , April 29, 2016 at 7:33 am

Interesting, but after insulting Duncan, Hudson says the banks stopped partnering with industry and went into real estate, which sounded like what Duncan said.

I mention this because for a non- expert like myself it is sometimes difficult to tell when an expert is disagreeing with someone for good reasons or just going off half- cocked. I followed what Hudson said about the evils of the IMF, but didn't see where Duncan had defended any of that, unless it was implicit in saying that capitalism used to function better.

Alejandro , April 29, 2016 at 9:06 am

Michael Hudson from the interview;

"As we got in the argument at the beginning of your program today, our argument is about the vocabulary we're using and the words you're using. The vocabulary taught to students today in economics – and used by the mass media and by government spokesmen – is basically a set of euphemisms ."Almost all the words we get are kind of euphemisms to conceal the actual dynamics that are happening."

May consider it's about recognizing and deciphering the "doublespeak", "newspeak", "fedspeak", "greenspeak" etc, whether willing or unwitting using words for understanding and clarifying as opposed to misleading and confusing dialectic as opposed to sophistry.

Michael Hudson , April 29, 2016 at 9:54 am

What I objected to was the characterization of today's situation as "financialization." I explained that financialization is the FIRST stage - when finance WORKS. We are now in the BREAKDOWN of financialization - toward the "barter" stage.
Treating "finance" as an end stage rather than as a beginning stage overlooks the dynamics of breakdown. It is debt deflation. First profits fall, and as that occurs, rents on commercial property decline. This is already widespread here in New York, from Manhattan (8th St. near NYU is half empty) to Queens (Austin St. in Forest Hills.).

Leonard C.Tekaat , April 29, 2016 at 12:19 pm

I wrote an article you might be interested in reading. It outlines a tax policy which would help prevent what you are discussing in your article. The abuse of credit to receive rents and long term capital gains.

The title is "Congress Financialized Our Economy And Created Financial Crisis & More Poverty" Go to http://www.taxpolicyusa.wordpress.com

SomeCallMeTim , April 29, 2016 at 5:23 pm

Thank you for another eye-opening exposition. My political economy education was negative (counting a year of Monetarism and Austrian Economics around 1980), so I appreciate your interviews as correctives.

From your interview answer to the question about what we, the 99+% should do,I gathered only that we should not try to beat the market. Anything more than that?

Skippy , April 29, 2016 at 8:33 pm

From my understanding, post Plaza banking lost most of its traditional market to the shadow sector, as a result, expanded off into C/RE and increasingly to Financialization of everything sundry.

Disheveled Marsupial interesting to note Mr. Hudson's statement about barter, risk factors – ?????

Eduardo Quince , April 29, 2016 at 7:41 am

"secular stagnation" means it's all a cycle

Actually not.

One of the most important distinctions that investors have to understand is the difference between secular and cyclical trends Let us begin with definitions from the Encarta® World English Dictionary:

Secular – occurring only once in the course of an age or century; taking place over an extremely or indefinitely long period of time

Cycle – a sequence of events that is repeated again and again, especially a causal sequence; a period of time between repetitions of an event or phenomenon that occurs regularly

Excerpted from: http://contrarianinvestorsjournal.com/?p=405#

cnchal , April 29, 2016 at 8:30 am

Secular stagnation from http://lexicon.ft.com/Term?term=secular-stagnation

Secular stagnation is a condition of negligible or no economic growth in a market-based economy . When per capita income stays at relatively high levels, the percentage of savings is likely to start exceeding the percentage of longer-term investments in, for example, infrastructure and education, that are necessary to sustain future economic growth. The absence of such investments (and consequently of the economic growth) leads to declining levels of per capita income (and consequently of per capita savings). With the reduced percentage savings rate converging with the reduced investment rate, economic growth comes to a standstill – ie, it stagnates. In a free economy, consumers anticipating secular stagnation, might transfer their savings to more attractive-looking foreign countries. This would lead to a devaluation of their domestic currency, which would potentially boost their exports, assuming that the country did have goods or services that could be exported.

Persistent low growth, especially in Europe, has been attributed by some to secular stagnation initiated by stronger European economies, such as Germany, in the past few years.

Words. What they mean depends on who's talking.

Secular stagnation is when the predators of finance have eaten too many sheeple.

MikeNY , April 29, 2016 at 9:57 am

Secular stagnation is when the predators of finance have eaten too many sheeple.

This.

digi_owl , April 29, 2016 at 7:44 am

Sad to see Hudson parroting the line about banks lending out savings

Alejandro , April 29, 2016 at 9:18 am

That's not what he said. Re-read or re-listen, please.

Enquiring Mind , April 29, 2016 at 9:02 am

Hudson says

Markets are shrinking – and if markets are shrinking, then real estate rents are shrinking, profits are shrinking.

Real estate rents in this latest asset bubble, whether commercial or residential, appear to have been going up in many markets even if the increases are slowing. That rent inflation will likely turn into rent deflation, but that doesn't appear to have happened yet consistently.

Perhaps he meant to say that markets are going to shrink as the debt deflation becomes more evident?

tegnost , April 29, 2016 at 9:52 am

I think what it means is it's getting harder to squeeze the blood out of the turnip

Synoia , April 29, 2016 at 10:06 am

What Turnip? Its become a stone, fossilized..

rfdawn , April 29, 2016 at 10:52 am

Yes, I think we are into turnip country now. Figure 1 in this prior article looks clear enough – even if you don't like the analysis that went with it. Wealth inequality still climbs but income inequality has plateaued since Clinton I. Whatever the reasons for that, the 1% should be concerned – where is the ROI?

ke , April 29, 2016 at 10:22 am

Barter has always existed and always will. Debt money expands and contracts the middle class, acting as a feedback signal, which never works over the long term, because the so encapsulated system can only implode, when natural resource liquidation cannot be accelerated. The whole point is to eliminate the initial requirement for capital, work. Debt fails because both sides of the same coin assume that labor can be replaced. The machines driven by dc technology are not replacing labor; neither the elites nor the middle class can fix the machines, which is why they keep accelerating debt, to replace one failed technology only to be followed by the next, netting extortion by whoever currently controls the debt machine, which the majority is always fighting over, expending more energy to avoid work, like the objective is to avoid sweating, unless you are dumb enough to run on asphalt with Nike gear.

ke , April 29, 2016 at 12:49 pm

Labor has no problem with multiwhatever presidents, geneticists, psychologists, or economists, trying to hunt down and replace labor, in or out of turn, but none are going to be any more successful than the others. Trump is being employed to bypass the middle class and cut a deal. There is no deal. Labor is always going to pay males to work and their wives to raise children. Obviously, the majority will vote for a competing economy, and it is welcome to do so, but if debt works so well, why is the majority voting to kidnap our kids with public healthcare and education policies.

meeps , April 29, 2016 at 5:36 pm

I'm not sure I heard an answer to the question of what people, who might be trying to save for the future or plan for retirement, can do? Is the point that there isn't anything? Because I'm definitely between rocks and hard places

Robert Coutinho , April 29, 2016 at 9:29 pm

Yeah, he basically said there is no good savings plan. Big-money interests have rigged the rules and are now manipulating the market (this used to be the definition of what was NOT allowed). Thus, they use computer algorithms to squeeze small amounts out of the market millions of times. This means that the "investments" are nothing of the sort. You don't "invest" in something for milliseconds. He said that the 1% are mostly just trying to hold on to what they have. Very few trust the rigged markets.

ke , April 29, 2016 at 7:22 pm

If Big G can print to infinity, print, but then why book it as debt to future generations?

The future is already becoming the present, because the millenials aren't paying.

Russell , April 29, 2016 at 10:00 pm

Low rent & cheap energy are key to the arts & innovations. My model has to work for airports, starts at the fuel farm as the CIA & MI6 Front Page Avjet did. Well before that was Air America. I wonder if now American Airlines itself is a Front.

All of America is a Front far as I can about tell. Hadn't heard that Manhattan rents were coming down. Come in from out of town, how you going to know? Not supposed to I guess.

I got that textbook and I liked that guy John Commons. He says capitalism is great, but it always leads to Socialism because of unbridled greed.

The frenzy to find another stable cash currency showing in Bit Coin and the discussion of Future Tax Credits while the Euro is controlled by the rent takers demands change on both sides of the Atlantic.

We got shot dead protesting the war, and civil rights backlash is the gift that keeps giving to the Southerners looking up every day in every courthouse town, County seat is all about spreading fear and desperation.

How to change it all without violence is going to be really tricky.

cnchal , April 30, 2016 at 4:36 am

Many thanks for the shout out to Canada.

. . . So, basically, if you're a Canadian investor, move.

LONG: So the Canadian investors are a better contrarian indicator than the front page cover, you're saying.

HUDSON: I'd think so. Once they get in, you know the bubble's over.

When one reads the financial press in Canada, every dollar extracted by the lords of finance is a glorious taking by brilliant people at the top of the financial food chain from the stupid little people at the bottom, but when it counts, there was silence, in cooperation with Canada's one percent.

The story starts about five years ago, with smart meters. Everyone knows what they are, a method by which electrical power use can be priced depending on the time of day, and day of the week.

To make this tasty, Ontario's local utilities at first kept the price the same for all the time, and then after all the meters were installed, came the changes, phased in over time. Prices were increased substantially, but there was an out. If you changed your living arrangements to live like a nocturnal rodent and washed your clothes in the middle of the night, had supper later in the evening or waited for weekend power rates you could still get low power rates, from the three tier price structure.

The local utilities bought the power from the government of Ontario power generation utility, renamed to Hydro One, and this is where Michael Hudson's talk becomes relevant.

The successful error of monetarism is to force countries to have such self-defeating policies that they end up having to privatize their natural resources, their public domain, their public enterprises, their communications and transportation, like you're seeing in Greece's selloffs. So when you find an error that is repeated, it's deliberate. It's not insane. It's part of the program, not a bug .

LONG: Where does this lead us? What's the roadmap ahead of us here?

HUDSON: A thousand years ago, if you were a marauding gang and you wanted to take over a country's land and its natural resources and public sector, you'd have to invade it with military troops. Now you use finance to take over countries. So it leads us into a realm where everything that the classical economists saw and argued for – public investment, bringing costs in line with the actual cost of production – that's all rejected in favor of a rentier class evolving into an oligarchy. Basically, financiers – the 1% – are going to pry away the public domain from the government. Pry away and privatize the public enterprises, land, natural resources, so that bondholders and privatizers get all of the revenue for themselves. It's all sucked up to the top of the pyramid, impoverishing the 99% .

Eighteen months ago, there was an election in Ontario, and the press was on radio silence during the whole time leading up to the election about the plans to "privatize" Hydro One. I cannot recall one instance of any mention that the new Premier, Kathleen Wynne was planning on selling Hydro One to "investors".

Where did this come from? Did the little people rise up and say to the politicians "you should privatize Hydro One" for whatever reason? No. This push came from the 1% and Hydro One was sold so fast it made my head spin, and is now trading on the Toronto Stock exchange.

At first I though the premier was an economic ignoramus, because Hydro One was generating income for the province and there was no other power supplier, so one couldn't even fire them if they raised their prices too high.

One of the arguments put forward by the 1% to privatize Hydro One was a classic divide and conquer strategy. They argued that too many people at Hydro One were making too much money, and by privatizing, the employees wages would be beat down, and the resultant savings would be passed on to customers.

Back to Michael Hudson

. . . The whole argument for privatization, for instance, is the opposite of what was taught in American business schools in the 19th century. The first professor of economics at the Wharton School of Business, which was the first business school, was Simon Patten. He said that public infrastructure is a fourth factor of production. But its role isn't to make a profit . It's to lower the cost of public services and basic inputs to lower the cost of living and lower the cost of doing business to make the economy more competitive. But privatization adds interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions . Obviously these financialized charges are factored into the price system and raise the cost of living and doing business .

Power prices have increased yet again in Ontario since privatization, and Canada's 1% are "making a killing" on it. There has been another change as well. Instead of a three tier price structure, there are now two, really expensive and super expensive. There is no longer a price break to living like a nocturnal rodent. The 1% took that for themselves.

Procopius , April 30, 2016 at 8:10 am

I am so tired of seeing that old lie about Old Henry and the $5 a day. I realize it was just a tossed off reference to something most people believe for the purpose of describing a discarded policy, but the fact is very, very few of Old Henry's employees ever got that pay. See, there were strings attached.

Old Henry hired a lot of spies, too. He sent them around to the neighborhoods where his workers lived (it was convenient having them all in Detroit). If the neighbors saw your kid bringing a bucket of beer home from the corner tavern for the family, you didn't get the $5.

If your lawn wasn't mowed to their satisfaction, you didn't get the $5. If you were thought not to bathe as often as they liked, you didn't get the $5. If you didn't go to a church on Sundays, you didn't get the $5. If you were an immigrant and not taking English classes at night school, you didn't get the $5. There were quite a lot of strings attached. The whole story was a public relations stunt, and Old Henry never intended to live up to it; he hated his workers.

[Nov 29, 2017] Positive Feedback Loops, Financial Instability, The Blind Spot Of Policymakers

Highly recommended!
Notable quotes:
"... Primates with about exponentially increasing physical technologies continue to deliberately ignore and misunderstand themselves as much as is humanly possible, due to the history of warfare making and maintaining the currently existing political economy, whose maliciousness is manifesting through runaway vicious feedback loops, whereby the excessively successful control of Civilization through applications of the methods of organized crime are resulting in that Civilization manifesting runaway criminal insanities. Indeed, in that context, where there is almost nothing but the central core of triumphant organized crime, namely bankster dominated governments, surrounded by various layers of controlled "opposition" groups, which stay within the same bullshit-based frames of reference regarding those phenomena, the overall situation is that society becoming about exponentially sicker and insane. ..."
"... In general, "Asset Managers" are stuck inside taking for granted that everything they do has become almost totally based on being able to enforce frauds, despite some of them noticing the increasingly blatant ways that there are accumulating apparent anomalies in those systems, as vicious feedback loops drive those systems to become about exponentially more fraudulent, and therefore increasingly unbalanced. To come to better terms with those apparent anomalies requires going through series of intellectual scientific revolutions and profound paradigm shifts, which overall become ways that human beings better understand themselves as manifestations of general energy systems. However, since doing so requires recognizing how and why governments are necessarily the biggest forms of organized crime, dominated by the best organized gangsters, the banksters, it continues to be politically impossible to accomplish that. ..."
"... At each open, algos compute the increase in their AUM from the prior day and their margin reach. They then begin buying. All algos do this. Buying whenever cash/margin exists; selling whenever profit targets exist. On pullbacks, the algos withdraw, volume evaporates, minimizing the drop. The algos collectively increase equity prices without consideration of the value of the money involved. Not valuations. No fundamentals. Just ones and zeroes. Just a program. ..."
Nov 22, 2017 | www.zerohedge.com

Macro-prudential regulations follow financial crises, rarely do they precede one. Even when evidence is abundant of systemic risks building up, as is today, regulators and policymakers have a marked tendency to turn an institutional blind eye, hoping for imbalances to fizzle out on their own – at least beyond the duration of their mandates. It does not work differently in economics than it does for politics, where short-termism drives the agenda, oftentimes at the expenses of either the next government, the broader population or the next generation.

It does not work differently in the business world either, where corporate actions are selected based on the immediate gratification of shareholders, which means pleasing them at the next round of earnings, often at the expenses of long-term planning and at times exposing the company itself to disruption threats from up-and-comers.

Long-term vision does not pay; it barely shows up in the incentive schemes laid out for most professions . Economics is no exception. Orthodoxy and stillness preserve the status quo, and the advantages hard earned by the few who rose from the ranks of the establishment beforehand.

Yet, when it comes to Central Banking, and more in general policymaking, financial stability should top the priority list. It honorably shows up in the utility function, together with price stability and employment, but is not pursued nearly as actively as them. Central planning and interventionism is no anathema when it comes to target the decimals of unemployment or consumer prices, yet is residual when it comes to master systemic risks, relegated to the camp of ex-post macro-prudential regulation. This is all the more surprising as we know all too well how badly a deep unsettlement of financial markets can reverberate across the real economy, possibly leading into recessions, unemployment, un-anchoring of inflation expectations and durable disruption to consumer patterns. There is no shortage of reminders for that in the history books, looking at the fallout of dee dives in markets in 1929, 2000 and 2007, amongst others.

Intriguingly, the other way round is accepted and even theorized. Manipulating bond and stock prices, directly or indirectly, is mainstream policy theory today. From Ben Bernanke's 'portfolio balance channel theory', to the relentless pursuit of the 'wealth effect' via financial repression under Janet Yellen and Haruhiko Kuroda, to Mario Draghi tackling the fragmentation of credit markets across the EU via direct asset purchases, the practice has become commonplace. To some, like us, the 'wealth effect' may be proving to be more of an 'inequality effect' than much, leading to populism and constantly threatening regime change, but that is beyond the scope of this note today.

What we want to focus on instead is the direct impact that monetary interventionism like Quantitative Easing ('QE') and Negative or Zero Interest Rate Policies ('NIRP' or 'ZIRP') have on the structure of the market itself, how they help create a one-sided investment community, oftentimes long-only, fully invested when not levered up, relying on record-highs for bonds and stocks to perpetuate themselves endlessly - despite a striking disconnect from fundamentals, life-dependent on the lowest levels of volatility ever seen in history . The market structure morphed under the eyes of policymakers over the last few years, to become a pressure cooker at risk of blowing-up, with a small but steadily growing probability as times goes by and the bubble inflates. The positive feedback loops between monetary flooding and the private investment community are culpable for transforming an ever present market risk into a systemic risk, and for masking as peaceful what is instead an unstable equilibrium and market fragility.

Positive Feedback Loops create divergence from general equilibrium, and Systemic Risks

Positive feedback loops , in finance like in biology, chemistry, cybernetics, breed system instability, as they orchestrate a further divergence from equilibrium . An unstable equilibrium is defined as one where a small disturbance is sufficient to trigger a large adjustment.

QE and NIRP have two predominant effects on markets: (i) relentless up-trend in stocks and bonds (the 'Trend Factor') , dominated by the buy-the-dip mentality, which encapsulates the 'moral hazard' of investors knowing Central Banks are prompt to come to their rescue (otherwise known as 'Bernanke/Yellen/Kuroda/Draghi put'), and (ii) the relentless down-trend in volatility the 'Volatility Factor').

Two Factors Explain All: Trend and Volatility

The most fashionable investment strategies these days are directly impacted by either one or both of these drivers. Such strategies make the bulk of the overall market, after leverage or turnover is taken into account : we will refer to them in the following as 'passive' or 'quasi-passive' . The trend impacts the long-only community, crowning it as a sure winner, making the case for low- cost passive investing. The low volatility permeates everything else, making the case for full- investment and leverage.

The vast majority of investors these days are not independent from the QE environment they operate within : ETFs and index funds, Risk Parity funds and Target Volatility vehicles, Low Volatility / Short Volatility vehicles, trend-chasing algos, Machine Learning-inspired funds, behavioral Alternative Risk Premia funds. They are the poster children of the QE world. We estimate combined assets under management of in excess of $8trn across the spectrum. They form a broad category of 'passive' or 'quasi-passive' investors, as are being mechanically driven by two main factors: trend and volatility.

Source: Fasanara Presentations | Market Fragility - How to Position for Twin Bubbles Bust, 16 th October 2017. The slide is described in details in this video recording.

Extraordinary monetary policies have feedback loops with the asset management industry as a whole, reinforcing the effects on markets of such policies in a vicious – or virtuous - cycle . QE and NIRP help a large number of investment strategies to flourish, validating their success and supporting their asset gathering in the process, and are in return helped in boosting bond and stock markets by their flows joining the already monumental public flows.

Private flows so reach singularity with public flows, and the whole market economy morphs into a one big common bet on ever-rising prices, in shallow volatility. Here is the story of how $15trn of money printing by major Central Banks in the last ten years, of which $3.7trn in 2017 alone, is joined by total assets of $8trn managed into buying the same safe and risk assets across, with leverage, indiscriminately.

How Market Risk became Systemic Risk

Let's give a cursory look at the main players involved (a recent presentation we did is recorded here) . As markets trend higher, no matter what happens (ever against the shocked disbeliefs of Brexit, Trump, an Italian failed referendum and nuclear threats in North Korea), investors understand the outperformance that comes from pricing risks out of their portfolios entirely and going long-only and fully-invested. Whoever under-weighs positions in an attempt to be prudent ends up underperforming its benchmarks and is then penalized with redemptions. Passive investors who are long-only and fully invested are the winners, as they are designed to be bold and insensitive to risks. As Central Banks policies reduce the level of interest rates to zero or whereabouts, fees become ever more relevant, making the case for passive investing most compelling. The rise of ETF and passive index funds is then inevitable.

According to JP Morgan, in the last 10 years, $2trn left active managers in equities and $2trn entered passive managers (pag.39 here) . We may be excused for thinking they are the same $ 2trn of underlying investors progressively pricing risk provisions out of books, de facto , while chasing outperformance and lower fees.

To be sure, ETFs are a great financial innovation, helping reducing costs in an expensive industry and giving entry to markets previously un-accessible to most investors. Yet, what matters here is their impact on systemic risks, via positive feedback loops. In circular reference, beyond Central Banks flows, markets are helped rise by such classes of valuations-insensitive passive investors, which are then rewarded with further inflows, with which they can then buy more. The more expensive valuations get, the more they disconnect from fundamentals, the more divergence from equilibrium occurs, the larger fat-tail risks become.

In ever-rising markets, 'buy-and-hold' strategies may only possibly be outsmarted by 'buy-the-dip' strategies. Whatever the outcome of risk events, be ready to buy the dip quickly and blindly. As more investors design themselves up to do so, the dips are shallower over time, leading to an S&P500 that never lost 3% in 2017, an historical milestone. Machine learning is another beautiful market innovation, but what is there to learn from the time series of the last several years, if not that buy- the-dip works, irrespective of what caused the dip. Big Data is yet another great concept, shaping the future of us all. Yet, most data ever generated in humankind dates back three years only, in and by itself a striking limitation. The quality of the deduction cannot exceed the quality of the time series upon which the data science was applied. If the time series is untrustworthy, as is heavily influenced by monumental public flows ($300bn per months), what trust can we put on any model output originating from it? What pattern recognition can we really be hopeful of getting, in the first place? May some of it just be a commercial disguise for going long, selling volatility and leveraging up in various shapes or forms? What is hype and what is real? A short and compromised data series makes it hard, if not possible, to really know. Once public flows abate and price discovery is let free again, then and only then will we be in a position to know the difference.

Low volatility does what trending markets alone cannot. A state of low volatility presents the appearance of stuporous, innocuous, narcotized markets, thus enticing new swathes of unfitting investors in, mostly retail-type 'weak hands'. Weak hands are investors who are brought to like investments by certain characteristics which are uncommon to the specific investment itself, such as featuring a low volatility. It is in this form that we see bond-like investors looking at the stock market for yield pick-up purposes, magnetized by levels of realized volatility similar to what fixed income used to provide with during the Great Moderation. It is in this form that Tech companies out of the US have started filling the coffers of not just Growth ETF, where they should rightfully reside, but also Momentum ETF, and even, incredibly, Low-Volatility ETF.

Low volatility is also a dominant input for Risk Parity funds and Target Volatility vehicles . The lower the volatility, the higher the leverage allowed in such players, mechanically. All of which are long-only players, joining public flows, again helping the market rise to record levels in the process, in circular reference. Rewarded by new inflows, the buying spree gathers momentum, in a virtuous circle. Valuations are no real input in the process, volatility is what matters the most. Volatility is not risk, except for them it is.

It goes further than that. It is not only the level of volatility that count, but its direction too . As volatility implodes, relentlessly, into historical lows never seen before in history, a plethora of investment strategies is launched to capitalize on just that, directly: Short Volatility vehicles . They are the best performing strategy of the last decade, by and large. The problem here is that, due to construction, as volatility got to single-digit territory, relatively small spikes are now enough to trigger wipe-out events on several of these instruments. Our analysis shows that if equity volatility doubles up from current levels (while still being half of what it was as recently as in August 2015), certain Short Vol ETFs may stand to lose up to 75% or more. Moreover, short positions on long-vol ETFs can lose up to 250% of capital. For some, 'termination events' are built into contracts for sudden losses of this magnitude, meaning that the notes would be prematurely withdrawn. It is one thing to expect a spike in volatility to cause losses, it is quite another to know that a minor move is all it takes to trigger a default event.

On such spikes in volatility, Morgan Stanley Quant Derivatives Strategy desk warns further that market makers may be forced to rebalance their exposure non-linearly on a spike in volatility. A drop in the S&P 500 of 5% in one day may trigger approximately $ 400mn of Vega notional of rebalancing (pag.48 here) . We estimate that half a trillion dollars of additional selling on S&P stocks may occur following a correction of between 5% and 10%. That is a lot of selling, pre-set in markets, waiting to strike. Unless you expect the market to not have another 5% sell-off, ever again.

For more details, we describe the role of these different players in a recent video presentation and in our June Investment Outlook and May Investment Outlook.

It's All One Big Position

What do ETFs, Risk Parity and Target Vol vehicles, Low Vol / Short Vol vehicles, trend-chasing algos, Machine Learning, behavioral Alternative Risk Premia, factor investing have in common? Except, of course, being the 'winners take all' of QE-driven markets. They all share one or more of the following risk factors: long-only, fully invested when not leveraged-up, short volatility, short correlation, short gamma Thanks to QE and NIRP, the whole market is becoming one single big position.

The 'Trend Factor' and the 'Volatility Factor' are over-whelming, making it inevitable for a high- beta, long-bias, short-vol proxy to disseminate across. Almost inescapably so, given the time series the asset management industry has to deal with, and derive its signals from.

Several classes of investors may move to sell in lock-steps if and when markets turn. The boost to asset prices and the zero-volatility environment created the conditions for systemic risks in the form of an over-compensation to the downside. Record-low volatility breeds market fragility, it precedes system instability.

Flows Matter, Both Ways!

We will know soon if the fragility of markets is that bad. The undoing of loose monetary policies (NIRP, ZIRP) will create a liquidity withdrawal of over $1 trillion in 2018 alone (pag.61-62 here) . The reaction of the passive and quasi-passive communities will determine the speed of the adjustment in the pricing for both safe and risk assets, and how quickly risk provisions will re- enter portfolios. Such liquidity withdrawal will represent the first real crash-test for markets in 10 years.

As public spending on Wall Street abates, the risk is evident of seeing the whole market turning with it. The shocks of Trump and Brexit did not manage to derail markets for long, as public flows were overwhelming. Flows is what mattered, above all elusive, over-fitting economic narratives justifying price action at the margin. Flows may matter again now as they fade

Systemic Risk is Not Just About Banks: Look at Funds

The role of trending markets is known when it comes to systemic risks: a not sufficient but necessary condition. Most trends do not necessarily lead to systemic risks, but hardly systemic risks ever build up without a prolonged period of uptrend beforehand. Prolonged uptrends in any asset class hold the potential to instill the perception that such asset class will grow forever, irrespective of the fundamentals, and may thus lead to excessive risk taking, excess leverage, the formation of a bubble and, ultimately, systemic risks. The mind goes to the asset class of real estate, its undeterred uptrend into 2006/2007, its perception of perpetuity ("we have never had a decline in house prices on a nationwide basis'' Ben Bernanke) , the credit bubble built on banks hazardous activities on subprime mortgages as a result, and the systemic risks which emanated, with damages spanning well beyond the borders of real estate.

The role of volatility is also well-researched, especially low volatility. Hayman Minsky, in his " Financial Instability Hypothesis '' in 1977, analyses the behavioral changes induced by a reduction of volatility, postulating that economic agents observing a low risk are induced to increase risk taking, which may in turn lead to a crisis: "stability is destabilizing". In a recent study, Jon Danielsson, Director of the Systemic Risk Centre at the LSE, finds unambiguous support for the 'low volatility channel', insofar as prolonged periods of low volatility have a strong predictive power over the incidence of a banking crisis, owing to excess lending and excess leverage . The economic impact is the highest if the economy stays in the low volatility environment for five years : a 1% decrease in volatility below its trend translates in a 1.01% increase in the probability of a crisis. He also finds that, counter-intuitively, high volatility has little predictive power : very interesting, when the whole finance world at large is based on retrospective VAR metrics, and equivocates high volatility for high risk.

Both a persistent trend and prolonged low-volatility can lead banks to take excessive risks. But what about their impact on the asset management industry?

Thinking at the hard economic impact of the Great Depression (1929-1932) and the Great Recession (2007-2009), and the eminent role played by banks in both, it comes as little surprise that the banking sector captures all the attention. However, what remains to be looked into, and perhaps more worrying in today's environment, is the role of prolonged periods of uptrend and low-vol on the asset management industry

In 2014, the Financial Stability Board (FSB), an international body that makes recommendations to G20 nations on financial risks, published a consultation paper asking whether fund managers might need to be designated as " global systemically important financial institution " or G-SIFI, a step that would involve greater regulation and oversight. It did not result in much, as the industry lobbied in protest, emphasizing the difference between the levered balance sheet of a bank and the business of funds.

The reason for asking the question is evident: (i) sheer size , as the AM industry ballooned in the last few years, to now represent over [15trnXX] for just the top 5 US players!, (ii) funds have partially substituted banks in certain market-making activities, as banks dialed back their participation in response to tighter regulation and (iii) , funds can indeed do damage: think of LTCM in 1998, the fatal bailout of two Real Estate funds by Bear Stearns in 2007, the money market funds 'breaking the buck' in 2008 amongst others.

But it is not just sheer size that matters for asset managers. What may worry more is the positive feedback loops discussed above and the resulting concentration of bets in one single global pot , life-dependent on infinite momentum/trend and ever-falling volatility. Positive feedback loops are the link for the sheer size of the AM industry to become systemically relevant. Today more than ever, they morph market risks in systemic risks.

Volatility will not forever be low, the trend will not forever go: how bad a damage when it stops? As macro prudential policy is not the art of "whether or not it will happen" but of "what happens if", it is hard not to see this as a blind spot for policymakers nowadays.

ebworthen , Nov 22, 2017 10:55 AM

In other words, it's a Ponzi scheme.

Let it Go , Nov 22, 2017 11:49 AM

I have never seen it this bad, the numbers are all moutof wack!

It seems many of us are drawn to a good illusion and this proves true for most people in their daily life as well. In some ways, it could be said that our culture has become obsessed with avoiding what is real.

We must remember that politicians and those in power tend to throw people under the bus rather than rise up and take responsibility for the problems they create. The article below looks at how we have grown to believe things are fine.

http://The Allure Of Ilusions-Five Favorite Financial Myths.html

Batman11 , Nov 22, 2017 12:47 PM

The real estate boom features all the unknowns in today's thinking, which is why they are global.

This simple equation is unknown.

Disposable income = wages – (taxes + the cost of living)

You can immediately see how high housing costs have to be covered by wages; business pays the high housing costs for expensive housing adding to costs and reducing profits. The real estate boom raises costs to business and makes your nation uncompetitive in a globalised world.

The unproductive lending involved that leads to financial crises.

The UK:

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.53.09.png

The economy gets loaded up with unproductive lending as future spending power has been taken to inflate the value of the nation's housing stock. Housing is more expensive and the future has been impoverished.

US:

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png

Unproductive lending is not good for the economy and led directly to 1929 and 2008.

Neoliberalism's underlying economics, neoclassical economics, doesn't look at private debt and so no one really knew what they were doing.

The real estate boom feels good for a reason that is not known to today's thinkers.

Monetary theory has been regressing since 1856, when someone worked out how the system really worked.

Credit creation theory -> fractional reserve theory -> financial intermediation theory

"A lost century in economics: Three theories of banking and the conclusive evidence" Richard A. Werner

http://www.sciencedirect.com/science/article/pii/S1057521915001477

" banks make their profits by taking in deposits and lending the funds out at a higher rate of interest" Paul Krugman, 2015. He wouldn't know, that's financial intermediation theory.

Bank lending creates money, which pours into the economy fuelling the boom; it is this money creation that makes the housing boom feel so good in the general economy. It feels like there is lots of money about because there is.

The housing bust feels so bad because the opposite takes place, and money gets sucked out of the economy as the repayments overtake new lending. It feels like there isn't much money about because there isn't.

They were known unknowns, the people that knew weren't the policymakers to whom these things were unknown.

The global economy told policymakers there was something seriously wrong in 2008, but they ignored it, I didn't.

Batman11 -> Batman11 , Nov 22, 2017 12:51 PM

The most fundamental of all fundamentals was unknown.

The relationship between debt and money.

the money supply = all the debt in the system, public and private

http://www.whichwayhome.com/skin/frontend/default/wwgcomcatalogarticles/images/articles/whichwayhomes/US-money-supply.jpg

M3 is going exponential before 2008, a credit bubble is underway (debt = money)

The FED and everyone else doesn't realise.

Batman11 -> Batman11 , Nov 22, 2017 1:25 PM

This is why austerity doesn't work in a balance sheet recession, e.g. Greece.

The IMF predicted Greek GDP would have recovered by 2015 with austerity.

By 2015 it was down 27% and still falling.

Oh dear.

Richard Koo had to explain the problem to the IMF.

https://www.youtube.com/watch?v=8YTyJzmiHGk

They had pushed Greece into debt deflation by cutting Government spending with austerity.

It wasn't just the IMF, the Troika all went along with this fatally flawed policy, this means the ECB and EU Commission also didn't know what they were doing.

Richard Koo had watched as Western "experts" told Japan to cut Government spending and seen the fall in GDP as the economy went downhill. The only way to get things going again was to increase Government spending and he has had decades to work out what was going on.

The Troika's bad economics has been wreaking havoc across the Club-Med.

Mark Blythe looks at the data.

https://www.youtube.com/watch?v=B6vV8_uQmxs&feature=em-subs_digest-vrecs

It comes out of knowledge that is missing from the mainstream.

Batman11 -> Batman11 , Nov 22, 2017 1:31 PM

Balancing the budget ............ be careful you might head into debt deflation.

If the private sector aren't borrowing the Government needs to borrow to keep the money supply stable.

You don't want to end up like Greece do you?

Radical Marijuana , Nov 22, 2017 3:15 PM

Another superficially correct analysis of "Positive Feedback Loops create divergence from general equilibrium, and Systemic Risks." The vicious feedback loops which have the most leverage are all aspects of the funding of the political processes, which have resulted in runaway systems of legalized lies, backed by legalized violence, the most important of which are the ways that the powers of public governments enforce frauds by private banks, the big corporations that have grown up around those big banks.

About exponentially advancing technologies have enabled enforced frauds to become about exponentially more fraudulent. The underlying drivers were the ways that the combined money/murder systems developed, whose social successfulness became more and more based on maximizing maliciousness. From a superficial point of view, those results may appear to be due to incompetence, however, from a deeper point of view those results make sense as due to the excessively successful applications of the methods of organized crime through the political processes, due to the vicious feedback loops of the funding of those political processes.

The only connections between human laws and natural laws are the abilities to back up lies with violence. Natural selection pressures have driven Globalized Neolithic Civilization to develop the most dishonest artificial selection systems possible, while the continuation of the various vicious feedback loops that made and maintained those developments are driving about exponentially increasing dishonesty. Although the laws of nature are not going to stop working, and the laws of nature underpinned the runaway development of excessively successful vicious feedback loops of organized crime, on larger and larger scales, to result in Globalized Neolithic Civilization, the overall results are that Civilization is becoming about exponentially more psychotic. Since Civilization necessarily operates according to the principles and methods of organized crime, while those who became the biggest and best organized forms of organized crime, namely, banker dominated governments, also necessarily became most dishonest about themselves, and yet, their bullshit social stories continue to dominate the public schools, and mainstream mass media, as well as the publicly significant controlled "opposition" groups.

Political economy is INSIDE human ecology, and therefore, the greatest systematic risks are to be found in the tragic trajectory of human ecologies which are almost totally buried under maximized maliciousness. "Public debates" about the human death control systems are based on previously having being as deceitful and treacherous as possible regarding those topics. The most extreme forms of that manifest as the ways that money is measurement backed by murder. Of course, that the debt controls are backed by the death controls are issues which are generally not publicly admitted nor addressed.

Global Neolithic Civilization has become almost totally based on being able to enforce frauds, in ways which have become about exponentially more fraudulent, as the vicious feedback loops which enable that to happen automatically reinforce themselves to get worse, faster. The almost total triumph of enforced frauds has resulted in social "realities" which are becoming exponentially more insane, since the social successfulness of enforced frauds requires the most people do not understand that, because they have been conditioned to not want to understand that. Rather, almost everyone takes for granted deliberately ignoring and misunderstanding the laws of nature in the most absurdly backward ways possible, because of the long history of successful warfare based on deceits and treacheries becoming the more recent history of successful finance based on enforcing frauds, despite that tragic trajectory of vicious feedback loops resulting in about exponentially increasing overall fraudulence.

Various superficially correct analyses, such as the one in the article above, are typical of the content on Zero Hedge , which does not come remotely close to recognizing the degree to which the dominate natural languages and philosophy of science have undergone series of compromises with the biggest bullies' bullshit-based world views, which became the banksters' bullshit about economics. Although it is theoretically possible for human beings to better understand themselves and Civilization, it continues to become more and more politically impossible to do so, due to the ever increasing vicious feedback loops of enforced frauds achieving symbolic robberies ...

Although the laws of nature are never going to stop working, it is barely possible to exaggerate the degree to which Civilization overall is becoming about exponentially more psychotic, due to the social "realities" based on successfully enforcing frauds becoming more and more out of touch with the surrounding, relatively objective, physical and biological facts. The various superficially correct analyses presented on Zero Hedge regarding that kind of runaway collective psychosis, driven by the vicious feedback loops of the funding of all aspects of the funding of the political processes, tend to always grossly understate the seriousness of that situation, especially including the crucial issues of how to operate the human murder systems after the development of weapons of mass destruction, which is unavoidable due to the rapid development of globalized electronic monkey money frauds, backed by the threat of force from apes with atomic weapons.

Those who believe that possessing precious metals, or cryptocurrencies, etc., are viable solutions to those problems are not remotely close to being in the right order of magnitude. Although there is no doubt that exponentially more "money" is being made out of nothing as debts, in order to "pay" for strip-mining the natural resources of a still relatively fresh planet, and so, there is no doubt that the exponentially decreasing value of that "money" is driving the accumulation of apparent anomalies, such as outlined in the article above, the actually crucial issues continue to be the ways that money is measurement backed by murder, as the most abstract ways that private property are claims backed by coercions. Stop-gap individual responses to the runaway fraudulence, such as faith in possessing precious metals or cryptocurrencies, make some relative sense in terms of the public "money" supplies becoming exponentially more fraudulent, but otherwise dismally fail to be in the ball park of the significant issues driven by prodigious progress in physical sciences, WITHOUT any genuine progress in political sciences, other than to continue to be able to better enforce bigger frauds, through the elaborations of oxymoronic scientific dictatorships, which adamantly refuse to become more genuinely scientific about themselves.

Primates with about exponentially increasing physical technologies continue to deliberately ignore and misunderstand themselves as much as is humanly possible, due to the history of warfare making and maintaining the currently existing political economy, whose maliciousness is manifesting through runaway vicious feedback loops, whereby the excessively successful control of Civilization through applications of the methods of organized crime are resulting in that Civilization manifesting runaway criminal insanities. Indeed, in that context, where there is almost nothing but the central core of triumphant organized crime, namely bankster dominated governments, surrounded by various layers of controlled "opposition" groups, which stay within the same bullshit-based frames of reference regarding those phenomena, the overall situation is that society becoming about exponentially sicker and insane.

That Civilization has been driven by natural selection pressures to manifest runaway psychoses is not going to stop the laws of nature from continuing to work through that Civilization. However, that will nevertheless drive the currently dominate artificial selection systems to become increasingly psychotic, in ways whereby their vicious feedback loops are less and less able to be sanely responded to ... Although some human beings have better and better understood some general energy systems, e.g., electric and atomic energy, etc., since warfare was the oldest and best developed forms of social science and engineering, whose successfulness was based on being able to maximize maliciousness, and since those then enabled successful finance to become based on runaway enforced frauds, human beings living within Globalized Neolithic Civilization are so hidebound by adapting to living inside those vicious feedback loops based on being able to enforce frauds that those human beings are mostly unwilling and unable to better understand themselves as also manifestations of general energy systems.

As the report, embedded in the article, begins by quoting Leonardo da Vinci:

"Learn how to see. Realize that everything connects to everything else."

In general, "Asset Managers" are stuck inside taking for granted that everything they do has become almost totally based on being able to enforce frauds, despite some of them noticing the increasingly blatant ways that there are accumulating apparent anomalies in those systems, as vicious feedback loops drive those systems to become about exponentially more fraudulent, and therefore increasingly unbalanced. To come to better terms with those apparent anomalies requires going through series of intellectual scientific revolutions and profound paradigm shifts, which overall become ways that human beings better understand themselves as manifestations of general energy systems. However, since doing so requires recognizing how and why governments are necessarily the biggest forms of organized crime, dominated by the best organized gangsters, the banksters, it continues to be politically impossible to accomplish that.

Muppet , Nov 22, 2017 7:03 PM

At each open, algos compute the increase in their AUM from the prior day and their margin reach. They then begin buying. All algos do this. Buying whenever cash/margin exists; selling whenever profit targets exist. On pullbacks, the algos withdraw, volume evaporates, minimizing the drop. The algos collectively increase equity prices without consideration of the value of the money involved. Not valuations. No fundamentals. Just ones and zeroes. Just a program.

[Nov 27, 2017] The Robot Productivity Paradox and the concept of bezel

This concept of "bezel" is an important one
Notable quotes:
"... "In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) ..."
"... At any given time there exists an inventory of undiscovered embezzlement in – or more precisely not in – the country's business and banks. ..."
"... This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions [trillions!] of dollars. It also varies in size with the business cycle. ..."
"... In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. ..."
"... In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks ..."
Feb 22, 2017 | econospeak.blogspot.com

Sandwichman -> Sandwichman ... February 24, 2017 at 08:36 AM

John Kenneth Galbraith, from "The Great Crash 1929":

"In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.)

At any given time there exists an inventory of undiscovered embezzlement in – or more precisely not in – the country's business and banks.

This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions [trillions!] of dollars. It also varies in size with the business cycle.

In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly.

In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks."

Sanwichman, February 24, 2017 at 05:24 AM

For nearly a half a century, from 1947 to 1996, real GDP and real Net Worth of Households and Non-profit Organizations (in 2009 dollars) both increased at a compound annual rate of a bit over 3.5%. GDP growth, in fact, was just a smidgen faster -- 0.016% -- than growth of Net Household Worth.

From 1996 to 2015, GDP grew at a compound annual rate of 2.3% while Net Worth increased at the rate of 3.6%....

-- Sanwichman

anne -> anne... February 24, 2017 at 05:25 AM

https://fred.stlouisfed.org/graph/?g=cOU6

January 15, 2017

Gross Domestic Product and Net Worth for Households & Nonprofit Organizations, 1952-2016

(Indexed to 1952)

https://fred.stlouisfed.org/graph/?g=cPq1

January 15, 2017

Gross Domestic Product and Net Worth for Households & Nonprofit Organizations, 1992-2016

(Indexed to 1992)

anne -> Sandwichman ... February 24, 2017 at 03:35 PM

The real home price index extends from 1890. From 1890 to 1996, the index increased slightly faster than inflation so that the index was 100 in 1890 and 113 in 1996. However from 1996 the index advanced to levels far beyond any previously experienced, reaching a high above 194 in 2006. Previously the index high had been just above 130.

Though the index fell from 2006, the level in 2016 is above 161, a level only reached when the housing bubble had formed in late 2003-early 2004.

Real home prices are again strikingly high:

http://www.econ.yale.edu/~shiller/data.htm Reply Friday, February 24, 2017 at 03:34 PM anne -> Sandwichman ... February 24, 2017

Valuation

The Shiller 10-year price-earnings ratio is currently 29.34, so the inverse or the earnings rate is 3.41%. The dividend yield is 1.93. So an expected yearly return over the coming 10 years would be 3.41 + 1.93 or 5.34% provided the price-earnings ratio stays the same and before investment costs.

Against the 5.34% yearly expected return on stock over the coming 10 years, the current 10-year Treasury bond yield is 2.32%.

The risk premium for stocks is 5.34 - 2.32 or 3.02%:

http://www.econ.yale.edu/~shiller/data.htm

anne -> anne..., February 24, 2017 at 05:36 AM

What the robot-productivity paradox is puzzles me, other than since 2005 for all the focus on the productivity of robots and on robots replacing labor there has been a dramatic, broad-spread slowing in productivity growth.

However what the changing relationship between the growth of GDP and net worth since 1996 show, is that asset valuations have been increasing relative to GDP. Valuations of stocks and homes are at sustained levels that are higher than at any time in the last 120 years. Bear markets in stocks and home prices have still left asset valuations at historically high levels. I have no idea why this should be.

Sandwichman -> anne... February 24, 2017 at 08:34 AM

The paradox is that productivity statistics can't tell us anything about the effects of robots on employment because both the numerator and the denominator are distorted by the effects of colossal Ponzi bubbles.

John Kenneth Galbraith used to call it "the bezzle." It is "that increment to wealth that occurs during the magic interval when a confidence trickster knows he has the money he has appropriated but the victim does not yet understand that he has lost it." The current size of the gross national bezzle (GNB) is approximately $24 trillion.

Ponzilocks and the Twenty-Four Trillion Dollar Question

http://econospeak.blogspot.ca/2017/02/ponzilocks-and-twenty-four-trillion.html

Twenty-three and a half trillion, actually. But what's a few hundred billion? Here today, gone tomorrow, as they say.

At the beginning of 2007, net worth of households and non-profit organizations exceeded its 1947-1996 historical average, relative to GDP, by some $16 trillion. It took 24 months to wipe out eighty percent, or $13 trillion, of that colossal but ephemeral slush fund. In mid-2016, net worth stood at a multiple of 4.83 times GDP, compared with the multiple of 4.72 on the eve of the Great Unworthing.

When I look at the ragged end of the chart I posted yesterday, it screams "Ponzi!" "Ponzi!" "Ponz..."

To make a long story short, let's think of wealth as capital. The value of capital is determined by the present value of an expected future income stream. The value of capital fluctuates with changing expectations but when the nominal value of capital diverges persistently and significantly from net revenues, something's got to give. Either economic growth is going to suddenly gush forth "like nobody has ever seen before" or net worth is going to have to come back down to earth.

Somewhere between 20 and 30 TRILLION dollars of net worth will evaporate within the span of perhaps two years.

When will that happen? Who knows? There is one notable regularity in the data, though -- the one that screams "Ponzi!"

When the net worth bubble stops going up...
...it goes down.

[Nov 05, 2017] China's Great Leap Forward Western Frogs Croak Dismay

China is a neoliberal country which plays by the rules of neoliberalism. that means tremendous level of corruption within Communist Party. So the levers remains in Washington hands. I think the article is too optimistic. Washington definitely can put same sand into China industrial wheels. Right now they simply concentrate on "regime change" in Russia as the weakest link in Russo-Chinese alliance and leave China alone. China growing class of billionaires now represent a potent fifth column within the country and can be played. Attempt to do this were already evident in Hong Hong failed color revolution. Hong Cong remain is heir lines of US color revolution specialist and intelligence agencies.
Notable quotes:
"... The 'China doomsters' with 'logs in their own eyes' have systematically distorted reality, fabricated whimsical tales and paint vision, which, in truth, reflect their own societies. ..."
"... As each false claim is refuted, the frogs alter their tunes: When predictions of imminent collapse fail to materialize, they add a year or even a decade to their crystal ball. When their warnings of negative national social, economic and structural trends instead move in a positive direction, their nimble fingers re-calibrate the scope and depth of the crisis, citing anecdotal 'revelations' from some village or town or taxi driver conversation. ..."
Nov 05, 2017 | www.unz.com

Introduction:

From their dismal swamps, US academic and financial journal editorialists, the mass media and contemporary 'Asia experts', Western progressive and conservative politicians croak in unison about China's environmental and impending collapse.

They have variably proclaimed (1) China's economy is in decline; (2) the debt is overwhelming; a Chinese real estate bubble is ready to burst; (3) the country is rife with corruption and poisoned with pollution; and (4) Chinese workers are staging paralyzing strikes and protests amid growing repression -- the result of exploitation and sharp class inequality. The financial frogs croak about China as an imminent military threat to the security of the US and its Asian partners. Other frogs leap for that fly in the sky -- arguing that the Chinese now threatens the entire universe!

The 'China doomsters' with 'logs in their own eyes' have systematically distorted reality, fabricated whimsical tales and paint vision, which, in truth, reflect their own societies.

As each false claim is refuted, the frogs alter their tunes: When predictions of imminent collapse fail to materialize, they add a year or even a decade to their crystal ball. When their warnings of negative national social, economic and structural trends instead move in a positive direction, their nimble fingers re-calibrate the scope and depth of the crisis, citing anecdotal 'revelations' from some village or town or taxi driver conversation.

As long-predicted failures fail to materialize, the experts re-hash the data by questioning the reliability of China's official statistics.

Worst of all, Western 'Asia' experts and scholars try 'role reversal': While US bases and ships increasingly encircle China, the Chinese become the aggressors and the bellicose US imperialists whine about their victim-hood.

Cutting through the swamp of these fabrications, this essay aims to outline an alternative and more objective account of China's current socio-economic and political realty.

China: Fiction and Fact

We repeatedly read about China's 'cheap wage' economy and the brutal exploitation of its slaving workers by billionaire oligarchs and corrupt political officials. In fact, the average wage in China's manufacturing sector has tripled during this decade. China's labor force receives wages which exceed those of Latin America countries, with one dubious exception. Chinese manufacturing wages now approach those of the downwardly mobile countries in the EU. Meanwhile, the neo-liberal regimes, under EU and US pressure, have halved wages in Greece, and significantly reduced incomes in Brazil, Mexico and Portugal. In China, workers wages now surpass Argentina, Colombia and Thailand. While not high by US-EU standards, China's 2015 wages stood at $3.60 per hour -- improving the living standards of 1.4 billion workers. During the time that China tripled its workers 'wages, the wages of Indian workers stagnate at $0.70 per hour and South African wages fell from $4.30 to $3.60 per hour.

This spectacular increase in Chinese worker's wages are largely attributed to skyrocketing productivity, resulting from steady improvements in worker health, education and technical training, as well as sustained organized worker pressure and class struggle. President Xi Jinping's successful campaign for remove and arrest of hundreds of thousands of corrupt and exploitative officials and factory bosses has boosted worker power. Chinese workers are closing the gap with the US minimum wage. At the current rate of growth, the gap, which had narrowed from one tenth to one half the US wage in ten years, will disappear in the near future.

China is no longer merely a low-wage, unskilled, labor intensive, assembly plant and export-oriented economy. Today twenty thousand technical schools graduate millions of skilled workers. High tech factories are incorporating robotics on a massive scale to replace unskilled workers. The service sector is increasing to meet the domestic consumer market. Faced with growing US political and military hostility, China has diversified its export market, turning from the US to Russia, the EU, Asia, Latin America and Africa.

Despite these impressive objective advances, the chorus of 'crooked croakers' continue to churn out annual predictions of China's economic decline and decay. Their analyses are not altered by China's 6.7% GNP growth in 2016; they jump on the 2017 forecast of 'decline' to 6.6% as proof of its looming collapse! Not be dissuaded by reality, the chorus of 'Wall Street croakers' wildly celebrate when the US announces a GNP increase from 1% to 1.5%!

While China has acknowledged its serious environmental problems, it is a leader in committing billions of dollars (2% of GNP) to reduce greenhouse gases -- closing factories and mines. Their efforts far exceed those of the US and EU.

China, like the rest of Asia, as well as the US, needs to vastly increase investments in rebuilding its decaying or non-existent infrastructure. The Chinese government is alone among nations in keeping up with and even exceeding its growing transportation needs -- spending $800 billion a year on high speed railroads, rail lines, sea- ports, airports subways and bridges.

While the US has rejected multi-national trade and investment treaties with eleven Pacific countries, China has promoted and financed global trade and investment treaties with more than fifty Asia-Pacific (minus Japan and the US), as well as African and European states.

China's leadership under President Xi Jinping has launched an effective large-scale anti-corruption campaign leading to the arrest or ouster of over 200,000 business and public officials, including billionaires, and top politburo and Central Committee members. As a result of this national campaign, purchases of luxury items have significantly declined. The practice of using public funds for elaborate 12 course dinners and the ritual of gift giving and taking are on the wane.

Meanwhile, despite the political campaigns to 'drain the swamp' and successful populist referenda, nothing remotely resembling China's anticorruption campaign have taken root in the US and the UK despite daily reports of swindles and fraud involving the hundred leading investment banks in the Anglo-American world. China's anti- corruption campaign may have succeeded in reducing inequalities. It clearly has earned the overwhelming support of the Chinese workers and farmers.

Journalists and academics, who like to parrot the Anglo-American and NATO Generals, warn that China's military program poses a direct threat to the security of the US, Asia and indeed the rest of world.

Historical amnesia infects these most deep diving frogs. Forgotten is how the post WW2 US invaded and destroyed Korea and Indo-China (Vietnam, Laos and Cambodia) killing over nine million inhabitants, both civilian and defenders. The US invaded, colonized and neo-colonized the Philippines at the turn of the 20th century, killing up to one million inhabitants. It continues to build and expands its network of military bases encircling China, It recently moved powerful, nuclear armed THADD missiles to the North Korean border, capable of attacking Chinese and even Russian cities. The US is the worlds' largest arms exporter, surpassing the collective production and sale of the next five leading merchants of death.

In contrast, China has not unilaterally attacked, invaded or occupied anyone in hundreds of years. It does not place nuclear missiles on the US coast or borders. In fact, it does not have a single overseas military base. Its own military bases, in the South China Sea, are established to protect its vital maritime routes from pirates and the increasingly provocative US naval armada. China's military budget, scheduled to increase by 7% in 2017, is still less than one-fourth of the US budget.

For its part, the US promotes aggressive military alliances, points radar and satellite guided missiles at China, Iran and Russia, and threatens to obliterate North Korea. China's military program has been and continues to be defensive. Its increase is based on its response to US provocation. China's foreign imperial thrust is based on a global market strategy while Washington continues to pursue a militarist imperial strategy, designed to impose global domination by force.

Conclusion

The frogs of the Western intelligentsia have crocked loud and long. They strut and pose as the world's leading fly catchers -- but producing nothing credible in terms of objective analyses.

China has serious social, economic and structural problems, but they are systematically confronting them. The Chinese are committed to improving their society, economy and political system on their own terms. They seek to solve immensely challenging problems, while refusing to sacrifice their national sovereignty and the welfare of their people.

In confronting China as a world capitalist competitor, the US official policy is to surround China with military bases and threaten to disrupt its economy. As part of this strategy, Western media and so-called 'experts' magnify China's problems and minimize their own.

Unlike China, the US is wallowing at less than 2% annual growth. Wages stagnate for decades; real wages and living standards decline. The costs of education and health care skyrocket, while the quality of these vital services decline dramatically. Costs are growing, un-employment is growing and worker suicide and mortality is growing. It is absolutely vital that the West acknowledge China's impressive advances in order to learn, borrow and foster a similar pattern of positive growth and equity. Co-operation between China and the US is essential for promoting peace and justice in Asia.

Unfortunately, the previous US President Obama and the current President Trump have chosen the path of military confrontation and aggression. The two terms of Obama's administration present a record of failing wars, financial crises, burgeoning prisons and declining domestic living standards. But for all their noise, these frogs, croaking in unison, will not change the real world.

WorkingClass , March 24, 2017 at 6:07 pm GMT

China is ascendant. The Anglo/Zio Empire is in steep decline. The frogs bark. The caravan moves on.
Robert Magill , March 24, 2017 at 7:15 pm GMT
There is about as much Communism in the Peoples Communist Party of China as there is Democracy in the US Democratic Party. Therein lies the problem. Old words and slogans are used to obfuscate power plays by willful participants and to pretend the US is still vital in the world. Empire stops at the bottom line which was broached in about 1986 when we became a Debtor Nation. When China tires of lending us the money to build bases to harass them, it all ends. Our troops will have to find their own way home to put down all the incredible unrest here, then join the bread lines.

http://robertmagill.wordpress.com

Gross Terry , March 24, 2017 at 7:44 pm GMT

In contrast, China has not unilaterally attacked, invaded or occupied anyone in hundreds of years. It does not place nuclear missiles on the US coast or borders. In fact, it does not have a single overseas military base. Its own military bases, in the South China Sea, are established to protect its vital maritime routes from pirates and the increasingly provocative US naval armada. China's military budget, scheduled to increase by 7% in 2017, is still less than one-fourth of the US budget.

lol whats the sino-Vietnamese war?

Si1ver1ock , March 25, 2017 at 12:23 am GMT
One solution to China's "ghost cities" is to put a university there. China is also leading the way on LFTR reactors. So you combine the two with a major college or university that has a LFTR based industry like an advanced ceramics or solar cells or fuels manufacturing facility and you have recipe for growth.

Modular LFTR reactors will allow China to replace coal burning with nuclear reactors.

Astuteobservor II , March 25, 2017 at 12:52 am GMT

It recently moved powerful, nuclear armed THADD missiles to the North Korean border, capable of attacking Chinese and even Russian cities.

isn't this wrong? isn't THAAD a missile defense system? reason china is pissed off about it is because it can scan 2000km into china.

Astuteobservor II , March 25, 2017 at 12:55 am GMT
@Si1ver1ock

The ghost cities is mostly propaganda. http://www.nytimes.com/2013/06/16/world/asia/chinas-great-uprooting-moving-250-million-into-cities.html?pagewanted=all&_r=0 250 million people is going to need alot of "ghost cities"

DB Cooper , March 25, 2017 at 4:02 am GMT
@Gross Terry

The 1979 Sino-Vietnamese war occurred during the cold war. From the beginning China made it clear that the war will be short and it is meant to punish Vietnam. The war has several objectives. First it is to demonstrate the then Soviet Union's impotency. Soviet Union and Vietnam signed a mutual defense agreement several months before the war. Soviet Union did nothing when the war happened. Second the war is meant to put pressure on Vietnam to withdrew from Cambodia. Third it is a reaction to Vietnam's belligerence border aggression. Before the war Vietnam constantly lobbed grenade across the border into China. After the war peace and tranquility at the border restored.

After China made its point, China swiftly withdrew its troops back to its border. China and Vietnam has no land border disputes but China and Vietnam has maritime boundary disputes. Vietnam is the most aggressive of all the parties in the South China Sea disputes by a wide margin.

China's Great Leap Forward: Western Frogs Croak Dismay • Zhi Chinese , March 25, 2017 at 6:39 am GMT
[ ] by /u/Hbd-investor [link] [comments] Source: Reddit Permalink: China's Great Leap Forward: Western Frogs Croak [ ]
Anonymous , Disclaimer March 25, 2017 at 6:50 am GMT
@Astuteobservor II

It is an offensive system in the sense that it will allow first strike capability without fear or with less fear of being hit back.

Anonymous , Disclaimer March 25, 2017 at 6:54 am GMT
@Gross Terry

Yeah, I guess that is a legit war. But to compare that to what America does is highly suspect.

Lots of countries have skirmishes along their border, but only America has encircled the world in bases and is always at war.

That is the gist of heat he was saying.

Renoman , March 25, 2017 at 2:24 pm GMT
I buy a lot of stuff from China, mostly aliexpress.com and I have noticed that since the American election the delivery times on most items have doubled or worse. I live in Canada, how did he do that? I don't see the bargains that I did previously as well. All very spooky.
anonymous , Disclaimer March 25, 2017 at 9:07 pm GMT
"Vietnam is the most aggressive of all the parties in the South China Sea disputes by a wide margin."

Curious about this. How do you draw that conclusion.

Separately, while I agree with the tone of the article and general direction, a few comments:

- China has an overseas military base under construction in Djibouti. Brigade strength force will be deployed there.
- China's national (not provincial or locally published GDP numbers) GDP growth figures are approximately correct. However, currently there is lots of state directed lending to keep the growth up. The credit bubble might not pop but down the line dealing with so many bad loans will prevent fresh loans and that will slow down growth.
- While the economy is a miracle for blue collar workers, for non-workers in the most hard up parts of the country, social conditions are horrendous for a middle income country with lots of central revenue and administrative ability. In the western hills of Guangxi 10% of the kids are malnourished.
- China hasn't been expansionist in 250 years (not since Qing Empire into present day southwest Xinjaing in the 1760s) however there are still a few black marks: Sino-Vietnamese War, supporting nuclear proliferation in Pakistan, not doing enough to control North Korea (this is the stupidest blunder of all and leaves Beijing vulnerable to nuclear attack one day if the Kim family is about to go), and threatening war publicly against Philippines at one point during the South China Sea crisis of the past several years (all forms of pressure are permitted but its uncivilized to outright threaten war).

DB Cooper , March 26, 2017 at 1:12 am GMT
@anonymous

"Vietnam is the most aggressive of all the parties in the South China Sea disputes by a wide margin."
Curious about this. How do you draw that conclusion.

I draw my conclusion on this article and here is the excerpt:

"In 1996, Vietnam occupied 24 features in the Spratly Islands (source). At that time, according to the same source, China occupied nine. By 2015, according to the United States government, Vietnam occupied 48 features, and China occupied eight.
On May 13, U.S. Assistant Secretary of Defense, David Shear, said this to the Senate Foreign relations Committee: "Vietnam has 48 outposts; the Philippines, 8; China, 8; Malaysia, 5, and Taiwan, 1."
In the past 20 years, according to the United States, China has not physically occupied additional features. By contrast, Vietnam has doubled its holdings, and much of that activity has occurred recently. The Vietnamese occupations appear to have increased from 30 to 48 in the last six years.

Shear also pointed out that as of his speech, China did not have an airfield as other claimants did. He said:
All of these same claimants have also engaged in construction activity of differing scope and degree. The types of outpost upgrades vary across claimants but broadly are comprised of land reclamation, building construction and extension, and defense emplacements. Between 2009 and 2014, Vietnam was the most active claimant in terms of both outpost upgrades and land reclamation, reclaiming approximately 60 acres. All territorial claimants, with the exception of China and Brunei, have also already built airstrips of varying sizes and functionality on disputed features in the Spratlys."

Here is the source.

http://thediplomat.com/2015/06/who-is-the-biggest-aggressor-in-the-south-china-sea/

RobinG , March 27, 2017 at 4:07 am GMT
@Fran Macadam

How droll. Your characteristic pessimism works better as dark humor.

Alfa158 , March 27, 2017 at 5:23 am GMT
@Robert Magill

Seems like they are operating as a National Socialist system now. The means of production are owned by corporations but a powerful government keeps close control and directs business activities to the benefit of the nation. The owners are rewarded with wealth and the government advances their mutual interests for national progress.
They also place a heavy emphasis on cultural and racial pride.
Downside of course is that the types of civil liberties we enjoy are constricted and getting out of line gets you smacked real good, sometimes supposedly up to the point of bullet to the back of your head, and your family gets billed for the bullet.
A tough system to compete against unless the powers-that-be lacking effective external checks and balance do something stupid like invade Russia or bomb Pearl Harbor.

Backwoods Bob , March 27, 2017 at 7:17 am GMT
Well done.

The USA is character disordered. Demonize, belittle, bellicosity, and outright war. All we need is liberty and enforcement of property rights and we'd be leaving the Chinese and everyone else in the dust.

With the strangulation of our economy at home through the unconstitutional regulatory/administrative law colossus, instead of outgrowing our competitors we wish to shoot them down.

The term "Contain China" aptly demonstrates our stupidity insofar as forward thinking is concerned. You don't improve your lot by dedicating yourself to holding others down. It doesn't work in athletics, education, in relationships, or in free enterprise.

So it is odd to see nary a whit of protest to the idea when it should be ridiculed on the face of it.

I do of course see the same worn-out playbook of demonize, demonize, demonize being used by the Washington establishment. We have to "do something" about China. Not do something to our appalling education performance, savings and capital formation, strangulatory laws, etc.

I married into a Filipino family and have a house there. The Filipinos were fond of saying that the USA wanted to fight to the last Filipino over the South China Sea. They've been smart enough to work with the Chinese, who are investing billions of dollars there developing hydrocarbons and ports for transhipment like Singapore instead of launching a foolhardy war with China.

When I encounter people screeching about Chinese aggression against the poor little Filipinos or fiction about threats to international shipping it really strikes me how out of their minds people can be. We want to see our family working on ships there, not dying in a foolhardy confrontation. The Chinese have a long history of trading and running businesses in the Philippines. It is only our invincible ignorance, arrogance, and narcissism that results in a failure to see why the Philippines has turned towards China.

I go through Shanghai Pudong a lot and over the years it has been obvious how the people have become wealthier, how the infrastructure has stepped up to first world standards, and how smart/snappy the people are. We are really underestimating the Chinese and making a lot of self-serving rationalizations for their success.

We need to fix our own failings instead of trying to cut others down. China is already larger in GDP and can easily be twice ours before 2030 with relative growth rates the way they are.

Ram , March 27, 2017 at 8:52 am GMT
@Gross Terry

It succeeded in ending the killing machine in Laos.

Sergey Krieger , March 27, 2017 at 8:58 am GMT
@DB Cooper

China showed own impotence and lack of serious military capabilities in that war. Vietnamese forces were not even participating while local militia was kicking Chinese military back side. They obviously had to withdraw telling they gave a lesson. It is typical Chinese way to cut losses and avoid total loss of face aka du lian.

Ram , March 27, 2017 at 8:59 am GMT
@anonymous

Djibouti already "hosts" a US military base used against Yemen today.

Sergey Krieger , March 27, 2017 at 9:05 am GMT
It looks like lots of people think that country with 1.4 billion population can prosper long term and keep rising living standards of her population in the future on limited planet. They so far have managed to achieve improvements but at a cost of long term sustainability. Their ecological troubles are of huge magnitude and so are debt and demographic issues. We are already at each other throats fighting for diminishing resources, so it is highly doubtful Chinese or Indian projects can last.
Kimppis , March 27, 2017 at 9:26 am GMT
To be fair, comparing nominal military budgets can be very misleading and just dumb.

Sure, they are an easy way to rank different different militaries, but when you compare Western vs. Emerging powers and their military budgets, or countries with their large-scale MICs (which to be fair, there are only a few USA, Russia, China, France to some extent, India in the future, but certainly not today) vs. weapons exporters, the results are largely BS. Price levels are so different. Not to mention that the maintenance costs in the US military are absolutely massive.

Currently Russia is a great example. The devaluation is basically irrelevant for the Russian military. It should be obvious that Saudi Arabian military doesn't have a higher budget. The US certainly doesn't have 10-15 times more resources at its disposal. Russia spends rubles, it doesn't import weapons. So in reality the difference vs. the US something like 4x at most.

China is the same. The yuan has devalued vs. the dollar, so in dollar terms their growth has stagnated, which doesn't have anything to do with reality.

So overall, in comparable terms, let's say that the US spends $600 billion. In that case:
Russia spends atleast 120-150 billion
China spends atleast 250 billion, probably closer to 300 billion
And whereas the US capabilities are spread all around the world, Russia and China are focused on their backyards.

So in reality China's "real" military spending is atleast something like 40% of the US level already, not less than 1/4,.

The Alarmist , March 27, 2017 at 10:41 am GMT
The Sovs or the Chicoms would have sent Petras to the gulag ages ago. In the enlightened West, we merely consign him to places like UR, thus marginalising him and making it increasingly difficult to eke out a living. See Fred Reed's piece on columnists and wonder why more of them don't end up sucking on the business end of a firearm when they fail to toe the party line.
Brabantian , Website March 27, 2017 at 10:50 am GMT
Hard to get balance on this topic because it is human nature to favour false champions & heroes & rivals fake 'opposition' Don't like USA-Nato? Why then, plenty of fanboys to offer you Russia, China, Iran etc James Petras as above, André Vltchek, Andrei 'The Saker' Raevsky, Dick Cheney's hoaxer friend 'Edward Snowden', Netanyahu's hoaxer friend Julian Assange etc all selling 'opposition hero' tickets

The West has lots of stupid anti-China rubbish, sure but let's recall the Chinese official who said they learned how to do fake statistics & propaganda from Yank Americans The China reality is as follows:

China was the prime beneficiary of the global credit bubble 1990s-2000s, they will crash along with the rest of the world when all blows up, but crash worse because bad China debt is so huge think USA 1929, it won't stop China's long-term rise, but they will have a horrible decade & maybe ChiComs will lose power in the upheaval

China is a huge US-style bully, ask ASEAN people privately, or other Asians but as seen with the USA, other countries feel they must kiss up to the bully whilst e.g., Vietnam has been a bully to Cambodia on smaller scale

China, Russia, Iran do some things right, principally working to see that middle classes rise & expand & most people are better off economically, for as long as they were able to do this, Turkey's Erdogan too, it is a magic formula, like Hitler's 1930s Germany economic success

But all of these US 'rivals' have skeletons in the closet, hundreds of slow-torture hangings & killing women by stones annually in Iran, China's thousands of executions & ethnic repression & sea-lane bullying, Russia's past killing of perhaps 100,000 Muslims just to keep Chechnya-Dagestan oil & gas income

But pundits need someone to love & admire & promote the fake 'hero' the fake 'opposition' in the West the mafia gangsterism we know best is the US-Nato kind, so we go gaga over fake 'dissident' or foreign 'heroes' served up to us There are 'good things' in the West despite the bullying mass-killing horrors ditto with China Russia etc,, & people ignore the bad when they hero-worship, either East or West

The fake 'hero opposition' is the most successful of all oligarch memes It's plain as day, for example, that Dick Cheney's little friend, anti-9-11-truth, nothing-really-new 'Edward Snowden' is a fraud along with Rothschild employee & ex-gay-p-rnographer Glenn Greenwald Snowden maybe already having helped identify, silence, kill real dissidents duped into contacting Greenwald or his NY Times or UK Guardian pumpers yet most still eagerly hold on to fake 'opposition hero' themes, China or Russia, or Assange or 'Snowden' -

http://www.veteranstoday.com/2016/09/21/russia-govt-report-snowden-greenwald-are-cia-frauds/

Randal , March 27, 2017 at 12:07 pm GMT
@Anonymous

Yes that's true, but Astuteobservor is also correct that the paragraph as written is inaccurate and misleading. It should be amended, imo, as it's a blot on an otherwise very good and timely piece. It's an anti-missile system, not one that can attack cities, and it's kinetic not nuclear armed.

Ilyana_Rozumova , March 27, 2017 at 12:32 pm GMT
I love prof. Petraus. But wages itself do not reflect reality. (Growth of the wages maybe)
Wages must be accompanied by price of bread and price of rent.
Volume of production allows larger engineering and research and development sections.
That is the most significant factor in the competition in the world.
Joe Wong , March 27, 2017 at 12:57 pm GMT
@Gross Terry

After the Vietnam War, the Vietnamese claimed they were the 3rd strongest nation in the world based on the the amount of military hardware left behind by the US, and the Vietnamese started to invade China to reclaim their "entitled land, " and conqure Laos and Cambodia to build their Great Indo-China Federation. The Sino-Vietnam war was the war Chinese repelled Vietnamese invadors just like war in 1962, China repelled Indian invadors in Tibet.

jacques sheete , March 27, 2017 at 1:00 pm GMT
@Alfa158

Downside of course is that the types of civil liberties we enjoy are constricted and getting out of line gets you smacked real good

Where do people get the romantic notion that we enjoy civil liberties?

Anyone who reads of Lincoln's, Wilson's, FDR's and GWB's ( to name a few) wholesale dismissal of civil liberties could write a book on the subject.

I'd like to know how we can possibly have much by way of said liberties in a centralized, bureaucratized, militarized, police state effectively owned and ruled by vicious oligarchs.

Our loss of civil liberties began long ago.

"But while I beheld with pleasure the dawn of liberty rising in Europe, I saw with regret the lustre of it fading in America

But a faction, acting in disguise, was rising in America; they had lost sight of first principles. They were beginning to contemplate government as a profitable monopoly, and the people as hereditary property ."

THOMAS PAINE TO THE CITIZENS OF THE UNITED STATES,
And particularly to the Leaders of the Federal Faction.
LETTER I, Nov 15,1802

"The enlightened part of Europe have given us the greatest credit for inventing the instrument of security for the rights of the people and have been not a little surprised to see us so soon give it up."

Thomas Jefferson letter to Francis Hopkinson of March 13, 1789

Men haven't got the freedom today that they had when the Constitution was written. The men in the West had a great deal of freedoms more than the men in the East who copied the traditions of Europe.

-Jeanette Rankin, interview ~1977

Rankin, running as a Republican Progressive, was the first woman voted to congress

http://content.cdlib.org/ark:/13030/kt758005dx/

Alfa158 , March 27, 2017 at 2:48 pm GMT
@jacques sheete

Well, I suppose I might say "relative" civil liberties. To your point, yes, as soon as we started exercising our inherent, inalienable liberties, State and commercial actors started working to turn them from natural rights to licenses that may be granted by the State only as long as it served the purposes of the State.

Tulip , March 27, 2017 at 3:10 pm GMT
It is hard not to imagine that the Chinese system, in contrast to Western Liberal-Democracy, is the wave of the future. What is more is that China will invariably increase its geopolitical influence in the coming decades.
ThatDamnGood , March 27, 2017 at 3:44 pm GMT
Most comments on the Sino Vietnamese War reveals quite a lot of ignorance about it.

When Deng Xiaopeng and Lee Kuan Yew of Singapore first met, Lee Kuan Yew began with thanking him for the China's kinetic military R2P mission

Why?

Lee Kuan Yew had operational plans to deploy a Singapore military force to Thailand and their army was manned largely by conscripted teenagers mostly. He had to sell the public to send their sons to war because it be too late if they had to fight the Vietnamese when they were across in Malaysia, so fight now. The Vietnamese were already having skirmishes the Thais across the Mekong.

Next, the PLA was pretty dismissive of Vietnam, told Deng, we would not need to use no stinking air power. Just the army would suffice. Why? Giap was "assisted" by a couple of Chinese generals through the Vietnam War. Walk in the park.

Turned out it wasn't a walk in the park but it was comfortable enough that the PLA got themselves into artillery range of Hanoi and deployed and use their arty units but not hitting Hanoi. Then while being not a walk in the park and thus egg in their face operation which Deng then used as leverage over the generals about PLA reform, it remained comfy enough that the PLA began a sure and steady scorch earth withdrawal.

And those Vietnamese troop concentrations across the Mekong were gone and Lee Kuan Yew was one happy camper alright.

The sight of those artillery units with range of Hanoi and the scorch earth withdrawal left quite an impression on Giap who till his death warned the rest of the Vietnamese elite never to go to war with China.

And it didn't end with the withdrawal. Deng may have been so taken by Lee Kuan Yew's words that he scheduled regular border incursions to keep the Vietnamese on their toes thru the 80s. Or maybe he didn't like the subsequent pogroms against the Hoa and who inspite of this are now the lords of commerce in Vietnam.

But all these are old musty stuff.

And the anti China propaganda never really worked and doesn't really matter as FDI into China grew and grew with years passing. Heck even Netanyahu knows who is buttering his toast. Cut ties over the UNSC vote? Nah smoke and mirrors probably for local politics reasons.

https://www.bloomberg.com/news/articles/2017-03-21/netanyahu-asks-xi-to-exempt-israel-from-investment-restrictions-j0jra02r

More useful to get info on the impact on OBOR in the Stans and elsewhere.

ThatDamnGood , March 27, 2017 at 3:53 pm GMT
Also, if you look at the map of Vietnam up close, bow if you think Israel suffers from a lack of strategic depth

So that probably explains why they were moving west and their infantry got to do some fishing on the Mekong river.

Shoe Thrower , March 27, 2017 at 4:55 pm GMT
@Astuteobservor II

Note: it's not "THADD". It's "THAAD" : Theater High Altitude Area Defense.

Gross Terry , March 27, 2017 at 6:26 pm GMT
@Joe Wong

the chinaman cries out in pain as he invades your country

attilathehen , March 27, 2017 at 7:29 pm GMT
@WorkingClass

The conservative estimates of Chinese abortions since the mid-1970s is over 400 million. China is the fastest, aging country in the world. The Chinese were never that smart to begin with (contra propaganda from Jews and white degenerates who marry the Chinese). In the 1980s Japan was going to take over the world. Place your bets on Caucasian/European Christians, pagans.

eah , March 27, 2017 at 8:22 pm GMT
Get back to us when the rule of law in China is such that China is considered a safe haven for capital -- when Chinese with money stop voting with their feet about that -- when Chinese women stop 'birth tourism' to the US -- when Chinese students desperate to gain entry to a good US university stop cheating on the SAT -- also, perhaps talk to the numerous victims of Chinese 'reverse merger' etc stock scams, people who have no recourse because the Chinese government refuses to cooperate.
Joe Wong , March 27, 2017 at 10:01 pm GMT
@Sergey Krieger

Two elite Vietnamese divisions that kicked the American out of South Vietnam were destroyed by the PLA in that short period of time. The Vietnamese central government had to vacate Hanoi before the PLA's bombardment of Hanoi. Without Deng's order PLA would divide Vietnam in two again. Finally the American was on China's side on the war to punish the Vietnamese; the American was so grateful that Chinese took vengeance against the Vietnamese for them.

Russian should know Russia is not USSR, and they should not be upset when USSR's incompetence is mentioned and troll fake news with boiling blood neck.

Thomas J , March 27, 2017 at 10:04 pm GMT
Wei ni hao Petras-da,

so just how much has Mr. Xi paid you for this piece?

1) Actual salaries are irrelevant as you ought to know because in the end it boils down to PPP.
2) Mr. Xi "remove" – ought to be "removal" btw is simply political battle for survival using "corruption" as an excuse. Should Mr. Xi be serious about fighting real corruption, 99% or more of entire politburo incl. himself ought to have been executed or in jail.
3) How about PRC destruction of Philippine's corrals (from another left wing publication – http://www.bbc.com/news/magazine-35106631 )
4) Artificial islands (weaponized) in South China sea?

Look US is as much war criminal as PRC – it is just that your Goebbels-like (or should I say Lev Davidovic like) propaganda makes me want to throw up.

I really enjoy UNZ for offering different – usually independent and critical – platform.

Your article is beyond disgrace a la New York Times / WaPo / Pravda /Rt.com / Spiegel / Xinhua and other "news" sources. Perhaps you might consider publishing there and stop polluting independent websites.

Thomas

PS I have visited PRC and Taiwan about 20 times, speak passable Mandarin and live with a Chinese born partner FYI.

Joe Wong , March 27, 2017 at 10:43 pm GMT
@anonymous

It seems here is another insect in the US dismal swamps trolling zero-sum cold war mentality wet dream. You should know Chinese lend RMB to the locals to bust growth and Chinese can print RMB thru the thin air just like the Fed, in addition China has already set up state owned funds to offload banks' debt load in exchange for their equity ownership, so the banks are back to healthy books and do the lending again just like the Fed, it is puzzling why such sophisticate safety mechanism will allow bad loans preventing fresh loans to be made.

Not doing the American bidding is black mark? Wow, this is surely an example of American exceptionalism without bound.

Joe Wong , March 27, 2017 at 11:00 pm GMT
@Alfa158

Would you accept that the USA is a 'God-fearing' morally defunct evil 'puritan' nation? If you don't then you should not take what you are fed from cradle to grave the propaganda cooked up by those insects with a mindset belonging to the past, stalled in the old days of colonialism and constrained by the zero-sum cold war mentality from their dismal swamps.

Debbie Menon , March 27, 2017 at 11:49 pm GMT
China has not engaged the rest of the world in military confrontation, colonialist adventurism and wars while establishing itself on the world stage. Perhaps they have learned something from Western History (or the failures of), or the teachings of Confucius. I suspect the latter, for they have not done very well when practicing the forceful and brutal ways of the West.

They are on a roll, and it looks like they will get there, and probably stay there, for some time to come.

I do not like the way Newsweek Columnist, F. Zakaria

(the neocon ? I don't know exactly what to call him, but I am sure the Indians have a term for one of their own who joined the British Raj, put on their pretty uniforms, took their pay, and began to see himself as one of them, pure, high and mighty in his new white skin, topee and title, ever the S'arn't Major, never the Brigadier!, with riding crop and bayonet, and boots with which to downtrod!)

writes, or the things he usually writes about, but his article "Does the Future Belong to China?" was right on the money to me. I'll give credit to the support he seems to have had from other writers worldwide, which may be, perhaps, what makes it so good and, in my opinion, prophetic.

He writes: "When historians look back at the last decades of the 20th century, they might well point to 1979 as a watershed. That year the Soviet Union invaded Afghanistan, digging its grave as a superpower. It was also the year that China began its economic reforms. They were launched at a most unlikely gathering, the Third Plenum of the 11th Central Committee of the Communist Party of China, held in December 1978. Before the formal meetings, at a working-group session, the newly empowered party boss, Deng Xiaoping, gave a speech that turned out to be the most important one in modern Chinese history. He urged that the regime focus on development and modernization, and let facts-not ideology-guide its path. "It doesn't matter if it is a black cat or a white cat," Deng often said. "As long as it can catch mice, it's a good cat." Since then, China has done just that, pursued a modernization path that is ruthlessly pragmatic and non-ideological. The results have been astonishing. China has grown around 9 percent a year for more than 25 years, the fastest growth rate for a major economy in recorded history. In that same period it has moved 300 million people out of poverty and quadrupled the average Chinese person's income. And all this has happened, so far, without catastrophic social upheavals. The Chinese leadership has to be given credit for this historic achievement. There are many who criticize China's economic path. They argue that the numbers are fudged, that corruption is rampant, that its banks are teetering on the edge, that regional tensions will explode, that inequality is rising dangerously and that things are coming to a head. For a decade now they have been predicting, "This cannot last, China will crash, it cannot keep this up." So far at least, none of these prognoses has come true. And while China has many problems, it also has something any Third World country would kill for-consistently high growth."

We are living in changing times, and the times are changing at an ever increasing exponential rate!

Escher , March 28, 2017 at 1:03 am GMT
@DB Cooper

How many RMB did that post net you?

JoaoAlfaiate , March 28, 2017 at 1:54 am GMT
Tibet?
DB Cooper , March 28, 2017 at 2:37 am GMT
@JoaoAlfaiate

What about it?

denk , March 28, 2017 at 4:19 am GMT
*Worst of all, Western 'Asia' experts and scholars try 'role reversal':

While US bases and ships increasingly encircle China, the Chinese become the aggressors and the bellicose US imperialists whine about their victim-hood.*

Like i say,
ROBBER CRYING OUT ROBBERY.
Of all the slimy traits of the unitedsnake, this one takes the cake !

Washington has just invaded Syria, its 500th victim since 1785.
To Assad's protest of illegal invasion, Centcom commander Votel sniffs,
'We'r going after the ISIS , we dont need no stinking permission from nobody'

The hubris befitting the world's no 1 rogue state !

Monsul in Iraq is being 'turned to shards' ala Fallujah.
this time 'no more stinking rule of engagement that tie one hand behind our back, this time we fight to win' ,
promised Trump the
'anti establishment' prez ! [1]
Already civilian casualties have runned into the hundreds.

In Yemen, the Washington sponsored genocidal war waged by Saudis rages on.
Its another gigantic shooting fish in a barrel slaughter where the
coalition of killing [usa/saudi/UAE] seal off the whole country then pummel the trapped populace with F16, Apache gunships and artillery.
Its Fallujah x 1000 . !

Meanwhile in Oz where permier Li Ke Qiang is visiting,
the ever so santimonous press/ pundits ponder,
' We already have our friends in Washington who share our values in human rights and rule of law ,
why should we engage this 'human rights abuser and SCS bully,?'

What fucked up mind,
What a fucked up world !

[1]
Nam/Iraq were 'restrained' wars ?
Only in the USA,
Where the inmates are running the asylum !

Uncle Dan , March 28, 2017 at 4:51 am GMT
Has there ever been a communist regime that Prof Petra has not adored?

https://en.wikipedia.org/wiki/James_Petras

Mouren , March 28, 2017 at 6:57 am GMT
Nuclear armed THADD? This sentence alone betrays a lot of the authors ignorance. Ignoring the fact that the name of the weapons system is THAAD (Terminal High Altidude Area Defense), which could be a simple typo, even a short Google search would have shown the author that THAAD-missiles do not even carry explosives, much less nuclear bombs.

THAAD missiles are basically bullets that rely on kinetic impact alone to destroy incoming ballistic missiles. Even if they somehow could be nuclear armed, their range is only 200 kms which is nowhere near enough to reach China from South Korea.
China's objection to the system being stationed in Korea is not that the missiles are an offensive threat, but that THAAD's powerful radar could be used to see deep into Chinese territory.

interesting , March 28, 2017 at 8:51 am GMT
@Sergey Krieger

It took until 22 comments for anyone to really take a look at reality. These article always only look at one side of the balance sheet. China has gone on a MASSIVE printing spree to achieve the "growth" they currently have, the US is no better but for some reason facts matter for the US.

China also has a demographic (as was mentioned in another comment) time bomb waiting in the wings (just like all western nations) and yet it's also never mentioned in these "China = great, USA = lame" hit pieces.

A market can stay irrational longer than you can stay solvent.

And finally, what is the author really saying? That socialism or quasi communism is a better economic system? It appears so

p.s. And apparently China economic statistics are honest and accurate at least to this author.

TG , March 28, 2017 at 3:08 pm GMT
Well said.

One is reminded that, contrary to popular propaganda, Malthus was right. It is an iron law of development that no nation has become prosperous until AFTER fertility rates moderated. (it is mostly the RATE of population increase, not absolute numbers).

Under Mao the government deliberately created a massive population explosion – and when that was (predictably) a disaster did an about face. It was ugly – and would not have been needed at all except for the initial pro-natalist policies – but it has given China a chance to progress.

India has seen economic growth higher than China's – and all swallowed up by ever more people.

Mexico, the United States, and South America all have aggressive policies aimed at maximizing population growth – with, again, predictable results. Wages for the many go down and profits for the few go up.

Yes there is more to it than just demographics. But demographics are nevertheless powerful. And the Chinese government has apparently decided not to cancel out the effects of high wages by increasing the supply of people. At least for now.

skrik , March 28, 2017 at 3:12 pm GMT
@interesting

but for some reason facts matter for the US

Me: Haw. In the 'universe of swindlers,' the US has but one peer, otherwise known as 'the tail that wags the dog.'

Joe Wong , March 28, 2017 at 7:10 pm GMT
@interesting

In the USA. a war of opposing certitudes and denunciations is waged day to day between the long-ruling US corporate media and the White House. Both continuously proclaim ringing recriminations of the other's 'fake news'. Over months they both portray each other as malevolent liars.

To the Americans anything does not fit their liking is fake news, malevolent liars, even including their elected president.

Joe Wong , March 28, 2017 at 7:18 pm GMT
@Uncle Dan

Shouldn't all the governments be "Government of the people, by the people, for the people" regardless their ideology? It seems you have been brainwashed from cradle to grave and are so deep in the ideology that you don't know what a government is for.

woodNfish , March 28, 2017 at 8:12 pm GMT
@Astuteobservor II

Yes, it is another Petras lie.

Sergey Krieger , March 28, 2017 at 11:16 pm GMT
@Joe Wong

I know it hurts, but China failed to achieve war objectives hence masquerading as lesson given and withdrawal. Chinese army lost lost about 10% of total army strength and had to withdraw. While USSR did not participate directly Soviet advisors were helping with military operational planning.

http://izvestia.ru/news/288083

Sergey Krieger , March 28, 2017 at 11:25 pm GMT
@interesting

I also forgot to mention that what we see in China is US manufacturing moved there. USA can blame only herself for creating her geopolitical rival. Avarice is a mortal sin. It was never enough for US propertied classes. As Marx told that for 100% returns capitalist are ready to break own neck and there is no crime capitalists would not commit for 300% annual returns. So, destroying own country's future, I mean USA, is a small pickle.
When I first time came to China in 1988, many steal wore Mao suits and the country was dirt poor. China with or without Deng did not have resources and know hows to rise without outside investments on massive scale.

Stonehands , March 29, 2017 at 3:06 am GMT
@Thomas J

and live with a Chinese born partner FYI.

Material domination has supplanted spiritual development as the primary goal of western society, when everyone else despises that approach to life.

I don't think shacking up with your partner without marriage plans, or the glamorization of homosexuality and pornography will ever gain approval in traditionalist China.

denk , March 29, 2017 at 3:24 am GMT
@Kimppis

Since you'r such accounting genius may be
they should appoint you to audit the Pentagon for that $70000000000 MIA fund,

Oops, the Pentagon hasnt been audited for decades cuz murkkans so trust those four* generals minding their tax monies. !

hehehehe

denk , March 29, 2017 at 3:58 am GMT
@Joe Wong

murkkans like to bleat about their 'freedom' to choose their leaders.

Well every four/eight years that vaunted system offers them a choice bet the likes of Bush senior/Bush junior/Clinton the sex fiend/Clinton the witch/Obomber/Donald *The swamp thing* Trump,
the end result being a continuous streak of 45 war criminals in the WH.

Well if thats something to be proud about,
good luck to them !

hehehe

anonymous , Disclaimer March 29, 2017 at 12:55 pm GMT
@Joe Wong

"Chinese can print RMB thru the thin air just like the Fed"

Explain how a high rate of inflation will not disrupt economic stability and therefore growth.

"China has already set up state owned funds to offload banks' debt load in exchange for their equity ownership"

The equity ownership is in companies that are troubled is not worth much. What you are therefore talking about is not an exchange but write downs equivalent to hundreds of billions of dollars. To put it in the most elementary way, the depletion of resources to write down hundreds of billions of dollars of bad loans diverts finite resources that would otherwise be used for new lending.

"Not doing the American bidding is black mark"

Do you recognize there are various positions besides against us or with us? So not supporting China publicly using threats of war to settle disputes (e.g. a general appearing on state tv threatening war against the Philippines during the height of the diplomatic dispute in 2014), in your mind means being pro-American, anti-Chinese. Do you recognize there are several other positions than simply either being this or that?

Anon , Disclaimer March 30, 2017 at 5:25 pm GMT
@Gross Terry

Tibet ! ? Wuzz this guy smoking ?

alan2102 , April 1, 2017 at 10:22 pm GMT
@Alfa158

http://chinarising.puntopress.com/

http://chinarising.puntopress.com/2017/03/25/china-rising-capitalist-roads-socialist-destinations-is-now-available-in-paperback/

CHINA RISING
Capitalist Roads, Socialist Destinations
THE TRUE FACE OF ASIA'S ENIGMATIC COLOSSUS

alan2102 , April 1, 2017 at 10:27 pm GMT
@TG

"Under Mao the government deliberately created a massive population explosion – and when that was (predictably) a disaster did an about face."

What?! Under Mao, well BEFORE the 1-child policy of the late 1970s, fertility had dropped off to ~3. That would be from ~6 around the time of the revolution.

alan2102 , April 1, 2017 at 10:37 pm GMT
@Ilyana_Rozumova

"wages itself do not reflect reality"

Perhaps you are unaware that, globally, serious poverty has declined dramatically over the last 20 years -- and it is ALL (yes, 100%) due to the lifting of hundreds of millions of Chinese poor people out of poverty. The wages of those formerly-poor people reflect a new, much-improved reality.

Lue-Yee Tsang , Website April 6, 2017 at 12:37 am GMT
@Randal

The clearest way to articulate what's going on with placing a 'missile defence' system next to North Korea (and thus close to China) is that it's (1) tactically defensive, to be used against any incoming missiles, and (2) strategically aggressive, being used close to someone else's borders to enable an aggressive strike. The same is true of 'missile defence' systems set up in Poland against Russia.

K , May 24, 2017 at 9:09 am GMT
@Joe Wong

"China repelled Indian invadors in Tibet."

*facepalm*

Dont rewrite history! Stick to discussing china-vietnam. You know nothing about the sino-indian war.

[Oct 30, 2017] In Capitalizing on Crisis, Greta Krippner shows that the financialization of the U.S. economy was not a deliberate outcome sought by policymakers, but rather an inadvertent result of the state's attempts to solve other problems.

Oct 30, 2017 | www.nakedcapitalism.com

Winston , October 29, 2017 at 9:49 pm

This may also have to do with postwar prosperity stalling by 1960s!
See:
"thinking about the policy environment that made the turn to finance possible. And, in a nutshell, the argument of the book is that there were a number of discrete policy decisions that were quite influential in shaping this outcome, but those policies decisions were not made with the goal or objective of creating a financialized economy. They were really ad hoc, inadvertent responses to unresolved distributional conflict in US society as growth rates in the economy slowed. And one of the interesting things to me about the financial crisis of 2008-2009 is that those distributional dilemmas came right back to the surface. Financialization was not a resolution of these problems, but a displacement of them into the future. It was a kind of deferral."
http://uknowledge.uky.edu/cgi/viewcontent.cgi?article=1380&context=disclosure
Financialization and Social Theory: An Interview with Dr. Greta Krippner

See her paper also:
https://www.slideshare.net/conormccabe/greta-krippner-2005-the-financialization-of-the-american-economy

And video:
https://www.youtube.com/watch?v=N9X1hD1aGsQ
In Capitalizing on Crisis, Greta Krippner shows that the financialization of the U.S. economy was not a deliberate outcome sought by policymakers, but rather an inadvertent result of the state's attempts to solve other problems. Krippner traces the ways in which policies conducive to financialization allowed the state to avoid a series of economic, social, and political dilemmas that confronted policymakers as postwar prosperity stalled beginning in the late 1960s.

[Oct 29, 2017] If You Look Behind Neoliberal Economists, You'll Discover the Rich: How Economic Theories Serve Big Business

Highly recommended!
Notable quotes:
"... By Dániel Oláh, a macroeconomic analyst at Hungary's Ministry for National Economy, Forecasting and Modeling Unit. He received his master's degree in economics from Central European University. Originally published at Evonomics . ..."
"... But what if modeling is just an euphemism for modern ideologies? Think of the efforts of neoclassical macroeconomics – for instance, DSGE models – to find the philosophical notion of equilibrium, irrespective of the non-equilibrium nature of the real world, let alone income inequalities. (But also think of Mannheim's paradox that the critique of an ideology – like this article – is also ideological.) ..."
"... Hayek's model was working as an ideology in real life, not at all different from that of the Soviet side. At least we get this impression if we take a look at the cartoon version of Hayek's Road to Serfdom ..."
"... So, Hayek's well-written piece of social philosophy was turned into a black-and-white, stylized world, where keeping the wartime planning roles of the government deterministically leads to the planning of thinking, recreation and disciplining of all individuals. ..."
"... The support for neoliberal policies by one of the largest companies presents how economic theory is embraced – and transformed – by the big business in the 20 th century. ..."
"... The intellectual revolution against the state was building on several new theories, arguing for the ineffectiveness of economic policies. These theories were needed to convince academicians of the intellectual merits of neoclassical economics, allowing them to sympathesize with the neoliberal framework. Milton Friedman argued that active discretionary fiscal and monetary policies are harmful or ineffective because of timing problems among others. As for fiscal policy, the permanent income hypothesis also tried to argue that short-term demand management is ineffective because if they think it to be temporary people save their additional income from the government instead of spending it. New classical macroeconomics was building on the Ricardian equivalence theory to show the same – that a temporary tax cut won't boost consumption, since people know that they have to cover the costs of that policy later. Friedman also explained the new phenomena of stagflation, stating that people adjust their expectations so that an increasing money supply results in only higher inflation, but unemployment remains the same. ..."
"... But this leads to the main paradox of neoliberalism. Its economic system needs a strong state, even at the expense of constraining democracy, to guarantee property rights and the working of the free market, while actively maintaining the rule of neoliberal social philosophy. At the same time some of its proponents tend to dismiss strong states (Mirowski, 2013). In fact, laissez faire was the last thing neoliberals wanted to achieve. This paradoxical stance towards the state led Milton Friedman, the policy entrepreneur to become an advisor of the Chilean dictator, Augusto Pinochet to transform Chile into a policy playground. ..."
"... The Road to Serfdom ..."
"... "I share all your worries and concerns as expressed in The Road to Serfdom and I'm going to go into politics and put it all right." ..."
"... "No you're not! Society's course will be changed only by a change in ideas. First you must reach the intellectuals, the teachers and writers, with reasoned argument. It will be their influence on society which will prevail, and the politicians will follow" (Hayek, 2001: p. 19) . ..."
"... Without Fisher, no IEA; without the IEA and its clones, no Thatcher and quite possibly no Reagan; without Reagan, no Star Wars; without Star Wars, no economic collapse of the Soviet Union. Quite a chain of consequences for a chicken farmer! ..."
"... The neoliberal ideology was successful from the perspective of the big business. The eighties is marked by the start of declining wage shares all over the world, as the distribution of produced added value reflected the strenghtening of global capital. ..."
"... Source: Haldane (2015) ..."
"... The point for neoliberalism is not to make a model that is more adequate to the real world, but to make the real world more adequate to its model ..."
"... Sources in the original ..."
Oct 29, 2017 | www.nakedcapitalism.com

Posted on October 29, 2017 by Lambert Strether Lambert here: I'm hoisting this one paragraph:

But this leads to the main paradox of neoliberalism. Its economic system needs a strong state, even at the expense of constraining democracy, to guarantee property rights and the working of the free market, while actively maintaining the rule of neoliberal social philosophy. At the same time some of its proponents tend to dismiss strong states (Mirowski, 2013). In fact, laissez faire was the last thing neoliberals wanted to achieve. This paradoxical stance towards the state led Milton Friedman, the policy entrepreneur to become an advisor of the Chilean dictator, Augusto Pinochet to transform Chile into a policy playground.

If there should be "markets in everything," it follows there should be markets in selling off bits of the state. That works until it doesn't, as (I would argue) the Tory heirs of Maggie Thatcher are discovering.

By Dániel Oláh, a macroeconomic analyst at Hungary's Ministry for National Economy, Forecasting and Modeling Unit. He received his master's degree in economics from Central European University. Originally published at Evonomics .

Social classes have always embraced ideas and social philosophies. Not only to understand and interpret the real world, but most importantly to change it to their benefit. These theories (primarily in social science) have become beweaponed ideas called ideologies, as they are used to influence rather than to understand the human universe. Of course the two are related: the nature of our understanding, i.e. what we consider important and what we leave out from our theoretical framework, is called modelling.

But what if modeling is just an euphemism for modern ideologies? Think of the efforts of neoclassical macroeconomics – for instance, DSGE models – to find the philosophical notion of equilibrium, irrespective of the non-equilibrium nature of the real world, let alone income inequalities. (But also think of Mannheim's paradox that the critique of an ideology – like this article – is also ideological.)

The great Austrian economist Friedrich Hayek didn't favor mathematical modeling, but he had clear philosophical models in his head. One of his most famous statements is related to the slippery road to dictatorships: if you introduce a little bit of state involvement in the economy, you have already stepped on this messy road to serfdom. The main intention of this model was to call for action and to raise awareness against the increasing governments in an era when the battle between the West and the East hadn't yet been decided.

Hayek's model was working as an ideology in real life, not at all different from that of the Soviet side. At least we get this impression if we take a look at the cartoon version of Hayek's Road to Serfdom . This was his main work on social philosophy and economics, arguing for individualism and liberalism. Hayek's argumentation in defense of a minimal state was so powerful that General Motors decided to sponsor the production of the comic version.

So, Hayek's well-written piece of social philosophy was turned into a black-and-white, stylized world, where keeping the wartime planning roles of the government deterministically leads to the planning of thinking, recreation and disciplining of all individuals.

The support for neoliberal policies by one of the largest companies presents how economic theory is embraced – and transformed – by the big business in the 20 th century.

Theoretical Innovations as Part of an Anti-State Ideology

The Keynesian era lasted for a long time, providing stability and increasing real wages for workers. In the seventies, a seismic paradigm shift happened with the returning of pre-Keynesian neoclassical ideas. Roger E. Backhouse (2005) took the numerous reasons for this change into account. The period of full employment lasted for so long that it was easy to forget that it wasn't a natural order, but the result of conscious policies. In this world, the disadvantages of the market was hidden by active governments, which opened the possibility to turn the critical attention towards the state. Especially in the wake of the new economic crisis that brought stagflation. Keynesian economics wasn't prepared for such new economic environment just like its neoclassical counterpart was shocked by the 1929 crisis.

The intellectual revolution against the state was building on several new theories, arguing for the ineffectiveness of economic policies. These theories were needed to convince academicians of the intellectual merits of neoclassical economics, allowing them to sympathesize with the neoliberal framework. Milton Friedman argued that active discretionary fiscal and monetary policies are harmful or ineffective because of timing problems among others. As for fiscal policy, the permanent income hypothesis also tried to argue that short-term demand management is ineffective because if they think it to be temporary people save their additional income from the government instead of spending it. New classical macroeconomics was building on the Ricardian equivalence theory to show the same – that a temporary tax cut won't boost consumption, since people know that they have to cover the costs of that policy later. Friedman also explained the new phenomena of stagflation, stating that people adjust their expectations so that an increasing money supply results in only higher inflation, but unemployment remains the same.

These theories traced the stagflation phenomena back to policy errors of the government. The rational expectations hypothesis argued that economic policy can't fool people for long since citizens use all new available information rationally when they react to activist government policies. The time inconsistency of governments also meant that discretionary policies may lead to economic harm, so long-term, rule-based policies and commitment to these will be credible and efficient.

Another direction of theories focused directly on the sins of politicians and the government. Public choice theories applied the standard economic theories to politicians and politics, desanctualizing the sphere of politics and transforming it to the area of market forces, emphasizing that decision makers are also just as rational self-interested actors as everyone else. The conclusion was that we can't expect politicians to determine and follow the public interest. It's better to restrict them as much as we can – argues James M. Buchanan, Gordon Tullock and George Stigler, who were committed members of the Hayekian, neoliberal Mont Pelerin Society, the cradle of neoliberalism founded in 1947. Tullock developed another theory as well: the concept of rent-seeking to call the attention to the capture of the state by interest groups.

In parallel, new macroeconomic models, like most versions of the real-business cycle theory, visioned an economy where the government has no role to play any more: economic fluctuations don't mean that there is a problem with the economy. No government, no cry (and always equilibrium) – sings the RBC model of the time.

Neoclassical theorists offered an alternative: the introduction of market forces and property rights in all walks of life. Eugene Fama developed the efficient market hypothesis in Chicago, meaning that prices on the financial market always reflect all relevant, available information. The implication is that the market should be left to itself, allowing company managers to maximize shareholder value for the sake of the whole economy. The impossibility theorem of Kenneth Arrow also proved that the perfect, general economic equilibrium exists, which implies the efficiency of competitive markets.

Arrow developed his theories at RAND Corporation, the Cold War think tank established by the US government, which was a main actor on the theoretical battlefield between the US and the Soviet Union. As Sonja Amadae (2003) argues, several of the theories mentioned above – the rational choice framework – provided the theoretical empowerment of Western liberal democracy with a limited state. She shows that there was considerable governmental efforts in the US after World War II to create new ideas, proving the validity and superiority of liberal democracy in a world where socialist planning was admired also by Western intellectuals and societies.

It's not surprising that Francis Fukuyama, who was also a member of RAND Corporation, made the political statement in 1989 that the liberal democracy with its neoliberal economic system is the best and final one in our history.

Empowered Ideas in Action

The Keynesian era was ended by an economic crisis, but also by political factors. The big business wanted to achieve a policy change because labor gained strong political positions between 1950 and 1970 (Harvey, 2007). Keynesian employment policies provided strong power to labor unions, which were primary allies in determining economic policies. But this led to the decrease of profit rates. A new globalization, based on the neoliberal thought collective was the reaction of business to its relatively marginalized position in governance to increase its bargaining power (Backhouse, 2005 ; Skidelsky, 2010). And business groups strongly supported the intellectual revolution (Mirowski & Plehwe 2009), which created the attracting utopia of the market, where the government is a needless actor. In this world, the entrepreneur is the value-creating hero, a completely perfect economic actor, and needs to be strongly supported – by a passive and small state, and also by the rest of the society.

But this leads to the main paradox of neoliberalism. Its economic system needs a strong state, even at the expense of constraining democracy, to guarantee property rights and the working of the free market, while actively maintaining the rule of neoliberal social philosophy. At the same time some of its proponents tend to dismiss strong states (Mirowski, 2013). In fact, laissez faire was the last thing neoliberals wanted to achieve. This paradoxical stance towards the state led Milton Friedman, the policy entrepreneur to become an advisor of the Chilean dictator, Augusto Pinochet to transform Chile into a policy playground.

The paradox appears when Hayek accepts sponsorship of General Motors. This is so, because he was the main opposition to any kind of planning in the economy. These issues were known by the core intelligentsia of the Mont Pelerin Society – as Mirowski (2013) argues –, but weren't communicated through the media. The communication that the society is a theoretical descendant of the classical school was clearly false.

This paradox didn't prevent the Hayekian thought collective to become an ideology. They declared that the main objective was to change the way people think: the main goal of the society wasn't to develop scientific theories – many different schools of thought were represented in the society – but to save and promote values they believe in. The conscious strategy to become the mainstream was a distinctive feature of the neoliberals.

The appearance of the successful businessmen Antony Fisher symbolized how the big business embraced neoliberal ideas. He was amazed by The Road to Serfdom , so much that he approached Hayek in 1945 at the London School of Economics. Just like David Ricardo more than hundred years before, Fisher wanted to go into politics to influence policy.

Fisher commented to Hayek:

"I share all your worries and concerns as expressed in The Road to Serfdom and I'm going to go into politics and put it all right."

The response of Hayek was:

"No you're not! Society's course will be changed only by a change in ideas. First you must reach the intellectuals, the teachers and writers, with reasoned argument. It will be their influence on society which will prevail, and the politicians will follow" (Hayek, 2001: p. 19) .

Although eight society members won Nobel prize in economics, the society hadn't set high academic standards for its members in order to attract representatives of the big business and other influencers.

To change the ideas of the public, neoliberals created a theoretical building of several floors. The basis is the methodology of positive economics, upon which the economic theories rest. And the final floor is the neoliberal ideology – as Claude Hillinger (2006) argues (this is what Mirowski (2013) calls a Russian doll).

Milton Friedman and George Stigler – with the help of corporate and political support – found the adequate tool to empower their ideas, which was the network of think-tanks, the use of scholarships provide by them, and the intensive use of media. This think-tank network wasn't for creating new ideas, but for being a gatekeeper and disseminating the existing set of ideas, and the „philosophy of freedom". Not only Backhouse (2005) , but also Adam Curtis (2011) , the British documentary film-maker also researched how Fisher created his global think-tank network, spreading the libertarian values of individual and economic – but never social and political – freedom, and also the freedom for capital owners from the state.

According to Curtis (2011) , the „ideologically motivated PR organisations" intended to achieve a technocratic, elitist system, which preserves actual power structures. As he notes, the successful businessmen created The Atlas Economic Research Foundation in 1981, which established 150 think-tanks around the globe. These institutions were set up based on the model of Institute for Economic Affairs (IEA), a think tank founded in 1955 by Fisher, which is a good example how the marginalized group of neoliberal thinkers got into intellectual and political power. Today, "more than 450 free-market organizations in over 90 countries" serve the "cause of liberty" through the network. The network of Fisher was largely directed by the members of Mont Pelerin Society (Djelic, 2014).

So we could add an imaginary upper floor to the neoliberal building, through which the commentators of seemingly independent think tanks represented very similar ideas – without informing the public that in terms of ideologies, it's not free to choose. At the same time, as Mirowski (2013) shows, the network promoted itself towards investors arguing that companies should invest in the production of transformative ideas, becoming policy products for final consumption in the end. (These investors are called edupreneurs by Rob Johnson ( 2017 ), who gives a revealing account of how philantrophists recreated the new parton-client model of the Renaissance in modern science.)

The second-hand dealers of ideas could indeed make a political difference. As Oliver Letwin British MP argued : " Without Fisher, no IEA; without the IEA and its clones, no Thatcher and quite possibly no Reagan; without Reagan, no Star Wars; without Star Wars, no economic collapse of the Soviet Union. Quite a chain of consequences for a chicken farmer! ".

Achieving a Successful Upward Redistribution

The neoliberal ideology was successful from the perspective of the big business. The eighties is marked by the start of declining wage shares all over the world, as the distribution of produced added value reflected the strenghtening of global capital. These years also meant the start of opening of the real wage-productivity gap , resulting in a previously unseen phenomena, the stagnating incomes of the middle class. At the same time, as a result of tax decreases inspired by the neoliberal political program the income of the top 10 percent started to increase dramatically in Great Britain and in the US, which were the homeland of the neoliberal counterrevolution (Alvaredo et al., 2013; Piketty-Saez, 2014).

Source: Haldane (2015)

The policy mistakes, arising from the philosophical and ideological nature of the neoliberal economics to achieve deregulation, were reflected in the increasing number of financial and economic crises. Margaret Thatcher, who once contributed to the development of libertarian think-tanks personally, having seen the soaring unemployment rates despite the implementation of neoliberal set of policies, argued in 1985 that she never believed in monetarist theories. The Washington Consensus, based on static neoclassical economics, turned a blind eye to the dynamic phenomena of institutions, thus contributed to the deep recessions in post-socialist countries in Central Europe. " The point for neoliberalism is not to make a model that is more adequate to the real world, but to make the real world more adequate to its model " – argues Simon Clarke (2005) . Meanwhile, according to David Colander (2004) , neoliberal economics reversed the attitude of classical thinkers, concluding that markets are the best, while their predecessors in the 18-19 th centuries were stating that markets are the least of all evils.

Neoliberalism created the (econo)mist of scientism and economism, decreasing pluralism in economics. These mechanisms to indoctrinate young scholars into the simplistic but often irrelevant models are needed to stabilize the scientific paradigm and the social-economic system built on it ( Earle et. al, 2016 ; Kwak, 2016 ). This distinctive feature of this system – as Dean Baker (2016) shows – is the protectionism of the capital owners and the maintenance of upward redistribution towards them, at the expense of wage growth of the labor force – this is why neoliberalism needs to capture the state.

But what is behind the neoliberal (econo)mist? Let's hope that it's not the road to serfdom.

Sources in the original .

oaf , October 29, 2017 at 7:04 am

neoliberalism is neofeudalism. Savings defeats rent-gathering. Savings bad. Bad consumer. Need more debt.

Also, parton-client? Suspect a typo.

Samuel Conner , October 29, 2017 at 9:10 am

He surely meant "patron-client" relationships, which were very important to science in Europe the 16th-19th centuries when there were no funding agencies of the kind we have today, such as NSF, NIH, etc. It's a bit disheartening to think that we are moving back in that direction.

Eustache De Saint Pierre , October 29, 2017 at 8:08 am

Good to see Adam Curtis getting a mention – a trawl through his history of documentaries catches most of the rotten fish, particularly for the UK.

BillC , October 29, 2017 at 8:28 am

In the seventies, a seismic paradigm shift happened with the returning of pre-Keynesian neoclassical ideas.

The "Backhouse (2005)" link in the first paragraph of the section "Theoretical Innovations as Part of an Anti-State Ideology" is no longer valid. Although its 2009 publication shows it's not the precise article Oláh cites, it appears that this article by the same author nicely summarizes the same material . It's an interesting read and not too long given the history it covers.

nonsense factory , October 29, 2017 at 10:41 am

From that perspective, all one has to do is look at the gross failures of the 'econometric models' that neoliberal economists embraced.

Exhibit A is those economists who ran around in the early 1990s waving the output of econometric models that 'proved' that NAFTA would raise wages and living standards for workers in both Mexico and the United States.

Exhibit B is those economists who promoted deregulation of the California electricity market in the late 1990s, again based on neoliberal ideas such as the one cited in the article:
The impossibility theorem of Kenneth Arrow also proved that the perfect, general economic equilibrium exists, which implies the efficiency of competitive markets.

Exhibit C is deregulation of the financial industry in the late 1990s, elimination of Glass-Steagall rules on separation of investment and commercial banking, which set the stage for the 2008 economic collapse, again based on neoliberal economic ideology.

The conclusion, really, is that today's academic economic discipline is highly flawed – it is barely descriptive, with zero predictive value. The above quote about the 'impossibility theorem' – this is the kind of thing that ecological sciences examined and dispensed with many decades ago. For example, theories about 'ecological equilibrium' gave rise to fire suppression strategies; today ecologists recognize these were flawed, that natural disturbances (fire, landslides, etc.) are a fundamental feature of ecological systems.

Incidentally, isn't this why economists are sequestered away in business departments in academic system, so that they don't have to face real scientific criticism? Econometric modeling is nothing but garbage based on false assumptions – but how many academic economic careers are built on such dissertations?

Synoia , October 29, 2017 at 4:26 pm

Exhibit A is those economists who ran around in the early 1990s waving the output of econometric models that 'proved' that NAFTA would raise wages and living standards for workers

That's the objective of a well paid economist. Produce the correct form of mumbo-jumbo which suits you clients' end, and retire into a well paid environment, such as President of Harvard.

Economics is for "might makes right," not about truth in the "scientific method" sense.

But what is behind the neoliberal (econo)mist? Let's hope that it's not the road to serfdom.

Yes and I also believe in the tooth fairy.

flora , October 29, 2017 at 4:30 pm

About Exhibit B – California energy deregulation: did someone say 'Enron'?

https://www.creators.com/read/molly-ivins/05/06/molly-ivins-may-30-03b7ab17

Collins , October 29, 2017 at 9:37 am

"Benevolent dictatorships" involoving some form of serfdom (actual or virtual) are the norm through human history and can be quite stable and productive (England, various Chinese dynasties, Italian city-states). Time will tell if present day benevolent dictatorships such as Russia, China or Vietnam will also be. Non-benevolent dictatorships (Aztec, Mayan, Mongol, Stalinist) did not. Syria is a toss-up, but illustrates the unpredictability of human behavior; the govt there largely left you alone if you kept quiet (as opposed to the extreme example of say N. Korea ), but look what happened.
Here in America the Neoliberal BeneDicta is Wall St/Global Cap, and the Young Turks of that class (the Fang & other tech billionaires – and it is a class ) lead the charge for the universal basic income, similar to free bread for Roman citizens 2000 years ago. And is the universal hand-held device (free in America if you're poor), used primarily for distraction, gossip and entertainment really all that different than free admission to the Coluseum?

But will it work?

Jeremy Grimm , October 29, 2017 at 4:25 pm

as was written on a Roman drinking cup from the late 3rd Century Rome:
"VITA BONA FRVARVR FELICES".

ape , October 29, 2017 at 9:48 am

"But what if modeling is just an euphemism for modern ideologies?"

If the model is fuzzy, say 70 pages of words with signs of 2nd derivatives and no fixed points, you can guarantee you're curve fitting and thus just mathematizing ideology.

If you give yourself a hard problem, with clear values and only a few words where you can really check whether you're fooling yourself, then it's not. Ask Feynmann about this.

But a lot of economics papers look like the first -- I see pages and pages of words, then a curve that would fit almost anything, then words and word, finally a few tables and an exercise in curve fitting.

That's the issue with soft sciences -- people tend to cheat with math.

nonsense factory , October 29, 2017 at 11:00 am

Ha Joon Chang wrote an exellent book, "Economics: The User's Guide" which has a few choice quotes on that issue:

[Unquestioning acceptance of economic pronouncements] exists mainly because, especially in the last few decades, people have been led to believe that, like physics or chemistry, economics is a 'science', in which there is only one correct answer to everything; thus non-experts should simply accept the 'professional consensus' and stop thinking about it.

Economics can never be a science in the sense that physics or chemistry is. There are many different types of economic theory, each emphasizing different aspects of complex reality, making different moral and political value judgements and drawing different conclusions. Moreover, economic theories constantly fail to predict real-world developments even in areas on which they focus, not least because human beings have their own free will, unlike chemical molecules or physical objects.

If we take ecology, for example, the recolonization of an area destroyed by volcanism, it's very hard to predict the exact species composition that will eventually result. We generally don't think of plants, insects, birds, etc. as having much 'free will', either. So predicting what humans will do is clearly more difficult. A comparable economic problem is what the recovery from war or depression will end up looking like. Anyone claiming to have 'hard mathematical forecasts' for such future outcomes – well, they're just trying to sell you something. "We base everything on hard math" is just a marketing tactic. As Ha Joon Chang further notes:

In the run-up to the 2008 economic crisis, the majority of the economics profession was preaching to the world that markets are rarely wrong and that modern economics has found ways to iron out those few wrinkles that markets may have; Robert Lucas, the 1995 winner of the Nobel Prize in Economics [*the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel] had declared in 2003 that the 'problem of depression prevention has been solved.' So most economists were caught by surprise by the 2008 global financial crisis. Not only that, they have not been able to come up with decent solutions to the ongoing aftermaths of that crisis.

Thuto , October 29, 2017 at 11:18 am

I would suggest they are engaging in a form of intellectual subterfuge. They know that a pretentious sprinkling of math on anything tends to limit mainstream critique, and hardens claims into "indisputable facts" (facts that, by implication, were arrived at with scientific rigor as the guiding principle). Pull out a paper with some curves and formulas in it, present its contents as "laws of economics" and yourself as an expert, then you've gone a long way towards quietening dissent and extracting consent. It's when such unquestioning consent comes from our ruling classes that we run into trouble.

Jeremy Grimm , October 29, 2017 at 4:18 pm

Long ago when I took a course on the calculus of variations [a topic I never really understood and never used -- but which I believe to be extremely important as an area of knowledge and study -- one of many I regret having ignorance of] the professor -- in the mathematics department -- often commented about how frequently he encountered bad mathematics and false reasoning used in the mathematics he reviewed in economics papers -- papers he had sometimes scoured looking for examples to use for the textbook he'd written [a truly excellent textbook now available from Dover Books]. He said the economists seemed intent on mis-using Hamiltonians where a more simple use of the calculus of variations [simple for him -- ugh!] would have more easily provided an answer and also revealed the errors in their models.

RN , October 29, 2017 at 10:09 am

I see at least 3 internal contradictions or logical inconsistencies in the so called neo-liberal policies.

1. State is essential to protect "the interests" , but not to the extent of promoting "the rest". It is a delicate balancing act in framing the laws and regulations. Sometimes, these laws come back to haunt "the interests" themselves. – unintended consequences.

2. interests of Oligopolies are to be protected as the cost of perfect competition – in the name of free markets and market competition !!!

3. These policies result in monotonically increasing level of concentration of wealth and power. The end result will be only a handful of people will ultimately own the entire wealth in the world. The top 10 percenters will end up being losers to the top 1 percenters and the top 1 percenters will also end up being losers to the top 0.1 percenters and so on. It is like killing the goose laying the golden eggs.

Jeremy Grimm , October 29, 2017 at 4:03 pm

Simplify -- the Market knows All. If at first policies fail -- build a better Market -- and if that requires the coercion of the State how is that a problem?

If the top 0.1 percenters own the entire wealth in the world -- how is that a problem? As for geese laying golden eggs -- who cares as long as you have enough golden eggs to make all the ducks stand in line and march to your songs.

Synoia , October 29, 2017 at 4:29 pm

Simplify -- the Market knows All.

Deflects blame, shifts criticism, and avoids responsibility. It's as factual as saying "its god's will," and equally effective at dismissing any attempt for change.

ape , October 29, 2017 at 10:09 am

"The impossibility theorem of Kenneth Arrow also proved that the perfect, general economic equilibrium exists, which implies the efficiency of competitive markets."

Cite? I thought Arrow's impossibility proves that all general voting system can fail to satisfy perfect justice, by his axioms of perfect justice for voting (transitivity, et al). I don't see how that proves general economic equilibrium, given that in general most theoretical systems fail to have a stable equilibrium -- steady state is an exception, not a general condition. Or is there another Arrow's impossibility theorem?

EoH , October 29, 2017 at 10:16 am

Too much passive voice, a little shy on agency. Think tanks, for example, were not "found", but created by the patrons of neoliberal academics, rather like taking their ribs and forming new partners, whose utterances needn't survive the rigors and self-criticism of traditional academic life.

As Mirowski and others contend at length, neoliberalism is a political tool for those desiring the outcomes it espouses. A "self-regulating" market, a contradiction in terms, is a market substantially controlled by its strongest actors. By neoliberal definition, that excludes government. As Klein argues, its policy experiments sometimes had to be implemented at the point of a gun (Friedmanites in Chile, Argentina, Brazil), owing to their consequences being so obviously against the interests of so many.

Now that neoliberalism has become the established church, it will take a reformation to dislodge it. The predictable response will be that we should follow a diet of worms.

Steve Ruis , October 29, 2017 at 10:23 am

The phrase "the road to serfdom" implies we are still on it. I suggest instead, that for most people, we are already "there." We may not be "tied to the land" but we are tied to a pre-existing "job," one that pays just enough to keep us alive and not too disgruntled. (If you don't work, you don't eat. We can own land, but not enough to be self-sufficient.) The option of living off the land no longer exists because all of the land is "owned" now. So, like serfs, there is nowhere to go where the options are different. There is no road out of serfdom. As much as the elites like to beat the drum of entrepreneurism and social mobility, these things do not exist for huge swaths of our society.

Civilization was created so the many could serve the few. Civilizations were created by religious elites and carried on by a coalition of religious coercion and physical coercion: the basic equation was to get the "subjects" to produce a surplus which the elites would confiscate so they could live (usually as lavishly as possible). Slavery and war were upscaled to feed the system.

Has all of this changed because iPhones? I suggest not. Slavery still exists, wage slavery exists, poverty is still prevalent, and the rich keep getting richer. Is this what civilization is for? Any outside observer would have to conclude that any other goal for civilization is not yet observable.

Collins , October 29, 2017 at 11:41 am

But advances in energy, nutrition, public health and other sciences have made life much easier and actually occasionally enjoyable for untold millions whose ancestors were truly dirt poor.
The question is, will the advances be enough to prevent violent revolution? England, Spain, Japan, Argentina, Thailand dodged violent class-based revolution, while France, Russia, China, Bolivia, Haiti, Vietnam, Cambodia and Iran did not. I don't think it's truly predictable for a given society.

Carolinian , October 29, 2017 at 10:39 am

Re the above and yesterday's discussion of neoliberalism–while it's been a long time I recall many of the arguments put forth by the Washington Monthly crowd who became the journalistic spearhead for the revival of neoliberalism–Democratic party version. Charlie Peters and his acolytes saw what they called neoliberalism as a reform movement. Some had also been involved in Ralph Nader's consumer groups and the thrust was that large institutions in both government and business had become ossified and inefficient. The Big Three auto makers were the poster children for this with their exploding Pintos and low quality cars made by supposedly indifferent but union protected laborers. From this perspective the reduction of regulations was a way of encouraging competition that would make entrenched bureaucracies accountable. Kahn's airline deregulation for example was promoted as a boon that would benefit travelers by reducing airline ticket prices (and it did for a time). I'm not sure the movement could simply be put down as a plot by business interests. The Washington Monthly's Peters claimed to be an old style FDR liberal.

But as in Orwell's Animal Farm, the revolutionaries quickly became overlords and as corrupt as the institutions they were criticizing. Many moved to Peretz' New Republic -- not exactly a hotbed of idealism.

Perhaps the takeaway is that theories matter less than the quality of the individuals involved. These days the leadership ranks of both parties and the academics who support them very much need the boot.

Enquiring Mind , October 29, 2017 at 10:48 am

This think-tank network wasn't for creating new ideas, but for being a gatekeeper and disseminating the existing set of ideas, and the "philosophy of freedom".

Awareness of gatekeeper roles and their ramifications is one issue of grave concern to many citizens. There are variations of the role playing in different parts of society whether in the Ivory Tower, Think Tanks (self-designated with initial capitals), media or other areas. Recently, that role in media has come under scrutiny as seen during and after the US campaign and election. Who gets to control what appears as news, and will the NY Times editorial board cede any of that, for example?

The increasing impact of social media in dissemination of information and use of influencers represents a type of Barbarians at the Literal Gate. The boards and think tanks won't easily relinquish their positions, any more than the gatekeepers of prior eras would willingly do so.

This era is unsettling to the average person on the street, and particularly to those living on the street, because they have been told one thing with certainty and gravitas and then found out something else that was materially opposed. In the meantime, truth continues to seek an audience.

Jeremy Grimm , October 29, 2017 at 3:50 pm

The assertion you selected from today's post seems clearly false to me. The think-tank organizations definitely create new ideas and often conflict with each other. Their topics and views also tend to dominate discussions and steal the oxygen from outside ideas.

They are schools of agnotology flooding discussion of every policy with their "answers" and contributing to the Marketplace of ideas.

Sluggeaux , October 29, 2017 at 12:04 pm

As flora points out in yesterday's George Monbiot/Gaius Publius neoliberalism thread, Hayek and Mieses grew up under Habsburg absolutism; Ayn Rand grew up under Romanov absolutism. All that they knew of the actual non-theoretical experience of democracy and free markets came from the insecurity of coming of age under the chaos of the collapse of those two empires during the break to re-arm during 1919-1939 in what should be seen as a single 1914-1945 European war.

The founders of neoliberalism appear in these descriptions to suffer for a nostalgia for pre-war absolutism that self-interested western capitalists have been happy anoint themselves to fill. Their alien neoliberal ideology is nothing but absolutist-nostalgic garbage, shoved down the throats of its victims via simplistic but well-funded propaganda. Neoliberalism's false premise of the benevolence of the absolutism of wealth is quite literally the road to serfdom for the rest of humanity.

Norb , October 29, 2017 at 12:13 pm

The kleptocrats of the world are struggling to find a workable power sharing solution to keep their rule intact. The power of the neoliberal order is that it has beguiled the masses into believing that satisfying short term personal wants constitutes a meaningful social order. The constant churn and turnover of consumer goods is the purpose of life instead of participating in the construction and maintenance of lasting, stable social institutions and customs. This is the culmination of turning citizens into consumers. It is a different form of bondage and slavery. The perfect system of enslaving oneself.

The trouble with the neoliberal order its that the old tools in maintaining its power and relevance are reaching limits. As technology democratizes the use of force, it is more difficult to impose ones will. Also, as the weapons become more devastating, their use would instantly disrupt the entire network supporting the political structure. Imagine the consequence of a nuclear exchange. Neoliberalism needs an existing social structure upon which to deploy its parasitic ideology and methods. As Michael Hudson aptly described in his Killing the Host, once that social structure is weakened or destroyed, neoliberalism will be incapable of functioning. It would have to become naked totalitarianism in order to survive.

The question has always been how do you justify and deal with inequality. With human stupidity, climate change, and planetary resource depletion bearing down on every society, how that question is answered rises to the fore and cannot be papered over with greater reams of propaganda. It seems we are once again on the verge of a truly Revolutionary era- like it or not.

Susan the other , October 29, 2017 at 1:26 pm

Since the 60s all of our Big Boondoggles like Star Wars were embezzlements. The neoliberal mandate quoted above "The point for neoliberalism is not to make a model that is more adequate to the real world, but to make the real world more adequate to its model" is pure hubris. And it has finally run its course by serving us all up a big fat mess. It is very encouraging to see this essay cite so many recent analysts. It's beginning to look like critical mass.

Most of us are thinking about the stock market these days and anticipating a downturn if not a crash. But what if they triggered a crash and nobody came? What if the stock market just stagnates and sits there? The only buyer these days is the Fed but the Fed might refuse to "expand its balance sheet". And in perfect circular logic, this prevents the stock market from crashing because nobody's buying. And where does this leave neoliberal economies and their governments? It will be a tad embarrassing. And also too what if nobody wants to become a worked-to-death entrepreneur with a crappy idea just to make a profit and keep running the squirrel wheel? We don't have to be a capitalist, socialist, or free market society at all. The only thing we are required to be is just. Constitutionally.

Synoia , October 29, 2017 at 4:33 pm

And in perfect circular logic, this prevents the stock market from crashing because nobody's buying.

Or selling. If nobody's buying, and some are selling, that trend is like going over a waterfall. One starts slowly, but does not die until the bottom.

Jeremy Grimm , October 29, 2017 at 3:34 pm

I wish you were right that " the neoliberal order [is] reaching [its] limits" but I am afraid your observation: "It would have to become naked totalitarianism in order to survive" -- may be all too true and all too likely. I've been trying to come to grips with what a " truly Revolutionary era- like it or not" -- could mean.

Frederick1337 , October 29, 2017 at 12:39 pm

The Keynesian truth seems highly classified top secret material. That the first two postulates of the Ricardian theory are flawed, should not be spoken of. Neo-liberal mantra dictates life and evolution itself at some point, wealth dictates the ability to procreate.

Unfortunately for the neo-liberal elite, the end of the "endless" expansionary period of the "new" industrial age ( globalism ) has come, just as it had at the end of the development of the United States. Demand, it seems, once again, can no longer equal supply. The reward ( wage unit ) no longer far outweighs the disutility of labor, no more is it marginal, and gone is the efficiency of capital. The great casinos in the sky have crashed and burned, replaced with a hollow shell of freedom, or perhaps it is only the lie of it. A rich man gambled greatly on those casinos falling down and it is an even more rich man who gambles with him on ever greater portions of real estate, blood, slavery and tax cuts. Perhaps savings indeed should equal investment. Investment in our children and society. Critical thinking, our greatest unit of trade value, even until disposable neo-liberal ideology has been washed away by the ever changing tide of common sense.

flora , October 29, 2017 at 12:53 pm

Economic philosophies come down to questions of morals and ethics: what is 'good' and why; what is 'bad' and why? (These questions often come down to the philosophical questions about "the one and the many"*)

Some (brief) history of moral philosophy in business, or markets:
"Plato is known for his discussions of justice in the Republic, and Aristotle explicitly discusses economic relations, commerce and trade under the heading of the household in his Politics. His discussion of trade, exchange, property, acquisition, money and wealth have an almost modern ring, and he makes moral judgments about greed, or the unnatural use of one's capacities in pursuit of wealth for its own sake, and similarly condemns usury because it involves a profit from currency itself rather than from the process of exchange in which money is simply a means. .

"John Locke developed the classic defense of property as a natural right. For him, one acquires property by mixing his labor with what he finds in nature.7 Adam Smith is often thought of as the father of modern economics with his An Inquiry into the Nature and Causes of the Wealth of Nations. Smith develops Locke's notion of labor into a labor theory of value. In modern times commentators have interpreted him as a defender of laissez-faire economics, and put great emphasis on his notion of the invisible hand. Yet the commentators often forget that Smith was also a moral philosopher and the author of The Theory of Moral Sentiments. For him the two realms were not separate."
-Dr. Richard T. DeGeorge
https://www.scu.edu/ethics/focus-areas/business-ethics/resources/a-history-of-business-ethics/

Now to this article:
"The great Austrian economist Friedrich Hayek didn't favor mathematical modeling, but he had clear philosophical models in his head. One of his most famous statements is related to the slippery road to dictatorships: ."

This is a moral claim or ethical claim: Dictatorships are bad.** Well, I accept that statement. I judge dictatorships bad. I do not want a dictatorship oppressing me or my fellow citizens for any reason.

Hayek feared oppression from an unchecked left, imo.

Again, from De George:
"Marx claimed that capitalism was built on the exploitation of labor. Whether this was for him a factual claim or a moral condemnation is open to debate; but it has been taken as a moral condemnation since 'exploitation' is a morally charged term and for him seems clearly to involve a charge of injustice. Marx's claim is based on his analysis of the labor theory of value, according to which all economic value comes from human labor." (ibid- from link above)

No doubt the old USSR became despotic, supposedly in the name of ending exploitation of labor. (Gulags?)

Back to Olah's paper and definitions. The following line could be rewritten to fit the Marxist USSR moral claims with no loss in accuracy.

"But this leads to the main paradox of neoliberalism communism. Its economic system needs a strong state, even at the expense of constraining democracy, to guarantee property worker rights and the working of the free market communal, while actively maintaining the rule of neoliberal Marxist social philosophy."

It's easy to imagine neoliberalism leading to the same despotic conditions in mirror image of the old communist states. Crushing individuals in the name of Market Rights and neoliberal market philosophy, from an unchecked Marketism.

-- -- -- -- -- -- -- -- -- -- –

* "The question which haunts the dialectical culture is this: how to have unity without totally undifferentiated and meaningless oneness? If all things are basically one, the differences are meaningless, divisions false, and definitions are sophistications, in that the tyranny, or destiny, of oneness is the truth of all being. [my aside: neoliberalism]But, if all things are basically many, and if plurality is ultimate, then the world dissolves into unrelated particulars and becomes, as some thinkers insist, not a universe but a multiverse, and every atom is in a sense its own law and being. [communism] The first leads to the breakdown of differences and the liberty of atomistic individualism and particularity; the second is the breakdown of fundamental law into nihilism and the retreat of men and their arts into isolated and private universes"
― Rousas John Rushdoony, The One And The Many: Studies In The Philosophy Of Order And Ultimacy

flora , October 29, 2017 at 1:18 pm

corrections in footnote *paragraph: [My aside: neoliberalism communism]
and [ communism neoliberalism]

flora , October 29, 2017 at 1:07 pm

Longer comment in moderation.
Shorter comment:

"The great Austrian economist Friedrich Hayek didn't favor mathematical modeling, but he had clear philosophical models in his head. One of his most famous statements is related to the slippery road to dictatorships: "

Dictatorship is a bad and an immoral form of government – whether from the left (communists) or the right (Marketists). Hayek and neoliberals only consider the danger from the left, not from the right. This is moral philosophy, as Adam Smith knew. A technical claim for efficiency is not a moral claim to justice or the good. There is no moral claim in neoliberalism that withstands examination. imo.

JIm , October 29, 2017 at 1:36 pm

It may be time to revisit the socialist calculation debate of the mid-1930 where, over a period of vears, von Mises and von Hayek debated socialist economists like Oskar Lange and A.P. Lerner.

Mises argued that capitalism allowed for a much broader participation in decision-making than that permitted by the cult of nationalization and planning. At that time much of the Left chose to ignore this critique by pointing to the evidence of capitalist failure and apparent Soviet success in rehabilitating the Soviet economy and embarking on a road to industrialization.

Lange responded to Mises's challenge by conceding that planning, even carried out by the most democratic of governments would lack proper economic criteria and that to prevent a relapse into more authoritarian solutions, socialist planning authorities would need to develop a simulated market with a system of shadow prices that could be used to compare different paths to development

Hayek, in the early 1940s, further developed the Austrian critique through his argument that collectivist ownership would erase responsibility for investment decisions making it impossible to accurately assess the responsibility for mistakes.

Hayek also pointed to the fragmented and dispersed character of economic knowledge, and as as Mirowski has argued in his new book "The Knowledge We Have Lost in Information,"– managed to establish the first commandment of neo-liberalism "that markets's don't so much exist to allocate given physical resources so much as to integrate and disseminate something called knowledge." and " that the market ceased to look like a mechanical conveyor belt and instead began to take on the outlines of a computer."

Mirowski adds that It was this new image of markets as superior information processors that has apparently swept everyone along from-neoclassical theorists to market socialists."

Is it true that the Austrian critique can only be met by a case for socialist self-management and .public enterprise that bases itself on the dispersed character of economic knowledge and refuses the tempting delusion of a totally planned economy?

How does the Left today respond to the Hayek/Mises arguments of the 1940s, with their attempted vindication of entrepreneurship, risk-taking, innovation and the need to make economic agents responsible in the use of resources?

Jeremy Grimm , October 29, 2017 at 3:23 pm

"How does the Left today respond ?" Very good question! I would add to that "How does the Left respond to the Market as an epistemology?"

I'll attempt a half-assed answer to the question of " attempted vindication of entrepreneurship, risk-taking, innovation and the need to make economic agents responsible in the use of resources?" [The question I posed is highly problematic for me. Once I accepted Mirowski's assertion that Neoliberals really truly believe this nonsense of the Market as an information processor -- an arbiter of the Truth -- I was flummoxed. I cannot argue with what to me is absurd. However Mirowski convincingly argues that addressing the central absurdity of the Neoliberal Ideology is crucial to any argument with its true believers.]

I'm very old fashioned I admit. I believe humankind has a number of personality types each suited to select and fill various niches in society. There are builders and makers of things. There are those who empathize and care for others. There are those who like to grow things and raise and care for animals. There are those who invent and make new things and think new ways. There are those who teach. There are those who conserve -- and those who break away and cast out in new directions -- pathfinders. There are those who like to decide and direct as well as those quite happy to follow reasonable direction. This is the merest thumbnail sketch but you should see the flesh of a very old concept of human society.

The entrepreneur is but one more type of individual in human society. Entrepreneurs are neither special not specially deserving of acclaim or riches. However what they do is useful. Society benefits by sharing a small portion of resources to entrepreneurs while also absorbing some of their risks of failure so that both gain. If an entrepreneur achieves success that benefits society and there is little cost in sharing a somewhat greater part of that gain with the entrepreneur as an encouragement. I have met and known some I regard as "true" entrepreneurs. They did indeed hope to make a financial gain from their efforts and risk -- but that was NOT what motivated them. That was not their core.

The classic Liberal notion that an entrepreneur deserves and has right to all of the gain from their actions is very difficult for me to argue. Like the Neoliberal notion of the Market as epistemology this Liberal notion strikes me as an absurdity. I am again flummoxed.

Jeremy Grimm , October 29, 2017 at 2:47 pm

I found this post very confusing and it stimulated what to me is a confusing maelstrom of comments. I'll stick with the title of this post rephrasing it as "How Economic Theories Serve the Power Elite". I don't believe the Rich and Big Business are equivalent to the entirety of the Power Elite but I do believe they have achieved a degree of prominence -- perhaps as a result of sponsoring Neoliberalism. I think of Neoliberalism as an ideology rather than a school of economic theories. So I should rephrase the title again as "How Ideologies Serve the Power Elite."

I believe Phillip Mirowski captures the most complete and accurate depiction of Neoliberal Ideology. I also believe the C. Wright Mills and his successor G. William Domhoff have captured the essential structures of Political Power in their characterization of the Power Elite.

So -- How do Ideology and Political Power interact? What is their dynamic? Altandmain pointed to a very troubling paragraph in the Michal Kalecki essay in yesterday's comments. Looking at that essay once more I am troubled also by its conclusion. Kalecki concludes the potential for a rise of Fascism -- as in the political/economic definition of the term -- in 1943 America was slight and would be mitigated by the progressive politics in sway during those times. I would argue that the Ideology of Nazi Fascism achieved dominion over the existing Power Elites in Germany [as well as the business interests in the US who supplied money and expertise to the German Reich]. I also believe the Ideology of Soviet Communism achieved dominion over the Power Elites in Russia. In both cases Ideology drove the State toward horrendous actions I cannot reconcile as providing any service to a Power Elite.

The Power Elites of much of the world embrace and bolster the Ideologies of Neoliberalism using them as tools to consolidate their power and line their pockets. What is the chance Neoliberalism might cast off its leash and what kind of world might we see as a result? Does the ascendance of an Ideology represent a cusp -- a singularity -- not well accounted for in the structural analysis of Political Power?

[Oct 29, 2017] The elte is continuing globalization push. S>heeple are too mesmerized by TV, weed, games, phones, sports, booze, food, the internet and their shitty jobs to ever realize they are in a cage.

Oct 29, 2017 | www.zerohedge.com

In other parts in this series, I have discussed the tools that the elite are using to achieve their goals. In part I, I talked about how debt is used as a tool of enslavement, and in part II I explained how central banking is a system of financial control that literally dominates the entire planet ( Part III and Part IV here) Professor Quigley also mentioned this system of financial control in his book

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole."

Today, a system of interlocking global treaties is slowly but surely merging us into a global economic system. The World Trade Organization was formed on January 1, 1995, and 164 nations now belong to it. And every time you hear of a new "free trade agreement" being signed, that is another step toward a one world economy.

Of course economics is just one element of their overall plan. Ultimately the goal is to erode national sovereignty almost completely and to merge the nations of the world into a single unified system of global governance.

... ... ...

Once you start looking into these things, you will see that the elite are very openly telling us what they intend to do.

One of my favorite examples of this phenomenon is a quote from David Rockefeller's book entitled Memoirs

Some even believe we are a part of a secret cabal working against the best interests of the United States, characterizing my family and me as 'internationalists' and of conspiring with others around the world to build a more integrated global political and economic structure – one world, if you will. If that's the charge, I stand guilty and I am proud of it

As David Rockefeller openly admitted, they are "internationalists" that are intent on establishing a one world system.

... ... ...

Michael Snyder is a Republican candidate for Congress in Idaho's First Congressional District, and you can learn how you can get involved in the campaign on his official website . His new book entitled "Living A Life That Really Matters" is available in paperback and for the Kindle on Amazon.com .

[Oct 25, 2017] When will Trump voters realize they have been had

Oct 25, 2017 | www.defenddemocracy.press

See if you can put it all together from the resumes of those in President-elect Donald Trump's closest political circle so far:

  1. Treasury secretary nominee Steven Mnuchin: Goldman Sachs.
  2. Chief strategist Steve Bannon: Goldman Sachs .
  3. Transition adviser Anthony Scaramucci: Goldman Sachs.
  4. Commerce secretary nominee Wilbur Ross: Rothschild & Co.
  5. Possible budget director Gary Cohn: Goldman Sachs.

[Oct 24, 2017] When will Trump voters realize they've been had Defend Democracy Press

Oct 24, 2017 | www.defenddemocracy.press

See if you can put it all together from the resumes of those in President-elect Donald Trump's closest political circle so far:

  1. Treasury secretary nominee Steven Mnuchin: Goldman Sachs.
  2. Chief strategist Steve Bannon: Goldman Sachs .
  3. Transition adviser Anthony Scaramucci: Goldman Sachs.
  4. Commerce secretary nominee Wilbur Ross: Rothschild & Co.
  5. Possible budget director Gary Cohn: Goldman Sachs.

[Oct 24, 2017] Goldman Sachs ruling America by Gary Rivlin, Michael Hudson

Highly recommended!
Notable quotes:
"... Cohn was there to offer his views about jobs and the economy. But, like the man he was there to meet, he was at heart a salesman. ..."
"... Cohn, brash and bold, wired to attack any moneymaking opportunity, pitched a fix that would put Wall Street firms at the center: Private-industry partners could help infrastructure get fixed, saving the federal government from going deeper into debt. The way the moment was captured by the New York Times , among other publications , Trump was dumbfounded. "Is this true?" he asked. Was a trillion-dollar infrastructure plan likely to increase the deficit by a trillion dollars? Confronted by nodding heads, an unhappy president-elect said, "Why did I have to wait to have this guy tell me?" ..."
"... Within two weeks, the transition team announced that Cohn would take over as director of the president's National Economic Council. ..."
"... The conflicts between the two men were striking. Cohn ran a giant investment bank with offices in financial capitals around the globe, one deeply committed to a world with few economic borders. Trump's nationalist campaign contradicted everything Goldman Sachs and its top executives represented on the global stage. ..."
"... Even before Scaramucci, Sen. Elizabeth Warren, D-Mass., had joked that enough Goldman alum were working for the Trump administration to open a branch office in the White House. ..."
"... "There was a devastating financial crisis just over eight years ago," Warren said. "Goldman Sachs was at the heart of that crisis. The idea that the president is now going to turn over the country's economic policy to a senior Goldman executive turns my stomach." Prior administrations often had one or two people from Goldman serving in top positions. George W. Bush at one point had three. At its peak, the Trump administration effectively had six. ..."
"... There are also striking similarities in their business histories. Both have a knack for weathering scandals and setbacks and coming out on top. Trump has filed for bankruptcy four times, started a long list of failed businesses (casinos, an airline, a football team, a steak company), but managed, through his best-selling books and highly rated reality TV show, to recast himself as the world's greatest businessman. During Cohn's tenure as president, Goldman Sachs faced lawsuits and federal investigations that resulted in $9 billion in fines for misconduct in the run-up to the subprime meltdown. Goldman not only survived but thrived, posting record profits -- and Cohn was rewarded with handsome bonuses and a position at the top of the new administration. ..."
"... Like any publicly traded company, there would now be pressure on Goldman Sachs to make its quarterly numbers and "maximize shareholder value." Discarding the partner model also meant the loss of a valuable restraint on risk-taking and bad behavior. Under the old system, any losses or fines came out of the partners' pockets ..."
"... Under Cohn, the firm aggressively moved into the subprime mortgage market, using Goldman's own money and that of its customers to help stoke the housing bubble. ..."
"... In just three years, Goldman Sachs had increased its trading volume by a factor of 50, which the Wall Street Journal attributed to "Cohn's successful push to rev up risk-taking and use of Goldman's own capital to make a profit" -- what the industry calls proprietary trading, or prop trading. ..."
"... "He reshaped the culture of the mortgage department into more of a trading environment." ..."
"... With Blankfein and Cohn at the top, the transformation of Goldman Sachs was complete. By 2009, investment banking had shrunk to barely 10 percent of the firm's revenues. Richard Marin, a former executive at Bear Stearns, a Goldman competitor that wouldn't survive the mortgage meltdown, saw Cohn as "the root of the problem." Explained Marin, "When you become arrogant in a trading sense, you begin to think that everybody's a counterparty, not a customer, not a client. And as a counterparty, you're allowed to rip their face off." ..."
"... Cohn was a member of Goldman's board of directors during this critical time and second in command of the bank. At that point, Cohn and Blankfein, along with the board and other top executives, had several options. They might have shared their concerns about the mortgage market in a filing with the SEC, which requires publicly traded companies to reveal "triggering events that accelerate or increase a direct financial obligation" or might cause "impairments" to the bottom line. They might have warned clients who had invested in mortgage-backed securities to consider extracting themselves before they suffered too much financial damage. At the very least, Goldman could have stopped peddling mortgage-backed securities that its own mortgage trading desk suspected might soon collapse in value. Instead, Cohn and his colleagues decided to take care of Goldman Sachs. ..."
"... At Goldman Sachs, Cohn was known as a hands-on boss who made it his business to walk the floors, talking directly with traders and risk managers scattered throughout the firm. "Blankfein's role has always been the salesperson and big-thinker conceptualizer," said Dick Bove, a veteran Wall Street analyst who has covered Goldman Sachs for decades. "Gary was the guy dealing with the day-to-day operations. Gary was running the company." While making his rounds, Cohn would sometimes hike a leg up on a trader's desk, his crotch practically in the person's face. ..."
"... At 6-foot- 2, bullet-headed and bald with a heavy jaw and a fighter's face, Cohn cut a large figure inside Goldman. Profiles over the years would describe him as aggressive, abrasive, gruff, domineering -- the firm's "attack dog." He was the missile Blankfein launched when he needed to deliver bad news or enforce discipline. Cohn embodied the new Goldman: the man who would run through a brick wall if it meant a big payoff for the bank. ..."
"... The biggest threat to Goldman was the economic health of the American International Group. ..."
"... Goldman and its clients were looking at multibillion-dollar hits to their bottom line -- a potentially fatal blow. ..."
"... But as Goldman learned a century ago, it pays to have friends in high places. The day after Lehman went bankrupt, the Bush administration announced an $85 billion bailout of AIG in return for a majority stake in the company. ..."
"... Once free of government interference, the Goldman board (which included Cohn himself) paid him a $9 million bonus in 2009 and an $18 million bonus in 2010. ..."
"... Yet the once venerated firm was now the subject of jokes on the late-night talk shows. David Letterman broadcast a "Goldman Sachs Top 10 Excuses" list (No. 9: "You're saying 'fraud' like it's a bad thing."). ..."
"... After news leaked that the firm might pay its people a record $16.7 billion in bonuses in 2009, even President Barack Obama, for whom the firm had been a top campaign donor, began to turn against Goldman, telling " 60 Minutes ," "I did not run for office to be helping out a bunch of fat-cat bankers on Wall Street." ..."
"... The firm finally acknowledged that it had failed to conduct basic due diligence on the loans its was selling customers and, once it became aware of the hazards, did not disclose them. ..."
"... "Gary was the tip of the spear for Goldman to beat back regulatory reform," said Kelleher, the financial reform lobbyist. "I used to pass him going into different agencies. They brought him in when they wanted the big gun to finish off, to kill the wounded." ..."
"... Yet defanging the Volcker Rule remained the firm's top priority. Promoted by former Fed Chair Paul Volcker, the rule would prohibit banks from committing more than 3 percent of their core assets to in-house private equity and hedge funds in the business of buying up properties and businesses with the goal of selling them at a profit. One harbinger of the financial crisis had been the collapse in the summer of 2007 of a pair of Bear Stearns hedge funds that had invested heavily in subprime loans. That 3 percent cap would have had a big impact on Goldman, which maintained a separate private equity group and operated its own internal hedge funds. But it was the restrictions Volcker placed on proprietary trading that most threatened Goldman. ..."
"... prop trading made up 48 percent of Goldman's. By one estimate , the Volcker Rule could cost Goldman Sachs $3.7 billion in revenue a year. ..."
"... Goldman had five years to prepare for some version of a Volcker Rule. Yet a loophole granted banks sufficient time to dispose of "illiquid assets" without causing undue harm -- a loophole that might even cover the assets Goldman had only recently purchased, despite the impending compliance deadline. The Fed nonetheless granted the firm additional time to sell illiquid investments worth billions of dollars. "Goldman is brilliant at exercising access and influence without fingerprints," Kelleher said. ..."
"... Just two years later, Goldman officials were again summoned by the Senate Permanent Subcommittee on Investigations to address charges that the bank under Cohn and Blankfein had boosted its profits by building a "virtual monopoly" in order to inflate aluminum prices by as much as $3 billion. ..."
"... Trump spoke of the great financial price Cohn paid to join him in the White House during his speech in Cedar Rapids. But something like the opposite was true. A huge amount of Cohn's wealth was tied up in Goldman stock. By entering government, he could sell his stake in the firm to comply with federal ethics laws. That way he could diversify his holdings and avoid roughly $50 million in capital gains taxes -- at least until he sold the replacement assets. ..."
"... As a presidential aide, Cohn did not need Senate approval. He was part of the skeletal crew that arrived at the White House on day one, giving him a critical head start on wielding his clout and cultivating his relationship with the new president. At that point, Trump was summoning Cohn to the Oval Office for impromptu meetings as many as five times a day . ..."
"... How exactly could Cohn recuse himself from matters involving Goldman when almost every aspect of his job has the potential to either grow Goldman's profits and inflate its stock price -- or tank them both? ..."
"... Yet rather than publicly recuse himself on attempts to undo Dodd-Frank, Cohn has led the charge from inside the White House. On that matter, Cohn is a walking, talking conflict of interest . ..."
"... Beyond deregulation, two other pillars of Trump's economic plan -- cutting taxes and investing in infrastructure -- would have dramatic impacts on Goldman's bottom line. ..."
Sep 17, 2017 | www.defenddemocracy.press

Steve Bannon was in the room the day Donald Trump first fell for Gary Cohn. So were Reince Priebus, Jared Kushner, and Trump's pick for secretary of Treasury, Steve Mnuchin. It was the end of November, three weeks after Trump's improbable victory, and Cohn, then still the president of Goldman Sachs, was at Trump Tower presumably at the invitation of Kushner, with whom he was friendly. Cohn was there to offer his views about jobs and the economy. But, like the man he was there to meet, he was at heart a salesman.

On the campaign trail, Trump had spoken often about the importance of investing in infrastructure. Yet the president-elect had apparently failed to appreciate that the government would need to come up with hundreds of billions of dollars to fund his plans. Cohn, brash and bold, wired to attack any moneymaking opportunity, pitched a fix that would put Wall Street firms at the center: Private-industry partners could help infrastructure get fixed, saving the federal government from going deeper into debt. The way the moment was captured by the New York Times , among other publications , Trump was dumbfounded. "Is this true?" he asked. Was a trillion-dollar infrastructure plan likely to increase the deficit by a trillion dollars? Confronted by nodding heads, an unhappy president-elect said, "Why did I have to wait to have this guy tell me?"

Within two weeks, the transition team announced that Cohn would take over as director of the president's National Economic Council.

1. GOLDMAN ALWAYS WINS

Goldman Sachs had been a favorite cudgel for candidate Trump -- the symbol of a government that favors Wall Street over its citizenry. Trump proclaimed that Hillary Clinton was in the firm's pockets, as was Ted Cruz. It was Goldman Sachs that Trump singled out when he railed against a system rigged in favor of the global elite -- one that "robbed our working class, stripped our country of wealth, and put money into the pockets of a handful of large corporations and political entities." Cohn, as president and chief operating officer of Goldman Sachs, had been at the heart of it all. Aggressive and relentless, a former aluminum siding salesman and commodities broker with a nose for making money, Cohn had turned Goldman's sleepy home loan unit into what a Senate staffer called "one of the largest mortgage trading desks in the world." There, he aggressively pushed his sales team to sell mortgage-backed securities to unaware investors even as he watched over "the big short," Goldman's decision to bet billions of dollars that the market would collapse.

Now Cohn would be coordinating economic policy for the populist president.

The conflicts between the two men were striking. Cohn ran a giant investment bank with offices in financial capitals around the globe, one deeply committed to a world with few economic borders. Trump's nationalist campaign contradicted everything Goldman Sachs and its top executives represented on the global stage.

Trump raged against "offshoring" by American companies during the 2016 campaign. He even threatened "retribution,"­ a 35 percent tariff on any goods imported into the United States by a company that had moved jobs overseas. But Cohn laid out Goldman's very different view of offshoring at an investor conference in Naples, Florida, in November. There, Cohn explained unapologetically that Goldman had offshored its back-office staff, including payroll and IT, to Bangalore, India, now home to the firm's largest office outside New York City: "We hire people there because they work for cents on the dollar versus what people work for in the United States."

Candidate Trump promised to create millions of new jobs, vowing to be "the greatest jobs president that God ever created." Cohn, as Goldman Sachs's president and COO, oversaw the firm's mergers and acquisitions business that had, over the previous three years, led to the loss of at least 22,000 U.S. jobs, according to a study by two advocacy groups. Early in his candidacy, Trump described as "disgusting" Pfizer's decision to buy a smaller Irish competitor in order to execute a "corporate inversion," a maneuver in which a U.S. company moves its headquarters overseas to reduce its tax burden. The Pfizer deal ultimately fell through. But in 2016, in the heat of the campaign, Goldman advised on a megadeal that saw Johnson Controls, a Fortune 500 company based in Milwaukee, buy the Ireland-based Tyco International with the same goal. A few months later, with Goldman's help, Johnson Controls had executed its inversion.

With Cohn's appointment, Trump now had three Goldman Sachs alums in top positions inside his administration: Steve Bannon, who was a vice president at Goldman when he left the firm in 1990, as chief strategist, and Steve Mnuchin, who had spent 17 years at Goldman, as Treasury secretary. And there were more to come. A few weeks later, another Goldman partner, Dina Powell, joined the White House as a senior counselor for economic initiatives. Goldman was a longtime client of Jay Clayton, Trump's choice to chair the Securities and Exchange Commission; Clayton had represented Goldman after the 2008 financial crisis, and his wife Gretchen worked there as a wealth management adviser. And there was the brief, colorful tenure of Anthony Scaramucci as White House communications director: Scaramucci had been a vice president at Goldman Sachs before leaving to co-found his own investment company.

Even before Scaramucci, Sen. Elizabeth Warren, D-Mass., had joked that enough Goldman alum were working for the Trump administration to open a branch office in the White House.

"There was a devastating financial crisis just over eight years ago," Warren said. "Goldman Sachs was at the heart of that crisis. The idea that the president is now going to turn over the country's economic policy to a senior Goldman executive turns my stomach." Prior administrations often had one or two people from Goldman serving in top positions. George W. Bush at one point had three. At its peak, the Trump administration effectively had six.

Earlier this summer, Trump boasted about his team of economic advisers at a rally in Cedar Rapids, Iowa. "This is the president of Goldman Sachs. Smart," Trump said . "Having him represent us! He went from massive paydays to peanuts."

Trump waved off anyone who might question his decision to rely on the very people he had demonized. "Somebody said, 'Why did you appoint a rich person to be in charge of the economy?' I said: 'Because that's the kind of thinking we want.'" He needed "great, brilliant business minds so the world doesn't take advantage of us." How else could he get the job done? "I love all people, rich or poor, but in those particular positions, I just don't want a poor person."

"Does that make sense?" Trump asked. The crowd cheered.

Years of financial disclosure forms confirm that Cohn is indeed very rich. At the end of 2016, he owned some 900,000 shares of Goldman Sachs stock, a stake worth around $220 million on the day Trump announced his appointment. Plus, he'd sold a million more Goldman shares over the previous half-dozen years. In 2007 alone, the year of the big short, Goldman Sachs paid him nearly $73 million -- more than the firm paid CEO Lloyd Blankfein. The disclosure forms Cohn filled out to join the administration indicate he owned assets valued at $252 million to $611 million. That may or may not include the $65 million parting gift Goldman's board of directors gave him for "outstanding leadership" just days before Trump was sworn in.

Like anyone taking a top job in the Trump administration, Cohn was required to sign a pledge vowing not to participate for the next two years in any matter "that is directly and substantially related to my former employer or former clients, including regulations and contracts." But presidents have sometimes issued waivers to these requirements, and it is unclear whether the Trump administration is making such waivers public.

Sens. Warren and Tammy Baldwin, a Democrat from Wisconsin, sent Cohn a letter a few days later. They brought up the $65 million bonus and asked him to publicly recuse himself from any issue that could have a direct or "significant indirect" impact on his old firm. Cohn never responded to the letter, and if he has ever received a waiver, it has not been made available to the public or the Office of Government Ethics.

"Consistent with the Trump administration's stringent ethics rules, Mr. Cohn will recuse himself from participating in any matter directly involving his former employer, Goldman Sachs," White House spokesperson Natalie Strom said. "The White House will not comment further."

The White House declined requests to make Cohn available for an interview and declined to answer a detailed set of questions.

Cohn shared the podium with fellow Goldman alum Mnuchin (the two made partner there the same year) when the administration unveiled its new tax plan, one that, if the past is prelude, had the potential to save Goldman more than $1 billion a year in corporate taxes. The president had promised to "do a number" on financial reforms implemented after the 2008 subprime crisis, including one that threatened to cost Goldman several billion dollars a year in revenues. Under Cohn, the administration has introduced new rules easing initial public offerings -- a Goldman Sachs specialty dating back to the start of the last century, when the firm handled the IPOs of Sears, Roebuck; F. W. Woolworth; and Studebaker. As Trump's top economic policy adviser, Cohn can exert influence over regulatory agencies that have shaken billions in penalties and settlements out of Goldman Sachs in recent years. And his former colleagues inside Goldman's Public Sector and Infrastructure group likely appreciate the Trump administration's infrastructure plan, which is more or less exactly as Cohn first pitched it inside Trump Tower in November.

"It's hard to see how Gary Cohn recusing himself would solve a lot of these conflicts because nearly every major decision of his job would have a significant impact, likely billions of dollars, on Goldman Sachs and its executives," said Tyler Gellasch, an attorney and former Senate staffer who helped draft Dodd-Frank, the landmark financial reform law passed in the wake of the financial meltdown. "Goldman touches nearly every aspect of the economy, from selling U.S. treasuries to helping companies go public, and the National Economic Council advises on all of that."

In the wake of last month's white supremacist rally in Charlottesville, Virginia, Cohn confessed to the Financial Times that he has "come under enormous pressure both to resign and to remain." But the man who the Washington Post has dubbed Trump's "moderate voice" declared that neo-Nazis would not force "this Jew" to leave his job. "As a patriotic American, I am reluctant to leave my post as director of the National Economic Council," Cohn told FT. "I feel a duty to fulfill my commitment to work on behalf of the American people."

Or at least a few of them. The Trump economic agenda, it turns out, is largely the Goldman agenda, one with the potential to deliver any number of gifts to the firm that made Cohn colossally rich. If Cohn stays, it will be to pursue an agenda of aggressive financial deregulation and massive corporate tax cuts -- he seeks to slash rates by 57 percent -- that would dramatically increase profits for large financial players like Goldman. It is an agenda as radical in its scope and impact as Bannon's was.

2. ALPHA MALES

Donald Trump, the "blue-collar billionaire," has taken great pains to write grit and toughness into his privileged biography. He talks of military schools and visits to construction sites with his father and wrote in "The Art of the Deal" that in the second grade, "I actually gave a teacher a black eye. I punched my music teacher because I didn't think he knew anything about music and I almost got expelled." Yet when the authors of the book "Trump Revealed: An American Journey of Ambition, Ego, Money, and Power" spoke to several of his childhood friends, none of them recalled the incident. Trump himself crumpled when asked about the incident during the 2016 campaign: "When I say 'punch,' when you're that age, nobody punches very hard."

Gary Cohn, however, is the middle-class kid and self-made millionaire Trump imagines himself to be. It appears that Cohn actually did slug a grade-school teacher in the face. "I was being abused," Cohn told author Malcolm Gladwell, who interviewed him for his book, "David and Goliath: Underdogs, Misfits, and the Art of Battling Giants," back when Cohn was still president of Goldman Sachs. As a child, Cohn struggled with dyslexia, a reading disorder people didn't understand much about when Cohn attended school in the 1970s in a suburb outside Cleveland. "You're a 6- or 7- or 8-year-old-kid, and you're in a public-school setting, and everyone thinks you're an idiot," Cohn confessed to Gladwell. "You'd try to get up every morning and say, today is going to be better, but after you do that a couple of years, you realize that today is going to be no different than yesterday." One time when he was in the fourth grade, a teacher put him under her desk, rolled her chair close, and started kicking him, Cohn said. "I pushed the chair back, hit her in the face, and walked out."

While Trump's father was a wealthy real estate developer, Cohn's father was an electrician. When Trump sought to get into the casino business, his father loaned him $14 million. When Cohn couldn't find a job after graduating from college, all his father could do was find him one selling aluminum siding. While Trump has the instincts of a reality show producer and an eye for spectacle, Cohn prefers to operate in the shadows.

But they likely recognize much of themselves in the other. Both Cohn and Trump are alpha males -- men of action unlikely to be found holed up in an office reading through stacks of policy reports. In fact, neither seems to be much of a reader. Cohn told Gladwell it would take him roughly six hours to read just 22 pages; he ended his time with the author by wishing him luck on "your book I'm not going to read." Both have a transactional view of politics. Trump switched his voter registration between Democratic, Republican, and independent seven times between 1999 and 2012. In the 2000s, his foundation gave $100,000 to the Clinton Foundation, and he contributed $4,700 to Hillary Clinton's senatorial campaigns. He even bought and refurbished a golf course in Westchester County a few miles from the Clinton home, in part, Trump once admitted, to ingratiate himself with the Clintons. Cohn is a registered Democrat who has given at least $275,000 to Democrats over the years, including to the campaigns of Hillary Clinton and Barack Obama, but also around $250,000 to Republicans, including Senate Majority Leader Mitch McConnell and Florida Sen. Marco Rubio.

There are also striking similarities in their business histories. Both have a knack for weathering scandals and setbacks and coming out on top. Trump has filed for bankruptcy four times, started a long list of failed businesses (casinos, an airline, a football team, a steak company), but managed, through his best-selling books and highly rated reality TV show, to recast himself as the world's greatest businessman. During Cohn's tenure as president, Goldman Sachs faced lawsuits and federal investigations that resulted in $9 billion in fines for misconduct in the run-up to the subprime meltdown. Goldman not only survived but thrived, posting record profits -- and Cohn was rewarded with handsome bonuses and a position at the top of the new administration.

Cohn's path to the White House started with a tale of brass and bluster that would make Trump the salesman proud. Still in his 20s and stuck selling aluminum siding, Cohn made a play that would change his life. In the fall of 1982, while visiting the company's home office on Long Island, he stole a day from work and headed to the U.S. commodities exchange in Manhattan, hoping to talk himself into a job. He overheard an important-looking man say he was heading to LaGuardia Airport; Cohn blurted out that he was headed there, too. He jumped into a cab with the man and, Cohn told Gladwell, who devoted six pages of "David and Goliath" to Cohn's underdog rise, "I lied all the way to the airport." The man confided to Cohn that his firm had just put him in charge of a market, options, that he knew little about. Cohn likely knew even less, but he assured his backseat companion that he could get him up to speed. Cohn then spent the weekend reading and re-reading a book called "Options as a Strategic Investment." Within the week, he'd been hired as the man's assistant.

Cohn soon learned enough to venture off on his own and established himself as an independent silver trader on the floor of the New York Commodities Exchange. In 1990, Goldman Sachs, arguably the most elite firm on Wall Street, offered him a job.

Goldman Sachs was founded in the years just after the American Civil War. Marcus Goldman, a Jewish immigrant from Germany, leased a cellar office next to a coal chute in 1869. There, in an office one block from Wall Street, he bought the bad debt of local businesses that needed quick cash. His son-in-law, Samuel Sachs, joined the firm in 1882. A generation later, in 1906, the firm made its first mark, arranging for the public sale of shares in Sears, Roebuck. Goldman Sachs's influence over politics dates back at least to 1914. That year, Henry Goldman, the founder's son, was invited to advise Woodrow Wilson's administration about the creation of a central bank, mandated by the Federal Reserve Act, which had passed the previous year. Goldman Sachs men have played important roles in U.S. government ever since.

There was the occasional scandal, such as Goldman Sachs's role in the 1970 collapse of Penn Central railroad, then the largest corporate bankruptcy in U.S. history. Still, the firm built a reputation as a sober, elite partnership that served its clients ably. In 1979, when John Whitehead, a senior partner and co-chairman, set to paper what he called Goldman's "Business Principles," he began with the firm's most cherished belief: The client's interests come before all else.

Two years later, Goldman took a step that signaled the beginning of the end of that culture. In the fall of 1981, Goldman purchased J. Aron & Co., a commodities trading firm. Some within the partnership were against the acquisition, worried over how profane, often crude, trading culture would mix with Goldman's restrained, well-mannered way of doing business. "We were street fighters," one former J. Aron partner told Fortune magazine in 2008.

The J. Aron team moved into the Goldman Sachs offices in lower Manhattan, but didn't adopt its culture. Within a few years, it was producing well over $1 billion a year in profits. They were 300 employees inside a firm of 6,000, but were posting one-third of Goldman's total profits. The cultural shift, it turned out, was moving in the other direction. J. Aron, according to a book by Charles D. Ellis, a former Goldman consultant, brought to Goldman "a trading culture that would become dominant in the firm."

Lloyd Blankfein, who ascended to chairman and CEO in in 2006, started his Goldman career at J. Aron, a year after Goldman acquired the firm. "We didn't have the word 'client' or 'customer' at the old J. Aron," Blankfein told Fortune magazine two years after taking over as CEO. "We had counter-parties." Cohn joined J. Aron eight years after Blankfein did, in 1990. Four years later, Blankfein was put in charge of the firm's Fixed Income, Currency, and Commodities division, which included J. Aron. Cohn, loyal and hard-working, with an instinct for connecting with people who can help him, became Blankfein's " corporate problem solver ."

The emergence of "Bad Goldman" -- and Cohn's central role in that drama -- is really the story of the rise of the traders inside the firm. "As trading came to be a bigger part of Wall Street, I noticed that the vision changed," said Robert Kaplan, a former Goldman Sachs vice chairman, who left in 2006 after working at the firm for 23 years. "The leaders were saying the same words, but they started to change incentives away from the value-added vision and tilt more to making money first. If making money is your vision, what lengths will you not go?"

At the height of the dot-com years, a debate raged within the firm. The firm underwrote dozens of technology IPOs, including Microsoft and Yahoo, in the 1980s and 1990s, minting an untold number of multimillionaires and the occasional billionaire. Some of the companies they were bringing public generated no profits at all, while Goldman was generating up to $3 billion in profits a year. It seemed inevitable that some within Goldman Sachs began to dream of jettisoning the Goldman's century-old partnership structure and taking their firm public, too. Jon Corzine was running the firm then -- he would later go into politics in the Goldman tradition, first as a U.S. senator and then as New Jersey governor -- and was four-square in favor of going public. Corzine's second in command, Henry Paulson -- who would go on to serve as Treasury secretary -- was against the idea. But Corzine ordered up a study that supported his view that remaining private stifled Goldman's competitive opportunities and promoted Paulson to co-senior partner. Paulson soon got on board. In May 1999, Goldman sold $3.7 billion worth of shares in the company. At the end of the first day of trading, Corzine's and Paulson's stakes in the firm were each worth $205 million. Cohn's and Mnuchin's shares were each worth $112 million. And Blankfein ended up with $168 million in company stock.

Like any publicly traded company, there would now be pressure on Goldman Sachs to make its quarterly numbers and "maximize shareholder value." Discarding the partner model also meant the loss of a valuable restraint on risk-taking and bad behavior. Under the old system, any losses or fines came out of the partners' pockets. In the early 1990s, for example, the firm was involved in transactions with Robert Maxwell, a London-based media mogul who was accused of stealing hundreds of millions of pounds from his companies' pension funds. The $253 million that Goldman Sachs paid to settle lawsuits brought by pension funds over its involvement was split among the firm's 84 limited partners. Now any losses are paid by a publicly traded entity owned by shareholders, with no direct financial liability for the decision-makers themselves. In theory, Goldman could claw back bonuses in response to executives' bad behavior. But in 2016, when Goldman paid over $5 billion to settle charges brought by the Justice Department that the firm misled customers in the sale of a subprime mortgage product during Cohn's time overseeing that unit, the Goldman board declined to dock Cohn's pay. Instead, the company awarded him a $5.5 million cash bonus and another $12.6 million in company stock.

As Blankfein moved up the corporate hierarchy, Cohn rose along with him. When Blankfein was made vice chairman in charge of the firm's multibillion-dollar global commodities business and its equities division, Cohn took over as co-head of FICC, Blankfein's previous position. That meant Cohn was overseeing not just J. Aron and the firm's commodities business, but also its currency trades and bond sales. By the start of 2004, Blankfein was promoted to president and COO, and Cohn was named co-head of global securities. At that point, Cohn had authority over the mortgage-trading desk. Under Cohn, the firm aggressively moved into the subprime mortgage market, using Goldman's own money and that of its customers to help stoke the housing bubble.

Goldman was already enabling subprime predators, such as Ameriquest and New Century Financial, by providing them with the cash infusions they needed to scale up their lending to individual home buyers. Cohn would steer the firm deeper into the subprime frenzy by setting up Goldman as a patron of some of these same mortgage originators. During his tenure, Goldman snapped up loans from New Century, Countrywide, and other notorious mortgage originators and bundled them into deals with opaque names, such as ABACUS and GSAMP. Under Cohn's watchful eye, Goldman's brokers then funneled slices to customers they sold on the wisdom of holding mortgage-backed securities in their portfolios.

One such creation, GSAA Home Equity Trust 2006-2, illustrates Goldman's disregard for the quality of loans it was buying and packaging into security deals. Created in early 2006, the investment vehicle was made up of more than $1 billion in home loans Goldman had bought from Ameriquest, one of the nation's largest and most aggressive subprime lenders. By that point, the lender already had set aside $325 million to settle a probe by attorneys general and banking regulators in 49 states, who accused Ameriquest of misleading thousands of borrowers about the costs of their loans and falsifying home appraisals and other key documents. Yet GSAA Home Equity Trust 2006-2 was filled with Ameriquest loans made to more than 3,000 homeowners in Arizona, Illinois, Florida, and elsewhere. By the end of 2008, 65 percent of the roughly 1,400 borrowers whose loans remained in the deal were in default, had filed for bankruptcy, or had been targeted for foreclosure.

In just three years, Goldman Sachs had increased its trading volume by a factor of 50, which the Wall Street Journal attributed to "Cohn's successful push to rev up risk-taking and use of Goldman's own capital to make a profit" -- what the industry calls proprietary trading, or prop trading. The 2010 Journal article quoted Justin Gmelich, then the firm's mortgage chief, who said of Cohn, "He reshaped the culture of the mortgage department into more of a trading environment." In 2005, with Cohn overseeing the firm's home loan desk, Goldman underwrote $103 billion in mortgage-backed securities and other more esoteric products, such as collateralized debt obligations, which often were priced based on giant pools of home loans. The following year, the firm underwrote deals worth $131 billion.

In 2006, CEO Henry Paulson left the firm to join George W. Bush's cabinet as Treasury secretary. Blankfein, Cohn's mentor and friend, took Paulson's place. By tradition, Blankfein, a trader, should have elevated someone from the investment banking side to serve as his No. 2, so both sides of the firm would be represented in the top leadership. Instead he named Cohn, his long-time loyalist, and Jon Winkelried, who also had history on the trading side, as co-presidents and co-COOs. Winkelried, who had started at Goldman eight years before Cohn, had probably earned the right to hold those titles by himself. But Cohn had the advantage of his relationship with the CEO. Blankfein and Cohn vacationed together in the Caribbean and Mexico, owned homes near each other in the Hamptons, and their children attended the same school. Winkelreid was out in two years. The bromance between his fellow No. 2 and the top boss may have proved too much.

With Blankfein and Cohn at the top, the transformation of Goldman Sachs was complete. By 2009, investment banking had shrunk to barely 10 percent of the firm's revenues. Richard Marin, a former executive at Bear Stearns, a Goldman competitor that wouldn't survive the mortgage meltdown, saw Cohn as "the root of the problem." Explained Marin, "When you become arrogant in a trading sense, you begin to think that everybody's a counterparty, not a customer, not a client. And as a counterparty, you're allowed to rip their face off."

3. THE BIG SHORT

People inside Goldman Sachs were growing nervous. It was the fall of 2006 and, as Daniel Sparks, the Goldman partner overseeing the firm's 400-person mortgage trading department, wrote in an email to several colleagues, "Subprime market getting hit hard." The firm had lent millions to New Century, a mortgage lender dealing in the higher-risk subprime market. And now New Century was late on payments. Sparks could see that the wobbly housing market was having an impact on his department. For 10 consecutive trading days, his people had lost money. The dollar amounts were small to a behemoth like Goldman: between $5 million and $30 million a day. But the trend made Sparks jittery enough to share his concerns with the Goldman's top executives: President Gary Cohn; David Viniar, the firm's chief financial officer; and CEO Lloyd Blankfein.

Sparks, a Cohn protégé, was running the mortgage desk that his mentor, only a few years earlier, had built into a major profit center for the bank. In 2006 and 2007, a report by the Senate Permanent Subcommittee on Investigations found, the two "maintained frequent, direct contact" as Goldman worked to jettison the billions in subprime loans it had on its book. "One of my jobs at the time was to make sure Gary and David and Lloyd knew what was going on," Sparks told William Cohan, author of the 2011 book "Money and Power: How Goldman Sachs Came to Rule the World . " "They don't like surprises." Viniar summoned around 20 traders and managers to a 30th floor conference room inside Goldman headquarters in lower Manhattan. It was there, on an unseasonably warm Thursday in December 2006, that the firm decided to initiate what people inside Goldman would eventually dub "the big short."

One name tossed around during the three-hour meeting was that of John Paulson. Paulson (no relation to Goldman's former CEO) would later attain infamy when it was revealed that his firm, Paulson & Co., made roughly $15 billion betting against the mortgage market. (His personal take was nearly $4 billion.) At that point, though, Paulson was a little-known hedge fund manager who crossed Goldman's radar when he asked the firm to create a product that would allow him to take a "short position" on the real estate market -- laying down bets that a large number of mortgage investments were going to plummet in value. Goldman sold Paulson what's called a credit-default swap, essentially an insurance policy that would pay off if homeowners defaulted on their mortgages in large enough numbers. The firm would create several more swaps on his behalf in the intervening months. Eventually, as mortgage defaults began to mount, people inside Goldman Sachs came to see Paulson as more of a prophet than a patsy. Some sitting around the conference table that December day wanted to follow his lead.

"There will be big opportunities the next several months," one Goldman manager at the meeting wrote enthusiastically in an email sent shortly after it ended. Sparks weighed in by email later that night. He wanted to make sure Goldman had enough "dry powder" -- cash on hand -- to be "ready for the good opportunities that are coming." That Sunday, Sparks copied Cohn on an email reporting the firm's progress on laying down short positions against mortgage-backed securities it had put together. The trading desk had already made $1.5 billion in short bets, "but still more work to do."

Cohn was a member of Goldman's board of directors during this critical time and second in command of the bank. At that point, Cohn and Blankfein, along with the board and other top executives, had several options. They might have shared their concerns about the mortgage market in a filing with the SEC, which requires publicly traded companies to reveal "triggering events that accelerate or increase a direct financial obligation" or might cause "impairments" to the bottom line. They might have warned clients who had invested in mortgage-backed securities to consider extracting themselves before they suffered too much financial damage. At the very least, Goldman could have stopped peddling mortgage-backed securities that its own mortgage trading desk suspected might soon collapse in value. Instead, Cohn and his colleagues decided to take care of Goldman Sachs.

Goldman would not have suffered the reputational damage that it did -- or paid multiple billions in federal fines -- if the firm, anticipating the impending crisis, had merely shorted the housing market in the hopes of making billions. That is what investment banks do: spot ways to make money that others don't see. The money managers and traders featured in the film "The Big Short" did the same -- and they were cast as brave contrarians. Yet unlike the investors featured in the film, Goldman had itself helped inflate the housing bubble -- buying tens of billions of dollars in subprime mortgages over the previous several years for bundling into bonds they sold to investors. And unlike these investors, Goldman's people were not warning anyone who would listen about the disaster about to hit. As federal investigations found, the firm, which still claims "our clients' interests always come first" as a core principle, failed to disclose that its top people saw disaster in the very products its salespeople were continuing to hawk.

Goldman still held billions of mortgages on its books in December 2006 -- mortgages that Cohn and other Goldman executives suspected would soon be worth much less than the firm had paid for them. So, while Cohn was overseeing one team inside Goldman Sachs preoccupied with implementing the big short, he was in regular contact with others scrambling to offload its subprime inventory. One Goldman trader described the mortgage-backed securities they were selling as "shitty." Another complained in an email that they were being asked to "distribute junk that nobody was dumb enough to take first time around." A December 28 email from Fabrice "Fabulous Fab" Tourre, a Goldman vice president later convicted of fraud, instructed traders to focus on less astute, "buy and hold" investors rather than "sophisticated hedge funds" that "will be on the same side of the trade as we will."

At Goldman Sachs, Cohn was known as a hands-on boss who made it his business to walk the floors, talking directly with traders and risk managers scattered throughout the firm. "Blankfein's role has always been the salesperson and big-thinker conceptualizer," said Dick Bove, a veteran Wall Street analyst who has covered Goldman Sachs for decades. "Gary was the guy dealing with the day-to-day operations. Gary was running the company." While making his rounds, Cohn would sometimes hike a leg up on a trader's desk, his crotch practically in the person's face.

At 6-foot- 2, bullet-headed and bald with a heavy jaw and a fighter's face, Cohn cut a large figure inside Goldman. Profiles over the years would describe him as aggressive, abrasive, gruff, domineering -- the firm's "attack dog." He was the missile Blankfein launched when he needed to deliver bad news or enforce discipline. Cohn embodied the new Goldman: the man who would run through a brick wall if it meant a big payoff for the bank.

A Bloomberg profile described his typical day as 11 or 12 hours in the office, a bank-related dinner, then phone calls and emails until midnight. "The old adage that hard work will get you what you want is 100 percent true," Cohn said in a 2009 commencement address at American University. "Work hard, ask questions, and take risk."

There's no record of how often Cohn visited his stomping grounds after hours in the early months of 2007, but emails reveal an executive demanding -- and getting -- regular updates. On February 7, one of the largest originators of subprime loans, HSBC, reported a greater than anticipated rise in troubled loans in its portfolio, and another, New Century, restated its earnings for the previous three quarters to "correct errors." Sparks wrote an email to Cohn and others the next morning to reassure them that his team was closely monitoring the pricing of the company's "scratch-and-dent book" and already had a handle on which loans were defaults and which could still be securitized and offloaded onto customers. An impatient Cohn sent a two-word email at 5 o'clock that evening: "Any update?" The next day, an internal memo circulated that listed dozens of mortgage-backed securities with the exhortation, "Let all of the respective desks know how we can be helpful in moving these bonds." A week later, Sparks updated Cohn on the billions in shorts his firm had bought but warned that it was hurting sales of its "pipeline of CDOs," the collateralized debt obligations the firm had created in order to sell the mortgages still on its books.

In early March, Cohn was among those who received an email spelling out the mortgage products the firm still held. The stockpile included $1.7 billion in mortgage-related securities, along with $1.3 billion in subprime home loans and $4.3 billion in "Alt-A" loans that fall between prime and subprime on the risk scale. Goldman was "net short," according to that same email, with $13 billion in short positions, but its exposure to the mortgage market was still considerable. Sparks and others continued to update Cohn on their success offloading securities backed by subprime mortgages through the third quarter of 2007. One product Goldman priced at $94 a share on March 31, 2007 was worth just $15 five months later. Pension funds and insurance companies were among those losing billions of dollars on securities Goldman put together and endorsed as a safe, AAA-rated investments.

The third quarter of 2007 was ugly. A pair of Bear Stearns hedge funds failed. Merrill Lynch reported $2.2 billion in losses -- its largest quarterly loss ever. Merrill's CEO warned that the bank faced another $8 billion in potential losses due to the firm's exposure to subprime mortgages and resigned several weeks later. The roiling credit crisis also took down the CEO of Citigroup, which reported $6.5 billion in losses and then weeks later, warned of $8 billion to $11 billion in additional subprime-related write-downs.

And then there was Goldman Sachs, which reported a $2.9 billion profit that quarter. For the moment, the financial press seemed in awe of Blankfein, Cohn, and the rest of the team running the firm. Fortune headlined an article "How Goldman Sachs Defies Gravity" that said Goldman's "huge, shrewd bet" against the mortgage market "would seem to confirm the view Goldman is the nimblest, and perhaps the smartest, brokerage on Wall Street." A Goldman press release drily noted that "significant losses" in some areas -- the subprime mortgages it hadn't managed to unload -- had been "more than offset by gains on short mortgage products." A Goldman trader who played a central role in the big short was not so demure when making the case for a big bonus that year. John Paulson was "definitely the man in this space," he conceded, but he'd helped make Goldman "#1 on the street by a wide margin."

Disaster struck nine months into 2008 with the collapse of Lehman Brothers, in large part the result of its exposure to subprime losses. Hank Paulson, the Treasury secretary and former Goldman CEO, spent a weekend meeting with would-be suitors willing to take over a storied bank that on paper was now worth virtually nothing. He couldn't find a buyer. Nor could officials from the Federal Reserve, who were also working overtime to save the investment bank, founded in 1850, that was even older than Goldman Sachs. Shortly after midnight on Monday, September 15, 2008, Lehman announced that it would file for bankruptcy protection when the courts in New York opened that morning -- the largest bankruptcy in U.S. history.

Goldman Sachs wasn't immune from the crisis. The week before Lehman's fall, Goldman's stock had topped $161 a share. By Wednesday, it dropped to below $100. It had avoided some big losses by betting against the mortgage market, but the wider financial crisis was wreaking havoc on its other investments. On paper, Cohn had personally lost tens of millions of dollars. He hunkered down in an office with a view of Goldman's trading floor and worked the phone, trying to change the minds of major investors who were pulling their money from Goldman, fearful of anything riskier than stashing their cash in a mattress.

The next week, Goldman converted from a free-standing investment bank to a bank holding company, which made it, in the eyes of regulators, no different from Wells Fargo, JPMorgan Chase, or any other retail bank. That gave the firm access to cheap capital through the Fed but would also bring increased scrutiny from regulators. The bank took a $10 billion bailout from the Troubled Asset Relief Program and another $5 billion from Warren Buffett, in return for an annual dividend of 10 percent and access to discounted company stock. The firm raised additional billions through a public stock offering.

The biggest threat to Goldman was the economic health of the American International Group. Among other products, AIG sold insurance to protect against defaults on mortgage assets, which had been central to Goldman's big short. Of the $80 billion in U.S. mortgage assets that AIG insured during the housing bubble, Goldman bought protection from AIG on roughly $33 billion, according to the Wall Street Journal. When Lehman went into bankruptcy, its creditors received 11 cents on the dollar. Executives at AIG, in a frantic effort to avoid bankruptcy, had floated the idea of pushing its creditors to accept 40 to 60 cents on the dollar; there was speculation creditors like Goldman would receive as little as 25 percent. Goldman and its clients were looking at multibillion-dollar hits to their bottom line -- a potentially fatal blow.

But as Goldman learned a century ago, it pays to have friends in high places. The day after Lehman went bankrupt, the Bush administration announced an $85 billion bailout of AIG in return for a majority stake in the company. The next day, Paulson obtained a waiver regarding interactions with his former firm because, the Treasury secretary said, "It became clear that we had some very significant issues with Goldman Sachs." Paulson's calendar, the New York Times reported, showed that the week of the AIG bailout, he and Blankfein spoke two dozen times. While creditors around the globe were being forced to settle for much less than they were owed, AIG paid its counterparties 100 cents on the dollar. AIG ended up being the single largest private recipient of TARP funding. It received additional billions in rescue funds from the New York Federal Reserve Bank, whose board chair Stephen Friedman was a former Goldman executive who still sat on the firm's board. The U.S. Treasury ended up with greater than a 90 percent share of AIG, and the U.S. government, using taxpayer dollars, paid in full on the insurance policies financial institutions bought to protect themselves from steep declines in real estate prices -- chief among them, Goldman Sachs. All told, Goldman received at least $22.9 billion in public bailouts, including $10 billion in TARP funds and $12.9 billion in taxpayer-funded payments from AIG.

Goldman, once again, had come out on top.

4. THE VAMPIRE SQUID

Goldman Sachs repaid repaid its $10 billion bailout partway through 2009, less than 12 months after the loan was made. Other banks in the U.S. and abroad were still struggling but not Goldman, which reported a record $19.8 billion in pre-tax profits that year, and $12.9 billion the next. Gary Cohn went without a bonus in 2008, left to scrape by on his $600,000 salary. Once free of government interference, the Goldman board (which included Cohn himself) paid him a $9 million bonus in 2009 and an $18 million bonus in 2010.

Yet the once venerated firm was now the subject of jokes on the late-night talk shows. David Letterman broadcast a "Goldman Sachs Top 10 Excuses" list (No. 9: "You're saying 'fraud' like it's a bad thing."). Rolling Stone's Matt Taibbi described the bank as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money," a devastating moniker that followed Goldman into the business pages. After news leaked that the firm might pay its people a record $16.7 billion in bonuses in 2009, even President Barack Obama, for whom the firm had been a top campaign donor, began to turn against Goldman, telling " 60 Minutes ," "I did not run for office to be helping out a bunch of fat-cat bankers on Wall Street."

"They're still puzzled why is it that people are mad at the banks," Obama said. "Well, let's see. You guys are drawing down $10, $20 million bonuses after America went through the worst economic year that it's gone through in decades, and you guys caused the problem."

Goldman was also facing an onslaught of investigations and lawsuits over behavior that had helped precipitate the financial crisis. Class actions and other lawsuits filed by pension funds and other investors accused Goldman of abusing their trust, making "false and misleading statements," and failing to conduct basic due diligence on the loans underlying the products it peddled. At least 25 of these suits named Cohn as a defendant.

State and federal regulators joined the fray. The SEC accused Goldman of deception in its marketing of opaque investments called "synthetic collateralized debt obligations," the values of which were tied to bundles of actual mortgages. These were the deals Goldman had arranged in 2006 on behalf of John Paulson so he could short the U.S. housing market. Goldman, it turned out, had allowed Paulson to cherry-pick poor-quality loans at the greatest risk of defaulting -- a fact Goldman did not share with potential investors. "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio," the SEC's enforcement director at the time said, "telling other investors that the securities were selected by an independent, objective third party."

Suddenly, Cohn and other Goldman officials were downplaying the big short. In June 2010, Cohn testified before the Financial Crisis Inquiry Commission, created by Congress to investigate the causes of the nation's worst economic collapse since the Great Depression. Cohn asked the commissioners how anyone could claim the firm had bet against its clients when "during the two years of the financial crisis, Goldman Sachs lost $1.2 billion in its residential mortgage-related business"? His statement was technically true, but Cohn failed to mention the billions of dollars the firm pocketed by betting the mortgage market would collapse. Senate investigators later calculated that, at its peak, Goldman had $13.9 billion in short positions that would only pay off in the event of a steep drop in the mortgage market, positions that produced a record $3.7 billion in profits.

Two weeks after Cohn's testimony, Goldman agreed to pay the SEC $550 million to settle charges of securities fraud -- then the largest penalty assessed against a financial services firm in the agency's history. Goldman admitted no wrongdoing, acknowledging only that its marketing materials "contained incomplete information." Goldman paid $60 million in fines and restitution to settle an investigation by the Massachusetts attorney general into the financial backing the firm had offered to predatory mortgage lenders. The bank set aside another $330 million to assist people who lost their homes thanks to questionable foreclosure practices at a Goldman loan-servicing subsidiary. Goldman agreed to billions of dollars in additional settlements with state and federal agencies relating to its sale of dicey mortgage-backed securities. The firm finally acknowledged that it had failed to conduct basic due diligence on the loans its was selling customers and, once it became aware of the hazards, did not disclose them.

In the final report produced by the Senate's Permanent Subcommittee on Investigations, Goldman Sachs was mentioned an extraordinary 2,495 times, and Gary Cohn 89 times. A Goldman Sachs representative declined to respond to queries on the record.

The investigations and fines were a blow to Goldman's reputation and its bottom line, but the regulatory reforms being debated had the potential to threaten Goldman's entire business model. Even before the 2008 crash, the firm's lobbying spending had grown under Lloyd Blankfein and Cohn. By 2010, the year financial reforms were being drafted, Goldman spent $4.6 million for the services of 49 lobbyists. Their ranks included some of the most well-connected figures in Washington, including Democrat Richard Gephardt, a former House majority leader, and Republican Trent Lott, a former Senate majority leader, who had stepped down from the Senate two years earlier.

Despite all those lobbyists on the payroll, Goldman made its case primarily through proxies during the debate over financial reform. "The name Goldman Sachs was so radioactive it worked to their disadvantage to be tied to an issue," said Marcus Stanley, then a staffer for Democratic Sen. Barbara Boxer and now policy director of Americans for Financial Reform. Instead, Goldman lobbied through industry groups.

Goldman's people likely knew that all of Wall Street's lobbying might could not stop the passage of the sprawling 2010 legislative package dubbed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Obama was putting his muscle behind reform -- "We simply cannot accept a system in which hedge funds or private equity firms inside banks can place huge, risky bets that are subsidized by taxpayers," he said in one speech -- and the Democrats enjoyed majorities in both houses of Congress. "For Goldman Sachs, the battle was over the final language," said Dennis Kelleher of Better Markets, a Washington, D.C., lobby group that pushes for tighter financial reforms. "That way they at least had a fighting chance in the next round, when everyone turned their attention to the regulators."

There was a lot for Goldman Sachs to dislike about Dodd-Frank. There were small annoyances, such as "say on pay," which ordered companies to give shareholders input on executive compensation, a source of potential embarrassment to a company that gave out $73 million in compensation for a single year's work -- as Goldman paid Cohn in 2007. There were large annoyances, such as the requirement that financial institutions deemed too big to fail, like Goldman, create a wind-down plan in case of disaster. There were the measures that would interfere with Goldman's core businesses, such as a provision instructing the Commodity Futures Trading Commission to regulate the trading of derivatives. And yet nothing mattered to Goldman quite like the Volcker Rule, which would protect banks' solvency by limiting their freedom to make speculative trades with their own money. Unless Goldman could initiate what Stanley called the "complexity two-step" -- win a carve-out so a new rule wouldn't interfere with legitimate business and then use that carve-out to render a rule toothless -- Volcker would slam the door shut on the entire direction in which Blankfein and Cohn had taken Goldman.

It was 5:30 a.m. on Friday, June 25, 2010, when a joint House-Senate conference committee approved the final language of Dodd-Frank. By Sunday, an industry attorney named Annette Nazareth -- a former top SEC official whose firm counts Goldman Sachs among its clients -- had already sent off a heavily annotated copy of the 848-page bill to colleagues at her old agency. It was just the first salvo in a lobbying juggernaut.

Within a few months, Cohn himself was in Washington to meet with a governor of the Federal Reserve, one of the key agencies charged with implementing Volcker. The visitors log at the CFTC, the agency Dodd-Frank put in charge of derivatives reform, shows that Cohn traveled to D.C. to personally meet with CFTC staffers at least six times between 2010 and 2016. Cohn also came to the capital for meetings at the SEC, another agency responsible for the Volcker Rule. There, he met with SEC chair Mary Jo White and other commissioners. "I seem to be in Washington every week trying to explain to them the unintended consequences of overregulation," Cohn said in a talk he gave to business students at Sacred Heart University in 2015.

"Gary was the tip of the spear for Goldman to beat back regulatory reform," said Kelleher, the financial reform lobbyist. "I used to pass him going into different agencies. They brought him in when they wanted the big gun to finish off, to kill the wounded."

Democrats lost their majority in the House that November, and Goldman threw its weight behind the spate of Republican bills that followed, aimed at taking apart Dodd-Frank piece by piece. Goldman spent more than $4 million for the services of 45 lobbyists in 2011 and $3.5 million a year in 2012 and 2013. Its lobbying spending was nearly as high in the years after passage of Dodd-Frank as it was the year the bill was introduced.

Goldman lobbyists dug in on a range of issues that would become top priorities for Republicans in the wake of Donald Trump's electoral victory. Records from the Center for Responsive Politics show that Goldman lobbyists worked to promote corporate tax cuts, such as on the Tax Increase Prevention Act of 2014 and Senate legislation aimed at extending some $200 billion in tax cuts for individuals and businesses. Goldman lobbied for a bill to fund economically critical infrastructure projects, presumably on behalf of its Public Sector and Infrastructure group. Goldman had seven lobbyists working on the JOBS Act, which would make it easier for companies to go public, another bottom-line issue to a company that underwrote $27 billion in IPOs last year. In 2016, Goldman had eight lobbyists dedicated to the Financial CHOICE Act, which would have undone most of Dodd-Frank in one fell swoop -- a bill the House revived in April.

Yet defanging the Volcker Rule remained the firm's top priority. Promoted by former Fed Chair Paul Volcker, the rule would prohibit banks from committing more than 3 percent of their core assets to in-house private equity and hedge funds in the business of buying up properties and businesses with the goal of selling them at a profit. One harbinger of the financial crisis had been the collapse in the summer of 2007 of a pair of Bear Stearns hedge funds that had invested heavily in subprime loans. That 3 percent cap would have had a big impact on Goldman, which maintained a separate private equity group and operated its own internal hedge funds. But it was the restrictions Volcker placed on proprietary trading that most threatened Goldman.

Prop trading was a profit center inside many large banks, but nowhere was it as critical as at Goldman. A 2011 report by one Wall Street analyst revealed that prop trading accounted for an 8 percent share of JPMorgan Chase's annual revenues, 9 percent of Bank of America's, and 27 percent of Morgan Stanley's. But prop trading made up 48 percent of Goldman's. By one estimate , the Volcker Rule could cost Goldman Sachs $3.7 billion in revenue a year.

When regulators finalized a new Volcker Rule in 2013, Better Markets declared it a "major defeat for Wall Street." Yet the victory for reformers was precarious. "Just changing a few words could dramatically change the scope of the rule -- to the tune of billions of dollars for some firms," said former Senate staffer Tyler Gellasch, who helped write the rule. Volcker gave banks until July 2015 -- the five-year anniversary of Dodd-Frank -- to bring themselves into compliance. Yet apparently the Volcker Rule had been written for other financial institutions, not elite firms like Goldman Sachs. "Goldman Sachs has been on a shopping spree with its own money," began a New York Times article in January 2015. The bank used its own funds to buy a mall in Utah, apartments in Spain, and a European ink company. Paul Volcker expressed disappointment that banks were still making big proprietary bets, as did the two senators most responsible for writing the rule into law. That June, Cohn appeared to reassure investors that Goldman would find a workaround. Speaking at an investor conference, he said Goldman was "transforming our equity investing activities to continue to meet client needs while complying with Volcker."

Goldman had five years to prepare for some version of a Volcker Rule. Yet a loophole granted banks sufficient time to dispose of "illiquid assets" without causing undue harm -- a loophole that might even cover the assets Goldman had only recently purchased, despite the impending compliance deadline. The Fed nonetheless granted the firm additional time to sell illiquid investments worth billions of dollars. "Goldman is brilliant at exercising access and influence without fingerprints," Kelleher said.

By mid-2016, Goldman, along with Morgan Stanley and JPMorgan Chase, was petitioning the Fed for an additional five years to comply with Volcker -- which would take the banks well into a new administration. All Blankfein and Cohn had to do was wait for a new Congress and a new president who might back their efforts to flush all of Dodd-Frank. Then Goldman could continue the risky and lucrative habits it had adopted since traders like Cohn had taken over the firm -- the financial crisis be damned -- and continue raking in billions in profits each year.

Goldman's political giving changed in the wake of Dodd-Frank. Dating back to at least 1990, according to the Center for Responsive Politics, people associated with the firm and its political action committees contributed more to Democrats than Republicans. Yet in the years since financial reform, Goldman, once Obama's second-largest political donor, shifted its campaign contributions to Republicans. During the 2008 election cycle, for instance, Goldman's people and PACs contributed $4.8 million to Democrats and $1.7 million to Republicans. By the 2012 cycle, the opposite happened, with Goldman giving $5.6 million to Republicans and $1.8 million to Democrats. Cohn's personal giving followed the same path. Cohn gave $26,700 to the Democratic Senatorial Campaign Committee in 2006 and $55,500 during the 2008 election cycle, and none to its GOP equivalent. But Cohn donated $30,800 to the National Republican Senatorial Committee in 2012 and another $33,400 to the National Republican Congressional Committee in 2015, without contributing a dime to the DSCC. Cohn gave $5,000 to Massachusetts Republican Scott Brown weeks after news broke that Elizabeth Warren -- an outspoken critic of Goldman and other Wall Street players -- might try to capture his U.S. Senate seat, which she did in 2012.

Goldman Sachs, under Cohn and Blankfein, was hardly chastened, continuing to play fast and loose with existing rules even as it plunged millions of dollars into fending off new ones. In 2010, the SEC ran a sting operation looking for banks willing to trade favorable assessments by its stock analysts for a piece of a Toys R Us IPO if the company went public. Goldman took the bait, for which they would pay a $5 million fine. An employee working out of Goldman's Boston office drafted speeches, vetted a running mate, and negotiated campaign contracts for the state treasurer during his run for Massachusetts governor in 2010, despite a rule forbidding municipal bond dealers from making significant political contributions to officials who can award them business. According to the SEC, Goldman had underwritten $9 billion in bonds for Massachusetts in the previous two years, generating $7.5 million in fees. Goldman paid $12 million to settle the matter in 2012.

Just two years later, Goldman officials were again summoned by the Senate Permanent Subcommittee on Investigations to address charges that the bank under Cohn and Blankfein had boosted its profits by building a "virtual monopoly" in order to inflate aluminum prices by as much as $3 billion.

The last few years have brought more unwanted attention. In 2015, the U.S. Justice Department launched an investigation into Goldman's role in the alleged theft of billions of dollars from a development fund the firm had helped create for the government of Malaysia. Federal regulators in New York state fined Goldman $50 million because its leaders failed to effectively supervise a banker who leaked stolen confidential government information from the Fed, which hit the firm with another $36.3 million in penalties. In December, the CFTC fined Goldman $120 million for trying to rig interest rates to profit the firm.

Politically, 2016 would prove a strange year for Goldman. Bernie Sanders clobbered Hillary Clinton for pocketing hundreds of thousands of dollars in speaking fees from Goldman, while Trump attacked Ted Cruz for being "in bed with" Goldman Sachs. (Cruz's wife Heidi was a managing director in Goldman's Houston office until she took leave to work on her husband's presidential campaign.) Goldman would have "total control" over Clinton, Trump said at a February 2016 rally, a point his campaign reinforced in a two-minute ad that ran the weekend before Election Day. An image of Blankfein flashed across the screen as Trump warned about the global forces that "robbed our working class."

Goldman's giving in the presidential race appears to reflect polls predicting a Clinton win and the firm's desire for a political restart on deregulation. People who identified themselves as Goldman Sachs employees gave less than $5,000 to the Trump campaign compared to the $341,000 that the firm's people and PACs contributed to Clinton. Goldman Sachs is relatively small compared to retail banking giants.

Yet, according to the Center for Responsive Politics , no bank outspent Goldman Sachs during the 2016 political cycle. Its PACs and people associated with the firm made $5.6 million in political contributions in 2015 and 2016. Even including all donations to Clinton, 62 percent of Goldman's giving ended up in the coffers of Republican candidates, parties, or conservative outside groups.

5. TROJAN HORSE

There's ultimately no great mystery why Donald Trump selected Gary Cohn for a top post in his administration, despite his angry rhetoric about Goldman Sachs. There's the high regard the president holds for anyone who is rich -- and the instant legitimacy Cohn conferred upon the administration within business circles. Cohn's appointment reassured bond markets about the unpredictable new president and lent his administration credibility it lacked among Fortune 100 CEOs, none of whom had donated to his campaign. Ego may also have played a role. Goldman Sachs would never do business with Trump, the developer who resorted to foreign banks and second-tier lenders to bankroll his projects. Now Goldman's president would be among those serving in his royal court.

Who can say precisely why Cohn, a Democrat, said yes when Trump asked him to be his top economic aide? No doubt Cohn has been asking himself that question in recent weeks. But he'd hit a ceiling at Goldman Sachs. In September 2015, Goldman announced that Blankfein had lymphoma, ramping up speculation that Cohn would take over the firm. Yet four months later, after undergoing chemotherapy, Blankfein was back in his office and plainly not going anywhere. Cohn was 56 years old when he was invited to Trump Tower. An influential job inside the White House meant a face-saving exit -- and one offering a huge financial advantage.

Trump spoke of the great financial price Cohn paid to join him in the White House during his speech in Cedar Rapids. But something like the opposite was true. A huge amount of Cohn's wealth was tied up in Goldman stock. By entering government, he could sell his stake in the firm to comply with federal ethics laws. That way he could diversify his holdings and avoid roughly $50 million in capital gains taxes -- at least until he sold the replacement assets.

A job in the White House might also prove an outlet for his frustrations with politicians and regulators intent on reining in the worst impulses of Wall Street. Trump was Trump, but he had also vowed to dismantle financial reform. "Dodd-Frank has made it impossible for bankers to function," Trump said during the campaign. The new president had the potential to serve as a vessel for Goldman's corporate interests.

"Maybe the one thing that holds this administration together is a belief that markets know best, and the least regulation is the best regulation," said Dennis Kelleher of Better Markets. "Goldman's interests fit with that very nicely."

Trump had given Steve Mnuchin, his campaign finance chair, the grander title. But taking over as Treasury secretary meant being confirmed by the Senate. Mnuchin's confirmation vote was delayed after it was revealed that he'd neglected to list $95 million in assets (including homes in New York, Los Angeles, and the Hamptons) on his Senate Finance Committee disclosure forms and failed to disclose his ties to an offshore hedge fund registered in the Cayman Islands. Mnuchin was not confirmed until mid-February. The president's pick for commerce secretary, Wilbur Ross, a financier who had bailed out several of Trump's casinos a few decades earlier, was not confirmed until the end of February.

As a presidential aide, Cohn did not need Senate approval. He was part of the skeletal crew that arrived at the White House on day one, giving him a critical head start on wielding his clout and cultivating his relationship with the new president. At that point, Trump was summoning Cohn to the Oval Office for impromptu meetings as many as five times a day .

In early February, Trump signed an executive order giving his Treasury secretary 120 days to give him a hit list of regulations the administration could eliminate. But with Mnuchin yet to be confirmed, the task appeared to land in Cohn's eager hands. He was standing at the president's shoulder when Trump said, "We expect to be cutting a lot out of Dodd-Frank." Shares in Goldman Sachs, which had jumped by 28 percent after the election, rose another $6 a share that day. Soon Cohn was coordinating Trump's plans not only for rolling back regulations, but also for creating jobs and slashing taxes. He met with a health care specialist, along with House Speaker Paul Ryan and other Republican leaders, to discuss alternatives to the Affordable Care Act.

Proximity is power inside any White House, especially in this one, where policy often seems shaped by Trump's last conversation. Treasury is several blocks away, while Cohn's office was in the West Wing, directly across the hall from Bannon's. Operating within a chaotic administration, Cohn was reportedly energized and focused, working around the clock. Cohn is a tenacious practitioner who, after ascending to the heights of Goldman Sachs, could teach a master class on the art of seizing a leadership vacuum and building alliances. On day 39 of the new administration, the White House sent out a press release introducing the "best-in-class team" Cohn had assembled "to drive President Trump's bold plan for job creation and economic growth." The 13 advisers included familiar figures who had worked for George W. Bush or his father, but they also included at least three former lobbyists so conflicted they would need an ethics waiver to work in the White House. For instance, Michael Catanzaro , the man Cohn chose to oversee energy policy, was until last year a lobbyist for such oil, gas, and coal companies as Devon Energy and Talen Energy. Shahira Knight had been a lobbyist for Fidelity, the mutual fund giant, before joining Cohn's team.

Cohn's strategy in those early months was to make himself indispensable to the new president. Cohn emerged as one of the few people around Trump comfortable interrupting him during a meeting or openly disagreeing on points of policy. The New York Times reported that Trump often turned to Cohn during a meeting and asked him directly, "What do you want to do?" Early on, Trump referred to Cohn as "one of my geniuses" -- a quote Reuters attributed to a "source close to Cohn."

Soon, major media were painting Cohn as a leading centrist inside the Trump White House because he had staked out positions on immigration, international alliances, and global warming at odds with Bannon's hard-right nationalism. Bannon and his allies only bolstered this narrative by characterizing "Carbon Tax Cohn" and his allies, Jared Kushner and Ivanka Trump, as interlopers -- "the Democrats," as some inside the White House called them. "Within Trump's Inner Circle, a Moderate Voice Captures the President's Ear," read the headline of a Cohn profile in the Washington Post.

"Led by Gary Cohn and Dina Powell -- two former Goldman Sachs executives often aligned with Trump's elder daughter and his son-in-law -- the group and its broad network of allies are the targets of suspicion, loathing and jealousy from their more ideological West Wing colleagues," the Washington Post reported. Fueling the rage of the ideologues, Cohn and his allies were largely winning. Trump dropped Bannon from the National Security Council and elevated Powell to deputy national security adviser. When, after Charlottesville, false reports leaked that Cohn was so disgusted with the president he was resigning, blue-chip stocks slid down. Instead, Bannon was out. Cohn, despite reports that he invoked Trump's wrath for critical remarks to the Financial Times, was still in and expected to deliver the president a win on corporate taxes.

On the day it was announced that he was joining the Trump administration, Cohn said on a goodbye podcast for Goldman Sachs, "You look at the size of our capital. You look at the size of our balance sheet. You look at the size of our people -- it's just enormous." More than $40 billion had flowed into the bank in 2016, bringing the bank's assets under management to a record $1.38 trillion. That meant pressure to find ways to put that money to work -- an enormous challenge if regulators finally shut down Goldman's prop trading arm.

How exactly could Cohn recuse himself from matters involving Goldman when almost every aspect of his job has the potential to either grow Goldman's profits and inflate its stock price -- or tank them both?

"To the extent Goldman Sachs is a direct party in a matter, Gary will recuse himself," a source familiar with the situation said. But, the source added, "As NEC director, Gary is going to touch on matters on the day-to-day economy as a whole and Goldman Sachs is a participant in the economy, thus Gary will indirectly touch on things that affect Goldman Sachs along with other banks and institutions."

Yet rather than publicly recuse himself on attempts to undo Dodd-Frank, Cohn has led the charge from inside the White House. On that matter, Cohn is a walking, talking conflict of interest .

While at Goldman, Cohn had personally met with officials at the Commodity Futures Trading Commission to discuss the derivatives reform plank of Dodd-Frank, an arena in which Goldman is a dominant player. He had taken issue with rules imposed by Dodd-Frank that require banks to keep more capital on hand. Requiring banks to hold more money in reserve made them "unequivocally" safer than before 2008, he said in a 2015 interview while still Goldman's president, but he complained that Goldman was now able to lend less money, hurting profits. And then there's the Volcker Rule. Cohn, while still president of the firm, had traveled to D.C. at least twice to personally lobby regulators about its implementation.

These days, it can be hard to tell whether Cohn is speaking as a high-ranking White House official or a former Goldman Sachs executive.

In the wake of Trump's February call for a rollback in financial regulations, Cohn vowed in an interview with Bloomberg TV, "We're going to attack all aspects of Dodd-Frank." The first example he gave: the Volcker Rule, which he cast as harmful to the country's competitive advantage. In an interview that same day with Fox Business, he homed in on another Goldman obsession: Dodd-Frank's capital requirements. "Banks are forced to hoard money because they are forced to hoard capital, and they can't take any risks," he said. Mortgage, auto, credit card lending, and commercial lending are all up since 2010. Yet Cohn told Fox viewers, "We need to get banks back in the lending business, that's our No. 1 objective."

Roy Smith, a former Goldman partner now teaching at the NYU Stern School of Business, argues that Cohn should avoid the administration's effort to unwind Dodd-Frank altogether, but "at a very minimum he has to excuse himself whenever the discussion turns to Volcker." But Smith said he has trouble imagining Cohn leaving the room when Volcker comes up. "The hard part for someone like Cohn is that he knows where all the pain points are with Volcker and other parts of Dodd-Frank," Smith said. "His every instinct would be to get involved."

Beyond deregulation, two other pillars of Trump's economic plan -- cutting taxes and investing in infrastructure -- would have dramatic impacts on Goldman's bottom line.

Thanks to loopholes, many Fortune 500 corporations pay little or no corporate income tax at all. By contrast, Goldman Sachs typically pays taxes near the official 35 percent federal tax rate. In 2014, for instance, Goldman paid $3.9 billion in taxes on profits of $12.4 billion, or 31 percent. Last year, the firm's tax bill was $2.7 billion on profits of $10.3 billion, or 28 percent. In that same Fox Business interview, Cohn said that "lower corporate taxes" was the White House's "starting point" on tax reform; cuts to personal income taxes were a secondary concern.

Under the plan Cohn and Mnuchin announced last spring, what Cohn called "one of the biggest tax cuts in the American history," corporate taxes would be capped at 15 percent. If Cohn succeeds, Goldman will save massive sums: At that rate, Goldman would have paid $2 billion less in taxes in 2014, $1.4 billion less in 2015, and $1.4 billion less in 2016. The Koch brothers' network of political groups has already spent millions of dollars to promote the proposal. Even Blankfein, who the Trump campaign singled out in the commercial it ran in the final days of the campaign, acknowledged in a voicemail to employees that Trump's commitment to tax cuts, deregulation, and infrastructure "will be good for our clients and our firm."

The details of the president's "$1 trillion" infrastructure plan are similarly favorable to Goldman. As laid out in the administration's 2018 budget, the government would spend only $200 billion on infrastructure over the coming decade. By structuring "that funding to incentivize additional non-Federal funding" -- tax breaks and deals that privatize roads, bridges, and airports -- the government could take credit for "at least $1 trillion in total infrastructure spending," the budget reads.

It was as if Cohn were still channeling his role as a leader of Goldman Sachs when, at the White House in May, he offered this advice to executives: "We say, 'Hey, take a project you have right now, sell it off, privatize it, we know it will get maintained, and we'll reward you for privatizing it.'" "The bigger the thing you privatize, the more money we'll give you," continued Cohn. By "we," he clearly meant the federal government; by "you," he appeared to be speaking, at least in part, about Goldman Sachs, whose Public Sector and Infrastructure group arranges the financing on large-scale public sector deals. "Goldman Sachs is one of the largest infrastructure fund managers globally," according to infrastructure advisory firm InfraPPP Partners , "having raised more than $10 billion of capital since the inception of the business in 2006." Lost in the infamous press conference the president gave in the lobby of Trump Tower a few days after Charlottesville, with Cohn and Mnuchin visibly uncomfortable at his right flank, were Trump's remarks on infrastructure, the ostensible purpose of the event. The thrust was that the president would grease the wheels for project approvals by signing an executive order rolling back environmental impact requirements and other elements of an "overregulated permitting process."

In countless other ways, Cohn is positioned to help the firm that has been so good to him over the years. The country's National Economic Council adviser might caution a president against running too large a deficit, especially amid a healthy economy. But Goldman Sachs is in the business of finding investors to underwrite government debt. An economic adviser might caution a populist president that corporate inversions often cost jobs and tax revenue. Instead, Trump has ordered a review of policies Obama put in place to discourage them -- good news for Cohn's former colleagues. Transparency has been a watchword of initial public offerings dating back at least to the Securities and Exchange Act of 1934, but easing those rules, a step Goldman has sought, could potentially generate hundreds of millions of dollars in fees for investment banks such as Goldman. The SEC announced in June that it would allow any company going public to withhold details of its finances and strategies, an exemption previously available only to firms with under $1 billion in revenue -- more good tidings for Goldman. Just loosening the rules for IPOs, said Tyler Gellasch, the former Senate staffer, "could mean hundreds of millions of dollars more to Goldman."

In June, the Treasury Department released a statement of principles about the administration's approach to financial regulation focused on promoting "liquid and vibrant markets." Not surprisingly, the report included a call to ease capital requirements and substantially amend the Volcker Rule.

It's Cohn's influence over the country's regulators that worries Dennis Kelleher, the financial reform lobbyist. "To him, what's good for Wall Street is good for the economy," Kelleher said of Cohn. "Maybe that makes sense when a guy has spent 26 years at Goldman, a company who has repaid his loyalties and sweat with a net worth in the hundreds of millions." Kelleher recalls those who lost a home or a chunk of their retirement savings during a financial crisis that Cohn helped precipitate. "They're still suffering," he said. "Yet now Cohn's in charge of the economy and talking about eliminating financial reform and basically putting the country back to where it was in 2005, as if 2008 didn't happen. I've started the countdown clock to the next financial crash, which will make the last one look mild."

This article was reported in partnership with The Investigative Fund at The Nation Institute.

[Oct 21, 2017] Socialism, Land and Banking 2017 compared to 1917 by Michael Hudson

Notable quotes:
"... Socialism a century ago seemed to be the wave of the future. There were various schools of socialism, but the common ideal was to guarantee support for basic needs, and for state ownership to free society from landlords, predatory banking and monopolies. In the West these hopes are now much further away than they seemed in 1917. Land and natural resources, basic infrastructure monopolies, health care and pensions have been increasingly privatized and financialized. ..."
"... Instead of Germany and other advanced industrial nations leading the way as expected, Russia's October 1917 Revolution made the greatest leap. But the failures of Stalinism became an argument against Marxism – guilt-by-association with Soviet bureaucracy. European parties calling themselves socialist or "labour" since the 1980s have supported neoliberal policies that are the opposite of socialist policy. Russia itself has chosen neoliberalism. ..."
"... Few socialist parties or theorists have dealt with the rise of the Finance, Insurance and Real Estate (FIRE) sector that now accounts for most increase in wealth. Instead of evolving into socialism, Western capitalism is being overcome by predatory finance and rent extraction imposing debt deflation and austerity on industry as well as on labor. ..."
"... Failure of Western economies to recover from the 2008 crisis is leading to a revival of Marxist advocacy. The alternative to socialist reform is stagnation and a relapse into neofeudal financial and monopoly privileges. ..."
"... Russia's Revolution ended after 74 years, leaving the Soviet Union so dispirited that it ended in collapse. The contrast between the low living standards of Russian consumers and what seemed to be Western success became increasingly pronounced. ..."
"... When the Soviet Union dissolved itself in 1991, its leaders took neoliberal advice from its major adversary, the United States, in hope that this would set it on a capitalist road to prosperity. But turning its economies into viable industrial powers was the last thing U.S. advisors wanted to teach Russia. [3] Their aim was to turn it and its former satellites into raw-materials colonies of Wall Street, the City of London and Frankfurt – victims of capitalism, not rival producers. ..."
"... It should not be surprising that banks became the economy's main control centers, as in the West's bubble economies. Instead of the promised prosperity, a new class of billionaires was endowed, headed by the notorious Seven Bankers who appropriated the formerly state-owned oil and gas, nickel and platinum, electricity and aluminum production, as well as real estate, electric utilities and other public enterprises. It was the largest giveaway in modern history. The Soviet nomenklatura became the new lords in outright seizure that Marx would have characterized as "primitive accumulation." ..."
"... The American advisors knew the obvious: Russian savings had been wiped out by the polst-1991 hyperinflation, so the new owners could only cash out by selling shares to Western buyers. The kleptocrats cashed out as expected, by dumping their shares to foreign investors so quickly at such giveaway prices that Russia's stock market became the world's top performer for Western investors in 1994-96. ..."
"... The basic neoliberal idea of prosperity is financial gain based on turning rent extraction into a flow of interest payments by buyers-on-credit. This policy favors financial engineering over industrial investment, reversing the Progressive Era's industrial capitalism that Marx anticipated would be a transition stage leading to socialism. Russia adopted the West's anti-socialist rollback toward neofeudalism. ..."
"... Russia joined the dollar standard. Buying Treasury bonds meant lending to the U.S. Government. The central bank bought U.S. Treasury securities to back its domestic currency. These purchases helped finance Cold War escalation in countries around Russia. Russia paid 100% annual interest in the mid-1990s, creating a bonanza for U.S. investors. On balance, this neoliberal policy lay Russia's economy open to looting by financial institutions seeking natural resource rent, land rent and monopoly rent for themselves. Instead of targeting such rents, Russia imposed taxes mainly on labor via a regressive flat tax – too right wing to be adopted even in the United States! ..."
"... Theories of Surplus Value ..."
"... This Western financial advice became a textbook example of how not ..."
"... By 1991, when the Soviet Union's leaders decided to take the "Western" path, the Western economies themselves were reaching a terminus. Appearances were saved by a wave of unproductive credit and debt creation to sustain the bubble economy that finally crashed in 2008. ..."
"... The same debt overgrowth occurred in the industrial sector, where bank and bondholder credit since the 1980s has been increasingly for corporate takeovers and raiding, stock buybacks and even to pay dividends. Industry has become a vehicle for financial engineering to increase stock prices and strip assets, not to increase the means of production. The result is that capitalism has fallen prey to resurgent rentier ..."
"... Theories of Surplus Value ..."
"... American Journal of Economics and Sociology ..."
"... Super-Imperialism ..."
"... The Great Credit Crash ..."
"... The Contradictions of Austerity: The Socio-Economic Costs of the Neoliberal Baltic Model ..."
"... Journal of Economic Issues ..."
Oct 20, 2017 | www.counterpunch.org
Socialism a century ago seemed to be the wave of the future. There were various schools of socialism, but the common ideal was to guarantee support for basic needs, and for state ownership to free society from landlords, predatory banking and monopolies. In the West these hopes are now much further away than they seemed in 1917. Land and natural resources, basic infrastructure monopolies, health care and pensions have been increasingly privatized and financialized.

Instead of Germany and other advanced industrial nations leading the way as expected, Russia's October 1917 Revolution made the greatest leap. But the failures of Stalinism became an argument against Marxism – guilt-by-association with Soviet bureaucracy. European parties calling themselves socialist or "labour" since the 1980s have supported neoliberal policies that are the opposite of socialist policy. Russia itself has chosen neoliberalism.

Few socialist parties or theorists have dealt with the rise of the Finance, Insurance and Real Estate (FIRE) sector that now accounts for most increase in wealth. Instead of evolving into socialism, Western capitalism is being overcome by predatory finance and rent extraction imposing debt deflation and austerity on industry as well as on labor.

Failure of Western economies to recover from the 2008 crisis is leading to a revival of Marxist advocacy. The alternative to socialist reform is stagnation and a relapse into neofeudal financial and monopoly privileges.

Socialism flowered in the 19 th century as a program to reform capitalism by raising labor's status and living standards, with a widening range of public services and subsidies to make economies more efficient. Reformers hoped to promote this evolution by extending voting rights to the working population at large.

Ricardo's discussion of land rent led early industrial capitalists to oppose Europe's hereditary landlord class. But despite democratic political reform, the world has un-taxed land rent and is still grappling with the problem of how to keep housing affordable instead of siphoning off rent to a landlord class – more recently transmuted into mortgage interest paid to banks by owners who pledge the rental value for loans. Most bank lending today is for real estate mortgages. The effect is to bid up land prices toward the point where the entire rental value is paid as interest. This threatens to be a problem for socialist China as well as for capitalist economies.

Landlords, banks and the cost of living

The classical economists sought to make their nations more competitive by keeping down the price of labor so as to undersell competitors. The main cost of living was food; today it is housing. Housing and food prices are determined not by the material costs of production, but by land rent – the rising market price for land.

In the era of the French Physiocrats, Adam Smith, David Ricardo and John Stuart Mill, this land rent accrued to Europe's hereditary landlord class. Today, the land's rent is paid mainly to bankers – because families need credit to buy a home. Or, if they rent, their landlords use the property rent to pay interest to the banks.

The land issue was central to Russia's October Revolution, as it was for European politics. But the discussion of land rent and taxation has lost much of the clarity (and passion) that guided the 19 th century when it dominated classical political economy, liberal reform, and indeed most early socialist politics.

In 1909/10 Britain experienced a constitutional crisis when the democratically elected House of Commons passed a land tax, only to be overridden by the House of Lords, governed by the old aristocracy. The ensuing political crisis was settled by a rule that the Lords never again could overrule a revenue bill passed by the House of Commons. But that was Britain's last real opportunity to tax away the economic rents of landlords and natural resource owners. The liberal drive to tax the land faltered, and never again would gain serious chance of passage.

The democratization of home ownership during the 20 th century led middle-class voters to oppose property taxes – including taxes on commercial sites and natural resources. Tax policy in general has become pro- rentier and anti-labor – the regressive opposite of 19 th -century liberalism as developed by "Ricardian socialists" such as John Stuart Mill and Henry George. Today's economic individualism has lost the early class consciousness that sought to tax economic rent and socialize banking.

The United States enacted an income tax in 1913, falling mainly on rentier income, not on the working population. Capital gains (the main source of rising wealth today) were taxed at the same rate as other income. But the vested interests campaigned to reverse this spirit, slashing capital gains taxes and making tax policy much more regressive. The result is that today, most wealth is not gained by capital investment for profits. Instead, asset-price gains have been financed by a debt-leveraged inflation of real estate, stock and bond prices.

Many middle-class families owe most of their net worth to rising prices for their homes. But by far the lion's share of the real estate and stock market gains have accrued to just One Percent of the population. And while bank credit has enabled buyers to bid up housing prices, the price has been to siphon off more and more of labor's income to pay mortgage loans or rents. As a result, finance today is what is has been throughout history: the main force polarizing economies between debtors and creditors.

Global oil and mining companies created flags of convenience to make themselves tax-exempt, by pretending to make all their production and distribution profits in tax-free trans-shipping havens such as Liberia and Panama (which use U.S. dollars instead of being real countries with their own currency and tax systems).

The fact that absentee-owned real estate and natural resource extraction are practically free of income taxation shows that democratic political reform has not been a sufficient guarantee of socialist success. Tax rules and public regulation have been captured by the rentiers , dashing the hopes of 19 th -century classical reformers that progressive tax policy would produce the same effect as direct public ownership of the means of production, while leaving "the market" as an individualistic alternative to government regulation or planning.

In practice, planning and resource allocation has passed to the banking and financial sector. Many observers hoped that this would evolve into state planning, or at least work in conjunction with it as in Germany. But liberal "Ricardian socialist" failed, as did German-style "state socialism" publicly financing transportation and other basic infrastructure, pensions and similar "external" costs of living and doing business that industrial employers otherwise would have to bear. Attempts at "half-way" socialism via tax and regulatory policy against monopolies and banking have faltered repeatedly. As long as major economic or political choke points are left in private hands, they will serve s springboards to subvert real reform policies. That is why Marxist policy went beyond these would-be socialist reforms.

To Marx, the historical task of capitalism was to prepare the way for socializing the means of production by clearing away feudalism's legacy: a hereditary landlord class, predatory banking, and the monopolies that financial interests had pried away from governments. The path of least resistance was to start by socializing land and basic infrastructure. This drive to free society from economic overhead in the form of hereditary privilege and unearned income by the "idle rich" was a step toward socialist management, by minimizing rentier costs (" faux frais of production").

Proto-socialist reform in the leading industrial nations

Marx was by no means alone in expecting a widening range of economic activity to be shifted away from the market to the public sector. State socialism (basically, state-sponsored capitalism) subsidized pensions and public health, education and other basic needs so as to save industrial enterprise from having to bear these charges.

In the United States, Simon Patten – the first economics professor at the new Wharton business school at the University of Pennsylvania – defined public infrastructure as a "fourth factor of production" alongside labor, capital and land. The aim of public investment was not to make a profit, but to lower the cost of living and doing business so as to minimize industry's wage and infrastructure bill. Public health, pensions, roads and other transportation, education, research and development were subsidized or provided freely. [1]

The most advanced industrial economies seemed to be evolving toward some kind of socialism. Marx shared a Progressive Era optimism that expected industrial capitalism to evolve in the most logical way, by freeing economies from the landlordship and predatory banking inherited from Europe's feudal era. That was above all the classical reform program of Adam Smith, John Stuart Mill and the intellectual mainstream.

But the aftermath of World War I saw the vested interests mount a Counter-Enlightenment. Banking throughout the Western world find its major market in real estate mortgage lending, natural resource extraction and monopolies – the Anglo-American model, not that of German industrial banking that had seemed to be capitalism's financial future in the late 19 th century.

Since 1980 the Western nations have reversed early optimistic hopes to reform market economies. Instead of the classical dream of taxing away the land rent that had supported Europe's hereditary landed aristocracies, commercial real estate has been made virtually exempt from income taxation. Absentee owners avoid tax by a combination of tax-deductibility for interest payments (as if it is a necessary business expense) and fictitious over-depreciation tax credits that pretend that buildings and properties are losing value even when market prices for their land are soaring.

These tax breaks have made real estate the largest bank customers. The effect has been to financialize property rents into interest payments. Likewise in the industrial sphere, regulatory capture by lobbyists for the major monopolies has disabled public attempts to keep prices in line with the cost of production and prevent fraud by breaking up or regulating monopolies. These too have become major bank clients.

The beginning and end of Russian socialism

Most Marxists expected socialism to emerge first in Germany as the most advanced capitalist economy. After its October 1917 Revolution, Russia seemed to jump ahead, the first nation to free itself from rent and interest charges inherited from feudalism. By taking land, industry and finance into state control, Soviet Russia's October Revolution created an economy without private landlords and bankers. Russian urban planning did not take account of the natural rent-of-location, nor did it charge for the use of money created by the state bank. The state bank created money and credit, so there was no need to rely on a wealthy financial class. And as property owner, the state did not seek to charge land rent or monopoly rent.

By freeing society from the post-feudal rentier class of landlords, bankers and predatory finance, the Soviet regime was much more than a bourgeois revolution. The Revolution's early leaders sought to free wage labor from exploitation by taking industry into the public domain. State companies provided labor with free lunches, education, sports and leisure activity, and modest housing.

Agricultural land tenure was a problem. Given its centralized marketing role, the state could have reallocated land to build up a rural peasantry and helped it invest in modernization. The state could have manipulated crop prices to siphon off agricultural gains, much like Cargill does in the United States. Instead, Stalin's collectivization program waged a war against the kulaks. This political shock led to famine. It was a steep price to pay for avoiding rent was paid to a landlord class or peasantry.

Marx had said nothing about the military dimension of the transition from progressive industrial capitalism to socialism. But Russia's Revolution – like that of China three decades later – showed that the attempt to create a socialist economy had a military dimension that absorbed the lion's share of the economic surplus. Military aggression by a half dozen leading capitalist nations seeking to overthrow the Bolshevik government obliged Russia to adopt War Communism. For over half a century the Soviet Union devoted most of capital to military investment, not provide sufficient housing or consumer goods for its population beyond spreading literacy, education and public health.

Despite this military overhead, the fact that the Soviet Union was free of a rentier class of financiers and absentee landlords should have made the Soviet Union the world's most competitive low-cost economy in theory. In 1945 the United States certainly feared the efficiency of socialist planning. Its diplomats opposed Soviet membership on the ground that state enterprise and pricing would enable such economies to undersell capitalist countries. [2] So socialist countries were kept out of the IMF, World Bank and the planned World Trade Organization, explicitly on the ground that they were free of land rent, natural resource rent, monopoly rent and financial charges.

Capitalist economies are now privatizing and financializing their basic needs and infrastructure. Every activity is being forced into "the market," at prices that need to cover not only the technological costs of production but also interest, ancillary financial fees and pension set-asides. The cost of living and doing business is further privatized as financial interests pry roads, health care, water, communications and other public utilities away from the public sector, while driving housing and commercial real estate deeply into debt.

The Cold War has shown that capitalist countries plan to continue fighting socialist economies, forcing them to militarize in self-defense. The resulting oppressive military overhead is then blamed on socialist bureaucracy and inefficiency.

The collapse of Russian Stalinism

Russia's Revolution ended after 74 years, leaving the Soviet Union so dispirited that it ended in collapse. The contrast between the low living standards of Russian consumers and what seemed to be Western success became increasingly pronounced. In contrast to China's housing construction policy, the Soviet regime insisted that families double up. Clothing and other consumer goods had only drab designs, needlessly suppressing variety. To cap matters, public opposition to Russia's military personnel losses in Afghanistan caused popular resentment.

When the Soviet Union dissolved itself in 1991, its leaders took neoliberal advice from its major adversary, the United States, in hope that this would set it on a capitalist road to prosperity. But turning its economies into viable industrial powers was the last thing U.S. advisors wanted to teach Russia. [3] Their aim was to turn it and its former satellites into raw-materials colonies of Wall Street, the City of London and Frankfurt – victims of capitalism, not rival producers.

Russia has gone to the furthest anti-socialist extreme by adopting a flat tax that fails to distinguish wages and profits of labor and capital from unearned rental income. By also having to pay a value-added tax (VAT) on consumer goods (with no tax on trading in financial assets), labor is taxed much higher than the wealthy.

Most Western "wealth creation" is achieved by debt-leveraged price increases for real estate, stocks and bonds, and by privatizing the public domain. The latter process has gained momentum since the early 1980s in Margaret Thatcher's Britain and Ronald Reagan's America, followed by Third World countries acting under World Bank tutelage. The pretense is that privatization will maximize technological efficiency and prosperity for the economy as a whole.

Following this advice, Russian leaders agreed that the major sources of economic rent – natural resource wealth, real estate and state companies – should be transferred to private owners (often to themselves and associated insiders). The "magic of the marketplace" was supposed to lead the new owners to make the economy more efficient as a byproduct of making money in the quickest way possible.

Each Russian worker got a "voucher" worth about $25. Most were sold off simply to obtain money to buy food and other needs as many companies stopped paying wages. Russia had wiped out domestic savings with hyperinflation after 1991.

It should not be surprising that banks became the economy's main control centers, as in the West's bubble economies. Instead of the promised prosperity, a new class of billionaires was endowed, headed by the notorious Seven Bankers who appropriated the formerly state-owned oil and gas, nickel and platinum, electricity and aluminum production, as well as real estate, electric utilities and other public enterprises. It was the largest giveaway in modern history. The Soviet nomenklatura became the new lords in outright seizure that Marx would have characterized as "primitive accumulation."

The American advisors knew the obvious: Russian savings had been wiped out by the polst-1991 hyperinflation, so the new owners could only cash out by selling shares to Western buyers. The kleptocrats cashed out as expected, by dumping their shares to foreign investors so quickly at such giveaway prices that Russia's stock market became the world's top performer for Western investors in 1994-96.

The Russian oligarchs kept most of their sales proceeds abroad in British and other banks, beyond the reach of Russian authorities to recapture. Much was spent on London real estate, sports teams and luxury estates in the world's flight-capital havens. Almost none was invested in Russian industry. Wage arrears often mounted up half a year behind. Living standards shrank, along with the population as birth rates plunged throughout the former Soviet economies. Skilled labor emigrated.

The basic neoliberal idea of prosperity is financial gain based on turning rent extraction into a flow of interest payments by buyers-on-credit. This policy favors financial engineering over industrial investment, reversing the Progressive Era's industrial capitalism that Marx anticipated would be a transition stage leading to socialism. Russia adopted the West's anti-socialist rollback toward neofeudalism.

Russian officials failed to understand the State Theory of money that is the basis of Modern Monetary Theory: States can create their own money, giving it value by accepting it in payment of taxes. The Soviet government financed its economy for seventy years without any need to back the ruble with foreign exchange. But Russia's central bank was persuaded that "sound money" required it to back its domestic ruble currency with U.S. Treasury bonds in order to prevent inflation. Russian leaders did not realize that dollars or other foreign currencies were only needed to finance balance-of-payments deficits, not domestic spending except as this money was spent on imports.

Russia joined the dollar standard. Buying Treasury bonds meant lending to the U.S. Government. The central bank bought U.S. Treasury securities to back its domestic currency. These purchases helped finance Cold War escalation in countries around Russia. Russia paid 100% annual interest in the mid-1990s, creating a bonanza for U.S. investors. On balance, this neoliberal policy lay Russia's economy open to looting by financial institutions seeking natural resource rent, land rent and monopoly rent for themselves. Instead of targeting such rents, Russia imposed taxes mainly on labor via a regressive flat tax – too right wing to be adopted even in the United States!

When the Soviet Union dissolved itself, its officials showed no apprehension of how quickly their economies would be de-industrialized as a result of accepting U.S. advice to privatize state enterprises, natural resources and basic infrastructure. Whatever knowledge of Marx's analysis of capitalism had existed (perhaps in Nicolai Bukharin's time) was long gone. It is as if no Russian official had read Volumes II and III of Marx's Capital (or Theories of Surplus Value ) where he reviewed the laws of economic rent and interest-bearing debt.

The inability of Russia, the Baltics and other post-Soviet countries to understand the FIRE sector and its financial dynamics provides an object lesson for other countries as to what to avoid. Reversing the principles of Russia's October 1917 Revolution, the post-Soviet kleptocracy was akin to the feudal epoch's "primitive accumulation" of the land and commons. They adopted the neoliberal business plan: to establish monopolies, first and most easily by privatizing the public infrastructure that had been built up, extracting economic rents and them paying out the resulting as interest and dividends.

This Western financial advice became a textbook example of how not to organize an economy. [4] Having rejoined the global economy free of debt in 1991, Russia's population, companies and government quickly ran up debts as a result of its man-made disaster. Families could have been given their homes freely, just as corporate managers were given their entire companies virtually for free. But Russian managers were as anti-labor as they were greedy to grab their own assets from the public domain. Soaring housing prices quickly plagued Russian's economy with one of the world's highest-priced living and business costs. That prevented any thought of industrial competitiveness with the United States or Europe. What passed for Soviet Marxism lacked an understanding of how economic rents and the ensuing high labor costs affected international prices, or how debt service and capital flight affected the currency's exchange rate.

Adversaries of socialism pronounced Marxist theory dead, as if the Soviet dissolution meant the end of Marxism. But today, less than three decades later, the leading Western economies are themselves succumbing to an overgrowth of debt and shrinking prosperity. Russia failed to recognize that just as its own economy was expiring, so was the West's. Industrial capitalism is succumbing to a predatory finance capitalism that is leaving Western economies debt-ridden. [5] The underlying causes were clear already a century ago: unchecked financial rentiers , absentee ownership and monopolies.

The post-Soviet collapse in the 1990s was not a failure of Marxism, but of the anti-socialist ideology that is plunging Western economies under domination by the Finance, Insurance and Real Estate (FIRE) sector's symbiosis of the three forms of rent extraction: land and natural resource rent, monopoly rent, and interest (financial rent). This is precisely the fate from which 19 th -century socialism, Marxism and even state capitalism sought to save the industrial economies.

A silver lining to the Soviet "final" stage has been to free Marxist analysis from Russian Marxology. Its focus of Soviet Marxology was not an analysis of how the capitalist nations were becoming financialized neo- rentier economies, but was mainly propagandistic, ossifying into a stereotyped identity politics appealing to labor and oppressed minorities. Today's revival of Marxist scholarship has begun to show how the U.S.-centered global economy is entering a period of chronic austerity, debt deflation, and polarization between creditors and debtors.

Financialization and privatization are submerging capitalism in debt deflation

By 1991, when the Soviet Union's leaders decided to take the "Western" path, the Western economies themselves were reaching a terminus. Appearances were saved by a wave of unproductive credit and debt creation to sustain the bubble economy that finally crashed in 2008.

The pitfalls of this financial dynamic were not apparent in the early years after World War II, largely because economies emerged with their private sectors free of debt. The ensuing boom endowed the middle class in the United States and other countries, but was debt financed, first for home ownership and commercial real estate, then by consumer credit to purchase of automobiles and appliances, and finally by credit-card debt just to meet living expenses.

The same debt overgrowth occurred in the industrial sector, where bank and bondholder credit since the 1980s has been increasingly for corporate takeovers and raiding, stock buybacks and even to pay dividends. Industry has become a vehicle for financial engineering to increase stock prices and strip assets, not to increase the means of production. The result is that capitalism has fallen prey to resurgent rentier interests instead of liberating economies from absentee landlords, predatory banking and monopolies. Banks and bondholders have found their most lucrative market not in the manufacturing sector but in real estate and natural resource extraction.

These vested interests have translated their takings into the political power to shed taxes and dismantle regulations on wealth. The resulting political Counter-Reformation has inverted the idea of "free market" to mean an economy free for rent extractors, not free from landlords, monopolists and financial exploitation as Adam Smith, John Stuart Mill and other classical economists had envisioned. The word "reform" as used by today's neoliberal media means undoing Progressive Era reforms, dismantling public regulation and government power – except for control by finance and its allied vested interests.

All this is the opposite of socialism, which has now sunk to its nadir through the Western World. The past four decades have seen most of the European and North American parties calling themselves "socialist" make an about-face to follow Tony Blair's New Labour, the French socialists-in-name and the Clinton's New Democrats. They support privatization, financialization and a shift away from progressive taxation to a value-added tax (VAT) falling on consumers, not on finance or real estate.

China's socialist diplomacy in today's hostile world

Now that Western finance capitalism is stagnating, it is fighting even harder to prevent the post-2008 crisis from leading to socialist reforms that would re-socialize infrastructure that has been privatized and put a public banking system in place. Depicting the contrast between socialist and finance-capitalist economies as a clash of civilizations, U.S.-centered "Western" diplomacy is using military and political subversion to prevent a transition from capitalism into socialism.

China is the leading example of socialist success in a mixed economy. Unlike the Soviet Union, it has not proselytized its economic system or sought to promote revolution abroad to emulate its economic doctrine. Just the opposite: To avert attack, China has given foreign investors a stake in its economic growth. The aim has been to mobilize U.S. and other foreign interests as allies, willing customers for China's exports, and suppliers of modern production facilities in China.

This is the opposite of the antagonism that confronted Russia. The risk is that it involves financial investment. But China has protected its autonomy by requiring majority Chinese ownership in most sectors. The main danger is domestic, in the form of financial dynamics and private rent extraction. The great economic choice facing China today concerns the degree to which land and natural resources should be taxed.

The state owns the land, but does fully tax its rising valuation or rent-of-location that has made many families rich. Letting the resulting real-estate and financialized wealth dominate its economic growth poses two dangers: First, it increases the price that new buyers must pay for their home. Second, rising housing prices force these families to borrow – at interest. This turns the rental value of land – value created by society and public infrastructure investment – into a flow of interest to the banks. They end up receiving more over time than the sellers, while increasing the cost of living and doing business. That is a fate which a socialist economy must avoid at all costs.

At issue is how China can best manage credit and natural resource rent in a way that best meets the needs of its population. Now that China has built up a prosperous industry and real estate, its main challenge is to avoid the financial dynamics that are subjecting the West to debt deflation and burying Western economies. To avoid these dynamics, China must curtail the proliferation of unproductive debt created merely to transfer property on credit, inflating asset prices in the process.

Socialism is incompatible with a rentier class of landlords, natural resource owners and monopolists – the preferred clients of banks hoping to turn economic rent into interest charges. As a vehicle to allocate resources "the market" reflects the status quo of property ownership and credit-creation privileges at any given moment of time, without consideration for what is fair and efficient or predatory. Vested interests claim that such a market is an immutable force of nature, whose course cannot be altered by government "interference." This rhetoric of political passivity aims to deter politicians and voters from regulating economies, leaving the wealthy free to extract as much economic rent and interest as markets can bear by privatizing real estate, natural resources, banking and other monopolies.

Such rent seeking is antithetical to socialism's aim to take these assets into the public domain. That is why the financial sector, oil and mineral extractors and monopolists fight so passionately to dismantle state regulatory power and public banking. That is the diplomacy of finance capital, aiming to consolidate American hegemony over a unipolar world. It backs this strategy with a neoliberal academic curriculum that depicts predatory financial and rentier gains as if they add to national income, not simply transfer it into the hands of the rentier classes. This misleading picture of economic reality poses a danger for China sending its students to study economics at American and European universities.

The century that has elapsed since Russia's October 1917 Revolution has produced a substantial Marxist literature describing how finance capitalism has overpowered industrial capitalism. Its dynamics occupied Marx in Volumes II and III of Capital (and also his Theories of Surplus Value ). Like most observers of his era, Marx expected capitalism to make a substantial step toward socialism by overcoming the dynamics of parasitic capital, above all the tendency for debt to keep on expanding at compound interest until it produces a financial crash.

The only way to control banks and their allied rentier sectors is outright socialization. The past century has shown that if society does not control the banks and financial sector, they will control society. Their strategy is to block government money creation so that economies will be forced to rely on banks and bondholders. Regulatory authority to limit such financial aggression and the monopoly pricing and rent extraction it supports has been crippled in the West by "regulatory capture" by the rentier oligarchy.

Attempts to tax away rental income (the liberal alternative to taking real estate and natural resources directly into the public domain) is prone to lobbying for loopholes and evasion, most notoriously via offshore banking centers in tax-avoidance enclaves and the "flags of convenience" sponsored by the global oil and mining companies. This leaves the only way to save society from the financial power to convert rent into interest to be a policy of nationalizing natural resources, fully taxing land rent (where land and minerals are not taken directly into the public domain), and de-privatizing infrastructure and other key sectors.

Conclusion

Markets have not recovered for the products of American industry and labor since 2008. Industrial capitalism has been sacrificed to a form of finance capitalism that is looking more pre-capitalist (or simply oligarchic and neofeudal) with each passing year. The resulting polarization forces every economy – including China – to choose between saving its bankers and other creditors or freeing debtors and lowering the economy's cost structure. Will the government enforce bank and bondholder claims, or will it give priority to the economy and its people? That is an eternal political question spanning pre-capitalist, capitalist and post-capitalist economies.

Marx described the mathematics of compound interest expanding to absorb the entire economy as age-old, long predating industrial capitalism. He characterized the ancient mode of production as dominated by slavery and usury, and medieval banking as predatory. These financial dynamics exist in socialist economies just as they did in medieval and ancient economies. The way in which governments manage the dynamics of credit and debt thus are the dominant force in every era, and should receive the most pressing attention today as China shapes its socialist future.

Notes.

[1] I give the details in "Simon Patten on Public Infrastructure and Economic Rent Capture," American Journal of Economics and Sociology 70 (October 2011):873-903.

[2] My book Super-Imperialism (1972; new ed. 2002) reviews this discussion during 1944-46.

[3] I discuss the IMF and World Bank plan to wipe out Russian savings with hyperinflation and make manufacturing investment uneconomic in "How Neoliberal Tax and Financial Policy Impoverishes Russia – Needlessly," Mir Peremen (The World of Transformations), 2012 (3):49-64 (in Russian). МИР ПЕРЕМЕН 3/2012 (ISSN 2073-3038) Mir peremen М. ХАДСОН, Неолиберальная налоговая и финансовая политика приводит к обнищанию России, 49-64.

[4] I give details in "How Neoliberals Bankrupted 'New Europe': Latvia in the Global Credit Crisis," (with Jeffrey Sommers), in Martijn Konings, ed., The Great Credit Crash (Verso: London and New York, 2010), pp. 244-63, and "Stockholm Syndrome in the Baltics: Latvia's neoliberal war against labor and industry," in Jeffrey Sommers and Charles Woolfson , eds., The Contradictions of Austerity: The Socio-Economic Costs of the Neoliberal Baltic Model (Routledge 2014), pp. 44-63.

[5] For more analysis see Dirk Bezemer and Michael Hudson, " Finance is Not the Economy: Reviving the Conceptual Distinction ," Journal of Economic Issues , 50 (2016: #3), pp. 745-768.

[Oct 10, 2017] Harsh punishment for financial crimes in Vietnam including the death penalty

Sep 39, 2017 | marknesop.wordpress.com

Harsh punishment for financial crimes in Vietnam including the death penalty:

https://www.yahoo.com/news/vietnam-court-sentences-death-petrovietnam-ex-chairman-mass-062532598–finance.html

One could think that financial crimes would be treated with harsh punishment in a capitalist economy where the rules of fair competition would be the 11th commandment. However, and no need to cite references, the most egregious economic crimes (think 2008) go unpunished. Yet, microscopic economic crimes (e.g. shoplifting) often involve jail time in harsh facilities. I suspect that Vietnam is the exact opposite in that regard.

No great revelation here but the difference between the two countries is that the US has a class based system whereas Vietnam does not.

The combination of a communist party and capitalism could be a practical way to obtain the benefits of capitalism/competition with the party enforcing the law and guiding the overall direction of the economy. Perhaps that is a major reason for China's stunning economic growth. If China's success continues, that model could take root (under a different name and modified for local circumstances) in developing countries that do not have the baggage of the Western class system. Hope so.

Northern Star , September 30, 2017 at 1:36 pm
"The combination of a communist party and capitalism could be a practical way to obtain the benefits of capitalism/competition with the party enforcing the law and guiding the overall direction of the economy."

Ummm.. I thought that capitalism and communism are operationally fundamentally incompatible:
https://www.quora.com/Is-Communism-compatible-with-Capitalism
https://www.quora.com/Why-couldnt-capitalism-and-communism-coexist

Some of the Quora comments are well thought out and instructive ..

For Stooge Quants or Logicians:
https://www.researchgate.net/post/What_has_become_of_the_Axiomatic_method_of_economics
https://larspsyll.wordpress.com/2014/12/28/axiomatic-economics-total-horseshit/

OTOH you can just cut to the chase and read this with plenty of Vodka
http://www.angelfire.com/un/corosus/books/Asimov_the_foundation.pdf

Patient Observer , September 30, 2017 at 4:01 pm
The communists (or people or wise and sage rulers or religious leadership) set the stage, the laws and enforce compliance. The capitalists act within the confines of those laws without opportunity to evade or subvert. No family accumulation of capital would be permitted (no dynasties) and corporation ownership would be distributed on a broad base. It would be a utopian world that may not be achievable but still possible. China has found a formula that seems to work and it could work for other countries with a similar cultural experience.
Jen , October 1, 2017 at 5:06 am
Whether capitalism and Communism can co-exist or be made to co-exist would depend very much on how the society in question defines private property and private property ownership, and how its laws regulate and police ownership and transfers of ownership. Would individuals and companies be allowed to own land or only be able to lease it from governments or communities? If someone dies or if a company is liquidated or bought by another company, should any land that person or company was holding at the time be returned to the government or the community? Can any decision to return the land be challenged? These are some questions that would have to be addressed and resolved for the two ideologies to co-exist.
Patient Observer , October 1, 2017 at 4:43 pm
By any realistic definition, China is ruled by the Communist party yet China has large numbers of billionaire and huge numbers of millionaires so one can say that communism, when it is in charge of the country , can tolerate a capitalistic element. I doubt that the reverse would be possible given the mandate of capitalism to endless expand, acquire and control.

Land can only be leased I believe. I do not know about inheritance laws but I would suppose creation of capitalistic dynasties would be frowned upon.

[Oct 09, 2017] Casino Capitalism by Susan Strange

Oct 09, 2017 | www.amazon.com

The quote from the Forword is provide courtesy to Amazon preview...

The advantages of having such a name allow us to say that we continue to live in 'Strange times' whenever we recognize in Casino Capitalism a footprint into which we have later stepped. But the overriding message of the book is that we do indeed live in 'strange times' in an altogether different meaning of the phrase. 'How did we ever get here}\ the reader is asked to ponder when led through the steps which resulted in the dissolution of the Bretton Woods system of managed financial prices. There is always a sense, lying just beneath the surface of the text, that this particular piece of institutional vandalism was something that touched Strange personally. She had, after all, worked as a journalist in the United States late 1940s, first as an editorial assistant for the Economist and then as White House correspondent for the Observer (see Strange 1989).

Unsurprisingly, then, it is not necessary to look too hard in Casino Capitalism for the outline of a narrative structure of heroes and villains (chapters 2 and 3). This is the history of an embryonic financial globalization told through a reminder of the duties on behalf of their citizens that political elites had overlooked when once again handing financial pricing dynamics over to market mechanisms. The architects of the original Bretton Woods agreements are the most obvious heroes of the piece for having had the foresight to try to rule out by institutional means the future that eventually unfolded. They arc joined by those who at the time of Strange's writing were positioning themselves as the spiritual heirs of the attempts at Bretton Woods to keep finance firmly reined in. The villains consist of the policy-makers - mainly from the United States in Strange's telling - who did most to sabotage the collective agreements for managing financial prices, the bankers who were able to project their private interests in alternative market-based arrangements as the new national interest, and the economists who popularized Panglossian preachings on all things market-related.

The cast list was thus drawn, but the participants still required a stage on which to act. This came in the form of the central metaphor around which the whole of the analysis is organized: that of the casino. It is an alluring metaphor, at first glance providing instinctive confirmation of so many of the ills of the modern economic condition, but on a second and third pass also revealing how much of contemporary significance relating to the internal operation of financial markets must remain unsaid when likening them directly to a casino. The greatest allure of the metaphor might ultimately be just how much further it can be pushed today, despite the fact that in its original form it was often treated as evidence of Strange's alleged tendency towards hyperbole.

For instance, it does not matter to the nature of the bet how much money you place on a single spin of a standard roulette wheel. You might turn more heads as the size of your stake increases, but a bet on number 27, say, is statistically indistinguishable from a bet of $100, $1,000 or even $1,000,000. In each case, the odds on number 27 coming up are exactly the same: 35/1 on the outcomes that the house is willing to honour as winning bets. The same is decidedly not true, though, of financial markets. There, the casino operates in such a way that every additional nought on the end of the stake speaks of a greater degree of market power and, as a consequence, of a greater chance of enforcing upon the market environment the desired outcome. The deeper the pockets of the market participants, then, the more that they are able to change the odds in their own favour. As a result, the financial equivalent of number 27 turns up as the winning bet much more frequently than statistical probability suggests it should. These are spins of the roulette wheel where the people placing the bets, and not pure chance, so often get to dictate where the wheel will stop.

Strange was writing at the very cusp of the technological revolution within financial trading, and it should go without saying that it is of no detriment to her work that she failed to foresee how big these changes would eventually be. However, working through a single example of this trend highlights the potential limits of too direct an application of the casino metaphor. One of the most important recent developments in stock market trading is the advent of so-called high-frequency trading that takes advantage of differentials in computing speed that are so tiny as to be almost beyond human conception. Imagine being able to divide each second into ten and then doing the same again for each resulting tenth: this is the degree of gradation, for instance, that is used to determine the outcomes of Olympic sprinting races. Now imagine each one-hundredth of a second itself being divided into one hundred, and we begin to get a sense of the differentials in computing speed that enable high-frequency traders to 'front run' other people's trades (Lewis 2014). The time that it takes for the blink of an eye would be sufficient, in theory, for high-frequency traders to insert themselves 3,000 times over between the bid and offer prices of stock market deals that are already in train. On each occasion the person with the infinitesimal advantage in computing speed would find that they were able to simultaneously buy and sell the same stock in between these two buffer prices, thereby top-slicing the profits that other people thought they were going to make between starting and finishing a single click of their computer mouse.

It no longer makes sense to be thinking in terms of the odds on being successful in such circumstances, because all downside risk has been removed. The casino metaphor becomes non-operative, because what arises are situations in which financial market participants, once they have paid the access fees to the super-fast network connections, are able to lay free bet after free bet with no chance of losing. High-frequency traders now routinely go 'algo-sniffing', trying to discover the internal characteristics of other people's trading algorithms by deploying advantageous computing speed differentials to position themselves minutely in front of those people's trades. This is the financial equivalent of me being able to watch you stake your entire stack of chips on red coming up on a single spin of the roulette wheel but, because I can 'see' in real time long before you can whether red will be a winning gamble, I can choose at my leisure whether to hijack your bet and siphon off your winnings or do nothing and avoid your losses. Whatever this particular gaming environment might be described as, it certainly docs not display the characteristics of any normal casino, where the probability of winning and losing is not up to the participants to decide.

Still, it would be wrong to focus too much on how things have changed within the market environment since Strange's day, because the internal dynamics of the trading process were not in any case her primary focus. The raison d'etre of Casino Capitalism was to expose the development of a financial system that had increasingly escaped the calming influences of democratic control (chapters 1 and 7). Strange was the first IPE scholar to systematically think through the implications of a globalizing trend in which a potentially self-regulating traders' paradise began to be harnessed as an alternative to increasingly cash-strapped welfare states. In the interstices of the narrative structure of heroes and villains it is also possible to identify a third generic member of the cast list: this time the unwitting victims of the interplay between financial high politics and the initial signs of the reversal of state-sponsored welfare rights (chapters 4 and 5).

These are the ordinary people who are not active market participants in the direct sense of having a seat at the roulette table, but whose lives can nonetheless change out of all recognition if, after someone elsc's illfated spin of the wheel, their jobs are suddenly to disappear in a puff of smoke. It is these same people who have also increasingly been told that their future well-being is tied to the late-life consumption made possible by allowing their savings to be invested for them on all sorts of different financial markets. '|T|he great difference,' wrote Strange in outlining her analytical agenda for the chapters ahead, 'between an ordinary casino which you can go into or stay away from, and the global casino of high finance, is that in the latter all of us are involuntarily engaged in the day's play'(p. 2). For those inadvertent financial market conscripts who arc enlisted in this way - and today there are many more who fit such a description than three decades ago - the casino must surely remain a compelling metaphor.

The theme of crisis

With the casino thus installed as the book's main metaphor, it is put to use to develop the theme of crisis. Abstract work on the conceptual meaning of crisis is left to those who feel more self-assured on theoretical matters, because Strange's attention is directed elsewhere. Once more she displays her humane instincts in her concern for the way in which crisis tendencies touch down in the lives of ordinary people. It is difficult to read either Casino Capitalism or Mad Money' and fail to spot the possibility that Strange did not really care if bankers unintentionally managed to presume that the participants within the system will recalibrate their behaviour accordingly (see Strange 1998b). This is the line of argument that Strange adopts, yet it does tend to deflect attention away from the processes of financial innovation that, as the 1980s progressed, fundamentally recast who was trading what and how. Casino Capitalism thus tells the story of only one of the two great changes that occurred at that time. It created the space to focus on the developing trend towards financial liberalization, bur only by de-emphasizing the parallel trend towards financial innovation. The former relates to the external regulation of the market environment by political actors, whereas the latter relates to the internal changes to the trading instruments of choice which allowed market actors to massively accentuate the effects of the new political mindset. Both provided the major financial players enhanced scope for evading political control of their activities, but Casino Capitalism only fleshes out the first half of the picture. It was left to the popular finance writer Peter Bernstein (1992) to balance the books by writing the first widely accessible history of financial innovation.

In many ways this is classic Strange. A clear message shining through all of her books is that, if you want to know how any part of the international system truly works, then first find out where power can be said to lie (Strange 1988c). This might be relational power (the ability to systematically come out on top in negotiations) or her own preferred concept of structural power (the ability to shape decisively in one's own favour the terrain on which all negotiations take place). Wherever power might be thought to exist, however, it is assumed that it has transformative potential. When such potentials arc enacted in relation to the international economy, they are likely to have an important influence on the underlying relationship between state and market.

Metaphor (the casino), theme (crisis) and perspective (the relationship between state and market) thus come together in what is a temptingly straightforward argument. The 1980s marked a true departure from the principles laid down at Bretton Woods, Strange suggested, because state power had been used, somewhat counter-intuitively perhaps on first reading, to render states less effective in the process of regulating the international financial system (see also Strange 1996). With market actors given an increasingly free hand to decide the outer limits of their own activities, finance had come to inhabit a world that resembled an already giant casino that was only likely to become bigger still over time. And because states had chosen to remove the checks and balances that had once restrained reckless, foolhardy and even downright improper behaviour, crisis had now been installed as a persistent elephant in the room.

Given the way in which political authority is aggregated at the level of the state, much of Strange's language might today seem distinctly old-fashioned. Look closely at the text for all those instances in which 'Washington' decides, 'Tokyo' thinks, 'the Europeans' act, 'the British' respond, etc. It is only the story of financial liberalization that can be told through this perspective, because liberalization is in the first instance a regulatory and not a processual matter, and the process of financial innovation belongs to no one country or combination of countries. Only regulatory matters can be made sense of when the authority to change behavioural parameters is located in unitary fashion at the level of the state. Still, though, it must be noted that this concept of power, however much it has been left behind by subsequent theoretical advances in IPE, required Strange to swim very much against the fide of contemporary popular political opinion. Casino Capitalism was written at a time, it bears repeating, when in the English-speaking world in particular 'the market' was typically portrayed as an all-seeing, all-knowing entity with conspicuous powers of determination. It was written about as if it had interests of its own and a will that made it possible to act upon such interests (Watson 2005). Against that background, it was a healthy antidote to populist misconceptions to encounter Strange placing 'Washington', 'Tokyo', 'the Europeans', 'the British' and the like at the forefront of her narrative.

Moreover, it also enabled her to outline the extent to which the state continues to exist as the essential backstop to any supposed system of market self-regulation. Once more the theme of crisis is used to make the point. Casino Capitalism ends with the following somewhat apocalyptic warning (p. 161): 'By New Year's Eve on 31 December 1999, we shall have reached the end of a century. If, by then, we have still not succumbed to a nuclear holocaust, that will be one thing to celebrate. But unless positive, practical steps arc taken soon to cool and control the financial casino, there will not be much else.' New Year's Eve 1999 actually turned out to be a day on which the financial casino, by some measures at least, reached a point of historic excess. The FTSE 100 index of leading UK stocks, for instance, stood at a peak of 6930.2 on that day, and it took more than fifteen years for this level to be surpassed. In the meantime, conspicuous state support has been required to prop up prices in various parts of the financial casino, as the delusions of market self-regulation have been exposed by events such as the collapse of the tech-stock bubble (Froud et al. 2006) and the corporate governance scandals involving false accounting techniques at companies like Enron, Worldcom, Tyco and Parmalat (Clarke 2007).

Nothing, though, could have prepared us for the sheer scale of state support that was necessary to help banks repair their catastrophically broken balance sheets in the wake of the initial implosion of US mortgage lending markets in 2007. There is a hint in Casino Capitalism of what might be to come in this regard if a little bit of creative reading between the lines is allowed. In surveying the options open to the US Federal Reserve in providing stability to an already gratuitously overheating financial system - '[t|he United States must act', she argued, portentously (p. 146) - Strange came to the following conclusion: insuring all the other banks against the loss they might suffer by overlending to a failing bank would be a great deal more expensive than insuring US depositors for losses less than $10,000' (p. 134). Nobody, however, could have imagined just how much public money would have to be found, not just by the Fed but by central banks around the world, to provide effective deposit insurance for banks that had gambled their whole futures on continuous house price rises being able to mask the fact that mortgages had been sold en masse to people who lacked the ability to meet their repayments. That was one number that the roulette wheel of the global financial casino resolutely refused to turn up, despite its participants using their market power to stack the tables in its favour. Something approaching unlimited liability was subsequently accepted by the state on banks' behalf as zero after zero was added to the monetary commitment to keep financial markets functioning. Moreover, when the bill then became due, the ensuing age of austerity has hit the most vulnerable people in society hardest (Blyth 2013). The real normative purpose of Strange's casino metaphor - the fear that ordinary people who were never party to market gains would be the first to suffer when those gains evaporated - thus comes starkly back into view.

Overall assessment

This is a book that should continue to command high regard as it approaches its thirtieth anniversary. At the very least, it deserves today to be treated to a sympathetic reading. There is little to be gained by going through it on a page-by-page basis simply to arm oneself with a list of examples where it can be said that Strange called things incorrectly as events ultimately unfolded in a rather different way. The book was written, after all, with an eye on the overall impression that it would leave. And by tying the metaphor of the casino to the theme of crisis and the underlying perspective of the relationship between state and market, that impression is still often really rather mesmerising.

The great merit of Casino Capitalism is that it enacts a conversation about often overlooked aspects of our past that sheds important light on why our world is shaped as it is. It does not tell us all that we might want to know about the present; but, then again, why would we expect that it should? Much more importantly, it gives us reason to reflect on the situation we have been bequeathed, reason to question, reason to challenge, reason to get angry. These all appear to be reactions that Strange had hoped to provoke in her readers nearly three decades ago. Casino Capitalism therefore continues to do its job wonderfully well even after all these years.

Chapter 1 Casino Capitalism

The Western financial system is rapidly coming to resemble nothing as much as a vast casino. Every day games are played in this casino that involve sums of money so large that they cannot be imagined. At night the games go on at the other side of the world. In the towering office blocks that dominate all the great cities of the world, rooms are full of chain-smoking young men all playing these games. Their eyes are fixed on computer screens flickering with changing prices. They play by intercontinental telephone or by tapping electronic machines. They are just like the gamblers in casinos watching the clicking spin of a silver ball on a roulette wheel and putting their chips on red or black, odd numbers or even ones.

As in a casino, the world of high finance today offers the players a choice of games. Instead of roulette, blackjack, or poker, there is dealing to be done - the foreign exchange market and all its variations; or in bonds, government securities or shares. In all these markets you may place bets on the future by dealing forward and by buying or selling options and all sorts of other recondite financial inventions. Some of the players - banks especially - play with very large stakes. These are also many quite small operators. There are tipsters, too, selling advice, and peddlers of systems to the gullible. And the croupiers in this global financial casino are the big bankers and brokers. They play, as it were, 'for the house'. It is they, in the long run, who make the best living.

These bankers and dealers seem to be a very different kind of men working in a very different kind of world from the world of finance and the tvnical bankers that older nconle remember. Bankers used to be

I hese bankers and dealers seem to be a very different kind of men working in a very different kind of world from the world of finance and the typical bankers that older people remember. Bankers used to be thought of as staid and sober men, grave-faced and dressed in conservative black pinstripe suits, jealous of their reputation for caution and for the careful guardianship of their customers' money. Something rather radical and serious has happened to the international financial system to make it so much like a gambling hall. What that change has been, and how it has come about, are not clear.

What is certain is that it has affected everyone, For the great difference between an ordinary casino which you can go into or stay away from, and the global casino of high finance, is that in the latter all of us are involuntarily engaged in the day's play. A currency change can halve the value of a farmer's crop before he harvests it, or drive an exporter out of business. A rise in interest rates can fatally inflate the cost of holding stocks for the shop-keeper. A takeover dictated by financial considerations can rob the factory worker of his job. From school-leavers to pensioners, what goes on in the casino in the office blocks of the big financial centres is apt to have sudden, unpredictable and unavoidable consequences for individual lives. The financial casino has everyone playing the game of Snakes and Ladders. Whether the fall of the dice lands you on the bottom of a ladder, whisking you up to fortune, or on the head of a snake, precipitating you to misfortune, is a matter of luck.

This cannot help but have grave consequences. For when sheer luck begins to take over and to determine more and more of what happens to people, and skill, effort, initiative, determination and hard work count for less and less, then inevitably faith and confidence in the social and political system quickly fades. Respect for ethical values - on which in the end a free democratic society relics - suffers a dangerous decline. It is when bad luck can strike a person not only from directions where luck has always ruled: health, love, natural catastrophes or genetic chance, but from new and unexpected directions as well, that a psychological change takes place. Luck, now, as well as idleness or inadequacy, can lose you a job. Luck can wipe out a lifetime's savings, can double or halve the cost of a holiday abroad, can bankrupt a business because of some unpredictable change in interest rates or commodity prices or some other factor that used to be regarded as more or less stable and reliable. There seems less and less point in trying to make the right decision, when it is so difficult to know how the wheel of chance will turn and where it will come to rest. Betting on red and on black has equally uncertain results. That is why I think the increase in uncertainty has made inveterate, and largely involuntary, gamblers of us all.

Moreover, the vulnerability to bad luck in a system which is already somewhat inequitable is itself far from equal. Some can find ways to cushion or protect themselves, while others cannot. And inequities that were originally due to a variety of factors become suddenly much more acutely felt and more bitterly resented. Frustration and anger become sharper and are apt to be more violently expressed when the realm of luck becomes too large and when the arbitrariness of the system seems to operate so very unequally.

[Oct 08, 2017] Financialization: theoretical analysis and historical perspectives by Costas Lapavitsas

Highly recommended!
The author introduces an important notion of 'financial expropriation' which is at the core of "casino capitalism". Role of finance as a mediator between people and privatized services led to extraction of new type of rent.
Notable quotes:
"... Financial capital permeates economic activity, and interacts with financial markets in ways capable of generating enormous profits but also precipitating global crises. ..."
"... The economic processes - and the social relations - characteristic of financialization represent a milestone in the development of capitalism. ..."
"... A long boom occurred, lasting until 1973-74, during which production became increasingly dominated by transnational monopolistic enterprises, while finance operated under a system of controls domestically and internationally. For nearly three decades, the US was the dominant economic force in global production and trade. ..."
"... . Since the 1970s, there have been profound changes in production methods deriving from information and telecommunications technologies. Transnational enterprises have become dominant over global production and international trade. The centre of gravity of global productive capacity has partly shifted from mature economies in the West toward rising economies in the East, primarily China. ..."
"... The most striking feature of the period, however, has been the rise of finance, the start of which can be usefully placed in the late 1970s. The financial sector had become progressively larger in the 1950s and 1960s, while still operating within the regulatory framework characteristic of the long post-war boom ..."
"... The three decades that followed have witnessed unprecedented expansion of financial activities, rapid growth of financial profits, permeation of economy and society by financial relations, and domination of economic policy by the concerns of the financial sector. At the same time, the productive sector in mature countries has exhibited mediocre growth performance, profit rates have remained below the levels of the 1950s and 1960s, unemployment has generally risen and become persistent, and real wages have shown no tendency to rise in a sustained manner. ..."
"... Bretton Woods had enforced the convertibility of the US dollar into gold at S35 to the ounce, thus fixing exchange rates during the long boom. Its collapse led to the gradual emergence of alternative international monetary arrangements based on the US dollar functioning as inconvertible quasi-world-money. The new arrangements have generated considerable instability of exchange and interest rates, thereby spurring the growth of international financial markets. ..."
"... Growth of international capital flows during the same period, partly in response to exchange and interest rate instability, has led to financialization in developing countries. ..."
"... The ascendancy of central banks is hardly surprising, since financialization in general would have been impossible without active and continuous intervention by the state. Financialization has depended on the state to deregulate the financial system with regard to prices, quantities, functions and cross-border flows of capital. Equally, financialization has depended on the state to regulate the adequacy of own capital, the management of risk, and the rules of competition among financial institutions. ..."
"... Ultimately, however, the rise of finance has resulted from changes deep within capitalist accumulation. Three characteristic tendencies of accumulation in mature countries have shaped financialization as a structural transformation of contemporary capitalism. First, non-financial enterprises have become increasingly involved in financial processes on an independent basis, often undertaking financial market trans-actions on own account. The financialization of industrial and commercial enterprises has affected their profitability, internal organization, and investment outlook. Non-financial enterprises have become relatively more remote from banks and other financial institutions. Second, banks have focused on transacting in open financial markets with the aim of making profits through financial trading rather than through outright borrowing and lending. At the same time banks have turned toward individual and household income as a source of profit, often combining trading in open markets with lending to households, or collecting household savings. Third, individuals and households have come increasingly to rely on the formal financial system to facilitate access to vital goods and services, including housing, education, health, and transport. The savings of households and individuals have also been increasingly mobilized by the formal financial system. ..."
"... Financialization reflects a growing asymmetry between production and circulation - particularly the financial component of the latter - during the last three decades. The asymmetry has arisen as the financial conduct of non-financial enterprises, banks and households has gradually changed, thus fostering a range of aggregate phenomena of financialization. A telling aspect of the transformation has been the rise of profits accruing through financial transactions, including new forms of profit that could even be unrelated to surplus value. This process is summed up as 'financial expropriation' in subsequent chapters. ..."
"... The most important development in the evolution of derivatives trading in recent years has been the move to cash settlement of the contract, thus freeing the counter- parties from the need to deliver the underlying asset. On this basis, derivatives have become essentially a punt on the future direction of the price of the underlying asset that is subsequently settled in cash. ..."
"... In effect, the derivative has become what could be called a contract-for-differences - an agreement between buyer and seller to exchange the difference between the current value of a share, currency, commodity, or index and its value at maturity of the contract. ..."
"... the core of the enormously expanded derivatives markets lie a few international banks, which have also been one of the driving forces of financialization. Banks are the pillar of contemporary of the 1980s to the end of the 2000s the notional outstanding appears to have doubled every two or three years for most of the period. ..."
"... These dealers werelarge global banks that were also fundamental to financialization. The same banks were among the largest participants in the exchange-traded markets, though data is hard to obtain for the latter. There is no doubt, however, that the large dealer banks were heavily involved in the management of the 'exchanges', including determination of risk management procedures and 'margin' levels. ..."
"... In short, the banks that dominate derivatives trading are also the banks that set the interest rate at which derivatives are traded and valued, although the banks are not obliged to trade at the declared rate. No wonder, then, that one of the most egregious scandals of financialization appears to be the manipulation of the LIBOR by large dealer banks, a matter which has been under police investigation since 2010. ..."
"... The problem is not a few 'rotten apples' amidst the LIBOR committee, criminally colluding with each other and with brokers to influence the LIBOR. Rather, a deeply flawed structure has allowed dealer banks to dominate derivatives markets while effectively manipulating the terms of derivatives trading. ..."
Jan 14, 2014 | www.amazon.com

Extracted from the chapter 1 of this book Profiting Without Producing How Finance Exploits Us All Costs

1. Introduction: the rise and rise of finance

The crisis of the 2000s will prove fertile ground for economic historians for decades to come with regard to both its causes and consequences. However, the crisis has already had one definite outcome: it has finally lifted the curtain on the transformation of mature and developing capitalist economies during the last three decades, confirming the pivotal role of finance, both domestically and internationally. Financial capital permeates economic activity, and interacts with financial markets in ways capable of generating enormous profits but also precipitating global crises. In terms that will be used throughout this book, contemporary capitalism is 'financialized' and the turmoil commencing in 2007 is a crisis of 'financialization'.

The economic processes - and the social relations - characteristic of financialization represent a milestone in the development of capitalism. The catalyst of crisis in 2007 was speculative mortgage lending to the poorest workers in the US during the 2000s, the loans being subsequently traded in 'securitized' form in global financial markets. It is hard to exaggerate what an extraordinary fact this is. Under conditions of classical, nineteenth-century capitalism it would have been unthinkable for a global disruption of accumulation to materialize because of debts incurred by workers, including the poorest. But this is precisely what has happened under conditions of financialized capitalism, an economic and social system that is much more sophisticated than its nineteenth-century predecessor.

Financialization has emerged gradually during recent decades, and its content and implications are the focus of this book. To be sure, capitalist economies are continually restructured due to pressures of competition and to the underlying drive to maintain profitability. However, some transformations have a distinctive historical significance, and financialization is one of those. The change that has taken place in mature capitalist economies and societies since the late 1970s requires appropriate attention to be paid to finance. Consider the following features of financialization to substantiate this claim. Context and structural aspects of financialization

Mature capitalism has been historically marked by deep transformations of economy and society. Toward the end of the nineteenth century, for instance, there emerged new methods of production in heavy industry, accompanied by the rise of monopolistic, joint-stock enterprises. The change coincided with a long depression, 1873-96, and led to a rebalancing of global productive power away from Britain and toward the US and Germany. Similarly, at the end of the Second World War, mass consumption emerged across several developed countries based on methods of mass production. A long boom occurred, lasting until 1973-74, during which production became increasingly dominated by transnational monopolistic enterprises, while finance operated under a system of controls domestically and internationally. For nearly three decades, the US was the dominant economic force in global production and trade.

The transformation represented by financialization is of a similar order of importance. Since the 1970s, there have been profound changes in production methods deriving from information and telecommunications technologies. Transnational enterprises have become dominant over global production and international trade. The centre of gravity of global productive capacity has partly shifted from mature economies in the West toward rising economies in the East, primarily China. Meanwhile, the institutional framework of capitalist activity has been altered as deregulation has prevailed in important markets, above all, for labour and finance. Throughout this period, accumulation has lacked dynamism in mature countries, inequality was exacerbated, and crises have become sharper and more frequent.

The most striking feature of the period, however, has been the rise of finance, the start of which can be usefully placed in the late 1970s. The financial sector had become progressively larger in the 1950s and 1960s, while still operating within the regulatory framework characteristic of the long post-war boom. However, even by the late 1970s, the domestic and international importance of finance remained modest.

The three decades that followed have witnessed unprecedented expansion of financial activities, rapid growth of financial profits, permeation of economy and society by financial relations, and domination of economic policy by the concerns of the financial sector. At the same time, the productive sector in mature countries has exhibited mediocre growth performance, profit rates have remained below the levels of the 1950s and 1960s, unemployment has generally risen and become persistent, and real wages have shown no tendency to rise in a sustained manner.

An asymmetry has emerged between the sphere of production and the ballooning sphere of circulation. The rise of finance has been predicated 011 a radical alteration of the monetary framework of capitalist accumulation, both internationally and domestically. International monetary conditions have been stamped by the collapse of the Bretton Woods Agreement in 1971-73. Bretton Woods had enforced the convertibility of the US dollar into gold at S35 to the ounce, thus fixing exchange rates during the long boom. Its collapse led to the gradual emergence of alternative international monetary arrangements based on the US dollar functioning as inconvertible quasi-world-money. The new arrangements have generated considerable instability of exchange and interest rates, thereby spurring the growth of international financial markets.

Growth of international capital flows during the same period, partly in response to exchange and interest rate instability, has led to financialization in developing countries. Domestic monetary conditions, in contrast, have been marked by the steady accumulation of power by central banks as controllers of credit money backed by the state. Central banks have emerged as the dominant public institution of financialization, the defender of the interests of the financial sector.

The ascendancy of central banks is hardly surprising, since financialization in general would have been impossible without active and continuous intervention by the state. Financialization has depended on the state to deregulate the financial system with regard to prices, quantities, functions and cross-border flows of capital. Equally, financialization has depended on the state to regulate the adequacy of own capital, the management of risk, and the rules of competition among financial institutions. Even more decisively, financialization has depended on the state to intervene periodically to underwrite the solvency of banks, to provide extraordinary liquidity and to guarantee the deposits of the public with banks.

Ultimately, however, the rise of finance has resulted from changes deep within capitalist accumulation. Three characteristic tendencies of accumulation in mature countries have shaped financialization as a structural transformation of contemporary capitalism. First, non-financial enterprises have become increasingly involved in financial processes on an independent basis, often undertaking financial market trans-actions on own account. The financialization of industrial and commercial enterprises has affected their profitability, internal organization, and investment outlook. Non-financial enterprises have become relatively more remote from banks and other financial institutions. Second, banks have focused on transacting in open financial markets with the aim of making profits through financial trading rather than through outright borrowing and lending. At the same time banks have turned toward individual and household income as a source of profit, often combining trading in open markets with lending to households, or collecting household savings. Third, individuals and households have come increasingly to rely on the formal financial system to facilitate access to vital goods and services, including housing, education, health, and transport. The savings of households and individuals have also been increasingly mobilized by the formal financial system.

The transformation of the conduct of non-financial enterprises, banks and households constitutes the basis of financialization. Examining these relations theoretically and empirically, and thus establishing the deeper content of financialized capitalism, is the main task of this book. Hie concepts and methods deployed for the purpose derive from Marxist political economy. To summarize, the capitalist economy is treated as a structured whole that comprises different spheres of activity - namely production, circulation, and distribution - among which production is dominant. Both production and circulation possess their own internal logic, even though the two spheres are inextricably linked. Production creates value; its motive is profit (surplus value) deriving from the exploitation of labour; its aim is the accumulation of capital. Circulation does not create value; it results in profits, but these derive mostly - though not exclusively - from redistributing surplus value. Finance is a part of circulation, but also possesses mechanisms standing aside commodity trading and its corresponding flows of money. The traded object of finance is loanable money capital, the cornerstone of capitalist credit. Production, circulation and distribution give rise to class relations, pivoting on the ownership of the means of production, but also determined by the appropriation of profits.

Financialization reflects a growing asymmetry between production and circulation - particularly the financial component of the latter - during the last three decades. The asymmetry has arisen as the financial conduct of non-financial enterprises, banks and households has gradually changed, thus fostering a range of aggregate phenomena of financialization. A telling aspect of the transformation has been the rise of profits accruing through financial transactions, including new forms of profit that could even be unrelated to surplus value. This process is summed up as 'financial expropriation' in subsequent chapters. New social layers have emerged as financial profit has burgeoned.

Financial markets and banks

It might seem paradoxical at first sight to associate financialization with the conduct of banks, given that the rise of finance has had far more extravagant aspects. Financializa- tion, for instance, appears to relate more to the global spread of financial markets, the proliferation of traded financial instruments, and the emergence of novel, market-re- lated financial transactions, rather than to the behaviour of banks. Compared to the expanding and rapidly changing world of financial markets, banks seem old-fashioned and even staid. And yet, as is shown in the rest of the book, banks have been a decisive factor in the financialization of capitalism. Banks remain the cornerstone of contempo- rary finance and several of the most visible market-related features of financialization emanate from banks. It is not accidental that the crisis of financialization in the late 2000s has revolved around banks rather than other financial institutions.

To establish the importance of banks in the course ot financialization consider some general features of the derivatives markets, arguably the most prominent finan- cial markets of recent years.1 Simply put, a derivative is a contract that establishes a claim on an underlying asset - or on the cash value of that asset - which must be executed at some definite point in the future. The underlying asset could be a com- modity, such as wheat; or another financial asset, such as a bond; or a financial price, for example the value of a currency; or even an entirely non-economic entity like the weather. The units of the underlying asset stated on the contract and multiplied by the spot price define the notional value of the derivative. Historically, derivatives have been associated with agricultural production: a forward or a futures contract would specify the quantity and price of an agricultural commodity that would be delivered at a definite point in the future. A forward contract would be a private agreement between two parties agreeing to trade some specific output at a certain price and time (e.g., the wheat produced by one of the contracting parties); a futures contract would also be a private agreement between two parties but the commodity traded would be generic (e.g., any wheat of a certain type and quality).

Capitalist farmers could use derivatives to hedge against unforeseen fluctuations in the price of output. In addition to hedging, derivatives could also be used to speculate on the future movement of prices, or to arbitrage among different markets exhibiting unwarranted price divergences in the underlying asset. Thus, the standard way of intro- ducing derivatives in textbooks is as instruments that make for hedging, speculation or arbitrage among market traders.* Derivatives markets are typically perceived as spontaneously emerging entities which supplement the services offered by the markets in underlying assets, and hence improve the efficiency of the capitalist economy. Even with this simple definition of derivatives, a key distinction is apparent - one between a contract that meets the specific conditions of two counterparties (a for- ward) and a contract that is more generic and could be traded freely in open mar- kets (a future). The former is similar to an over-the-counter derivative, the latter to an exchange-traded derivative. They represent two different ways of undertaking the trading process - the forward depends on the specific decisions of the trading parties, the future depends on the impersonal and 'third' institution of the 'exchange' which organizes the trading. The exchange' standardizes futures contracts, steps between buyers and sellers to clear purchases and sales by the counterparties and, critically, demands a daily 'margin' in cash as protection from failure to meet contracted obli- gations at maturity.

The most important development in the evolution of derivatives trading in recent years has been the move to cash settlement of the contract, thus freeing the counter- parties from the need to deliver the underlying asset. On this basis, derivatives have become essentially a punt on the future direction of the price of the underlying asset that is subsequently settled in cash. Consequently, the trading of derivatives has come to include underlying assets that could never be delivered, such as a stock market index.

In effect, the derivative has become what could be called a contract-for-differences - an agreement between buyer and seller to exchange the difference between the current value of a share, currency, commodity, or index and its value at maturity of the contract. If the difference is positive, the seller pays the buyer; if it is negative, the buyer is the one who loses money. Profit, in this context, depends on the difference between a fixed financial parameter and its uncertain value in the future.4

Spurred by cash settlement, the growth ol derivatives markets in the years of financialization has been breathtaking: from practical irrelevance in the 1980s, their notion- al sum in 2011 was in the vicinity of 700 trillion US dollars for over-the-counter and probably a similar sum for exchange-traded derivatives.' Yet, at the core of the enormously expanded derivatives markets lie a few international banks, which have also been one of the driving forces of financialization. Banks are the pillar of contemporary of the 1980s to the end of the 2000s the notional outstanding appears to have doubled every two or three years for most of the period.

Consider now the role of banks in these enormous markets. The importance of banks is most apparent in the over-the-counter market, which naturally lacks the organizing role played by the exchange' in the exchange-traded market. Banks func- tion as market-makers, that is, as agents that stand ready to buy and sell in the over- the-counter market; they are the dealers that are integral to market functioning. Banks also provide the necessary market infrastructure through vital market institutions such as the International Swaps and Derivatives Association (ISDA). Table 2 classifies over-the-counter transactions in terms of the counterparties, which are split into dealer banks, other financial institutions, and non-financial customers.8

... ... ...

Approximately US sjotn is not allocated either because it refers to commodity derivatives, or because it represents adjustments in BIS statistics. In practice, over-the-counter derivatives function as banking instruments. Almost a third of the trading in over-the-counter derivatives in 2011 took place in dealer-to-deal- er transactions, while all transactions had at least one dealer bank as a counterparty. There were, perhaps, seventy sizeable dealer banks in about twenty countries transact- ing with many thousands of end users of derivatives; indeed, concentration appears to have been even greater than that, and perhaps fifteen to twenty dealers controlled the overwhelming bulk of over-the-counter trading across the world."

These dealers werelarge global banks that were also fundamental to financialization. The same banks were among the largest participants in the exchange-traded markets, though data is hard to obtain for the latter. There is no doubt, however, that the large dealer banks were heavily involved in the management of the 'exchanges', including determination of risk management procedures and 'margin' levels.

Given the dominant presence of banks in the derivatives markets, it is hardly surprising that banks have encouraged the broadening of derivatives trading to include underlying assets with which they are most familiar - financial securities. Table 2 shows that less that ю percent of over-the-counter transactions actually involved non-financial enterprises: the great bulk comprised transactions that took place among financial institutions, and thus referred mostly to financial derivatives. In fact, growth in the derivatives markets has generally been dominated by inter- est-rate and foreign-exchange derivatives; since the early 2000s the strongest growth has been in credit default swaps (CDS), which are briefly discussed in Part III of this book.10

The price of financial derivatives depends, among other factors, on the rate of interest, and the rate that is typically used to value most financial derivatives is the London Interbank Offered Rate (LIBOR). The LIBOR is determined by a committee comprising several of the banks that dominate the derivatives markets; its determination involves the simple averaging of interest rates (excluding outliers) submitted by LIBOR committee banks daily. These are rates at which the LIBOR banks think that they can borrow from each other, although no LIBOR bank is obliged to undertake borrowing at the submitted rate. The LIBOR acts as a rate of interest that determines the value of derivatives, but it is not a rate of interest in the normal sense since no actual transactions need to take place at the rates declared by the committee banks.

In short, the banks that dominate derivatives trading are also the banks that set the interest rate at which derivatives are traded and valued, although the banks are not obliged to trade at the declared rate. No wonder, then, that one of the most egregious scandals of financialization appears to be the manipulation of the LIBOR by large dealer banks, a matter which has been under police investigation since 2010.

The problem is not a few 'rotten apples' amidst the LIBOR committee, criminally colluding with each other and with brokers to influence the LIBOR. Rather, a deeply flawed structure has allowed dealer banks to dominate derivatives markets while effectively manipulating the terms of derivatives trading.

Banks are at the heart of the derivatives markets which have been such a prominent feature of financialization. Derivatives markets rely on banks, in particular on the price-making skills and general organizational capabilities of banks. Indeed, banks are so dominant in derivatives markets that they are even capable of manipulating the key rate on the basis of which derivatives prices are formed. The vast growth of derivatives markets reflects in part the turn of banks toward trading in open financial markets, which is one of the fundamental tendencies of financialization. In sum, at the root of financialization lie the vast banks of mature and other economies. The theoretical and empirical analysis of financialization in the rest of this book, therefore, focuses on banks as well as non-financial enterprises and households.

[Oct 08, 2017] Profiting Without Producing How Finance Exploits Us All by Costas Lapavitsas

Notable quotes:
"... the lives of people in the Western world have reached levels of unprecedented material well-being and there is a middle class who are not emiserated materially. ..."
"... So the surplus value ( profit ) which is socially produced by a community gets appropriated and its potential productive value is turned to the use and benefit of a very tiny percentage of the population who produce the wealth socially, rather than redistributed into the community according to the wishes of the community. ..."
Oct 07, 2017 | www.amazon.com
Introduction

The 2000s were an extraordinary period for finance in terms of prices, profits, and volume of transactions, but also in terms of influence and arrogance. By the middle of the decade a vast bubble had been inflated in the US and the UK, the bursting of which could not be reliably timed but whose aftermath was likely to be devastating. Trivial as this point might seem in 2013, it was almost impossible to convey it at the time to spe- cialists and students of finance, and even to activists and socialists. Public perceptions were dominated by the so-called expert skills of the financial system in 'slicing and dicing' risk, and by the putative wisdom of the 'Great Moderation' in inflation policy. Structural crises were a thing of the past, or of the developing world, not of mature countries, where institutions were strong and economists well trained. It seemed that finance had discovered the perpetuum mobile of profit making.

By the middle of the first decade of the new century, it was also apparent that the processes under way amounted to more than financial excess. The bubble reflected profound changes in the conduct of non-financial enterprises, banks, and households. Alter years of financial ascendancy, the agents of capitalist accumulation assigned to financial operations a weight that was historically unprecedented. Finance was pivotal to profit making and to organizing everyday life, but also to determining economic policy as a whole. Mature capitalism had become financialized.

This book was initially conceived in that context, and its aim was to analyse the ascendancy of finance and the concomitant financialization of capitalism. By bringing to bear previous work on money and finance, the intention was to develop a theoretical analysis of financialization with clear Marxist characteristics. It was to be a book that would draw on Anglo-Saxon political economy and Japanese Uno Marxism, while being familiar with mainstream theory of money and finance. It would thus contribute to filling the hole still gaping in political economy in this field.

As is often the case with plans of this sort, reality intervened. In August 2007 the US money market had a heart attack, and in August-September 2008 the global financial system had a near-death experience. The bubble had indeed burst and a catastrophe was in the offing. The destructive influence of finance on the rest of the economy had become evident, as had the role of the state in supporting and promoting financialization. More than that, however, it soon became clear that this was a structural crisis that would not go away quickly. The bursting of the bubble had ushered in a crisis of financialization that cast fresh light on the historic transformation of mature capitalism during the preceding decades. It became necessary to re-examine the underlying tendencies of financialization, focusing in particular on the sources of financial profit. The book would have to be delayed.

And then in 2010-2012 the crisis took an even more dangerous turn. States had become perilously exposed to debt because recession had reduced tax revenues, while rescuing finance had imposed fresh costs on the exchequer. A bubble inflated by private capital had resulted in a crisis of public finance. Rising state indebtedness created turmoil of extraordinary ferocity in the eurozone, bringing into sharp relief the split between core and periphery, pushing several peripheral countries toward default, and threatening a break-up of the monetary union. The spectre of a gigantic crisis hung over the world economy. It became clear that financialization would have to be rethought still further in view of its monetary dimension, particularly the precariousness of its domestic and international monetary underpinnings.

The crisis was far from over at the time of writing this book. However, the temptation had to be resisted to delay publication still further in the expectation that other important features of financialization would emerge. It was time to submit to the public sphere the analysis of the structural and historical content of financialization, even if that meant trying to hit a moving target. The monetary and financial aspects of the transformation of capitalism during the last four decades have been increasingly discussed by political economy, particularly its Marxist strain. This book has a distinctive argument to make regarding financialization, including particularly the predatory and expropriating character of financial profit and its implications for social stratification. Light could thus be shed on the tendency to crisis that has characterized financialization since its inception.

kievite on October 8, 2017

Insightful book on "financialization"

The concept of "casino capitalism" which was put forward by Susan Strange in her 1983 book is closely related to the concept of "financialization". So this is not new and not the first attempt to analyze this aspect of neoliberalism. But the author managed to write a very interesting and insightful book.

Again, the fact that financialization is at the core of neoliberalism (as the term "Casino Capitalism" implies) is well established, but the details of how this mechanism works and how finance institutions position themselves under neoliberalism as universal intermediaries of almost any economic and even social activity: education (via student loans), pensions (via 401k Plans), heath (via heath insurance), consumption (via credit cards), extracting rents from each of them is not well known or understood.

This is the area in which this book provide some deep insights. Brief overview of the book from the author can be found in his lecture on YouTube (Profiting Without Producing How Finance Exploits Us All -- A lecture by Costas Lapavitsas ) and in his Guardian article "Finance's hold on our everyday life must be broken ".

Converting the whole economy into one giant casino where you can bet on almost anything, commodities prices, interests rate and even volatility of the market has profound social effects. And those effects are different on large enterprises and small enterprises and population at large.

The author argues that "Financialization represents a historic and deep-seated transformation of mature capitalism. Big businesses have become "financialised" as they have ample profits to finance investment, rely less on banks for loans and play financial games with available funds. Big banks, in turn, have become more distant from big businesses, turning to profits from trading in open financial markets and from lending to households. Households have become "financialised" too, as public provision in housing, education, health, pensions and other vital areas has been partly replaced by private provision, access to which is mediated by the financial system. Not surprisingly, households have accumulated a tremendous volume of financial assets and liabilities over the past four decades. "

When like in casino sheer luck begins to determine more and more of what happens to financial well-being of people due to their exposition to stock markets (hypertrophied under neoliberalism into some incredible monster due to 401K plans participation) , and skill, effort, initiative, determination and hard work count for less and less, then inevitably faith and confidence in the social and political system quickly fades.

That's what happened with casino capitalism in the USA and that's why Trump was elected.

Paradoxically, as people more and more play in stock market (including with their 401K money) then respect the system less and less. In a way neoliberalism brings with is 'casino capitalism" mentality" its own demise. Frustration and anger become sharper and prone to be violently expressed when the realm of inequality becomes too large and when the system seems to operate so very unequally and biased toward the top 1% or, more correctly, the top 0.01%. While many people find themselves without jobs and without any opportunity to earn a decent living. Thrown out of "economy for winners." That's the problem Pope Francis "LAUDATO SI" was devoted to.

As author states "This book has a distinctive argument to make regarding financialization, including particularly the predatory and expropriating character of financial profit and its implications for social stratification. Light could thus be shed on the tendency to crisis that has characterized financialization since its inception."

Highly recommended.

merjet December 2, 2014

Clear and informative but a Marxist bias

I discovered this book by chance. The title looked intriguing and I have seen very few books about financialization, so I decided to read it. It was good enough to keep my interest, despite the influence by the distorting lens of Marxist thought. It doesn't live up to its title of showing how financial people profit without producing and exploit us all. (I make an exception for those in government who do that.) Indeed, despite "exploit" in the subtitle, it appears in the book only two other places, which likely helped hold my interest. Also, the writing was good.

The author makes a fundamental distinction between productive capital and financial capital. Add '-ist' to each to denote the people. I think it's safe to say the book implicitly says:

1. The former are capital providers who also work in the productive business. The business produces non-financial products, e.g. food, or services, e.g. transportation.

2. The latter provide the non-financial business capital but don't work in said business, like outside stockholders, bondholders and lenders.

Lenders are mostly banks. The author is not critical of productive capital, but, as a Marxist, he regards financial capitalists as expropriators who profit without producing. The fact that many of these financial capitalists are individuals who worked productively for decades and are now retired and depend on income from said capital for living expenses is conveniently omitted.

Marx's notions of money and exchange value are flawed. Firstly, money is the medium of _indirect_ exchange, which Marx didn't recognize and Lapavitsas's reference to Carl Menger didn't recognize. Also, Austrians like Menger realize that indirect exchange increases with the division of labor. Despite its huge significance, division of labor is an idea barely worth mention by Marx, and then only negatively. Also, indirect exchange encompasses more than just "spot market" exchanges. It includes X now for Y later, like in a forward or futures contract. It also includes both X and Y being money and Y is indeterminate when X occurs. X and Y may even be in different currencies and utilize a financial mediator.

Page 200 says, "the financial system is an intermediate entity that does not produce value." Page 201 says the financial system's services include creation of credit money, safekeeping of funds, money transfers, facilitating foreign exchange, mobilization of loanable capital, and turning that into loans. "The financial, consequently, acts as the nerves and brains of the capitalist economy." Extending his metaphor, what he considers the productive part of the economy must be the bones, muscle, and other organs. If that isn't a bad analogy, it's an amazing contradiction of Marxist thought unrecognized by the author. It implies that the nerves and brains of an animal's body provide no value to the rest of the body.

Marxist thought cherry-picks who is a producer or worker. Those in roles readily visible to making products or providing services, and roles easy to understand rank high. Roles less visible and understandable like research and development, executive-level decision-making, marketing, and especially financial people rank low and may even be considered expropriators. Union leaders and organizers whose livelihood is extracted from union dues? Many government employees? While the author gives a significant role to governments (states) and central banks in financialization, Lapavitsas blames mostly financial capitalists. Governments and central banks are more like their assistants. However, what people typically call "capitalist economies" are more properly called "mixed economies" with extensive government control well beyond prevention and punishment for coercion and fraud. So assigning all blame to capitalism is quite biased.

Interest is often not simply exploitation of labor. It is mainly a reward for savings and the cost of borrowing. The author occasionally refers to savings with the perjorative term "hoarding." Consider those retirees mentioned above again.

The author often attributes to surplus value predation and exploitation, as if all surplus value does is put money in the financial capitalist's pocket and extracts from labor. Not so. Surplus value, i.e. profit, is often the source of funds for growth, upgrades, and replacement of old capital. The author himself acknowledges this when he writes about 'internal' financing, along with graphs showing 'internal' financing over time averaging about 100% in the U.S. He does not integrate these two things, which shows an incoherence in Marxist thought. Surplus value can also be the reward from entrepreneurship.

About mortgages the author says: "In short, the money revenue of workers is transformed into loanable capital at a stroke, allowing financial intermediaries to absorb parts of it as financial profit by trading securities that are based on future wage payments. The path is thus opened for financial institutions to bring to bear predatory practices reflecting the systematic difference in power and outlook between financial institutions and workers" (p. 167).

My comments:

1. Loanable capital doesn't arise simply because a worker wants a mortgage. Unless the money is newly created "out of thin air" by government-backed banks, loanable capital is the result of somebody saving, the saver not spending the money on something else.

2. The worker's future wages are in fact a condition for obtaining the mortgage. Rather than being exploited, the worker is given the opportunity to become a homeowner at the stroke of a pen.

3. Regarding working people you know who have purchased a house with a mortgage, which may include you, have they felt elated or exploited?

4. All or most working people living in many of the poorer countries of the world can't even get a mortgage. There is not enough savings to offer loanable capital to support a mortgage market.

5. Granted, there have been victims of predatory practices by lenders, but lenders also become victims if the borrower defaults on the mortgage. Also, such predatory practices by lenders is a recent phenomena for a _part_ of the market for mortgages, hardly characteristic of the mortgage market generally.

Chapter 9 is a pretty good description of the recent financial crisis. It also covers different Marxist theories about how crises develop. All typically claim that capitalism is inherently unstable due to 'contradictions' in production. Unlike free market advocates, they hardly ever cite government intervention as a cause of instability. They don't distinguish between a capitalist economy and mixed economy.

The final chapter, Controlling Finance, addresses what has been done and what the author wishes can be done. It makes an interesting distinction between market-negating and market-conforming regulation. I don't agree with the author's utopian visions about government ownership and/or control of finance. Indeed, I found it puzzling to see after (1) his earlier saying elected politicians are plain dishonest (p. 195), (2) describing how much states and central banks have aided financial capitalists in recent decades with deregulation and bailouts, and (3) his saying "there are no clear paths to regulatory change" (p. 324). By the way, a good way to avoid such utopian visions is to compare East and West Germany, North and South Korea, and the USSR and the USA.

7 comments 22 people found this helpful.

Stergios D. Marangos 1 year ago

This reviewer is more concerned with trying to critique Marx than this book. Needless to say, the second someone says surplus value = profit ( not to mention the muddle that surplus value can come from entrepreneurship) you know there is something wrong...

merjet 2 years ago (Edited) In reply to an earlier post Robert Fenton 2 years ago

Fenton: "The contradictions of money are fairly evident from this point."

A thing having more than one attribute does not make a "contradiction." I suggest you learn some logic.

Fenton: "Difference between capitalist and mixed economy makes no sense."

I suppose the difference between voluntary and coerced, or non-political versus political, makes no sense to you either.

Fenton: "For Marx, who lived in the 19th century, the idea of a "free market" made no sense at all."

No wonder he was so confused and fabricated nonsense about it.

Fenton: "The USA practiced protectionism to build up its industrial capacity, the USSR directed production from central committee."

The consequence of USSR's centrally-directed agricultural production was millions dying by starvation. Ditto for China. Perhaps you should read the histories of countries that have implemented Marxist ideas. While I don't approve of protectionism, it is paltry compared to millions dying by starvation.

Fenton: "This review ... is laden with ideological positions."

The pot calls the kettle black.

Robert Fenton 2 years ago (Edited)

People without an intimate knowledge of Marxism should probably refrain from commenting on it like they know what they are talking about. First of all, Marx's theory of money does account for "indirect" exchange: this is key to his entire dialectical edifice. Prices do not equal values, they are merely representations of value (i.e., exchange value). But Marx's theory of money is even more complex, and rests on a three-fold determination of money as 1.) measure of value, 2.) means of circulation and exchange (your "indirect" means), and 3.) store of value. The contradictions of money are fairly evident from this point. The Austrians assume the problematic position by conflating the value of money with its price: it is what it is. Their wholesale acceptance of Say's Law is troubling too, considering they accept money as "indirect" means of exchange. But by failing to recognize money's other determinations, they basically treat it as direct exchange in theorem.

Secondly, to claim that the division of labor is an afterthought for Marxist thought is asinine. It is literally at the core of his entire Critique. Marx actually has a rosier interpretation of it than Adam Smith (see book 3 Wealth of Nations). Marx's entire critique of political economy (read: critique of economic science and practice) is that capitalists need to extract surplus value from nominally free workers. How do they do this? Both absolutely, by extending duration of work day, and relatively, buy increasing productivity (in practice, Marx acknowledges that we can see a combination of both). This is not visible in the wage or in the act of exchange, but in the relations of production and the dual character of the commodity "labor-power." But the division of labor is actually the basis for new forms of "Co-operation" (perhaps the best chapter in Capital Vol. I) and solidarity. It is dialectical. If you only see the negative in Marx it is because you have an ideological predisposition to dislike his work, or you don't understand how dialectics work--I would say it is probably both.

M-C-M' (circuit of expanded production); M-M' (fictitious capital arising from speculative credit economy). You need to read about this on your own. Central to the entire argument in Capital.

I don't think you understand Marx's notion of "exploitation," which I have briefly summarized above. It is not treating someone badly, it is not some morally repugnant slavery, per se. It is a legal means of covering the ways in which surpluses are generated in capitalist society. Workers make things but never receive the values they produce back as wages. There is a temporal issue at play, but it is all highly predicated on how capitalists must work: they need to constantly expand their capital (increase profits and invest those profits into expanding production, etc., accumulation for accumulation's sake). A capitalist pays a worker a certain wage, the worker works as the capitalist wants him/her to, the worker produces something they don't have control over, the capitalist receives (if the product can find a market) money back from that product that needs to be more than the outlays in fixed capital (buildings, supplies, equipment) and variable capital (labor) he originally spent to produce. This is exploitation. Mortgaging and other consumption-based loans are basically a means of recouping surpluses that were paid to workers in wages. Marx clearly does not buy into any these of material immiseration (Ricardo's Iron law of wages), nor does he deny the productive capabilities of capitalist economies. He says workers can get paid more for labor-power than the value of labor, it is in Capital. This is part of the entire business cycle theory Marx develops.

Difference between capitalist and mixed economy makes no sense. It is a product of ridiculous bifurcation of economic and political spheres prevalent in bourgeois (liberal) thought, hence economic liberalism and political liberalism. Capitalist economies are characterized by the generalization of the commodity, wage labor, and private (i.e., not collective, which a class of government bureaucrats certainly aren't) ownership of the means of production (factories, tools, etc.). Marx and later Marxist show exactly how something like a welfare state is untenable, the law of value prohibits it. This goes back to your issue understanding what productive laborers are for Marx (btw, research and development is part of productive labor). For Marx, who lived in the 19th century (read Karl Polanyi's Great Transformation), the idea of a "free market" made no sense at all. The political and economic forces were aligned, forcing peasants from their lands and into towns and factories ("On so-called Primitive Accumulation"). But why should we avoid utopian visions by comparing "mixed economies" with "mixed economies"? Perhaps you should read the histories about the countries you listed. The USA practiced protectionism to build up its industrial capacity, the USSR directed production from central committee. South Korean had a capitalist dictator who controlled the entire country and murdered anyone with communist sympathies, the North did roughly the same thing. Two sides of the same coin. The real utopia is the "free market." It never has and never will exist because there are too many factors that impinge upon it. If you want to see something approximating a "free market" come down to Latin America. Even in "socialist" Ecuador things are more laissez-faire.

I have not read this book yet, but I plan to. This review shows an utter lack of understand, however, for even the most basic points of Marxist critiques. It is laden with ideological positions and insinuates a variety of banalities about Marxism and communism which don't hold true on close scrutiny of Marx's work. Please educate yourself.

Frank 2 years ago (Edited)

There is a critical response to your example of house ownership. Again that gets very complex but, just a part of that response, to your 2nd point:
"2. The worker's future wages are in fact a condition for obtaining the mortgage. Rather than being exploited, the worker is given the opportunity to become a homeowner at the stroke of a pen."

This could be described as a bargain with the devil. The worker has to work extra to pay 3 times the current market value of the home due to the interest. The capitalist makes a good profit out of that.

Frank 2 years ago (Edited)

So what I think you miss here is a connection between capitalism criticised as a means of exploitation and capitalism described as a working economic system with its own character and good and bad points.

So what is being gotten at, amongst other points, in Marxist critiques of capitalism is that:

  1. Capitalism is a very productive system
  2. Its productivity has to do with the division of labour and refinements of productive activity which is linked into supply and demand
  3. But Marx's point, amongst others, was that this would lead to a polarisation into a class of capitalists who became richer through appropriation of surplus value (including its redeployment in further profit producing enterprises) and those "workers" who produce by transforming the raw materials into actual goods and services who become or remain emiserated over time. The rich get richer and the poor get poorer.
  4. This last point 3 is quite possibly historically inaccurate in the sense that capitalism is enormously productive and has produced increasing levels of material well being through this increased production. Hence the lives of people in the Western world have reached levels of unprecedented material well-being and there is a middle class who are not emiserated materially.

But there is some sort of residual truth in that given the increasing levels of inequality on the one hand and global impoverishment on the other. In respect of global impoverishment it is credible to propose that the billions who live in poverty can't attain to the levels of affluence in the West due to the ecological limits of capitalism - that the western lifestyle of the wealthy is a phantasmorgoria to them. So its arguable that an alternative means that might be more socialist might in fact be needed for that relief of impoverishment to happen. That proposal needs to be moderated by the fact that there is a lot that can be done through refinements of production without coming into conflict with those ecological limits. For instance cities could be made a lot more liveable without increasing ecological damage.

So the main point that you miss (in an otherwise clear critical statement) is that a tiny percentage of the global population own and control a huge percentage of the world's wealth.

In part this is done through the translation of the production of goods and services into financial ie monetary equivalents which is distributed through private ownership and systems thereof into further capitalist enterprise. That seems to me what the book is actually getting at.

So I would think that "exploitation" would need to be conceived of as some sort of taking of an undeserved share of the productive potential of a social project ie the surplus value that is produced (surplus to whatever is needed for production or reproduction) then that becomes exclusively available to the capitalist entrepreneur who then reinvests it unlocking further profitability and production. So its the productive potential for further deployment that is expropriated by the capitalist entrepreneur.

This surplus value is produced by all those who work in the enterprise, in other words socially, but then that is leveraged into further productive activity which in turn increases the financial wealth of the capitalist. The entrepreneurial capitalist is also, initially, a participating worker, eg an organiser, co-ordinator, innovator and even sometimes an inventor but once enough surplus value is realised the system begins to work for him instead of his own activity being responsible so he makes a transition himself. Eventually the entrepreneurial capitalist is virtually free from the necessity of work.

So the surplus value ( profit ) which is socially produced by a community gets appropriated and its potential productive value is turned to the use and benefit of a very tiny percentage of the population who produce the wealth socially, rather than redistributed into the community according to the wishes of the community.

Most of these comments of mine are, I know, just partial thoughts needing to be made more adequate rather than completed. I am not a committed Marxist but neither am I in love with capitalism as a system. In fact I wouldn't claim much authority here just a partial understanding at a preliminary sort of level of something complex that I don't understand fully. The mixed modes that you talk about seem to me part of a continuing search for ways of reconciling socialism and capitalism. Hence my way of expressing this as what he or Marx is "trying to get at".

[Oct 07, 2017] Goldman Sachs' Abacus Program had its banksters create designed-to-fail financial products for customers (they were called 'muppets'), so that GS could then bet against them!

Oct 07, 2017 | discussion.theguardian.com

KSurin -> Elysiumfire , 1 Jan 2014 19:12

I wondered how a bank could sell toxic assets to another financial institution, and even more, that other institutions would buy them.

Or flogging designed to fail financial products to one's own customers?

Goldman Sachs' Abacus Program had its banksters create designed-to-fail financial products for customers (they were called 'muppets'), so that GS could then bet against them!

[Oct 07, 2017] Finances hold on our everyday life must be broken by Costas Lapavitsas

Highly recommended!
Yves Smith's ebook is available free here. It covers the same set of topics and is useful add on to Costas Lapavitsas book.
Notable quotes:
"... Financialisation represents a historic and deep-seated transformation of mature capitalism. Big businesses have become "financialised" as they have ample profits to finance investment, rely less on banks for loans and play financial games with available funds. Big banks, in turn, have become more distant from big businesses, turning to profits from trading in open financial markets and from lending to households. Households have become "financialised" too, as public provision in housing, education, health, pensions and other vital areas has been partly replaced by private provision, access to which is mediated by the financial system. Not surprisingly, households have accumulated a tremendous volume of financial assets and liabilities over the past four decades. ..."
"... Financialisation has also created new forms of profit associated with financial markets and transactions. Financial profit can be made out of any income, or any sum of money that comes into contact with the financial sphere. Households, for example, generate profits for finance as debtors (mostly by paying interest on mortgages) but also as creditors (mostly by paying fees and charges on pension funds and insurance). Finance is not particular about how and where it makes its profits, and certainly does not limit itself to the sphere of production. It ranges far and wide, transforming every aspect of social life into a profit-making opportunity. ..."
"... Financialised capitalism is, thus, a deeply unequal system, prone to bubbles and crises – none greater than that of 2007-09. What can be done about it? The most important point in this respect is that financialisation does not represent an advance for humanity, and very little of it ought to be preserved. Financial markets are, for instance, able to mobilise advanced technology employing some of the best-trained physicists in the world to rebalance prices across the globe in milliseconds. This "progress" allows financiers to earn vast profits; but where is the commensurate benefit to society from committing such expensive resources to these tasks? ..."
"... The debate should focus on why neoliberalism was seen as the panacea to the relatively socialist post-War consensus. Neoliberalism is an ideology which has not even begun to be deconstructed. Like religion, the myths (concerning deficits and debt, for example) have been exposed here in CiF but not the global public -- and must be eventually. ..."
"... Big Brother=Neoliberalism=The Market=The Party=Enforcement ..."
"... Don't delude yourself. A capitalist "society" must have control over its citizens as intensive as a socialist one - just look at GCHQ/NSA. That it is exercised through markets and advertising instead of propaganda is neither here nor there. ..."
"... Thatcher's and Reagan's vicious, vile strikebreaking and the support they got from the supposedly free press and supposedly impartial judiciary in that is a good example. ..."
"... "The right way to think about it is that the financial industry must be doing something incredibly useful or it would not exist." What a ridiculous thing to say. By the same reasoning both bubonic plague and child abusers are both doing something incredibly useful, otherwise they would not exist. ..."
"... Classical economics generally sees things the way you do, and attempts to match up economics with reality. Neoclassical economics on the other hand, which is the system we're currently using, has little concern with reality. So the specific problem involves our economic system diverging from reality. ..."
"... Compounding factors involve the sociopathic nature of the individuals involved. For example, we think nothing about starting a war (generating profit for our military machine), then rebuilding the ravaged country (generating profit for our construction companies). In neoclassical economics that's just damned good business (the banks and corporations taking profits, the taxpayer footing the bill). ..."
"... There have always been alpha males and alpha females even, people who are very competitive, workaholics, who are leaders, who must be in charge. ..."
"... I think the difference in the last 30 years was Thatcherism and in very short order Reaganism. Adam Curtis says that Thatcher and her campaign manager were ardent anti-communists, they saw Britain in the grip of the unions as a kind of moral decay rotting the nation from the inside out (the enemy within) and they were both obsessed with Churchill, so they embarked on a Methodist 'the devil makes work for idle hands' market philosophy aimed at encouraging people to be self-sufficient, independent, have Victorian values, be as successful as possible and all that stuff. ..."
"... I think another thing is that capitalism then was still in its infancy of the turbo-on-steroids stage. For that cancer to truly metastasize we needed the personal computer network revolution that enabled globalisation, ..."
"... I agree that financialisation is a parasitic activity that will bring the body politic to its knees - and in the not too near future. This is capitalism that really doesn't give f**k about the environment or anyone who is not earning these obscene bucks shuffling electronic wizardry around to nobody's benefit but their own. ..."
"... Whose value system is overly competitive with the desire to win.. How can it be otherwise when we, ourselves, have brainwashed the children since the 1980s. We have given them Gameboys, Xboxes and the WoW where the emphasis is on winning. Play this for hours every day and the message becomes ingrained -- WIN ..."
"... The USSR had to be heavily militarized because its very existence depended on being able to defend itself against the aggressive USA and its little helpers, Nato-countries. It was surrounded by US military bases. That is the same US that went and murdered millions in SE Asia to "fight Communism". ..."
"... The article is about a global issue, not only your backyard. The people of UK can consider themselves lucky compared with billions of others. But what would you care. ..."
"... The financial sector, CEOs, oligarchs etc run on good old fashioned greed - a commodity not about to run out anytime soon. Is it even 'reversible' ? ..."
Jan 01, 2014 | www.theguardian.com

Finance's hold on our everyday life must be broken The rampant capitalism that has brought the market into every corner of society needs to be reined in 'Financial calculation evaluates everything in pennies and pounds, transforming the most basic goods – above all, housing – into "investments".'

The rampant capitalism that has brought the market into every corner of society needs to be reined in

The mature economies of the modern world, particularly the United States and Britain, are often described as "financialised". The term reflects the ascendancy of the financial sector. Even more important, it conveys the penetration of the financial system into every nook and cranny of society, including housing, education, health and other areas of life that were previously relatively immune.

Evidence that financialisation represents a deep transformation of mature economies is offered by the global crisis of 2007-09 . The crisis originated in the elephantine US financial system, and was associated with speculation in housing. For a brief period it led to serious questioning of mainstream economic theory and policy: how to confront the turmoil, and what to do about the diseased financial system; are new economic theories needed? However, after six years it is clear that very little has changed. Financialisation is here to stay.

Consider, for instance, the policies to confront the crisis. First, public funds were injected into banks to boost capital. Second, public liquidity was made available to banks to sustain their operations. Third, public interest rates were driven to zero to enable banks to make secure profits by lending to their own customers at higher rates.

This extraordinary public largesse towards private banks was matched by austerity and wage reductions for workers and households. As for restructuring finance, nothing fundamental has taken place. The behemoths that continue to dominate the global financial system operate in the knowledge that they enjoy an unspoken public guarantee. The unpalatable reality is that financialisation will persist, despite its costs for society.

Financialisation represents a historic and deep-seated transformation of mature capitalism. Big businesses have become "financialised" as they have ample profits to finance investment, rely less on banks for loans and play financial games with available funds. Big banks, in turn, have become more distant from big businesses, turning to profits from trading in open financial markets and from lending to households. Households have become "financialised" too, as public provision in housing, education, health, pensions and other vital areas has been partly replaced by private provision, access to which is mediated by the financial system. Not surprisingly, households have accumulated a tremendous volume of financial assets and liabilities over the past four decades.

The penetration of finance into the everyday life of households has not only created a range of dependencies on financial services, but also changed the outlook, mentality and even morality of daily life. Financial calculation evaluates everything in pennies and pounds, transforming the most basic goods – above all, housing – into "investments". Its logic has affected even the young, who have traditionally been idealistic and scornful of pecuniary calculation. Fertile ground has been created for neoliberal ideology to preach the putative merits of the market.

Financialisation has also created new forms of profit associated with financial markets and transactions. Financial profit can be made out of any income, or any sum of money that comes into contact with the financial sphere. Households, for example, generate profits for finance as debtors (mostly by paying interest on mortgages) but also as creditors (mostly by paying fees and charges on pension funds and insurance). Finance is not particular about how and where it makes its profits, and certainly does not limit itself to the sphere of production. It ranges far and wide, transforming every aspect of social life into a profit-making opportunity.

The traditional image of the person earning financial profits is the "rentier", the individual who invests funds in secure financial assets. In the contemporary financialised universe, however, those who earn vast returns are very different. They are often located within a financial institution, presumably work to provide financial services, and receive vast sums in the form of wages, or more often bonuses. Modern financial elites are prominent at the top of the income distribution, set trends in conspicuous consumption, shape the expensive end of the housing market, and transform the core of urban centres according to their own tastes.

Financialised capitalism is, thus, a deeply unequal system, prone to bubbles and crises – none greater than that of 2007-09. What can be done about it? The most important point in this respect is that financialisation does not represent an advance for humanity, and very little of it ought to be preserved. Financial markets are, for instance, able to mobilise advanced technology employing some of the best-trained physicists in the world to rebalance prices across the globe in milliseconds. This "progress" allows financiers to earn vast profits; but where is the commensurate benefit to society from committing such expensive resources to these tasks?

Financialisation ought to be reversed. Yet such an entrenched system will never be reversed by regulation alone. Its reversal also requires the creation of public banking that would operate with a new spirit of public service. It also needs effective controls to be applied to private banking as well as to international flows of capital. Not least, it requires new methods of meeting the financial requirements of households, as well as of small and medium enterprises. There is an urgent need for communal and associational ways to provide housing, education, health and other basic goods and services for working people, breaking the hold of finance on everyday life.

Ultimately, financialisation will not be reversed without an ambitious programme to re-establish the superiority of the social over the private, and the collective over the individual in contemporary society. Reversing financialisation is about reining in the rampant capitalism of our day.

Costas Lapavitsas's latest book is Profiting Without Producing: How Finance Exploits Us All

ATrueFinn -> Mizzentop , 3 Jan 2014 08:11

The Berlin Wall kept people in - that was its primary purpose.

Few people know what the Berlin Wall was. It was a wall around West Berlin, which was not a part of West Germany but an occupied territory within the GDR. An American president called himself a Berliner, which means a Berliner Pfannkuchen, i.e. a doughnut (technically, not by shape and content.)

But whatever. The good people of the UK nowadays seem to wish there was a Rumanian Wall and a Bulgarian Wall to keep people in. I gather quite a few in the former West Germany would like a wall to keep the Ossies in.

HolyInsurgent -> AhBrightWings , 2 Jan 2014 22:51

Why Reagan and Thatcher were allowed to gut functioning...societies so that a handful could prosper remains the great mystery.

On the contrary. Reagan and Thatcher were convenient advocates of a growing conservative consensus. The convergence of institutions must have begun before their tenure because neoliberalism became the dominant consensus by the time of their leadership.

The debate should focus on why neoliberalism was seen as the panacea to the relatively socialist post-War consensus. Neoliberalism is an ideology which has not even begun to be deconstructed. Like religion, the myths (concerning deficits and debt, for example) have been exposed here in CiF but not the global public -- and must be eventually.

Big Brother=Neoliberalism=The Market=The Party=Enforcement

Gegenbeispiel -> Mizzentop , 2 Jan 2014 17:19

Don't delude yourself. A capitalist "society" must have control over its citizens as intensive as a socialist one - just look at GCHQ/NSA. That it is exercised through markets and advertising instead of propaganda is neither here nor there.

Thatcher's and Reagan's vicious, vile strikebreaking and the support they got from the supposedly free press and supposedly impartial judiciary in that is a good example.

Mowglia -> JohnJohnJohnJohn , 2 Jan 2014 15:49

"The right way to think about it is that the financial industry must be doing something incredibly useful or it would not exist." What a ridiculous thing to say. By the same reasoning both bubonic plague and child abusers are both doing something incredibly useful, otherwise they would not exist.

Perhaps you could explain to me what exactly it is that these socialists are doing that is so useful?

Mowglia -> londongapp , 2 Jan 2014 15:40

It is the essential difference between wealth and money that is constantly missed by Politicians and Economists.

Classical economics generally sees things the way you do, and attempts to match up economics with reality. Neoclassical economics on the other hand, which is the system we're currently using, has little concern with reality. So the specific problem involves our economic system diverging from reality.

Compounding factors involve the sociopathic nature of the individuals involved. For example, we think nothing about starting a war (generating profit for our military machine), then rebuilding the ravaged country (generating profit for our construction companies). In neoclassical economics that's just damned good business (the banks and corporations taking profits, the taxpayer footing the bill).

Mowglia -> Claire Bouskill , 2 Jan 2014 15:25

isnt it amazing that Marx predicted over 150 years ago that the greedy capitalists would be their own gravediggers

I never read Marx, although it sounds like he knew a bit about human nature and simply took the system to its logical conclusion. I'm not anti-capitalism. I believe it was a useful development in human history, similar to religion and feudalism. But now it's time to say goodbye and find a new way of doing things. There's no point in flogging a dead horse, unless you're part of the 1%.
MereMortal -> ScroogeJr , 2 Jan 2014 14:47
I haven't really given that aspect of it much thought. When I was growing up, we played Monopoly or Risk or Cluedo, we went outside, we raced, played cowboys and indians and the rest.

There have always been alpha males and alpha females even, people who are very competitive, workaholics, who are leaders, who must be in charge.

I think the difference in the last 30 years was Thatcherism and in very short order Reaganism. Adam Curtis says that Thatcher and her campaign manager were ardent anti-communists, they saw Britain in the grip of the unions as a kind of moral decay rotting the nation from the inside out (the enemy within) and they were both obsessed with Churchill, so they embarked on a Methodist 'the devil makes work for idle hands' market philosophy aimed at encouraging people to be self-sufficient, independent, have Victorian values, be as successful as possible and all that stuff.

I can well believe that, it's just that they stirred up the whole thing without ever thinking through the terrible potential downsides. That's a major problem with politics, fanatical zealots who claim to have the solution for all the problems a nation faces.

I think another thing is that capitalism then was still in its infancy of the turbo-on-steroids stage. For that cancer to truly metastasize we needed the personal computer network revolution that enabled globalisation, partly because then, it was possible for people to source more and more and more income streams without the commensurate ability to truly monitor the quality of the investments or to manage the human relations that actually motivate people to feel appreciated and to do good work.

That's my sixpence worth anyway.

zavaell , 2 Jan 2014 14:34
Fighting talk. I agree that financialisation is a parasitic activity that will bring the body politic to its knees - and in the not too near future. This is capitalism that really doesn't give f**k about the environment or anyone who is not earning these obscene bucks shuffling electronic wizardry around to nobody's benefit but their own.

Maybe regulation per se is not the main answer, but it sure as hell needs a politician to stand up and say what is said in this article.

ScroogeJr -> MereMortal , 2 Jan 2014 12:46
Whose value system is overly competitive with the desire to win.. How can it be otherwise when we, ourselves, have brainwashed the children since the 1980s. We have given them Gameboys, Xboxes and the WoW where the emphasis is on winning. Play this for hours every day and the message becomes ingrained -- WIN
ATrueFinn -> Mizzentop , 2 Jan 2014 09:37

The failure of the USSR owed much to its militarism but don't you see that a society like that HAS to be heavily militarized because its very existence depends on having total control over its citizens.

The USSR had to be heavily militarized because its very existence depended on being able to defend itself against the aggressive USA and its little helpers, Nato-countries. It was surrounded by US military bases. That is the same US that went and murdered millions in SE Asia to "fight Communism".

TwoWolvesAndALamb , 2 Jan 2014 08:48
You are spot on with this:

Consider, for instance, the policies to confront the crisis. First, public funds were injected into banks to boost capital. Second, public liquidity was made available to banks to sustain their operations. Third, public interest rates were driven to zero to enable banks to make secure profits by lending to their own customers at higher rates.

Yet it seems you still blame the private sector for accepting the favorable situation rather than the state for causing it:

Ultimately, financialization will not be reversed without an ambitious program to re-establish the superiority of the social over the private, and the collective over the individual in contemporary society.

A shift towards the rights of the individual would see the state have less power to bail out the banks. Your solution is to give the source of the problem yet more power. The banks couldn't bail themselves out - they needed the state to take the funds from the citizens. Why do you find the state so blameless as to suggest they need more influence?

theonionmurders -> selfraisingfred , 2 Jan 2014 08:40

Remind me, because maybe I missed something, but which bit of the post-war German economic miracle had them seeking a bailout from the IMF?

I'll tell you. West Germany was allowed to default twice on massive post-war loans in 1946 and 1948 thereby requiring IMF loans to finance it's day-to-day running.

TheGreenLion -> Tenthred , 2 Jan 2014 08:40
My current company needs debt to pay for the machinery and running costs to create products. These are sold for profit and the debt repaid. Without the initial debt the products, the salaries, the taxable income would not exist. Debt is banned in Islamic countries – it is not a coincidence that from being streets behind 1000 years ago, the Western world is now considerably more developed
theonionmurders -> Trilbey , 2 Jan 2014 08:23
Yves Smith's ebook is available free here.
harlequinmod -> JohnJohnJohnJohn , 2 Jan 2014 08:09
I think what sticks in the craw of socialists is that these financial corporations and people working in finance would be out of work if it hadn't been for Government intervention and taxpayer money. There is a real irony in having had to listen how great Thatcher was for breaking the unions, smashing nationalized industries on the basis of free market principles only to have to bail out the biggest advocates of the free market. Especially when the cause of the longest and deepest recession in memory was caused by those financial corporations and people working in finance.

Do I envy these people? Not really, they are on the whole treated like sh1t and they are so attached to their money that they are like mewling, whimpering children when faced with the threat of losing their jobs.

Claire Bouskill -> Mowglia , 2 Jan 2014 07:16
Isn't it amazing that marx predicted over 150 years ago that the greedy capitalists would be their own gravediggers as they continue to pauperize the workers to extract more profit , drive down wages and replace jobs with machinery. Forgetting it is the workers who buy the commodities and if they cannot buy , the system will collapse in on itself
QueenBoadicea -> Tenthred , 2 Jan 2014 07:13
So will the likes of Wonga and other payday lenders should be closed down and the directors face court proceedings for usury?

This is an interesting article: http://unemploymentmovement.com/forum/chat-a-rap/5926-welcome-to-the-usury-kingdom

But seeing as the Anglican church has shares in Wonga, this made me wake up to the hypocrisy of the church http://cesc.net/scholarweb/swabey/swabey.pdf

Mizzentop -> Gegenbeispiel , 2 Jan 2014 06:28
Your problem is that that you may desire a non-aspirational society, but that's just not how people are. The human spirit is aspirational and competitive - whether you think that's desirable or not doesn't matter. Consequently, the type of society you want is only possible if that human spirit can be quashed and contained.

The failure of the USSR owed much to its militarism but don't you see that a society like that HAS to be heavily militarised because its very existence depends on having total control over its citizens. Without guns and walls, people would have just refused to be cowed and would have left.

In simple terms, human beings are imperfect individuals driven by passions, ambitions and desires which result in bad things happening but more often good things. Whether we like the fact that we are imperfect is immaterial - we are what we are and no enforced system which seeks to contain our individuality will ever succeed in the long run.

Yossarian247 -> Hikeybikeychick , 2 Jan 2014 05:47
As bullydoggy says - its land (and I would add debt too).

This Nationwide graph shows price rising 2.7 times adjusted for inflation from q3 1983 – q3 2007. This is 6.5 times in nominal terms.

Residential Land Prices
- Looking at figures for South East England from the same period aug 1983-july 07, it increases further, 13 times nominally - and this was an area with the 3rd lowest increase in nominal terms! (At the bottom of the page - 'download the full residential land value data')

The excellent film RealEstate4Ransom may help explain things, or the transcript may be quicker.

Also a less mentioned part of the increase in 'value' is as Positive Money point out the amount of debt created to purchase one.

succulentpork -> Febo , 2 Jan 2014 05:45
There is no reason that interest can't be paid from the existing stock of money. Play a game of monopoly and you will see that it is possible. Your argument has a false composition within it. The central bank is an arm of the government to all intents and purposes. To consider it as a case of the private sector holding the government over a barrel is silly. The state is the one with a monopoly over money.
Artusov , 2 Jan 2014 05:25
It's fairly simple. Split Banking into ' High Street ' stuff [ as in the good old days ] and the newer riskier stuff . You could even have a State Bank. If an investment company goes bust - let them - no bail outs - no public money. is lost. Have people who know what they are doing in the Treasury and FSA - This hasn't happened so far.

Have a sensible rate of higher tax , get them to spend it here and /or tax luxury goods at higher rates. Rich people like to spend money - encourage it. Encourage philanthropy, endowments to Universities etc.

EllisWyatt -> ATrueFinn , 2 Jan 2014 05:16

Communism has not been tried anywhere, so you don't know whether it works or not. Neoliberalism has now been tried quite enough for us to know that it does not

No what you call neoliberalism might have been tried but not true neoliberalism, that will work brilliantly, all you need to do is give me the reigns of power and let me get on with it, trust me...

Not convinced? about as convincing as your claim that communism has not been properly tried so maybe we should give it a go?

Artusov -> botany , 2 Jan 2014 04:22
' Tobin tax on financial transactions can be of help. '

Unless universally applied [ AND done properly ] this would be an extremely STUPID idea. Do you think for one moment that Wall Street [ or even, say, Moscow ] would ever do this ? The following points should be noted :-

1. Tried in Sweden - didn't work and abandoned

2. 70 % would come from the City - to disappear into the EU coffers never to be seen again apart from extra lunch portions for Van Rumpy Pumpy and his unelected catamites

3. A perfectly respectable international business may need to transfer collateral [ security ] from one subsidiary to another every day [ to cope with different trading zones ]. This sort of transaction happens hundreds of thousands of time a day in the City - twice a day at 0.1 % over 250 trading days for a £ 1 million, say, is a huge amount of money.

So what will happen ? - the tax will either get handed on to the customer [ which may well be a pensioner's or worker's Pension Fund ]

OR gets done in a more expensive way [ again , cost handed on to customer ]

OR Firm decamps elsewhere

IE - NO-ONE BENEFITS

The armchair anarchists and toy-town Trots may jump and down with glee but the City provides a significant chunk of GDP - If you want to be Greece but without the sunshine or being bailed out by the the Germans then so be it.

Febo -> succulentpork , 2 Jan 2014 04:18

If I understand you correctly, I think you are suggesting that to pay interest more money must be created as debt. I've seen this suggested quite often but I think it is a fallacy of composition.

If you were to think about money as a fixed quantity of gold you could pose the same question, how could interest be paid out on the gold in more gold? Quite easily, some of the gold just gets called interest payments as it changes hands, and that's it. No new gold is required.

Under a gold standard interest is paid by the "natural" growth in the money supply resulting from gold mining.
Under a fiat system the only way the intest could be paid would be if non-debt based money were issued which would require monetary reform. Yes, that's right, under our system the govt cannot issue money - it must borrow it from the central bank, which, in the case of the USA, is a group of private banks.

wh1952 -> ATrueFinn , 2 Jan 2014 04:17

The article is about a global issue, not only your backyard. The people of UK can consider themselves lucky compared with billions of others. But what would you care.

Quite. But do you think any one of the "socialists" raging on about nasty neo-liberals and capitalists have twigged that if a fairer system was applied that few in the UK would see any increase in their standard of living?

Freeport -> Mowglia , 2 Jan 2014 04:10

Sure thing mate, it'd be my pleasure! Are you REALLY sure you want to take the risk though?

It would mean you suddenly accumulate a rather large debt...

Nope the debts yours. I just want the cash, and money is bad. Apparently.

Of course we could... financialise the debt. You could roll the debt up and and sell it to people based on whether or not they think you'll pay it. Oh hang on... we've just killed the article because that's bad too.

Freeport -> someoneionceknew , 2 Jan 2014 04:08

It is a transfer.

No. Its an exchange. Each side gets something. Lets take a simple example. I buy a cake at a bakery. I get a cake, in exchange for money. The baker gets money for the cake. The baker (not being a moron) knows how much the ingredients, energy, time and so on the cake has cost. Some of that money goes to pay for these bits of the cake. The remainder is profit. The baker, in turn pays the suppliers. They also know what it cost to get their supplies ready for the baker, and add a little bit more for profit. So... show me the transfer, rather than the exchange.

Profit is income less spending. Somebody else's spending is your income.

Yes. Well done.

ATrueFinn -> Jonesey505 , 2 Jan 2014 03:49

Neither communism or crony capitalism work, so why not a free market system

Communism has not been tried anywhere, so you don't know whether it works or not. Neoliberalism has now been tried quite enough for us to know that it does not. Free market inevitably leads to neoliberalism, otherwise it is not free.

CaptCrash -> bilejones , 2 Jan 2014 03:44
That's right blame the only body which is accountable to you, and can be controlled by you, if only you'd get off your arse
frontalcortexes -> Denny O'Connor , 2 Jan 2014 03:43
It is always amusing to watch the rantings of someone living in the safest, most prosperous, more socially equal, society in the history of man ranting and raving for Communism or a Benevolent Dictator, or something; anything but this.

Were it in my power I would cheerfully transport you to the 12th Century where you could enjoy the benefits of living (shortly) free of Financialism.

Why not make it the 4th century and the collapse of the Western Roman Empire through excessive debt servitude? Or indeed fast forward into the 21st century with the decline of Western capitalist economies for the same reason and the undesirable triumph of Chinese Communist market capitalism through its use of Abba Lerner's Functional Finance?

Tenthred -> grauniadreader101 , 2 Jan 2014 03:40
"I think Christ's attack on the money lenders (which may have been a big part of what cost him his life) and the Islamic prohibition of usury falls into this category. Look what lending money at interest has done to our society."

I agree, and it surely lies at the root of the whole financial mess. if we hadn't allowed interest, the whole confection of finance divorced from enabling trade would not have arisen in the first place.

Diverting from the topic a bit, I'm not so sure about your first paragraph. I'm always struck by a thing the great traveller Freya Stark said:

"I think, with the possible exception of the act of love, water rights have caused more trouble than anything else in human history"

But I am not qualified to discuss the role of Sin - though I'm very grateful for your introduction of it to this threadlet, where it has born much fruit of useful points - so I'll have to leave the ethics there, I think!

ATrueFinn -> greensox , 2 Jan 2014 03:39
The Nordic countries did rather well until quite recently. Then the Neoliberalist religion arrived.
botany , 2 Jan 2014 03:37
Tobin tax on financial transactions can be of help.

We tax the food for children but not speculators play with money. France and Germany can take the lead to let the computers send a small sum on every transaction back to the people. That would be one of the few good things from EU. Otherwise let poor people starve and let the speculators play to death of our countries.

ATrueFinn -> wh1952 , 2 Jan 2014 03:37

So how many people rely on food banks? Is it half of us? One in ten, one in a hundred, one in a thousand?

The article is about a global issue, not only your backyard. The people of UK can consider themselves lucky compared with billions of others. But what would you care.

Daveinireland -> Diogenes44 , 2 Jan 2014 03:16

1. Public banking - it has no ties to corporate/international banking. N. or S. Dakota's "public bank" - begun about 90 years ago by a bunch of conservative farmers who despised the rise of bankster power.

How is this a model? The Bank of North Dakota operates more like the Bank of England than a retail bank, it doesn't offer retail services except for student loans.

2. Community-based markets - see the most famous one in Spain.
There are several one in all places, Ohio.

You may as well offer up the edinburgh bicycle cooperative as a model. Co-op exist all over the work, but they are a rounding error in the global economy. There is a place for them, but they are not going to take over from companies.

ATrueFinn -> KatieL , 2 Jan 2014 02:51

the capitalism which lets people pile up enough money to fund billion-dollar research programmes.

Such programmes are mostly funded by governments using tax money. Even in pharmaceutics the fundamental innovations and inventions are largely done in universities.

Little to do with your capitalism. Well, except that the profits of your benevolent pharmaceutical companies are exceptionally high.

hugaddict , 2 Jan 2014 02:48

Reversing financialisation is about reining in the rampant capitalism of our day.

The financial sector, CEOs, oligarchs etc run on good old fashioned greed - a commodity not about to run out anytime soon. Is it even 'reversible' ?

steverandomno , 1 Jan 2014 21:54
To summarize, you imply that capitalism and 'the market' are exemplified by government bailouts of massively overinflated banks, to allow them to continue benefiting from government created arbitrages of securitized debt and artificial regulatory economies of scale.

You go on to suggest that people's choices of dependence on large financial corporations is bad, but then imply that they would be better off if they were instead dependent on a single monopoly corporation to which they have no choice in belonging.

This is the problem with almost all attacks on capitalism and free markets. They incorrectly ascribe our present system to the same and fail to recognise the similarities between dysfunctional private and public corporate entities.

KSurin -> succulentpork , 1 Jan 2014 20:34

Making up a term - financialisation - and using to describe all use of money and also certain aspects of finance itself actual makes analysing problems harder. You are actually over generalising which makes you prone to creating narrative fallacies.

Porky, the term 'financialisation' has wide currency in economics, and refers to a specific set of transformations in the structure of accumulation. It is not used 'to describe all banking', etc. The Oxford-trained economist Thomas Palley provides this succinct definition of it:

Financialization is a process whereby financial markets, financial institutions, and financial elites gain greater influence over economic policy and economic outcomes.

Financialization transforms the functioning of economic systems at both the macro and micro levels.

Its principal impacts are to (1) elevate the significance of the financial sector relative to the real sector, (2) transfer income from the real sector to the financial sector, and (3) increase income inequality and contribute to wage stagnation. Additionally, there are reasons to believe that financialization may put the economy at risk of debt deflation and prolonged recession.

Financialization operates through three different conduits: changes in the structure and operation of financial markets, changes in the behavior of nonfinancial corporations, and changes in economic policy.

Countering financialization calls for a multifaceted agenda that (1) restores policy control over financial markets, (2) challenges the neoliberal economic policy paradigm encouraged by financialization, (3) makes corporations responsive to interests of stakeholders other than just financial markets, and (4) reforms the political process so as to diminish the influence of corporations and wealthy elites.

See http://www.levyinstitute.org/pubs/wp_525.pdf

paradise33 , 1 Jan 2014 20:30
The financialisation of UK society reached a farcical nadir when the DWP began describing benefit claimants as 'customers'.

Interestingly, in this case the 'customer' is frequently 'wrong' - and is punished accordingly.

Elephantmoth -> wh1952 , 1 Jan 2014 20:28
For some, 'Too much is not enough'. If you want the facts about who is paying for the worship of individual whims, see this:
http://www.poverty.ac.uk/sites/default/files/attachments/The_Impoverishment_of_the_UK_PSE_UK_first_results_summary_report_March_28.pdf
KSurin -> selfraisingfred , 1 Jan 2014 19:54

They used interest rates to control inflation, come what may, which is precisely what Maggie instigated after any ideas of cooperation had been rejected by the unions, during Callaghan's time in office.

Thatcher used interest rates to create unemployment, not control inflation.

Sir Alan Budd (a top Treasury civil servant and Thatcher adviser, a strong supporter of monetarism, who became Provost of The Queen's College, Oxford) let this cat out of the bag:

"The Thatcher government never believed for a moment that [monetarism] was the correct way to bring down inflation. They did however see that this would be a very good way to raise unemployment. And raising unemployment was an extremely desirable way of reducing the strength of the working classes. [...] What was engineered – in Marxist terms – was a crisis of capitalism which re- created the reserve army of labour, and has allowed the capitalists to make high profits ever since."

Quoted in Nick Cohen, "Gambling with our future", New Statesman, 13 January 2003, page 13.

Raytrek -> kimdriver , 1 Jan 2014 19:54
The way I see it is you have the elite class, made of leaders, executives, industrialists, experts, then you have the common hordes.

Common people are like a horse, the elite are like the rider, the horse doesn't mind the rider, the rider is firm with the reigns and keeps the horse controlled, but then if the rider starts to pull too firmly on the reins, the bridle causes discomfort, even pain, to the horse, with the crop whipping and the spurs digging in, you push the horse too far and it will throw you.

The rider will inevitably, albeit gingerly, get back in the saddle, a little wiser. I have no problem with this setup, but I know the rider has a short memory, and it is a case of taking care of all your horses, not just the one you ride, because nags are always trouble and they are worth a lot more when well taken care of.

This is a bad analogy, I know, but it is basically true; a phenomenal amount of problems in communities and the world are due to inadequacies, unfortunately the symptoms of these inadequacies are also big business and the economy would be disturbed by solving them, so we see "austerity" preserving what we should be curing.

mereEngineer , 1 Jan 2014 19:53
Make Bank executives personally responsible for the liabilities of the banks they are directors of. Just like entrepreneurs are often personally responsible for their companies debts.
londongapp , 1 Jan 2014 19:44
I am not sure I would use the description of 'Financialisation'. I would describe it more as the difference between wealth and money. Money is a means of exchange. It is not wealth. In London it is possible to buy a one bedroomed flat for over one million pounds. In some parts of the country a similar flat could be bought for forty thousand pounds or less. The wealth is the property and the money is the means of exchange. Just because my house goes up in value does not mean I have more wealth. My house is unchanged. It is true that if I sold my house and realised the money I might then be able buy a similar house for less money else where. Then with the surplus money I could exchange that for more wealth in the form of goods elsewhere. However as a society no wealth has been generated.
Only if money is used to create wealth in the form of goods and some services does wealth of society increase.
It is the essential difference between wealth and money that is constantly missed by Politicians and Economists.
Herbolzheim -> someoneionceknew , 1 Jan 2014 19:43
of course you are right

left and right, governments - ideally democratically elected - have bossed markets. sometimes rightly so.

Herbolzheim -> MawalTrees , 1 Jan 2014 19:40
good post mate. Thanks for taking the time

Raytrek -> kimdriver , 1 Jan 2014 19:39
Ideally it would be about drawing lines of decency between rights and responsibility; of course everyone wants more rights than responsibility and will fight for that, wether they are just an ordinary person or someone who actually has a high impact sphere of influence, and most people will allow that person that right because they view thing in terms relative to their own context and basically want the same thing.

It isn't about doing anything at gun point, it is about drawing clear lines of decency between rights and responsibility, at which point it becomes a case of people knowing what they and others can and cannot, should and should not, get away with. It isn't about punishment or forcing people to do this or that, it is about natural repercussion that comes from inconsiderate behaviour, it is about logically creating an environment that doesn't want to see you lynched.

[Oct 07, 2017] The role of finance in the neoliberal model by Thomas I. Palley

Notable quotes:
"... Third, financial innovation has facilitated and promoted financial market control of corporations via hostile take-overs, leveraged buyouts and reverse capital distributions. Financial innovation has therefore been key for enforcing Wall Street's construction of the shareholder value maximization paradigm. ..."
www.youtube.com
Owing to the extraordinarily deep and damaging nature of the financial crisis of 2008, financial market excess has been a dominant focus of explanations of the Great Recession. Within the neoliberal government failure hypothesis the excess is attributed to ill-advised government intervention and Federal Reserve interest rate policy. Within the neoliberal market failure hypothesis it is attributed to ill-advised deregulation and failure to modernize regulation. According to the Keynesian destruction of shared prosperity hypothesis neither of those interpretations grasps the true significance of finance.
Oct 07, 2017 | www.thomaspalley.com

The government failure hypothesis is empirically unsupportable (Palley, 2012a, chapter 6), while the market failure hypothesis has some truth but also misses the true role of finance That role is illustrated in Figure 3 which shows that finance performed two roles in the neoliberal model. The first was to structurally support the neoliberal policy box. The second was to support the AD generation process. These dual roles are central to the process of increasing financial domination of the economy which has been termed financialization (Epstein, 2004, p.3; Krippner, 2004, 2005; Palley, 2013). Figure 3. The role of finance in the neoliberal model. The role of finance: "financialization" Supporting the neoliberal policy box Aggregate demand generation Corporate behavior Economic policy Financial innovation The policy box shown in Figure 2 has four sides. A true box has six sides and a four sided structure would be prone to structural weakness. Metaphorically speaking, one role of finance is to provide support on two sides of the neoliberal policy box, as illustrated in Figure 4. Finance does this through three channels.

First, financial markets have captured control of corporations via enforcement of the shareholder value maximization paradigm of corporate governance. Consequently, corporations now serve financial market interests along with the interests of top management.

Second, financial markets in combination with corporations lobby politically for the neoliberal policy mix. The combination of changed corporate behavior and economic policy produces an economic matrix that puts wages under continuous pressure and raises income inequality.

Third, financial innovation has facilitated and promoted financial market control of corporations via hostile take-overs, leveraged buyouts and reverse capital distributions. Financial innovation has therefore been key for enforcing Wall Street's construction of the shareholder value maximization paradigm.

... ... ...

The neoliberal model gradually undermined the income and demand generation process, creating a growing structural demand gap. The role of finance was to fill that gap. Thus, within the U.S., deregulation, financial innovation, speculation, and mortgage lending fraud enabled finance to fill the demand gap by lending to consumers and by spurring asset price inflation Financialization assisted with this process by changing credit market practices and introducing new credit instruments that made credit more easily and widely available to corporations and households.

U.S. consumers in turn filled the global demand gap, along with help from U.S. and European corporations who were shifting manufacturing facilities and investment to the emerging market economies. Three things should be emphasized.

  1. First, this AD generation role of finance was an unintended consequence and not part of a grand plan. Neoliberal economists and policymakers did not realize they were creating a demand gap, but their laissez-faire economic ideology triggered financial market developments that coincidentally filled the demand gap.
  2. Second, the financial process they unleashed was inevitably unstable and was always destined to hit the wall. There are limits to borrowing and limits to asset price inflation and all Ponzi schemes eventually fall apart. The problem is it is impossible to predict when they will fail. All that can be known with confidence is that it will eventually fail.
  3. Third, the process went on far longer than anyone expected, which explains why critics of neoliberalism sounded like Cassandras (Palley, 1998, Chapter 12). However, the long duration of financial excess made the collapse far deeper when it eventually happened. It has also made escaping the after-effects of the financial crisis far more difficult as the economy is now burdened by debts and destroyed credit worthiness.

That has deepened the proclivity to economic stagnation.

Extracted from thomaspalley.com Thomas I. Palley Senior Economic Policy Advisor, AFL-CIO Washington, D.C. [email protected] Revised April 2015

[Oct 07, 2017] Profiting Without Producing How Finance Exploits Us All -- A lecture by Costas Lapavitsas

A really brilliant YouTube lecture by a talented economist/
Mar 05, 2014 | www.youtube.com

The lecture by Costas Lapavitsas, Professor of Economics at the School of Oriental and African Studies, University of London celebrates the release by Verso Press of Profiting Without Producing: How Finance Exploits Us All.

Lapavitsas explores the roots of the recent economic crisis in terms of "financialization," the most salient feature of which is the rise of financial profit, in part extracted directly from households through financial expropriation, and discusses the options available for controlling finance and resolutions to the current crisis.

The event was moderated by Cornel Ban, Assistant Professor of International Relations at Boston University and a specialist in the political economy of crises and transitions.

Costas Lapavitsas's research interests include the relationship of finance and development, the structure of financial systems, and the evolution and functioning of the Japanese financial system.

The event was jointly sponsored by the Center for the Study of Europe, the Center for the Study of Asia, the Program in East Asian Studies, and the Undergraduate Economics Association at Boston University.

February 25, 2014

Antonio Garmsci 3 years ago

This guy is a great economist.

Johnny bizaro 2 years ago

The fundamental conclusions are brilliant 50:50 . The problem that society needs investment that is good for the whole rather then a few. The problem in the system business structure finally but he does not go into this. We can see this with Dr R.Wolff.

Johnny bizaro 2 years ago (edited)

Excellent.The problem is that we see that finance is above the law and the rent seeking protections by state through the inability to prosecute financial fraud. That is what we have in the USA. I think the difficulty he talks about traditional theoretical rent seekers is not sufficient to describe the rent seeking relationships and the destruction of social needs rather they become burdens. The thinking is now the costs of society for the everyone is a burden rather then social benefit. A great link to simpler more detailed answer rather then this very broad lecture is here. Is Financialization Necessary for a Modern Economy? - Costas Lapavitsas on RAI (5/8) https://www.youtube.com/watch?v=BAvU11DeZeg

Clumsy Dad 5 months ago

If only we could all understand and accept this... sigh... peace

Clumsy Dad 6 months ago

Fantastic fantastic talk.. thank you !!

Kat Rivers 1 year ago

You can say it. Our system is set up to rob the whole world. Why do you think a nation of people have stopped working? There's jobs. Our homes & retirement funds have not been returned. We'll wait for that. Great lecture.

2tabano 3 years ago

By the way, John Perkins in his Confessions of an Economic Hit Man also documents how Third World and developing countries become brutally "financialized."

2tabano 3 years ago

Professor Lapavitsas appears to supplement Richard Wolff's brilliant, "Capitalism hits the fan," also available on youtube. But Professor Wolff traces the development of this pernicious trend and proposes remedies. Both professors however merely develop a trend first noted by Carroll Quigley in his brilliant, Tragedy and Hope .

[Oct 06, 2017] Prof. Philip Mirowski keynote for Life and Debt conference

Highly recommended!
Among interesting ideas that Mirkowski presented in this lecture are "privatization of science" -- when well paid intellectual prostitutes produce the reuslt which are expected by their handlers. the other is his thought on the difference between neoclassical economics and neoliberalism. Neoliberalism believes in state intervention and this intervention should take the form of enforcing market on all spheres of human society.
Another interesting idea that neoliberalism in many cases doe not need the success of its ideas. The failure can also be exploited for enforcing "more market" on the society.
In other words market fundamentalism has all features of civil religion and like in Middle Ages it is enforced from above. heretics are not burned at the stake but simply ostracized.
Notable quotes:
"... how it is that science came to be subordinate to economics and the very future of nature to be contingent upon the market. ..."
"... As a leading exponent of the Institutional school, he has published formal treatments of financial markets that update Minsky's 'financial instability hypothesis' for the world of computerised derivative trading. ..."
Aug 18, 2013 | www.youtube.com

Life and Debt: Living through the Financialisation of the Biosphere

How can it be that the climate crisis, the biodiversity crisis and the deepest financial crisis since 1930s have done so little to undermine the supremacy of orthodox economics?

The lecture will preview material from Mirowski's new book: Never Lt a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown (Verso, 2013).

In this lecture, Professor Mirowski responds to the question of how it is that science came to be subordinate to economics and the very future of nature to be contingent upon the market. Charting the contradictions of the contemporary political landscape, he notes that science denialism, markets for pollution permits and proposals for geo-engineering can all be understood as political strategies designed to neutralize the impact of environmentalism, as they all originated in the network of corporate-sponsored think-tanks that have made neoliberal accounts of society, politics and the economy so prevalent that even the most profound crises are unable to shake their grip on the political imagination.

For those of us who are still paying attention, the task of constructing an alternative politics of science and markets is a vital one.

Philip Mirowski is Carl E. Koch Professor at the University of Notre Dame, Indiana. His most famous book, More Heat Than Light: Economics as Social Physics (1989) established his reputation as a formidable critic of the scientific status of neoclassical economics. His Machine Dreams: Economics becomes a Cyborg Science (2002) presents a history of the Cold War consolidation of American economic orthodoxy in the same intellectual milieu that produced systems theory, the digital computer, the atomic bomb, the strategy of Mutually Assured Destruction, and the 'think tank'. The Road from Mont Pelerin: the Making of the Neoliberal Thought Collective (with Dieter Plewhe, 2009), drawn from the archives of the Mont Pelerin Society and the Chicago School, presents a scholarly history of neoliberalism: the political movement initiated by Friedrich Hayek and Milton Friedman in the 1940s, which has since become the world's dominant philosophy of government.

As a leading exponent of the Institutional school, he has published formal treatments of financial markets that update Minsky's 'financial instability hypothesis' for the world of computerised derivative trading.

This lecture is presented by the UTS Cosmopolitan Civil Societies Research Centre and the Australian Working Group on Financialisation at the University of Sydney.

[Oct 05, 2017] How Billionaires become Billionaires

Notable quotes:
"... A small number of the financial swindlers, including executives from Wall Street's leading banks (Goldman Sachs, J. P. Morgan etc), paid fines – but no one went to prison for the gargantuan fraud that drove millions of Americans into misery. ..."
Oct 05, 2017 | www.unz.com

Through favorable legal rulings and illegal foreclosures, the bankers evicted 9.3 million families. Over 20 million individuals lost their properties, often due to illegal or fraudulent debts.

A small number of the financial swindlers, including executives from Wall Street's leading banks (Goldman Sachs, J. P. Morgan etc), paid fines – but no one went to prison for the gargantuan fraud that drove millions of Americans into misery.

There are other swindler bankers, like the current Secretary of Treasury Steve Mnuchin, who enriched themselves by illegally foreclosing on thousands of homeowners in California. Some were tried; all were exonerated, thanks to the influence of Democratic political leaders during the Obama years.

[Oct 04, 2017] The Trump-Goldman Sachs Tax Cut for the Rich by Jack Rasmus

Notable quotes:
"... The Trump Plan is actually the product of the former Goldman-Sachs investment bankers who have been in charge of Trump's economic policy since he came into office. Steve Mnuchin, the Treasury Secretary, and Gary Cohn, director of Trump's economic council, are the two authors of the Trump tax cuts. They put it together. They are also both former top executives of the global shadow bank called Goldman Sachs. ..."
"... Given that economic policy under Trump is being driven by bankers, it's not surprising that the CEO of the biggest US banks, Morgan Stanley, admitted just a few months ago that a reduction of the corporate nominal income tax rate from the current 35% nominal rate to a new nominal rate of 20% will provide the bank an immediate windfall gain of 15%-20% in earnings. ..."
"... Big multinational companies like Apple, i.e. virtually all the big tech companies, big Pharma corporations, banks and oil companies, pay no more than 12-13% effective tax rates today -- not the 35% nominal rate. ..."
"... Tech, big Pharma, banks and oil companies are the big violators of offshore cash hoarding/tax avoidance schemes. Microsoft's effective global tax rate last year was only 12%. IBM's even less, at 10%. The giant drug company, Pfizer paid 18% and the oil company, Chevron 14%. One of the largest US companies in the world, General Electric, paid only 1%. When their nominal rate is reduced to 20% under the Trump plan, they'll pay even less, likely in the single digits, if that. ..."
"... Tax cutting for business classes and the 1% has always been a fundamental element of Neoliberal economic policy ever since the Reagan years (and actually late Jimmy Carter period). Major tax cut legislation occurred in 1981, 1986, and 1997-98 under Clinton. George W. Bush then cut taxes by $3.4 trillion in 2001-04, 80% of which went to the wealthiest households and businesses. He cut taxes another $180 billion in 2008. Obama cut another $300 billion in his 2009 so-called recovery program. When that faltered, it was another $800 billion at year end 2010. He then extended the Bush tax cuts that were scheduled to expire in 2011 two more years. That costs $450 billion each year. And in 2013, cutting a deal with Republicans called the 'fiscal cliff' settlement, he extended the Bush tax cuts of the prior decade for another ten years. That cost a further $5 trillion. Now Trump wants even more. He promised $5 trillion in tax cuts during his election campaign. So the current proposal is only half of what he has in mind perhaps. ..."
"... Neoliberal tax cutting in the US has also been characterized by the 'tax cut shell game'. The shell game is played several ways. ..."
"... To cover the shell game, an overlay of ideology covers up what's going on. There's the false argument that 'tax cuts create jobs', for which there's no empirical evidence. There's the claim US multinational corporations pay a double tax compared to their competitors, when in fact they effectively pay less. There's the lie that if corporate taxes are cut they will automatically invest the savings, when in fact what they do is invest offshore, divert the savings to stock and bond and other financial markets, boost their dividend and stock buybacks, or stuff the savings in their offshore subsidiaries to avoid paying taxes. ..."
"... All these neoliberal false claims, arguments, and outright lies continue today to justify the Trump-Goldman Sachs tax plan -- which is just the latest iteration of neoliberal tax policy and tax offensive in the US. The consequences of the Trump plan, if it is passed, will be the same as the previous tax giveaways to the 1% and their companies: it will redistribute income massively from the middle and working classes to the rich. Income inequality will continue to worsen dramatically. ..."
"... Nothing will change so long as the Corporate Party of America is allowed to continue its neoliberal tax giveaways, its tax cutting 'shell games', and is allowed to continue to foment its ideological cover up. ..."
Oct 04, 2017 | www.counterpunch.org

Contradicting Trump, the independent Tax Policy Center has estimated in just the first year half of the $2 trillion plus Trump cuts will go to the wealthiest 1% households that annually earn more than $730,000. That's an immediate income windfall to the wealthiest 1% households of 8.5%, according to the Tax Policy Center. But that's only in the first of ten years the cuts will be in effect. It gets worse over time.

According to the Tax Policy Center, "Taxpayers in the top one percent (incomes above $730,000), would receive about 50 percent of the total tax benefit [in 2018]". However, "By 2027, the top one percent would get 80 percent of the plan's tax cuts while the share for middle-income households would drop to about five percent." By the last year of the cuts, 2027, on average the wealthiest 1% household would realize $207,000, and the even wealthier 0.1% would realize an income gain of $1,022,000.

When confronted with these facts on national TV this past Sunday, Trump's Treasury Secretary, Steve Mnuchin, quickly backtracked and admitted he could not guarantee every middle class family would see a tax cut. Right. That's because 15-17 million (12%) of US taxpaying households in the US will face a tax hike in the first year of the cuts. In the tenth and last year, "one in four middle class families would end up with higher taxes".

The US Economic 'Troika'

The Trump Plan is actually the product of the former Goldman-Sachs investment bankers who have been in charge of Trump's economic policy since he came into office. Steve Mnuchin, the Treasury Secretary, and Gary Cohn, director of Trump's economic council, are the two authors of the Trump tax cuts. They put it together. They are also both former top executives of the global shadow bank called Goldman Sachs. Together with the other key office determining US economic policy, the US central bank, held by yet another ex-Goldman Sachs senior exec, Bill Dudley, president of the New York Federal Reserve bank, the Goldman-Sachs trio of Mnuchin-Cohn-Dudley constitute what might be called the 'US Troika' for domestic economic policy.
The Trump tax proposal is therefore really a big bankers tax plan -- authored by bankers, in the interest of bankers and financial investors (like Trump himself), and overwhelmingly favoring the wealthiest 1%.

Given that economic policy under Trump is being driven by bankers, it's not surprising that the CEO of the biggest US banks, Morgan Stanley, admitted just a few months ago that a reduction of the corporate nominal income tax rate from the current 35% nominal rate to a new nominal rate of 20% will provide the bank an immediate windfall gain of 15%-20% in earnings. And that's just the nominal corporate rate cut proposed by Trump. With loopholes, it's no doubt more.

The Trump-Troika's Triple Tax-Cut Trifecta for the 1%

The Trump Troika has indicated it hopes to package up and deliver the trillions of $ to their 1% friends by Christmas 2017. Their gift will consist of three major tax cuts for the rich and their businesses. A Trump-Troika Tax Cut 'Trifecta' of $ trillions.

1.The Corporate Tax Cuts

The first of the three main elements is a big cut in the corporate income tax nominal rate, from current 35% to 20%. In addition, there's the elimination of what is called the 'territorial tax' system, which is just a fancy phrase for ending the fiction of the foreign profits tax. Currently, US multinational corporations hoard a minimum of $2.6 trillion of profits offshore and refuse to pay US taxes on those profits. In other words, Congress and presidents for decades have refused to enforce the foreign profits tax. Now that fiction will be ended by officially eliminating taxes on their profits. They'll only pay taxes on US profits, which will create an even greater incentive for them to shift operations and profits to their offshore subsidiaries. But there's more for the big corporations.

The Trump plan also simultaneously proposes what it calls a 'repatriation tax cut'. If the big tech, pharma, banks, and energy companies bring back some of their reported $2.6 trillion (an official number which is actually more than that), Congress will require they pay only a 10% tax rate -- not the current 35% rate or even Trump's proposed 20%–on that repatriated profits. No doubt the repatriation will be tied to some kind of agreement to invest the money in the US economy. That's how they'll sell it to the American public. But that shell game was played before, in 2004-05, under George W. Bush. The same 'repatriation' deal was then legislated, to return the $700 billion then stuffed away in corporate offshore subsidiaries. About half the $700 billion was brought back, but US corporations did not invest it in jobs in the US as they were supposed to. They used the repatriated profits to buy up their competitors (mergers and acquisitions), to pay out dividends to stockholders, and to buy back their stock to drive equity prices and the stock market to new heights in 2005-07. The current Trump 'territorial tax repeal/repatriation' boondoggle will turn out just the same as it did in 2005.

2. Non-Incorporate Business Tax Cuts

The second big business class tax windfall in the Trump-Goldman Sachs tax giveaway for the rich is the proposal to reduce the top nominal tax rate for non-corporate businesses, like proprietorships and partnerships, whose business income (aka profits) is treated like personal income. This is called the 'pass through business income' provision.

That's a Trump tax cut for unincorporated businesses -- like doctors, law firms, real estate investment partnerships, etc. 40% of non-corporate income is currently taxed at 39.6% (the top personal income tax rate). Trump proposes to reduce that nominal rate to 25%. So non-incorporate businesses too will get an immediately 14.6% cut, nearly matching the 15% rate cut for corporate businesses.

In the case of both corporate and non-corporate companies we're talking about 'nominal' tax rate cuts of 14.6% and 15%. The 'effective' tax rate is what they actually pay in taxes -- i.e. after loopholes, after their high paid tax lawyers take a whack at their tax bill, after they cleverly divert their income to their offshore subsidiaries and refuse to pay the foreign profits tax, and after they stuff away whatever they can in offshore tax havens in the Cayman Islands, Switzerland, and a dozen other island nations worldwide.

For example, Apple Corporation alone is hoarding $260 billion in cash at present -- 95% of which it keeps offshore to avoid paying Uncle Sam taxes. Big multinational companies like Apple, i.e. virtually all the big tech companies, big Pharma corporations, banks and oil companies, pay no more than 12-13% effective tax rates today -- not the 35% nominal rate.

Tech, big Pharma, banks and oil companies are the big violators of offshore cash hoarding/tax avoidance schemes. Microsoft's effective global tax rate last year was only 12%. IBM's even less, at 10%. The giant drug company, Pfizer paid 18% and the oil company, Chevron 14%. One of the largest US companies in the world, General Electric, paid only 1%. When their nominal rate is reduced to 20% under the Trump plan, they'll pay even less, likely in the single digits, if that.

Corporations and non-corporate businesses are the institutional conduit for passing income to their capitalist owners and managers. The Trump corporate and business taxes means companies immediately get to keep at least 15% more of their income for themselves -- and more in 'effective' rate terms. That means they get to distribute to their executives and big stockholders and partners even more than they have in recent years. And in recent years that has been no small sum. For example, just corporate dividend payouts and stock buybacks have totaled more than $1 trillion on average for six years since 2010! A total of more than $6 trillion.

But all that's only the business tax cut side of the Trump plan. There's a third major tax cut component of the Trump plan -- i.e. major cuts in the Personal Income Tax that accrue overwhelmingly to the richest 1% households.

3. Personal Income Tax Cuts for the 1%

There are multiple measures in the Trump-Troika proposal that benefits the 1% in the form of personal income tax reductions. Corporations and businesses get to keep more income from the business tax cuts, to pass on to their shareholders, investors, and senior managers. The latter then get to keep more of what's passed through and distributed to them as a result of the personal income tax cuts.

The first personal tax cut boondoggle for the 1% wealthiest households is the Trump proposal to reduce the 'tax income brackets' from seven to three. The new brackets would be 35%, 25%, and 12%.

Whenever brackets are reduced, the wealthiest always benefit. The current top bracket, affecting households with a minimum of $418,000 annual income, would be reduced from the current 39.6% to 35%. In the next bracket, those with incomes of 191,000 to 418,000 would see their tax rate (nominal again) cut from 28% to 25%. However, the 25% third bracket would apply to annual incomes as low as $38,000. That's the middle and working class. So households with $38,000 annual incomes would pay the same rate as those with more than $400,000. Tax cuts for the middle class, did Trump say? Only tax rate reductions beginning with those with $191,000 incomes and the real cuts for those over $418,000!

But the cuts in the nominal tax rate for the top 1% to 5% households are only part of the personal income tax windfall for the rich under the Trump plan. The really big tax cuts for the 1% come in the form of the repeal of the Inheritance Tax and the Alternative Minimum Tax, as well as Trump's allowing the 'carried interest' tax loophole for financial speculators like hedge fund managers and private equity CEOs to continue.

The current Inheritance Tax applies only to those with estates of $11 million or more, about 0.2 of all the taxpaying households. So its repeal is clearly a windfall for the super rich. The Alternative Minimum Tax is designed to ensure the super rich pay something, after they manipulate the tax loopholes, shelter their income offshore in tax havens, or simply engage in tax fraud by various other means. Now that's gone as well under the Trump plan. 'Carried interest', a loophole, allows big finance speculators, like hedge fund managers, to avoid paying the corporate tax rate altogether, and pay a maximum of 20% on their hundreds of millions and sometimes billions of dollars of income every year.
Who Pays?

As previously noted, folks with $91,000 a year annual income get no tax rate cuts. They still will pay the 25%. And since that is what's called 'earned' (wage and salary) income, they don't get the loopholes to manipulate, like those with 'capital incomes' (dividends, capital gains, rents, interest, etc.). What they get is called deductions. But under the Trump plan, the deductions for state and local taxes, for state sales taxes, and apparently for excess medical costs will all disappear. The cost of that to middle and working class households is estimated at $1 trillion over the decade.

Trump claims the standard deduction will be doubled, and that will benefit the middle class. But estimates reveal that a middle class family with two kids will see their standard deduction reduced from $28,900 to $24,000. But I guess that's just 'Trump math'.

The general US taxpayer will also pay for the trillions of dollars that will be redistributed to the 1% and their companies. It's estimated the federal government deficit will increase by $2.4 trillion over the decade as a result of the Trump plan. Republicans in Congress have railed over the deficits and federal debt, now at $20 trillion, for years. But they are conspicuously quiet now about adding $2.4 trillion more -- so long as it the result of tax giveaways to themselves, their 1% friends, and their rich corporate election campaign contributors.

And both wings of the Corporate Party of America -- aka Republicans and Democrats -- never mention the economic fact that since 2001, 60% of US federal government deficits, and therefore the US debt of $20 trillion, are attributable to tax cuts by George W. Bush and Barack Obama: more than $3.5 trillion under Bush and more than $7 trillion under Obama. (The remaining $10 trillion of the US debt due to war and defense spending, price gouging by the medical industry and big pharma driving up government costs for Medicare, Medicaid, and other government insurance, bailouts of the big banks in 2008-09, and interest payments on the debt).

The 35-Year Neoliberal Tax Offensive

Tax cutting for business classes and the 1% has always been a fundamental element of Neoliberal economic policy ever since the Reagan years (and actually late Jimmy Carter period). Major tax cut legislation occurred in 1981, 1986, and 1997-98 under Clinton. George W. Bush then cut taxes by $3.4 trillion in 2001-04, 80% of which went to the wealthiest households and businesses. He cut taxes another $180 billion in 2008. Obama cut another $300 billion in his 2009 so-called recovery program. When that faltered, it was another $800 billion at year end 2010. He then extended the Bush tax cuts that were scheduled to expire in 2011 two more years. That costs $450 billion each year. And in 2013, cutting a deal with Republicans called the 'fiscal cliff' settlement, he extended the Bush tax cuts of the prior decade for another ten years. That cost a further $5 trillion. Now Trump wants even more. He promised $5 trillion in tax cuts during his election campaign. So the current proposal is only half of what he has in mind perhaps.

Neoliberal tax cutting in the US has also been characterized by the 'tax cut shell game'. The shell game is played several ways.

In the course of major tax cut legislation, the elites and their lobbyists alternate their focus on cutting rates and on correcting tax loopholes. They raise rates but expand loopholes. When the public becomes aware of the outrageous loopholes, they then eliminate some loopholes but simultaneously reduce the tax rates on the rich. When the public complains of too low tax rates for the rich, they raise the rates but quietly expand the loopholes. They play this shell game so the outcome is always a net gain for corporations and the rich.

Since Reagan and the advent of neoliberal tax policy, the corporate income tax share of total US government revenues has fallen from more than 20% to single digits well below 10%. Conversely, the payroll tax has doubled from 22% to more than 40%. A similar shift within the personal income tax, steadily around 40% of government revenues, has also occurred. The wealthy pay less a share of the total and the middle class pays more. Along the way, token concessions to the very low end of working poor are introduced, to give the appearance of fairness. But the middle class, the $38 to $91,000 nearly 100 million taxpaying households foot the bill for both the 1% and the bottom. This pattern was set in motion under Reagan. His proposed $752 billion in tax cuts in 1981-82 were adjusted in 1986, but the net outcome was more for the rich and their corporations. That pattern has continued under Clinton, Bush, Obama and now proposed under Trump.

To cover the shell game, an overlay of ideology covers up what's going on. There's the false argument that 'tax cuts create jobs', for which there's no empirical evidence. There's the claim US multinational corporations pay a double tax compared to their competitors, when in fact they effectively pay less. There's the lie that if corporate taxes are cut they will automatically invest the savings, when in fact what they do is invest offshore, divert the savings to stock and bond and other financial markets, boost their dividend and stock buybacks, or stuff the savings in their offshore subsidiaries to avoid paying taxes.

All these neoliberal false claims, arguments, and outright lies continue today to justify the Trump-Goldman Sachs tax plan -- which is just the latest iteration of neoliberal tax policy and tax offensive in the US. The consequences of the Trump plan, if it is passed, will be the same as the previous tax giveaways to the 1% and their companies: it will redistribute income massively from the middle and working classes to the rich. Income inequality will continue to worsen dramatically. US multinational corporations will begin again to divert profits, and investment, offshore; profits brought back untaxed will result in mergers and acquisitions, dividend payouts, and financial markets investment. No real jobs will be created in the US. The wealthy will continue to pump their savings into financial asset markets, causing further bubbles in stocks, exchange traded funds, bonds, derivatives and the like. The US economy will continue to slow and become more unstable financially. And there will be another financial crash and great recession -- or worse. Only this time, the vast majority of US households -- i.e. the middle and working classes -- will be even worse off and more unable to weather the next economic storm.

Nothing will change so long as the Corporate Party of America is allowed to continue its neoliberal tax giveaways, its tax cutting 'shell games', and is allowed to continue to foment its ideological cover up. More articles by: Jack Rasmus

Jack Rasmus is the author of ' Systemic Fragility in the Global Economy ', Clarity Press, 2015. He blogs at jackrasmus.com . His website is www.kyklosproductions.com and twitter handle, @drjackrasmus.

[Oct 04, 2017] Martha Stewart Details Her 'Horrifying' Prison Experience 'No One Should Have to Go Through That'

Oct 04, 2017 | www.msn.com

Martha Stewart is opening up about her five month stint at West Virginia's Alderson Federal Prison Camp in 2004, calling the experience "horrifying."

"It was horrifying and no one, no one, should have to go through that kind of indignity really except for murderers, and there are a few other categories, but no one should have to go through that," she told Katie Couric in an exclusive clip for a new episode of Couric's self-titled podcast. "It's a very, very awful thing."

Since it's been 13 years since Stewart was sentenced for lying about the sale of a stock, Couric wondered whether the domestic guru felt it was a growth experience for her after all this time.

"[Did I feel] that 'you can make lemons out of lemonade' and 'what hurts you makes you stronger'? No. None of those adages fit at all," she said on the podcast, which has also hosted stars like Alec Baldwin, Ina Garten and Julia Louis-Dreyfus. "It's a horrible experience, nothing is good about it, nothing."

Stewart, now 76, was placed in minimum security prison, but assured Couric that it was no walk in the park. "There are lots and lots of disturbing things that go on in an incarceration like that," she said. "In minimum security you still couldn't walk out the gate or cross the river. There's still guards and it's still nasty."

The home cook also credited her negative experience to "being taken away from your family, being maligned, and being treated the way you were treated," she said. "It's horrible and especially when one does not feel one deserves such a thing."

But with her ever-expanding empire, like the release of her 89th cookbook, Martha Stewart's Slow Cooker, and the success of her show Martha & Snoop's Potluck Dinner Party, Stewart refuses to let those unbearable five months define her.

"One thing I do not ever want is to be identified or I don't want that to be the major thing of my life," she said. "It's just not fair. It's not a good experience and it doesn't make you stronger. I was a strong person to start with and thank heavens I was and I can still hold my head up high and know that I'm fine."

The full interview with Stewart is available through the Katie Couric podcast on Thursday.

[Oct 01, 2017] The Financialization of America... and Its Discontents by Charles Hugh Smith

Oct 01, 2017 | dailyreckoning.com

Labor's share of the national income is in freefall as a direct result of the optimization of financialization.

The Achilles Heel of our socio-economic system is the secular stagnation of earned income, i.e. wages and salaries. Stagnating wages undermine every aspect of our economy: consumption, credit, taxation and perhaps most importantly, the unspoken social contract that the benefits of productivity and increasing wealth will be distributed widely, if not fairly.

This chart shows that labor's declining share of the national income is not a recent problem, but a 45-year trend: despite occasional counter-trend blips, labor (earnings from labor/ employment) has seen its share of the economy plummet regardless of the political or economic environment.

Given the gravity of the consequences of this trend, mainstream economists have been struggling to explain it, as a means of eventually reversing it.

The explanations include automation, globalization/offshoring, the high cost of housing, a decline of corporate competition (i.e. the dominance of cartels and quasi-monopolies), a failure of our educational complex to keep pace, stagnating gains in productivity, and so on.

Each of these dynamics may well exacerbate the trend, but they all dodge the dominant driver of wage stagnation and rise income-wealth inequality: our economy is optimized for financialization, not labor/earned income.

... ... ...

These include globalized wage competition (everyone in tradable sectors is competing with workers around the world); an abundance/oversupply of labor globally; the digital industrial revolution's tendency to concentrate rewards in the top tier of workers; the soaring costs of labor overhead (health care insurance, etc.) that diverts cash that could have gone to wage increases to cartels, and the dominance of credit-capital over labor.

The only possible output of pushing inflation higher while wages for the vast majority are stagnating is increasing wealth-income inequality -- precisely what's happened over the past decade of Federal Reserve policy.

The stagnation of wages isn't supposed to happen in conventional economics.Once unemployment drops to the 5% range, full employment is supposed to push wages higher as employers are forced to compete for productive workers.

Alas, conventional economics is incapable of grasping the fluid dynamics of labor, automation, capital, globalization and cost structures dominated by monopolies and cartels in the 4th (digital) industrial revolution.

In sector after sector, employers can't afford to pay more wages as labor overhead costs march ever higher while prices are held down by competition and oversupply. In other sectors, the rigors and supply, demand, stagnant sales and productivity push employers to automate whatever can be automated, and push tasks that were once performed by employees onto customers.

So why are central banks obsessed with pushing inflation higher?

The conventional answer is that a debt-fueled economy requires inflation to reduce the debtors' future obligations by enabling them to pay their debts with constantly inflating currency.

This same dynamic enables the central state to pay its obligations (social security, interest on the national debt, etc.) with "cheaper" currency.

After a decade of 3% inflation, a $100 debt is effectively reduced to $67 by the magic of inflation. If wages rise by 3%, the worker who earned $100 at the start of the decade will be earning $133 by the end of the decade, giving the worker 33% more cash to service debts.

The government benefits from inflation in another way: incomes pushed higher by inflation push wage earners into higher tax brackets, and their higher incomes generate higher taxes.

All this wonderfulness of inflation is negated if wages can't rise in tandem with inflation. In the view of the central banks, deflation (i.e. wages buy more goods and services every year) is bad, and it's not hard to understand why.

The private banking sector benefits from inflation as well. The lifeblood of banking profits is transaction and processing fees from issuing new credit. Since inflation enables households to buy more stuff with credit and service more debt, banks benefit immensely.

Deflation, on the other hand, is Kryptonite to bank profits -- households earning less every year are more likely to default on existing debt and eschew new debt. As wages stagnate, an increasing percentage of the populace becomes uncreditworthy, i.e. a marginal borrower who isn't qualified to borrow (and thus spend) more.

[Sep 26, 2017] Richard Posner has finally become a pragmatist

Sep 26, 2017 | crookedtimber.org

by Henry on September 14, 2017 This exit interview with Richard Posner, who is retiring as a judge, is interesting.

"About six months ago," Judge Posner said, "I awoke from a slumber of 35 years." He had suddenly realized, he said, that people without lawyers are mistreated by the legal system, and he wanted to do something about it. He had become concerned with the plight of litigants who represented themselves in civil cases, often filing handwritten appeals. Their grievances were real, he said, but the legal system was treating them impatiently, dismissing their cases over technical matters. "These were almost always people of poor education and often of quite low level of intelligence," he said. "I gradually began to realize that this wasn't right, what we were doing."

Judge Posner said he hoped to work with groups concerned with prisoners' rights, with a law school clinic and with law firms, to bring attention and aid to people too poor to afford lawyers.

In one of his final opinions, Judge Posner, writing for a three-judge panel, reinstated a lawsuit from a prisoner, Michael Davis, that had been dismissed on technical grounds. "Davis needs help ! needs it bad ! needs a lawyer desperately," he wrote.

On the phone, Judge Posner said that opinion was a rare victory. "The basic thing is that most judges regard these people as kind of trash not worth the time of a federal judge," he said

I don't want to be snarky – it is unqualifiedly great that someone of Posner's stature on the right is taking up this cause. I do want to point out though, that it can be interpreted as a partial completion of something that was incomplete before – Posner's commitment to pragmatism as an approach to understanding the law.

As the NYT piece notes in passing, Posner is famous for his argument that law should be interpreted pragmatically, as an exercise in problem solving. Yet as Jack Knight and Jim Johnson pointed out twenty years ago, in a response to Posner's major book on pragmatism, he left out all of the political arguments that were part of the web and woof of pragmatist thinking in the early twentieth century. John Dewey, for example, saw pragmatism as tied up with democracy, and democracy with a commitment to radical equality, in which 'publics' would be able to solve problems without interference from Old Corruption.

Knight and Johnson quote a bit from Posner's argument back then:

Today's legal pragmatism is so dominated by persons of liberal or radical persuasion as to make the movement itself seem (not least in their eyes) a school of left-wing thought. Yet not only has pragmatism no inherent political valence, but those pragmatists who attack pieties of the right while exhibiting a wholly uncritical devotion to the pieties of the left (such as racial and sexual equality, the desirability of a more equal distribution of income and wealth, and the pervasiveness of oppression and injustice in modern Western society) are not genuine pragmatists; they are dogmatists in pragmatist clothing.

As Knight and Johnson point out, Posner's efforts to divorce pragmatist problem solving from considerations of power simply do not make sense.

Posner rightly affirms the central importance of unforced inquiry to pragmatism. Dewey made this theme central to his conception of democratic politics. He also made it central to his writings on law.62 Thus Posner correctly recognizes that "from a pragmatist perspective the main concern is with the danger of premature closure of legal debate." But he then wavers considerably regarding the seemingly obvious political consequences of this statement. Unforced inquiry entails reasoned deliberation. If we are to avoid "premature closure," however, it also seemingly entails free and equal access for relevant actors to all relevant arenas of deliberation, debate, and decision. While Posner readily accepts the first of these implications, he remains very reluctant to accept the second. This is especially clear in his remarks both on the diversity of the legal establishment and on the barrier that economic inequality presents with respect to access to the courts."

More specifically:

He concedes that asymmetries of wealth or political power distort free and open inquiry in the American legal system. The adversary system does not much resemble the concept of unforced inquiry that is the pragmatists' ideal and the scientists' ethic. Furthermore, the competitors in our privatized competitive system of justice often have markedly and irremediably unequal resources. Most criminal defendants lack the resources to hire counsel equal in skill and experience to the public prosecutor, and public subvention of the cost of counsel for indigent criminal defendants has not been sufficiently generous to close the gap. Having identified another serious barrier to free and equal access, however, Posner once again falters. He finds "troublesome" suggestions that the remedy for these distortions of unforced inquiry "may require redistributing wealth or continually intervening in the marketplace of ideas."

It would appear that in the intervening decades, Posner has changed his mind, and has done so in an eminently pragmatist fashion, as the result of practical experience. Again, I'm not looking to score points here – if someone like Posner picks up this cause, it is likely to resonate with people who would dismiss or ignore similar arguments from the left. Instead, I'm pleased that he's developing his commitment to pragmatism, in the ways that Knight and Johnson advocated, rather than leaving it in a stunted condition.

20 comments

Matt 09.14.17 at 2:54 am

It's hard to know what to make of Posner's transformation over the years, other than, I suppose, to welcome it,(or if it makes up for the real damage he and those inspired by him did for a long time) but in fairness, his pragmatism was always more of the individualist sort inspired by Holmes (and in some ways James) than the more Hegelian sort found in Dewey. If you read Holmes's _The Path of Law_, you can see a lot of Posner's views set out there already. That's a consistent enough strand of pragmatism to warrant the name, I think.

TM 09.14.17 at 7:18 pm

Posner: "These were almost always people of poor education and often of quite low level of intelligence,"

Mostly they are just poor. I'm glad Posner got around to the insight that people without lawyers shouldn't be treated with contempt by the legal system, but he didn't also have to insult their intelligence.

This legal system, its inaccessibility and unfairness, is America's eternal shame.

J-D 09.15.17 at 1:27 am

"The basic thing is that most judges regard these people as kind of trash not worth the time of a federal judge," he said

In other words, he's saying that his colleagues ! at least, most of them ! don't believe in equal protection of the laws, no matter what it says in the Fourteenth Amendment.

Is such frankness as unusual as it seems to me?

b9n10nt 09.15.17 at 3:09 am

J-D @10

The ideological rationalizations that provide cognitive consonance for judges (just like parents and professionals of all types who wield immediate social power) are likely rooted in the practice of more immediate and perplexing dilemnas that the judge is required to resolve.

Like perhaps she knows that her jurisdiction can't handle a certain volume of cases that are left at her doorstep and she either formally or tacitly must filter yadda yadda . I'm not saying it's that but typically there's some felt, situational pragmatism in beaurocratic cruelty.

And also, who can believe (in spirit, beyond the reach of rationalizing!) in equal protection in this society? She's a US federal judge circa 2020. She's have to see it, practice it, it would be expected of her. If she's a federal judge she believes in equal protection by practicing "recreational" politics off hours. Because if the polity really did allow judges to practice equal protection, wow this would be an amazing, perhaps self-propelling step toward actual egalitarianism.

J-D 09.15.17 at 8:29 am ( 12 )

In the article I read:

He called his approach to judging pragmatic. His critics called it lawless. "I pay very little attention to legal rules, statutes, constitutional provisions," Judge Posner said. "A case is just a dispute. The first thing you do is ask yourself ! forget about the law ! what is a sensible resolution of this dispute?"

The next thing, he said, was to see if a recent Supreme Court precedent or some other legal obstacle stood in the way of ruling in favor of that sensible resolution. "And the answer is that's actually rarely the case," he said. "When you have a Supreme Court case or something similar, they're often extremely easy to get around."

In The Tyranny Of Words , by Stuart Chase, published in 1938, I read:

Chancellor Kent of New York State, a great legal authority, in a charming burst of frankness once wrote: 'I saw where justice lay, and the moral issue decided the court half the time. I then sat down to search the authorities. I might once in a while be embarrased by a technical rule, but I almost always found principles suited to my view of the case.' The learned judge used his best judgement, came to a decision, and then ransacked the fat books for authority to support him. He almost always found it. I would be willing to take his decision, if he were a good judge, without the ornament of citations. The decision constitutes the reality of legal machinery; the citations contribute to the magic.

b9n10nt 09.17.17 at 2:36 am ( 19 )
Bloix @19

The problem is not one of the federal courts or of the attitude of judges

Shouldn't we nevertheless assume that the attitude of judges will be warped by the cognitive dissonance between "I'm good at my job" and "I know the system is screwing the poor"? Shouldn't we expect attitudes like "they're trash anyway" to take root and inevitably make the fundamental problem worse?

I'm projecting what I know of educators and social workers onto the legal system

Alternatively, judges as a class are heroes of self-reflection and self-discipline.

TM 09.18.17 at 11:25 am ( 20 )
One reason why I'm skeptical of the legalistic line of justification – the judge just has to stick with the rules even if they feel the rules are unjust – is the fact that judges in reality often do not stick with the rules. For example the NY courts have basically redefined the concept of calendar time in order to practically ignore the constitutional "speedy trial" requirement ( http://www.nytimes.com/2013/04/14/nyregion/justice-denied-bronx-court-system-mired-in-delays.html ).

But I agree it's a political problem as well as a legal one. A few years ago the NYT published a well researched series about the failures of the US legal system that I found just devastating, maybe someone can find the link? Also The Divide by Matt Taibbi should really be an eye-opener. An interesting observation of Taibbi's is that many public defenders share the system's resentment against their indigent clients. It's truly a class-based system of justice.

[Sep 19, 2017] Con Of The Century by Rod Dreher

Notable quotes:
"... Within the next 18 months, US Steel announced that the nation's largest steel producer was also shutting down 16 plants across the nation including their Ohio Works in Youngstown, a move that eliminated an additional 4,000 workers here. That announcement came one day before Jones and Laughlin Steel Corp. said they were cutting thousands of jobs at their facilities in the Mahoning Valley, too. ..."
"... Within a decade 40,000 jobs were gone. Within that same decade, 50,000 people had left the region, and by the next decade that number was up to 100,000. Today the 22 miles of booming steel mills and the support industries that once lined the Mahoning River have mostly disappeared -- either blown up, dismantled or reclaimed by nature. ..."
"... Candidate Trump promised to create millions of new jobs, vowing to be "the greatest jobs president that God ever created." Cohn, as Goldman Sachs's president and COO, oversaw the firm's mergers and acquisitions business that had, over the previous three years, led to the loss of at least 22,000 U.S. jobs, according to a study by two advocacy groups. Early in his candidacy, Trump described as "disgusting" Pfizer's decision to buy a smaller Irish competitor in order to execute a "corporate inversion," a maneuver in which a U.S. company moves its headquarters overseas to reduce its tax burden. The Pfizer deal ultimately fell through. But in 2016, in the heat of the campaign, Goldman advised on a megadeal that saw Johnson Controls, a Fortune 500 company based in Milwaukee, buy the Ireland-based Tyco International with the same goal. A few months later, with Goldman's help, Johnson Controls had executed its inversion. ..."
"... "There was a devastating financial crisis just over eight years ago," Warren said. "Goldman Sachs was at the heart of that crisis. The idea that the president is now going to turn over the country's economic policy to a senior Goldman executive turns my stomach." Prior administrations often had one or two people from Goldman serving in top positions. George W. Bush at one point had three. At its peak, the Trump administration effectively had six. ..."
"... The Trump economic agenda, it turns out, is largely the Goldman agenda, one with the potential to deliver any number of gifts to the firm that made Cohn colossally rich. ..."
"... If Cohn stays, it will be to pursue an agenda of aggressive financial deregulation and massive corporate tax cuts -- he seeks to slash rates by 57 percent -- that would dramatically increase profits for large financial players like Goldman. It is an agenda as radical in its scope and impact as Bannon's was. ..."
"... The story tracks Gary Cohn's impressive rise from an aluminum siding salesman to a Goldman Sachs top leader. In the mid-2000s, Goldman saw that the housing market was a bubble waiting to pop, and arranged its position to take advantage of the coming collapse ..."
"... Politically, 2016 would prove a strange year for Goldman. Bernie Sanders clobbered Hillary Clinton for pocketing hundreds of thousands of dollars in speaking fees from Goldman, while Trump attacked Ted Cruz for being "in bed with" Goldman Sachs. (Cruz's wife Heidi was a managing director in Goldman's Houston office until she took leave to work on her husband's presidential campaign.) Goldman would have "total control" over Clinton, Trump said at a February 2016 rally, a point his campaign reinforced in a two-minute ad that ran the weekend before Election Day. An image of Blankfein flashed across the screen as Trump warned about the global forces that "robbed our working class." ..."
"... It's Cohn's influence over the country's regulators that worries Dennis Kelleher, the financial reform lobbyist. "To him, what's good for Wall Street is good for the economy," Kelleher said of Cohn. "Maybe that makes sense when a guy has spent 26 years at Goldman, a company who has repaid his loyalties and sweat with a net worth in the hundreds of millions." Kelleher recalls those who lost a home or a chunk of their retirement savings during a financial crisis that Cohn helped precipitate. "They're still suffering," he said. "Yet now Cohn's in charge of the economy and talking about eliminating financial reform and basically putting the country back to where it was in 2005, as if 2008 didn't happen. I've started the countdown clock to the next financial crash, which will make the last one look mild." ..."
"... Trump ( and the GOP generally) are running the William Henry Harrison routine. Talk about the plain common working people, mix in some log cabins and hard cider, describe anyone who wants to raise wages as an effete elitist, and the downsize, merge, consolidate, offshore, the better to profit from the misery of others. ..."
"... I don't think the Establishment has any idea of the level of dissatisfaction and discontent there is in the electorate, as their plan is short to mid-term doom. ..."
Sep 17, 2017 | www.theamericanconservative.com
Michele Paccione/Shutterstock Salena Zito has a moving NYPost piece about the day that began the destruction of Youngstown, Ohio, and "sowed the seeds of Trump." Excerpts:

From then on, this date in 1977 would be known as Black Monday in the Steel Valley, which stretches from Mahoning and Trumbull counties in Ohio eastward toward Pittsburgh. It is the date when Youngstown Sheet and Tube abruptly furloughed 5,000 workers all in one day.

The bleeding never stopped.

Within the next 18 months, US Steel announced that the nation's largest steel producer was also shutting down 16 plants across the nation including their Ohio Works in Youngstown, a move that eliminated an additional 4,000 workers here. That announcement came one day before Jones and Laughlin Steel Corp. said they were cutting thousands of jobs at their facilities in the Mahoning Valley, too.

Within a decade 40,000 jobs were gone. Within that same decade, 50,000 people had left the region, and by the next decade that number was up to 100,000. Today the 22 miles of booming steel mills and the support industries that once lined the Mahoning River have mostly disappeared -- either blown up, dismantled or reclaimed by nature.

If a bomb had hit this region, the scar would be no less severe on its landscape.

More:

The events of Black Monday forever changed not only the Steel Valley, but her people and eventually American culture and politics. Just last year the reverberations were felt in the presidential election when many hard-core Democrats from this area broke from their party to vote for Donald Trump, a Republican who promised to bring jobs back to the Heartland.

Even today, after the election, the Washington establishment still hasn't processed or properly dissected its effects. Economic experts predicted that the service industry would be the employment of the future. Steel workers were retrained to fill jobs in that sector, which was expected to sustain the middle class in the same way that manufacturing did.

It did not. According to a study done by the Midwest Center for Research the average salary of a steel worker in the late 1970s was $24,772.80. Today, according to the most recent Bureau of Labor statistics, the medium household income in the Mahoning Valley is $24,133.

Now that they have the working man's champion in the White House, what's he doing for them? Here are Gary Rivlin and Michael Hudson, writing in The Intercept , about how Goldman Sachs more or less runs the Trump administration. Excerpts:

Trump raged against "offshoring" by American companies during the 2016 campaign. He even threatened "retribution,"­ a 35 percent tariff on any goods imported into the United States by a company that had moved jobs overseas. But [Gary] Cohn laid out Goldman's very different view of offshoring at an investor conference in Naples, Florida, in November. There, Cohn explained unapologetically that Goldman had offshored its back-office staff, including payroll and IT, to Bangalore, India, now home to the firm's largest office outside New York City: "We hire people there because they work for cents on the dollar versus what people work for in the United States."

Candidate Trump promised to create millions of new jobs, vowing to be "the greatest jobs president that God ever created." Cohn, as Goldman Sachs's president and COO, oversaw the firm's mergers and acquisitions business that had, over the previous three years, led to the loss of at least 22,000 U.S. jobs, according to a study by two advocacy groups. Early in his candidacy, Trump described as "disgusting" Pfizer's decision to buy a smaller Irish competitor in order to execute a "corporate inversion," a maneuver in which a U.S. company moves its headquarters overseas to reduce its tax burden. The Pfizer deal ultimately fell through. But in 2016, in the heat of the campaign, Goldman advised on a megadeal that saw Johnson Controls, a Fortune 500 company based in Milwaukee, buy the Ireland-based Tyco International with the same goal. A few months later, with Goldman's help, Johnson Controls had executed its inversion.

With Cohn's appointment [as his economic adviser], Trump now had three Goldman Sachs alums in top positions inside his administration: Steve Bannon, who was a vice president at Goldman when he left the firm in 1990, as chief strategist, and Steve Mnuchin, who had spent 17 years at Goldman, as Treasury secretary. And there were more to come. A few weeks later, another Goldman partner, Dina Powell, joined the White House as a senior counselor for economic initiatives. Goldman was a longtime client of Jay Clayton, Trump's choice to chair the Securities and Exchange Commission; Clayton had represented Goldman after the 2008 financial crisis, and his wife Gretchen worked there as a wealth management adviser. And there was the brief, colorful tenure of Anthony Scaramucci as White House communications director: Scaramucci had been a vice president at Goldman Sachs before leaving to co-found his own investment company.

Even before Scaramucci, Sen. Elizabeth Warren, D-Mass., had joked that enough Goldman alum were working for the Trump administration to open a branch office in the White House.

"There was a devastating financial crisis just over eight years ago," Warren said. "Goldman Sachs was at the heart of that crisis. The idea that the president is now going to turn over the country's economic policy to a senior Goldman executive turns my stomach." Prior administrations often had one or two people from Goldman serving in top positions. George W. Bush at one point had three. At its peak, the Trump administration effectively had six.

Ex-Goldmanista Steve Bannon's White House agenda was not in Goldman's interest, though. But now he's gone. More:

The Trump economic agenda, it turns out, is largely the Goldman agenda, one with the potential to deliver any number of gifts to the firm that made Cohn colossally rich.

If Cohn stays, it will be to pursue an agenda of aggressive financial deregulation and massive corporate tax cuts -- he seeks to slash rates by 57 percent -- that would dramatically increase profits for large financial players like Goldman. It is an agenda as radical in its scope and impact as Bannon's was.

The story tracks Gary Cohn's impressive rise from an aluminum siding salesman to a Goldman Sachs top leader. In the mid-2000s, Goldman saw that the housing market was a bubble waiting to pop, and arranged its position to take advantage of the coming collapse. The Intercept continues:

Cohn was a member of Goldman's board of directors during this critical time and second in command of the bank. At that point, Cohn and Blankfein, along with the board and other top executives, had several options. They might have shared their concerns about the mortgage market in a filing with the SEC, which requires publicly traded companies to reveal "triggering events that accelerate or increase a direct financial obligation" or might cause "impairments" to the bottom line. They might have warned clients who had invested in mortgage-backed securities to consider extracting themselves before they suffered too much financial damage. At the very least, Goldman could have stopped peddling mortgage-backed securities that its own mortgage trading desk suspected might soon collapse in value.

Instead, Cohn and his colleagues decided to take care of Goldman Sachs.

Goldman would not have suffered the reputational damage that it did -- or paid multiple billions in federal fines -- if the firm, anticipating the impending crisis, had merely shorted the housing market in the hopes of making billions. That is what investment banks do: spot ways to make money that others don't see. The money managers and traders featured in the film "The Big Short" did the same -- and they were cast as brave contrarians. Yet unlike the investors featured in the film, Goldman had itself helped inflate the housing bubble -- buying tens of billions of dollars in subprime mortgages over the previous several years for bundling into bonds they sold to investors. And unlike these investors, Goldman's people were not warning anyone who would listen about the disaster about to hit. As federal investigations found, the firm, which still claims "our clients' interests always come first" as a core principle, failed to disclose that its top people saw disaster in the very products its salespeople were continuing to hawk.

What follows is an amazing, very detailed story about how Goldman maneuvered successfully through the rubble of the economic collapse, and came out on top. And then, get this:

Politically, 2016 would prove a strange year for Goldman. Bernie Sanders clobbered Hillary Clinton for pocketing hundreds of thousands of dollars in speaking fees from Goldman, while Trump attacked Ted Cruz for being "in bed with" Goldman Sachs. (Cruz's wife Heidi was a managing director in Goldman's Houston office until she took leave to work on her husband's presidential campaign.) Goldman would have "total control" over Clinton, Trump said at a February 2016 rally, a point his campaign reinforced in a two-minute ad that ran the weekend before Election Day. An image of Blankfein flashed across the screen as Trump warned about the global forces that "robbed our working class."

So Trump won -- and staffed up with Goldman machers -- Gary Cohn most important of all:

There's ultimately no great mystery why Donald Trump selected Gary Cohn for a top post in his administration, despite his angry rhetoric about Goldman Sachs. There's the high regard the president holds for anyone who is rich -- and the instant legitimacy Cohn conferred upon the administration within business circles. Cohn's appointment reassured bond markets about the unpredictable new president and lent his administration credibility it lacked among Fortune 100 CEOs, none of whom had donated to his campaign. Ego may also have played a role. Goldman Sachs would never do business with Trump, the developer who resorted to foreign banks and second-tier lenders to bankroll his projects. Now Goldman's president would be among those serving in his royal court.

Finally:

It's Cohn's influence over the country's regulators that worries Dennis Kelleher, the financial reform lobbyist. "To him, what's good for Wall Street is good for the economy," Kelleher said of Cohn. "Maybe that makes sense when a guy has spent 26 years at Goldman, a company who has repaid his loyalties and sweat with a net worth in the hundreds of millions." Kelleher recalls those who lost a home or a chunk of their retirement savings during a financial crisis that Cohn helped precipitate. "They're still suffering," he said. "Yet now Cohn's in charge of the economy and talking about eliminating financial reform and basically putting the country back to where it was in 2005, as if 2008 didn't happen. I've started the countdown clock to the next financial crash, which will make the last one look mild."

Read the whole thing. Please, do. It is staggering to think that here we are, a decade after the crash, and here we are.

Tonight (Sunday), PBS begins airing Ken Burns' and Lynn Novick's long Vietnam War documentary. I'll write more about it this week. I've watched it, and to call it landmark television is to vastly undersell it. It comes to mind reading the Goldman-Trump piece because it revealed, however inadvertently, how little we Americans learned from the Vietnam experience when it came time to invade Iraq.

Twenty, thirty years from now, don't be surprised if some American president proposes a "this time, it's different" invasion of another foreign country. And don't be surprised if we the people cheer for him. We're suckers for this kind of thing. Here's Kevin Williamson, on Trump's epic flip-flop on immigration and DACA:

What did they expect? Trump is a serial bankrupt who has betrayed at least two-thirds of the wives he's had and who lies compulsively -- who invented an imaginary friend to lie to the press on his behalf. He has screwed over practically everyone who has ever trusted him or done business with him, and his voters were just another in a long series of marks. They gave him that 280ZX with no down payment -- and no prospect of repossessing it until 2020 at the earliest. Poor Ann Coulter is somewhere weeping into her gin: "I bet on a loser," she explains.

It was a dumb bet.

With no market-oriented health-care reform and no hawkish immigration reform and the prospects of far-reaching tax reform looking shaky -- even though Republicans exist for no obvious purpose other than cutting taxes -- Trump is still looking for his big win. Even those who were willing to suspend the fully formed adult parts of their brains and give him the benefit of the doubt are coming around to the realization that he has no beliefs and no principles, and that he will sell out any ally, cause, or national interest if doing so suits his one and only true master in this life: his vanity. He didn't get rolled by Pelosi and Schumer: His voters got rolled by him. That's the real deal.

Cheers to you, Youngstown!

When Youngstown (so to speak) figures out what's been done to it, politics in this country is going to get very, very interesting. In the meantime:

Some of Trump's base is happy to let him cut deals with Pelosi and Schumer so long as he tweets gifs of Hillary and CNN logos. WWE BS.

! Ben Shapiro (@benshapiro) September 17, 2017

//platform.twitter.com/widgets.js 116 Responses to Con Of The Century ← Older Comments Newer Comments →

grumpy realist , says: September 18, 2017 at 10:30 am

Given Trump's history of betraying everyone he's been involved with (wives, businesses, family members) why are people surprised?

And no, I don't suspect Trump supporters to ever turn on him. Whatever he does, they'll find a way to excuse it and cast the blame of "the media", "those liberals", "those people", and "them" instead. It's easier for them to allow themselves to be ripped off, over and over again, than to admit to themselves that they were fools who fell victim to a con man.

(And no, I don't place much credence in Ann Coulter's hissy fit. She's just trying to keep the TV cameras on her as long as possible. Like usual.)

Roy Fassel , says: September 18, 2017 at 10:32 am
The world has changed. It used to be ."what is good for General Motors is good for America."

Multinational corporations tend to have most of their revenue growth outside of the USA today. Some companies like Apple manufacture their phones overseas, and most sales are overseas. This complicates all historical comparisons. The world is much more interconnected these days and we are all "God's children" living in all parts of the globe. Nationalism that is practiced by Trump eventually ends with a 1930s in Europe. BLAME creates hatred which then becomes to great uniter.

This all will not end on the plus side.

Sam M , says: September 18, 2017 at 10:33 am
Matt W

"Be charitable. It's VERY hard for someone to admit that they were fooled. It will be interesting to see all the mechanisms of denial."

Will it be interesting? Or entirely predictable? We have a model: All the ostensibly progressive people who for years voted Democrat and essentially ended up with a huge bait and switch. Which is not the divide in the Democratic Party, with the social justice left now ascendant and angry, because they got an awful lot of Dont Ask, Don't Tell and Clinton-era mass incarceration for their loyalty. While the union-wing got Goldman Sachs stuff.

All those people got rolled the same way Trump is rolling people now. So now we have BLM and Bernie Sanders and basically nothing in between.

So yeah. That's what we will get on the right.

Roger II , says: September 18, 2017 at 10:39 am
Trump has always been an ethically-challenged con man. I would still like to hear someone identify an actual policy that would help Youngstown. The truth is that steel industry jobs are gone, and they aren't coming back. Illegal immigration had nothing (or next to nothing) to do with that and has next to nothing to do with the fact that Youngstown has not developed other jobs for its citizens. Trump never proposed any concrete solutions, but quite frankly neither has JD Vance. Democrats have -- Obamacare, training programs, increased minimum wage, financial aid, more support for unions -- but by and large the white working class has rejected those policies. So maybe Youngstown should figure out what it wants from Trump or anyone else.
Allen , says: September 18, 2017 at 10:51 am
"The faithful man has perished from the earth, and there is no one upright among men. They all lie in wait for blood; every man hunts his brother with a net. That they may successfully do evil with both hands-the prince asks for gifts, the judge seeks a bribe, and the great man utters his evil desire; so they scheme together." Micah 7:2-3 (NKJV)

The more things change, the more they stay the same.

collin , says: September 18, 2017 at 11:14 am
Trump raged against "offshoring" by American companies during the 2016 campaign. He even threatened "retribution,"­ a 35 percent tariff on any goods imported into the United States by a company that had moved jobs overseas.

Again, can somebody explain to me how in the hell this is going to be done as free trade is 50%+ popular and any changes in a deal, such as NAFTA, will have serious negative economic consequences in certain parts of the nation. Rip up NAFTA, Iowas LOSES BIG!

Also, in terms of employment the steel industry is not that large anymore. It has about 80K workers today which is significantly about 90% less in the 1980s. And we produce almost (about ~95%) as much steel today as in the 1980s. So steel tariffs will increase steel jobs by 10% which is 8K workers and construction will lose 1% of 730K which is almost 8K workers. So somebody has to show me the benefit of steel tariffs as I don't see it.

Purple Tortoise , says: September 18, 2017 at 11:29 am
[NFR: But that's not really the point. The point is that Trump *specifically* ran against Goldman Sachs and what it represents. And now look. It simply won't do to say, "But Hillary would have been worse." Maybe so, but at this point, that strikes me as a way of rationalizing Trump's failure to keep his promises. -- RD]

Actually, I see it as rationalizing on the part of the NeverTrumpers for why they were justified in offering the voters a sh*t sandwich and why the voters were wrong to go with Trump in the hope of not being forced to eat a sh*t sandwich. Now that Trump has gone back on his promises, the NeverTrumpers are rationalizing that it proves they were right all along because the voters didn't escape the promised sh*t sandwich.

Jeff R , says: September 18, 2017 at 11:35 am
I would dearly love to help them out, and rebuild their cities. It would be the right thing to do. But as long as they keep voting for republicans (and yes, republicans are more corporate and Wall Street friendly then the democrats, Hillary Clinton notwithstanding), they are going to continue to decline.

As a Baltimore resident, I find this statement hilarious.

BlairBurton , says: September 18, 2017 at 11:37 am
http://www.thedailybeast.com/i-told-you-so-trump-is-a-conman-in-chief

"As members of the reviled Never Trump movement, it's not just an end-zone celebration play to say we warned you. We warned you over and over that Trump's brand isn't success; it's betrayal. We warned you that he believes in nothing, and so he will break any promise, shaft any ally, and abandon any position. Hate us all you want, but if you think this is the last time he'll shank his faithful, you might want to review the last 40 years of his personal and business behavior."

Donald , says: September 18, 2017 at 11:37 am
"There is a subset of voters who look upon their politician in an unhealthy God-like/3rd world fashion; much more tangible on the Left, but there on the Right as well."

This is correct, except for that ludicrous claim that it is worse on the Left. It's obvious on both sides and it's been that way forever.

I despise Trump. I am glad he is making deals with Democrats, but the Goldman Sachs thing is horrible. There was always a faint chance he could have governed as a populist, pushing massive infrastructure projects to create jobs, for instance. I thought that would appeal to his vanity as someone who builds things. No such luck.

Sawbuck , says: September 18, 2017 at 12:02 pm
It isn't just the steel industry. You underestimate the level of rage out there in flyover country – and the towns where the service workers live next to the towns where the 1% live because the workers cannot afford the uptown costs – they really will be fine if the whole system burns to ash.

They are used to being poor and will last longer.

Richard Morton , says: September 18, 2017 at 12:05 pm
VikingLS (at 10:19pm) hits the mark, IMO. I'd be interested to hear more. Playing the "con man" card gets stale & tiresome fast. Thanks also to Rob G for recommended reading (at 7:08am). So, Rod, won't a good shot of Ben Op faith and virtue also help make America industrious again? It is hard work, but is it impossible to imagine or too complex to do? If you think so, I think you underestimate us–and our Lord.
Captain P , says: September 18, 2017 at 12:15 pm
So long as the Clintonistas don't find a new figurehead, bet on Sanders winning in 2020. If anyone's a true opponent of neoliberal economic policies, he is.
Phillip , says: September 18, 2017 at 12:16 pm
Yes, Trump is bad, is going back on promises, etc. etc.

But what's the freaking alternative?

Give me an actual name that is not worse.

Siarlys Jenkins , says: September 18, 2017 at 12:31 pm
Trump ( and the GOP generally) are running the William Henry Harrison routine. Talk about the plain common working people, mix in some log cabins and hard cider, describe anyone who wants to raise wages as an effete elitist, and the downsize, merge, consolidate, offshore, the better to profit from the misery of others.

Now, what could have been done in 1977? That was the beginning of Jimmy Carter's term, his first year in office. At the time, he was a conservative southern Democrat, America's first born-again Christian president, despised by liberals, who tried to run Ted Kennedy against him in the 1980 Democratic primary, producing plenty of material for Ronald Reagan campaign commercials in the general election.

It would have taken a VERY comprehensive plan and some long-term investments. The steel plants were aging and uncompetitive. The companies laid off thousands because they didn't think it worth investing billions in new plants, new technology, etc. A few plants that employees pooled their hard-earned savings to buy turned out to be unsustainable too. A good stop TOWARD a more sensible socialist economy would have been a law providing that IF a company employing more than 1000 workers wanted to shut a plant, a government agency has first option to buy, at a price no greater than original investment minus all depreciation taken on corporate tax returns (that is, next to nothing).

Then it would have taken billions in federal financing to do the upgrade. Why do this? Well, considering the economic and social costs of all the crime, drug networks, drug treatment, alcoholism, etc. in the forty years since, it might have been a net cost savings. This is how socialism becomes a paying proposition, rather than "running out of other people's money."

But a sustainable program has to be geared to production people will actually need and use and want and buy. Production of stuff that piles up because there is no market for it is not sustainable. Something could have been done, but there was no will. Democrats were, then as now, afraid of their own shadow, and addicted to putting band-aids on long-term problems. Republicans, then as now, were addicted to "market forces," which, of course, are what triggered the catastrophe. What passed for a "left" at that time was too busy debating whether Deng or the Gang of Four were the true heroes of proletarian revolution and holding May Day picnics where 90 percent of participants were college graduates. They weren't reading the business pages.

It is also the case that Hillary Clinton was in bed with Goldman.

True, and relevant, but hardly in contradiction with what Dux Bellorum said.

Dux Bellorum, Austinopole , says: September 18, 2017 at 12:33 pm

[NFR: This is simplistic trolling and you know it. It is also the case that Hillary Clinton was in bed with Goldman. Remember the private Wall Street speech she gave, released by Wikileaks, in which she talked about how one needed to have "a public and a private position"? We would have been equally screwed by a Clinton.2 presidency, and a conventional Republican one. My anger at Trump over this is that he promised to be something different -- and, being fabulously wealthy, he didn't depend on the largesse of financial titans to make his living. He was in a position to change things -- yet on economic issues, he's turned out to be as bad or worse than those he ran against in both parties. -- RD]

It would be trolling if we were describing a single election, sure, but the comment refers to the very, very long alliance between social conservatives and business conservatives, which, in the south, goes back to the nineteenth century. Institutional Christian powers have been taking money and power from business interests to enforce their particular visions of what everyone should live like, and it's had the effect of giving them more and more power over an ever-shrinking and ever more miserable kingdom.

There's that lovely idea that by their fruits shall one know ideas, I think that Youngstown, in synecdoche, is a great example of the fruits of that particular idea.

$0.02,

DBA

Weldon , says: September 18, 2017 at 12:44 pm
The problem with this line of thought is that it would lead you to expect that Trump won Rust Belt voters whose chief concern was jobs and the economy. But he didn't; Clinton (narrowly) did. Trump won Rust Belt voters whose chief concern was "cultural decline".

Somehow the economic narrative got way off from what the data actually show: on election day, Trump underperformed recent Republican candidates in every economic cohort *except* households making $70K-$100K. This is the group you need to look at to explain his appeal.

Donald , says: September 18, 2017 at 12:45 pm
"Just shocking that a politician went back on a campaign promise. Throw the bum out. Shocking."

And this silly sort of cynicism is exactly why politicians think they can get away with breaking any and every promise they make.

Deplorable MD , says: September 18, 2017 at 12:50 pm
These can be true:

1. I am unhappy with certain (even "many") Trump decisions.
2. I remain happy I voted for Trump over Clinton.

What would it take for me to instead have wished I voted Clinton over Trump?..some combination of the following:

1. An increase in taxes on the working and professional class.
2. An offensive ground invasion of foreign country.
3. The nomination and Senate approval of a doctrinaire Liberal to the Supreme Court.
4. Policies that would lead to increased working class and poor immigrants to our country.

I imagine there are more, but these are some of the important points. I can muddle through a temporary ill mannered President and don't have a problem getting dirty to avoid the above.

BD , says: September 18, 2017 at 12:54 pm
Judging from the reaction of Trumpers in this comment thread it's pretty clear that there is literally nothing he could do that would cause them to abandon him. They will rationalize anything he does.

During the campaign, some of them said "well if he betrayed us on immigration then we'd leave him" and the biggest crimes committed by the Rubios of the world was that they cut deals far better (from restrictionist points of view) than this. So it's clear how they react to a betrayal–simply pretend it's not a betrayal, or that any non-Trump alternative would have been worse.

It's looking like they have become a cult.

Venice , says: September 18, 2017 at 12:56 pm
I'm always amazed at how loyal Trump supporters are. At times he was voted in to totally disrupt Washington, at other times he was supposed to make deals to keep the peace.
Look, Trump was always part of Wall Street. This was always going to happen. I don't think it's a bad thing but I do feel bad for the people who voted for him expecting anything different.
BD , says: September 18, 2017 at 1:01 pm
"It's not whether he makes deals. It's on whether they are good deals. The DACA deal would not be a good one if it follows what has been outlined."

That's not true. It's an excellent deal for the Democrats and Republican immigration doves.

For immigration restrictionists? Well, for them this puts them next on the long list of people who made the mistake of trusting Donald Trump.

BD , says: September 18, 2017 at 1:06 pm
"It's easy to criticize but a lot more difficult to say what they should have done. So tell me, who should they have supported? And don't say "Anybody but Trump" – that's not an answer."

This is a fair question, but they easily could have organized around another candidate who represented what they believed in (surely Trump is not the only person in the world who favored cutting back immigration–it's a very popular position in the GOP grass roots). Pat Buchanan ran on it in the '90s.

But to say "let's get behind the guy whose track record practically screams at you that you're going to get backstabbed" seems worse than even staying home. What are the chances now that next time a candidate runs on those issues anyone is going to believe him?

TR , says: September 18, 2017 at 1:13 pm
I suggest taking Wes seriously ("Could be better, could be much worse"). I have a suspicion his position is probably the norm.

In any case, some politicians pay for their "sins," some don't. I have an awful feeling, Trump will fall into the latter category.

TR , says: September 18, 2017 at 1:22 pm
A side note: John_M's correction of the steel plant closures makes sense. At the time they happened, it was not unusual to point out that American steel was uncompetitive even in a fair market (which didn't exist). Failure to modernize was a big factor.

And even if evil capitalism and elitist government may have been behind the closings, one should point out that a lot of less bright capitalists lost their shirts.

Potato , says: September 18, 2017 at 1:30 pm
They know they're getting screwed, in Youngstown and elsewhere. For some reason they don't care. They'll stick with Trump to the bitter end.
EngineerScotty , says: September 18, 2017 at 1:33 pm
And the standards keep getting lower and lower
Loudon is a Fool , says: September 18, 2017 at 1:46 pm
+1000 @ Old West

Any legislation. Congress doesn't need to pass some thing. They could pass any thing. Except they can't pass any thing. Not a single thing. They're incapable of governing. It's thoroughly depressing. As Williamson has noted previously, the wily McConnell is just the wrong man for the job. Trump's broken promises are nearly 100% McConnell's leadership failures. Could any other GOP president overcome McConnell's incompetence? Maybe. But that's a lot of incompetence to overcome. The Democrats are terrible human beings. But they know how to pass legislation. So if you want to pass some legislation and your choices are the Democrats or McConnell do you really have a choice as to the party you're going to approach?

Rosita , says: September 18, 2017 at 2:11 pm
Have to agree with all the Trump voters and supporters on this thread. None of them voted on principles; as they have stated, more on emotion, affinity and bread and butter issues. Your points about Trump's betrayals ring hollow. Everybody understood that Trump's positions are malleable and that was part of the package. Even when his policies begin to hurt his supporters, that will be a necessary evil to shore up the cultural and social solidarity that Trump represents. Plain and simple.
Polichinello , says: September 18, 2017 at 2:16 pm
All of this info was there–and being spouted loudly by the left–during the campaign.

This is the deal you (not you, Rod, since you didn't vote for him..) made for Gorsuch. We'll all get to see how bad a deal it was in the next years.

Given the Left's attitude to free speech these days and judicial overreach, totally worth it. Totally.

Hound of Ulster , says: September 18, 2017 at 2:23 pm
Everyone who voted for Trump based on ANYTHING he said during the campaign is a sucker. We warned you, but you wouldn't listen and just wanted to watch the 'libtards' cry.

Fools

Polichinello , says: September 18, 2017 at 2:25 pm
To be honest, I never understood how Trump was going to bring these jobs back as automation was the primary cause and the connection of Illegal Immigrants was not significant. Please show the direct lines of DACA Immigrants to manufacturing jobs in the Rust Belt?

They increase the labor pool that will compete with those people whose jobs have been eliminated by automation. Moreover, they require the same public spending (actually more), so now those people affected by automation are left with less government succour, as resource now have to be diverted to people who entered the country illegally.

I, for one, understand that some sort of compromise solution will need to be reached to deal with the Dacaritos, but let's not wave our hands and pretend this is all the fault of Skynet and that inflating the number of no- to low-skilled people in the pool will have no effect.

Be aware, too, that we're NOT discussing just a few hundred thousand people here, as the deals being thrown around will go up into the millions, once you factor in chain migration, as well as the knock on effect of encouraging yet more illegal immigration with the promise of future amnesties.

Alex Curbelo , says: September 18, 2017 at 2:26 pm
Mr. Dreher routinely gets into the pitfall of context denial when it comes to Trump.

Given the state of the country, and especially what the Republican and Democratic parties have given us for the last 40 years, no one (including Mr. Dreher) will ever be able to make the case that supporting Trump was not the rational way to go despite the risks. It was the right way to go under the circumstances and given the horrid alternatives that the GOP gave us in the primaries and the Democratic Party gave us for the general.

More importantly, just because Trump may be fake doesn't mean he did not tap into real issues. The reason Trump won is that, again, he tapped into very real issues.

YM , says: September 18, 2017 at 2:31 pm
Since I discovered your blog, Rod, I have wondered, why would you have your blog on such a lame website. Now I know – its your way or the highway. No choosing between imperfect choices.
ludo , says: September 18, 2017 at 2:39 pm
Just as the Clinton campaign disintegrated into a vacuous, visionless, vapor which the ultimately voters did not care to inhale, so too the Trump administration is in the premature process of decay into an amorphous, gelatinously unrecognizable politico-administrative life-form ("neither fish nor foul," "because you are lukewarm!neither hot nor cold "), perhaps to better camouflage and disguise the creedless (nihilistic) plutocratic pillaging of what remains of the non-oligarchically captured corpse (or, at least, despoiled and desecrated body) of a once proud and productively positive Middle Class government and state.
The Color of Celery , says: September 18, 2017 at 2:46 pm
Maybe Elizabeth Warren needs to be president if there is going to be something done about Goldman Sachs.

[NFR: If she weren't so fanatically down-the-line liberal on social issues, I'd strongly consider voting for her. -- RD]

Alex Curbelo , says: September 18, 2017 at 2:48 pm
A deal with Pelosi/Schumer would make sense on infrastructure but not DACA. Trump will not survive this betrayal on DACA. People aren't stupid.

There is a debate in the informed pro-Trump community -- is Trump a con artist, sell out, traitor, or man who means well but whose hands are tied. On one side, you have people bending over backwards to defend pretty transparently treacherous moves by Trump's on the grounds that he has little real choice. The argument is that because Trump's Jacksonian agenda is being monolithically and implacably opposed by the top leadership of both parties, the courts, the military, the IC, the banks and big corps, etc. (our true rulers), Trump has to bide his time, cut deals, and play Nth dimensional chess until he can move forward with his real populist agenda.

The other side of the argument is that Trump is just a con artist. When pro-Trump people try to argue to me that Trump's hands are tied, I also counter by pointing out the factors that are under Trump's control. Trump can't control Ryan, McConnell, etc. but what can he control. Trump can certainly control who works for him! Which means the strongest evidence that Trump never meant it can be found just by looking at who he has working for him. He gave top jobs to establishment figures like McMaster, Kelly and Cohn.

I can understand the claim that CIA and other deep state figures, McConnell, etc. won't go along with Trump and have been working overtime to sabotage Trump -- those things are true -- but what then is Trump's excuse for giving jobs to people like McMaster and Cohn?

Kushner and Cohn (and really most likely Lloyd Blankfein himself) have mostly neutralized Trump's economic, immigration and trade agenda in areas where the president has a lot to autonomy to act independent of the courts and Congress, while McMaster has done the same on the foreign policy front. And John Kelly, by all accounts, now has Trump under de facto house arrest, having reportedly cut off Trump from all of his remaining advisors that support the original MAGA agenda.

These are dark days for anyone who recognizes that the issues that propelled Trump to victory are real. Nothing ever changes because our true rulers are not the people we elect.

Finally, the idea that Trump pulled off the con of the century does not hold up. That honor belongs to the post-1980 Republican party for pulling off the longest and greatest con over the largest number of people ever. Trump can't come close.

Noah172 , says: September 18, 2017 at 2:52 pm
Who did Kevin Williamson favor in the 2016 primaries? Jeb? Rubio? Cruz?

Here is the reality that Williamson and his ilk refuse to acknowledge. If any of Trump's Republican rivals were in his position now:

The federal government would not be appreciably smaller.

Obamacare would not be fully repealed/replaced.

A bigger amnesty would be at least under consideration, if not already enacted.

The personal income tax would not be abolished or turned into a flat tax.

We'd be in a regime change war with Assad (and thus Putin).

Paul Ryan-ish "entitlement reform" would not be enacted.

Latinos and millenials would not love the Republican Party.

Homosexual marriage would not be rolled back.

These other Republicans (most to all of whom would have lost to HRC) would not have been so successful enacting the movement con agenda, which is unpopular and internally contradictory.

Voucherize Medicare + open borders + neocon wars + free trade + PC pandering = balanced budgets, prosperity for all, and a "permanent Republican majority"?

And Trump is the con man?

walking horse , says: September 18, 2017 at 2:54 pm
"Just shocking that a politician went back on a campaign promise. Throw the bum out. Shocking."

This is in fact shocking. It's shocking at least on the order of Bush the Elder's reversal of "read my lips: no new taxes", which cost him a second term.

I see that Trump has opened a US military base in Israel, the first ever, which is one of the stupidest acts in recent American history.

all of which suggests that Trump will soon be history himself

swb , says: September 18, 2017 at 2:59 pm
Given the comment section, there is no indication that his voters are judging his progress based on any criteria that is usually applied to normal politicians. Real benefits are not actually a criterion used by his voters. If trump can find enough scapegoats to blame for things, I believe that qualifies as progress for his voters because that makes them feel better. Since he is adapt at generating controversy and thereby creating appropriate new groups to blame I do not really see reason why this virtuous cycle could not continue for two terms.

I mean seriously, bush junior sent off their sons and daughters to vacation in the desert and thousands of them did not come back and he got two terms. Trumps voters are not going to be upset just because he lies to them.

lllurker , says: September 18, 2017 at 3:00 pm
"Or cancelling Obama regulations such as the one that required any buildings re-built with federal money needs to take rising sea levels into account?"

I didn't even know that was a thing. (The regs themselves.)

As I followed the Houston and then FL news, once I would get past all the human suffering my mind always seemed to end up in the same place: "We're not really so stupid that we're actually gonna rebuild in these same low-lying places?"

I know this only applies to certain areas, and that the storm over Houston was pretty freakish and perhaps a one-of-a-kind. But some of these areas are destined to flood so much over the coming decades that they will eventually have to be abandoned, at least as building sites. So in the meantime how many billions are we going to put on Uncle Sam's credit card, to be paid by coming generations, for rebuilding doomed structures?

I hope there are controls in place that at least force the people who in the worst places to move elsewhere.

Mike Alexander , says: September 18, 2017 at 3:05 pm
Kronstein1963 writes:
It's easy to criticize but a lot more difficult to say what they should have done. So tell me, who should they have supported?

They should have voted for Sanders in the primaries and then the GOP nominee in the general. By doing this they would have helped further the economic nationalist message by demonstrating significant support for a serious anti-Wall street message. By putting Trump in there they established empirically that

populist economic nationalism = Goldman Sachs.

Populist economic nationalism is now a dead letter

Noah172 , says: September 18, 2017 at 3:18 pm
I'm in holding mode on Trump right now. I'm wait-and-see on where DACA negotiations go, and I'll call my Representative and Senators to voice my opposition to amnesty (and support for some of the restrictionist bills pending). Here's the possibilities of what the past week's DACA drama means to me:

Looks, quacks like a duck: Trump sincerely wanted to agree to amnesty, with little in return, with the Democrats, got blowback from his troops, and backtracked by seeming to insist on tougher demands.

Total sellout: Trump will go for amnesty, with no meaningful concessions, base voters (and small donors) be damned.

4D chess: Trump was using talk of amnesty and delaying a fight over the wall to lure the Democrats into negotiation so he could then drop tougher demands on them (end to chain migration), which he knows they will reject, setting them up to look like extremists and have a government shutdown fight (which, e.g., Congressman Luis Gutierrez openly wants) right before Christmas.

In the first possibility, I'm upset and undecided for 2020, but at least Trump listened to his troops after only a few days of Breitbart and Twitter screaming at him. That's more than you can say for GWB, John McCain, or Paul Ryan.

In the second possibility, I'm through with Trump, for good.

In the third, I'm OK with political chess-playing in principle, but you gotta do it right. It's dangerous, especially for Trump, hated as he is by all TPTB, even in his own party, to demoralize and confuse your core fan base (and small donation base, I repeat) in attempt to lure the opposition into a political trap.

I can't tell if possibility 1 or 3 is the truth (2 is unlikely but frighteningly possible). In any case, I don't see a DACA amnesty happening because too few Republicans will risk it, Trump seems to be offering a trade which the Democrats will never ever accept (only DACA applicants for RAISE Act and maybe wall or some interior enforcement), and some Democrats (Gutierrez and company) are so stupid and greedy and fanatical that they think they are entitled to a massive amnesty with literally nothing in return, not even fake border enforcement (Schumer and Pelosi are trying to talk sense into their backbenchers, we'll see to what avail).

Rusty , says: September 18, 2017 at 3:23 pm
It's almost as though the last 40 years of Youngstown citizens felt *entitled* to having those good jobs replaced, in their town, w/o having to move or re-invent themselves.
cdugga , says: September 18, 2017 at 3:38 pm
I am not buying the we were fooled thing in the least. Like, the don is putting health care and DACA in the hands of republican legislators and all they have to do is legislate. They have not and cannot. Now we are reading about the don's betrayal of labor on TAC? This is not any sort of news whatsoever. Someday, maybe after some environmental disaster in appalachia, we will read about how the don betrayed the amerian people by crippleing regulations designed to protect their air and water. As if that was something new too. No, what we are seeing here is what I have been seeing since the rise of the don. If he is successful, it is because we supported and voted for him. If he does what anyone paying attention saw him doing already, then we can say, well, he never was a true conservative anyway. All this, is just more of the same ole lies of omission and lies to deny responsibility and place blame on anyone but ourselves. How many columns have I read here about how the don was the fault, not of the people that actually voted for him, but the fault of those gay transgender mexican muslim blacks and their secularist enablers. And the beat goes on.
Oh, and I was mortified when trump was elected but not at all surprised. He followed every standard GOP strategy including the tried and true decisive pander to the NRA. If he did do anything different, it was to claim in a much more outright manner that we were being victimized by immigrants and all those other non-deserving people. He even set the bait for people like me, by saying he would go after wall street and the hedge funds that shorted the whole world in the financial collapse.
But in this pile on, we should give the don credit where it is due. He has successfully exposed the republican party for what it has always been about. And putting healthcare and DACA into republican legislator's hands is going to be much more revealing about who has been fooling the fools than anything the don himself has done.
lllurker , says: September 18, 2017 at 3:39 pm
"Steel workers were retrained to fill jobs in that sector, which was expected to sustain the middle class in the same way that manufacturing did.

It did not. According to a study done by the Midwest Center for Research the average salary of a steel worker in the late 1970s was $24,772.80. Today, according to the most recent Bureau of Labor statistics, the medium household income in the Mahoning Valley is $24,133."

There seems to be some misperceptions regarding the wages that were paid in old-line manufacturing industries vs modern service jobs. The most important thing to understand is that the once strong wages and benefits in the steel and auto and other similar industries had nothing to do with the sort of work the people were doing. The pay and benefits were a direct result of the employees having strong unions and the unions having favorable federal legislation in place.

The truth is that the jobs themselves were often awful, especially in steel. And dangerous. But the jobs didn't require any more experience or ability from a new hire than the fast food industry requires today.

It is just a quirk of the way the industrialization of the country played out that the industrial sector ended up, at least for awhile, with employee-friendly compensation packages. In fact had it all gone the other way, and the service sector grown first, before manufacturing, many of the problems the non-college educated crowd face today wouldn't even exist. Manufacturing has become especially sensitive to labor costs because companies can choose to build factories in other countries where salaries are low. Most of the country's service industry isn't like that.

VikingLS , says: September 17, 2017 at 8:59 pm
"When Youngstown (so to speak) figures out what's been done to it, politics in this country is going to get very, very interesting."

Rod what are you going to do to change this? The Ben Op doesn't help.

[NFR: I dunno, Viking, I guess I'm waiting on you to tell me what to do. You know perfectly well that the Benedict Option is not about changing American politics, but about the life of the church. Besides, it is not the case that I or anybody else has to have a "solution" to offer before we can criticize what we see. I doubt very much you apply that standard to your own judgments of the world. -- RD]

Planet Albany , says: September 17, 2017 at 9:03 pm
Since I voted for Trump and you did not, doesn't that put me in a better position to judge whether Trump's willingness to make deals with Dems on DACA, taxes and infrastructure amounts to betrayal? Answer: It doesn't. It's what I want him to do. He campaigned on making deals, including with Russia, which I also want to see to keep the peace. Just hold the line on social issues, and we're good.
Trey , says: September 17, 2017 at 9:08 pm
But I thought we were a bunch of hicks that did not understand the constitutional checks and balances and the need for compromise and when we found out Trump was not able to be a dictator we would turn on him.
Corwin , says: September 17, 2017 at 9:35 pm
The problem is Youngstown won't figure it out. They, and so many other small and industrial towns across the country, are looking for a solution on their terms. They have had the last 30 plus years to update, and some have, like Pittsburgh. Meanwhile, the people who have figured this out left for greener pastures a long time ago.

I would dearly love to help them out, and rebuild their cities. It would be the right thing to do. But as long as they keep voting for republicans (and yes, republicans are more corporate and Wall Street friendly then the democrats, Hillary Clinton notwithstanding), they are going to continue to decline.

Francis E Blangeard , says: September 17, 2017 at 9:36 pm
To a large extent Goldman Sachs is the 'Deep State'.
Adamant , says: September 17, 2017 at 9:40 pm
I was in Youngstown just the other week. You could no more thoroughly destroy a city than if you had the Air Force flyover and reduce it to rubble via saturation bombing. You could say the exact same thing about 1000 other towns here in the Rust Belt. The main source of economic activity is methamphetamine production and heroin trafficking, and the ruination of generations yet unborn is baked in.

"So Trump won -- and staffed up with Goldman machers -- Gary Cohn most important of all"

As did Obama, and Bush, and Clinton, and on and on unti the heat death of the universe. Wall. Street. Always. Wins. Like the Military Industrial Complex always wins.

And they will continue to win until we can decide as a people to put our cultural distinctions and differences aside and defeat them. Because they are going to exsanguinate your tribe of traditionalist Christian conservatives as surely as they will my tribe. Say what you want about the political praxis of Occupy Wall Street, at least they were yelling at the right buildings.

I'd like to bring an old word back into our political currency: solidarity.

Wes , says: September 17, 2017 at 10:17 pm
Still a happy Trump supporter here; unphased by the presence of Goldman Sachs employees (the horror!) or of deals with Democrats. Could be better, could be much worse.
VikingLS , says: September 17, 2017 at 10:19 pm
[NFR: I dunno, Viking, I guess I'm waiting on you to tell me what to do. You know perfectly well that the Benedict Option is not about changing American politics, but about the life of the church. Besides, it is not the case that I or anybody else has to have a "solution" to offer before we can criticize what we see. I doubt very much you apply that standard to your own judgments
of the world. -- RD]

Actually I do try and hold myself to a standard along those lines. People don't always like my suggestions, but I do have them. I wouldn't have asked you that question if I didn't have an idea what I think you, or at least somebody at TAC, needs to do.

Someone needs to talk about what Trump getting elected as a Republican with his platform says about the voters, even if he himself seems to have pulled a bait and switch. Not what liberals say it means ("Clinton was a bad candidate" at best "America is racist" at worst.) This is conference worthy.

Nothing against you and Larrison, you're both fine writers, but is it possible to get the other writers here to write more? What's the difference between yourself and say, Bill Kaufman in TAC's structure?

Someone, it doesn't have to be you, but someone, needs to spend serious time looking at the Conservative movement in new media. That's looking like where the future is, not the New York Times op-ed page. There really are people who supported Trump who are both aware that Trump isn't keeping his campaign promises, and are discussing what their next move is going to be.

Try and resist the temptation to write variations of "Trump voters must feel stupid now". As opposed to what? Having Clinton as president? Do you honestly think if Clinton was president you wouldn't be writing some version of "Wow, I knew Clinton was going to be bad, but I didn't realize she'd be THIS bad." In a little over 3 years, it will be a different story, but for a lot of people a Clinton presidency where she kept her promises would be worse.

I am going to write you a personal email. I actually have taken a pretty serious personal professional hit because of this election, and I STILL don't regret my vote. This is not all academic for me.

Old West , says: September 17, 2017 at 10:41 pm
Trump would have signed any legislation a GOP controlled House and Senate passed.

ANY.

It wouldn't even need to have been good.

Making a deal with the Dems is his way of punishing the GOP for being incompetent.

At this point I'm still feeling betrayed by them. But I reserve the option of adding him to the list.

Sam M , says: September 17, 2017 at 10:42 pm
It's hilarious how selective people are about economics. Nothing to be done about the steel industry. Just how markets work. Too bad so sad Youngsville.

Unless you are cool. Like Amazon. And cities will slobber all over themselves to say to hell with the market, we need to subsidize development. And give the richest guy in the world free stuff:

https://www.google.com/amp/s/mobile.nytimes.com/2017/09/07/technology/amazon-headquarters-north-america.amp.html

Elon Musk has received at least $5 billion in subsidies:

https://www.google.com/amp/www.latimes.com/business/la-fi-hy-musk-subsidies-20150531-story,amp.html

Hmm. It's almost like it's only poor schmucks who have to suffer the ups and downs of the free market.

collin , says: September 17, 2017 at 10:51 pm
I am sorry but this happened almost 40 years ago and I remember when conservatives like Reagan were dancing on the death of union graves in the 1980s. Conservative loved when Reagan fired union air traffic controllers. And one reason why I voted for Bill Clinton because in 1992 he campaigned on the jobs of tomorrow as was honest to the American people that many of these jobs were not coming. (And the second fall in manufacturing was occurring in 1992 as well.) To be honest, I never understood how Trump was going to bring these jobs back as automation was the primary cause and the connection of Illegal Immigrants was not significant. Please show the direct lines of DACA Immigrants to manufacturing jobs in the Rust Belt?

Agreed, as long as he rub in his Grand Victory over HRC, conservatives will take anything from Trump.

The Sicilian Woman , September 17, 2017 at 11:16 pm
Just hold the line on social issues, and we're good.

Such was/is the hope of social conservatives with whom I share the same values but who voted for Trump and whom I suspect will be badly betrayed.

Purple Tortoise , September 17, 2017 at 11:16 pm
I didn't vote for or against Trump -- the election winner was foreordained in my state -- but I am surprised to hear these "I told you sos". Despite Trump's betrayals, I am not at all convinced that the situation would be any better now had Hillary Clinton or an establishment Republican been elected. In fact, being cozy with Wall Street and immigration amnesty is exactly what Hillary Clinton or an establishment Republican would have done. So I can see how Trump is now and always has been a worse alternative from the viewpoint of the Republican establishment, but I can't see how Trump even now is a worse alternative than the Republican establishment or Hillary Clinton from the viewpoint of the typical Trump voter.

[NFR: But that's not really the point. The point is that Trump *specifically* ran against Goldman Sachs and what it represents. And now look. It simply won't do to say, "But Hillary would have been worse." Maybe so, but at this point, that strikes me as a way of rationalizing Trump's failure to keep his promises. -- RD]

The Owners , says: September 17, 2017 at 11:19 pm
@Planet Albany – "Since I voted for Trump [ ] Trump's willingness to make deals with Dems on DACA, taxes and infrastructure amounts to betrayal? Answer: It doesn't. It's what I want him to do. He campaigned on making deals, including with Russia, which I also want to see to keep the peace. Just hold the line on social issues, and we're good."

I voted for him too. Making deals witn Dems on DACA isn't "holding the line on social issues", obviously.

Trump's a total prisoner of DC, Wall Street, and Silicon Valley now. We need a new president. Thanks for Neil Gorsuch, Donnie. 'Bye.

Kronsteen1963 , September 17, 2017 at 11:19 pm
So, who were the people of Youngstown supposed to support? Hillary Clinton and a Democratic party that is visciously hostile to their social values? Jeb Bush and a Republican Party that's indifferent to their plight, and considers them to be lazy losers? Both parties support immigration and trade policies that are killing these people because it benefits their corporate and Chamber of Commerce contributors. Only one guy spoke to their situation: Donald Trump.

I don't like Trump – never have. And I didn't vote for him. I lived in Maryland – Clinton was going to win that state easily. My vote didn't matter so I voted 3rd party as a protest vote. But, I understand why people voted for Trump. They were desperate and he was THE ONLY CANDIDATE in either party that talked to their struggles. This is not a failure of the voters. It's the criminally negligent failure of both political parties to address the problems facing ordinary America.

It's easy to criticize but a lot more difficult to say what they should have done. So tell me, who should they have supported? And don't say "Anybody but Trump" – that's not an answer.

Walter Sobchak , September 17, 2017 at 11:24 pm
Shapiro is right. Planet Albany is one of the Trumpeters who love the personality, and who would not care if Trump shot somebody in the middle of Fifth Avenue. Their problem is that Trump can flip the Bird at the Media and the Cultural elite all he wants, but he will not affect system in the slightest, because he has no understanding of its structure and no plane to affect it in any way.
Glaivester , says: September 17, 2017 at 11:32 pm
Since I voted for Trump and you did not, doesn't that put me in a better position to judge whether Trump's willingness to make deals with Dems on DACA, taxes and infrastructure amounts to betrayal? Answer: It doesn't. It's what I want him to do.

It's not whether he makes deals. It's on whether they are good deals. The DACA deal would not be a good one if it follows what has been outlined.

John_M , says: September 17, 2017 at 11:47 pm
Trump is taking his supporters for a ride.

When I got out of graduate school I was offered a job by a steel company research lab – so yes, I was somewhat of a steel metallurgist. I went into micro-electronics instead. When I turned down their job offer, I told them that they would survive the Japanese competition, but that I thought that the mini-mills would decimate them.

The research lab closed down 3 years later as the steel company restructured.

Even without import competition, the steel industry we knew in the 1970's was doomed. The facilities were antique and the development of the basic oxygen furnace and the sophisticated electric arc remelt furnaces obsoleted much of the existing infrastructure. If you look at a Nucor mill now, you won't see many employees.

Even without any import issues, there would not have been many employees left.

Imports were – and are – a problem. But the carnage was done by technology and automation. The politicians do not seem to be very willing to discuss this – automation doesn't give the simple villain of the Chinese, Indians, Ukrainians, .

Philly guy , says: September 17, 2017 at 11:53 pm
If you look at the present day, we are still fighting over theVietnam war, as the pro and con sides are roughly the same as 40 years ago, middle class hippies vs "working class whites".
ANDREW ALLADIN , September 17, 2017 at 11:53 pm
Hillary Clinton would have easily defeated Ted Cruz, Marco Rubio, or Jeb Bush. Cruz is still stuck in his Reagan impersonation; Rubio wants to go to war with Russia over Ukraine, Crimea, Georgia, Syria, etc; and Jeb couldn't even bring himself to criticize the war in Iraq because of family loyalty.

Ben Shapiro charges $10,000 to give the same speech over and over again to college students. It's always the same: SJWs are whiny children, Millennials need to grow up, socialism sucks, the Alt-Right are losers, blah! blah! blah! A nice living if you can get it and he's got it.

Trump was and is still the lesser of two evils. I think of Trump the same way Christians in Syria think of Assad. Or Christians in Iraq thought about Saddam Hussein. There's always someone worse waiting to take over.

Some fellow Christians are facing bankruptcy because they refuse to provide services for a gay wedding. This isn't some whiny college campus SJW showdown. That's where my concern is. I really couldn't care less about Goldman Sachs. I don't earn enough to care. Don't care about DACA or The Wall either. Sorry.

Christian liberty is the only issue I'm voting on. And Trump will always be the lesser of two evils. Always. Always. Always.

Alex Brown , says: September 17, 2017 at 11:54 pm
So Trump is a crook, and Hillary too. I suspect much of 'Youngstown' knew that. When other choice did the system offered, from 150 millions eligible potential candidates?

Yes, things may get even more interesting. Haven't tried Sanderistas yet, have we?

ADC Wonk , says: September 18, 2017 at 12:44 am
Just hold the line on social issues, and we're good.

@Planet Albany -- how do you feel about tax "reform" that blows the budget even more, and gives the bulk of the benefit to the top 1%-ers? Or cancelling Obama regulations such as the one that required any buildings re-built with federal money needs to take rising sea levels into account? Or p!ssing off Mexico so much that that they are turning to Argentina and Brazal to purchase their wheat and corn (NAFTA uncertainties).

cecelia , says: September 18, 2017 at 2:10 am
good Rod get angry see what is happening maybe when people see how they have been betrayed then maybe they will be open to something honest
KS , says: September 18, 2017 at 2:13 am
@planet Albany,

What would Trump have to do that would make you feel he has betrayed you? Don't worry he will do it, but somehow I suspect you and the rest of the Trump faithful will stick by him anyway. This is a cult, not a political following. He is one of 'you' and so anything he does is ok.

Dux Bellorum, Austinopole , says: September 18, 2017 at 3:09 am
Those people who are dying in Youngstown because of a government working in cooperation with corporate interests to enrich shareholders no matter the cost of American lives may take great solace in the knowledge that the people making those decisions and benefitting from them said some words sometimes about how gay relationships are objectively disordered, and those outside of the zones of suffering may feel sad for those deaths, but must understand that they are martyrs who gave their lives in the war to prevent gay people from getting health insurance for their families.

$0.02,

DBA

[NFR: This is simplistic trolling and you know it. It is also the case that Hillary Clinton was in bed with Goldman. Remember the private Wall Street speech she gave , released by Wikileaks, in which she talked about how one needed to have "a public and a private position"? We would have been equally screwed by a Clinton.2 presidency, and a conventional Republican one. My anger at Trump over this is that he promised to be something different -- and, being fabulously wealthy, he didn't depend on the largesse of financial titans to make his living. He was in a position to change things -- yet on economic issues, he's turned out to be as bad or worse than those he ran against in both parties. -- RD]

Deplorable MD , September 18, 2017 at 6:51 am
Con? We are always being conned by politicians. There is a subset of voters who look upon their politician in an unhealthy God-like/3rd world fashion; much more tangible on the Left, but there on the Right as well.

I voted Trump fully expecting to be conned, hopeful that one or two promises would become reality. So far I am pleased with the level of duplicity.

Ping Lin , says: September 18, 2017 at 6:55 am

Twenty, thirty years from now, don't be surprised if some American president proposes a "this time, it's different" invasion of another foreign country. And don't be surprised if we the people cheer for him.

20 or 30 years?? Try three. We're barreling towards war with North Korea and half the country will be cheering the President (whoever it is) on.

Sam (A Different One) , says: September 18, 2017 at 6:59 am
So because Trump has failed to deliver on promises to the working class, said working class should abandon Trump for whom? The Liberals, who hate them? The GOP types, like Williamson, who also hate them?
Rob G , says: September 18, 2017 at 7:08 am
re: Youngstown, etc., The New Minority by Justin Gest is worth a read. It's a sociological study of the white working class in two comparable areas, Youngstown and East London, and what happened when industry failed. The book was written before DT won the GOP nomination, but it does take Trump's primary run into consideration. The work that Gest did is based on survey results and interviews he conducted with residents during time spent as an "embedded" researcher.
Liam , says: September 18, 2017 at 7:18 am
None of which should be a surprise to anyone who paid even a modicum of critical attention.
markw , says: September 18, 2017 at 7:33 am
For many years we have heard U.S. politicians sanctimoniously intoning that Chinese politicians legitimacy depended on their creating jobs. This last election Jeb Bush and others found out this applies to them also, to their astonishment. Trump has the wind at his back on this front with the economy going forward, but can't count on this continuing thru the next election.
Michelle , says: September 18, 2017 at 7:34 am
For those of us who always thought Trump was a huckster with no principles other than self-aggrandizement, his behavior as president comes as no surprise. He's never made a promise he couldn't break. But, like all successful hucksters, he knows his mark and knows, on an instinctive level, how to appeal to their hopes and fears to close the sale. I'm not sure what it would take to break through the rationalizations of his base, but it would have to be something pretty spectacular.
markw , says: September 18, 2017 at 7:35 am
The comment that stuck with me in the first PBS segment was that Diem owned us. This seems to apply today to Israel, probably Saudi, and who else?
Matt W , says: September 18, 2017 at 7:38 am
Be charitable. It's VERY hard for someone to admit that they were fooled.

It will be interesting to see all the mechanisms of denial. I suspect that the reality of Trump will be dismissed in the same way as the reality of Climate Change.

1. God would never allow such a terrible event to happen to His beloved USA
2. It's all the fault of (NON-WHITE) foreigners
3. FAKE NEWS!
4. It's actually a good thing

Philly guy , says: September 18, 2017 at 7:40 am
As during the Vietnam war, the real battle continues, middle class hippies vs white working class.
Jack B. Nimble , September 18, 2017 at 7:42 am
' When Youngstown (so to speak) figures out what's been done to it, politics in this country is going to get very, very interesting .'

Republicans know what they are doing, and as long as there are more scapegoats available and more vote suppression techniques to be tried, they aren't worried about losing elections. Consider this example:

Mr. Dreher's own senior US senator is pushing a last-ditch ACA repeal and replace bill, called GCHJ, that would strip federal $$ from states like Louisiana that expanded Medicaid on the federal dime. How much money is involved?

In 2026 alone, La. would lose $3.2 billion while Texas, Mississippi and Alabama would collectively gain 11.3 billion in new federal $$. Put another way, La. with its 1.4% of the US population would shoulder 4% of the total cuts mandated by GCHJ in 2026. Then a tidal wave of more federal cuts arrives in 2027.

Why would Dr. Bill Cassidy, who formerly worked in Louisiana's notorious charity hospital system before entering politics and reaching the US Senate, seek to hurt his own constituents this way? In brief, many in Louisiana oppose Medicaid and food stamps because they see the federal benefits going mostly to 'those people.' If voters in La. are conned, it is because they have conned themselves.

Source: https://www.cbpp.org/research/health/like-other-aca-repeal-bills-cassidy-graham-plan-would-add-millions-to-uninsured

MH - Secular Misanthropist , says: September 18, 2017 at 7:54 am

When Youngstown (so to speak) figures out what's been done to it, politics in this country is going to get very, very interesting.

It will be Snowball's fault!

[NFR: Perfect! -- RD]

Prof. Woland , says: September 18, 2017 at 8:31 am
If any of this is surprising to people on the right, it's because of willful denial during the campaign.

All of this info was there–and being spouted loudly by the left–during the campaign.

This is the deal you (not you, Rod, since you didn't vote for him..) made for Gorsuch. We'll all get to see how bad a deal it was in the next years.

PS–Trump's base will never leave him. If he were to eat a live baby on TV, they'd find a way to justify it.

connecticut farmer , September 18, 2017 at 8:40 am
" how little we Americans learned from the Vietnam experience when it came time to invade Iraq."

Amen! As in the lyrics of that Pete Seeger song "Where Have All The Flowers Gone"?":

"When will they ever learn? When will they ever learn?"

Polichinello , says: September 18, 2017 at 9:06 am
He didn't get rolled by Pelosi and Schumer: His voters got rolled by him. That's the real deal.

This is the part where the Never-Trumpers are overplaying their hand. They act as if they were offering a better alternative. They were not. On trade, immigration and foreign policy, all other 16 candidates were worse–significantly worse. Each promised to re-run the Bush Administration, except they'd make Putin the new Saddam Hussein.

It's as if they were the team that lost conference championship, and then gloated when the the team that won it went on to lose the Super Bowl. How about they spend a little more time looking at their own positions and trying to figure out why a significant plurality (often a large majority in a number of states) outright rejected them?

None of them have done this. They dare not anger their Boomer donors, I guess. Got to keep those cruises going!

Again, even if everything they say about Trump is true, he is still better than them.

Philip Martin , September 18, 2017 at 9:12 am
The money power of Wall Street infiltrated and changed the Democratic Party sometime after the LBJ years. As a result, we have a one-party-system with a lib and a con wing. The wings differ on social issues, and they sweep the crumbs off the table to different constituencies.

However, after 40 years of this BS, can we really expect the children and grandchildren of displaced steelworkers (who symbolize all the outsourced, discarded workers in the U.S.) to rise in anger with torches and pitchforks? Sad to say, but the victims of this betrayal so far are passively standing by. I am not calling for violent revolution, but instead for a party that puts the needs and aspirations of the average person at the head of the table. If the Democratic Party won't do it, and yet won't go away, then a serious effort needs to made to foster a new party.

Polichinello , says: September 18, 2017 at 9:13 am
It's worth noting, too, that the Trump base has been melting down phone lines in Washington protesting Amnesty.

Obviously, it's your blog, Rod, so you can do what you like with it, but why not take a look at this issue itself instead of post after post taking victory laps about that Horrible Mr. Trump? What do you think would be a good deal? Should there be some limited amnesty (which I favor)?

Uncle Billy , says: September 18, 2017 at 9:19 am
Goldman Sachs is the fourth branch of government. They are indeed "too big to fail." Perhaps we should stop fighting them and try to somehow get them working for the common good. I don't know how this could be done, but it is worth a try.
Wes , says: September 18, 2017 at 9:20 am
[NFR: But that's not really the point. The point is that Trump *specifically* ran against Goldman Sachs and what it represents. And now look. It simply won't do to say, "But Hillary would have been worse." Maybe so, but at this point, that strikes me as a way of rationalizing Trump's failure to keep his promises. -- RD]

Putting things into context is precisely the point.

ROB , says: September 18, 2017 at 9:23 am
Just shocking that a politician went back on a campaign promise. Throw the bum out. Shocking.
KD , says: September 18, 2017 at 9:33 am
No Quarter, Rod!
Sheldon , says: September 18, 2017 at 9:36 am
I'm not remotely surprised to read in these precincts that the Democrats, particularly Clinton, are just as much in the bag for Wall Street as Trump and the Republicans. Too bad it's completely untrue. Even if Clinton were so inclined, which she certainly wouldn't be to nearly the same extent, major elements in the Democratic party and Congress would be pushing for policies far removed from the plutocratic – as they have for years, for increased financial and antitrust regulation, higher taxes on the 1%, limits on CEO pay, environmental controls, minimum wage, and on and on and on. There is no such significant political element among Republican officeholders, either at the state or federal level. The argument that "Democrats (especially evil Hillary) are just as bad" – all evidence to the contrary – is really just an after-the-fact rationalization to justify one's prior support for what is clearly one of the most financially and morally corrupt administrations in our history.
KingP , says: September 18, 2017 at 9:44 am
It is amazing how much research and
socio-political commentary is necessary in order to prove that an amoral, egomaniac MTV-era pseudo-celebrity apparently intends to govern the country like an amoral, egomaniac MTV-era pseudo-celebrity. In other words, he is a narcissistic goofball who will tell anyone anything in order to get press or money.

Who knew? Apparently not enough of us to prevent the cartoon presidency.

Daniel R. Baker , September 18, 2017 at 9:56 am
And when the people of Youngstown realize Trump has betrayed them, they will turn left, and turn hard. The next Bernie Sanders cannot be stopped, for the same reason Trump couldn't be stopped: because he will simply take the party away from the establishment. As I said last year, when you elect Marius, Sulla follows.

I'm not surprised that Trump can't see this coming. I am a bit surprised that Goldman Sachs apparently doesn't either.

KD , says: September 18, 2017 at 9:58 am
The politics of immigration restriction is interesting. The restrictionists have clear and strong preferences.

"Popular opinion" may be against restrictionism (or not given the media lens), but at the end of the day, most of public against restrictionism has a soft level of support mostly for virtue signalling purposes. They don't actually care.

The business lobby cares a lot, and the ethnonationalist/racialist wing of the Democrats, and that is about all.

Playing games with DACA is going to open the GOP to nasty primary battles, which judging from 2016, the Establishment candidates will be vulnerable. Also, supporting these schlock sentimental policies aren't going to win them any votes, anymore than giving money to refugee assistance or homeless shelters.

I don't think the Establishment has any idea of the level of dissatisfaction and discontent there is in the electorate, as their plan is short to mid-term doom. (Polling has 9% of Americans identifying as "Alt-Right" post-Charlottesville, and about another 30% you can describe as "Alt-Lite". These are mostly the people who will vote in GOP Primaries in 2018.)

[Aug 15, 2017] Jeff Sessions Endorses Theft

Notable quotes:
"... Civil asset theft is a multi-billion dollar a year moneymaker for all levels of government. Police and prosecutors receive more than their "fair share" of the loot. According to a 2016 study by the Institute for Justice, 43 states allow police and prosecutors to keep at least half of the loot they got from civil asset theft. ..."
"... The Tenaha police are not the only ones targeting those carrying large sums of cash. Anyone traveling with "too much" cash runs the risk of having it stolen by a police officer, since carrying large amounts of cash is treated as evidence of involvement in criminal activity ..."
"... My brother confided that asset forfeiture filled in the budget deficits for his office and the local police department. He also related that defendants pled guilty in more than 90% of his cases because, as a practical matter, the justice system does not have the resources for trial-by-jury as guaranteed in the Constitution. ..."
"... When he could, he used asset forfeiture to avoid trials and force guilty pleas. For example, a man is arrested on drug charges. He is offered a deal: Plead guilty or the prosecutor's office will seize the family house, throwing the defendant's family out on the street. Make a choice: a destitute family or a guilty plea. ..."
"... Money, or a boat or other property (inanimate objects all) is presumed "guilty" of acting (to commit a crime.) This is sophistry of the worst, most childish or evil sort. Guns don't shoot people. Money doesn't buy drugs. ..."
"... An honest system is funded via HONEST and open debate and resolution to these questions. Civil Asset Forfeiture is the epitome of Newspeak, torturing the very meaning of words in order to rationalize what the powerful desire. Civil Asset Forfeiture is nothing but turning the "law enforcement apparatus" into a highwayman robbing people simply because he can. ..."
Aug 15, 2017 | www.unz.com

Attorney General Jeff Sessions recently ordered the Justice Department to increase the use of civil asset forfeiture, thus once again endorsing an unconstitutional, authoritarian, and increasingly unpopular policy.

Civil asset forfeiture, which should be called civil asset theft, is the practice of seizing property believed to be involved in a crime. The government keeps the property even if it never convicts, or even charges, the owner of the property.

Police can even use civil asset theft to steal from people whose property was used in criminal activity without the owners' knowledge. Some have even lost their homes because a renter or houseguest was dealing drugs on the premises behind the owners' backs.

Civil asset theft is a multi-billion dollar a year moneymaker for all levels of government. Police and prosecutors receive more than their "fair share" of the loot. According to a 2016 study by the Institute for Justice, 43 states allow police and prosecutors to keep at least half of the loot they got from civil asset theft.

Obviously, this gives police an incentive to aggressively use civil asset theft, even against those who are not even tangentially involved in a crime. For example, police in Tenaha, Texas literally engaged in highway robbery -- seizing cash and other items from innocent motorists -- while police in Detroit once seized every car in an art institute's parking lot. The official justification for that seizure was that the cars belonged to attendees at an event for which the institute had failed to get a liquor license.

The Tenaha police are not the only ones targeting those carrying large sums of cash. Anyone traveling with "too much" cash runs the risk of having it stolen by a police officer, since carrying large amounts of cash is treated as evidence of involvement in criminal activity .

Civil asset theft also provides an easy way for the IRS to squeeze more money from the American taxpayer. As the growing federal debt increases the pressure to increase tax collections without raising tax rates, the IRS will likely ramp up its use of civil asset forfeiture.

Growing opposition to the legalized theft called civil asset forfeiture has led 24 states to pass laws limiting its use. Sadly, but not surprisingly, Attorney General Jeff Sessions is out of step with this growing consensus. After all, Sessions is a cheerleader for the drug war, and civil asset theft came into common usage as a tool in the drug war.

President Trump could do the American people a favor by naming a new attorney general who opposes police state policies like the drug war and police state tactics like civil asset theft.

exiled off mainstreet > , August 8, 2017 at 6:21 am GMT

The obvious corruption and the extra-legality of such programs is obvious. It is unfortunate that courts no longer seem to be able to hold the regime accountable in any meaningful way.

Anonymous > , • Disclaimer August 8, 2017 at 10:24 am GMT

My brother was a prosecuting attorney for decades. His stories suggest our justice system is rotten to the core.

My brother confided that asset forfeiture filled in the budget deficits for his office and the local police department. He also related that defendants pled guilty in more than 90% of his cases because, as a practical matter, the justice system does not have the resources for trial-by-jury as guaranteed in the Constitution.

When he could, he used asset forfeiture to avoid trials and force guilty pleas. For example, a man is arrested on drug charges. He is offered a deal: Plead guilty or the prosecutor's office will seize the family house, throwing the defendant's family out on the street. Make a choice: a destitute family or a guilty plea.

These tactics did not bother my brother. He said he had a special gift the ability to know when someone was innocent or when he was guilty. He was once counseled by a judge for his overly aggressive prosecution style. Then, his career came to an end when he aggressively prosecuted a prominent fellow attorney on a drug charge. My brother knew he was guilty. The case fell apart when it was uncovered the drugs were planted by a police officer having an affair with the attorney's wife.

dc.sunsets > , August 9, 2017 at 6:03 pm GMT

Civil Asset Forfeiture is the same as "gun crime."

Money, or a boat or other property (inanimate objects all) is presumed "guilty" of acting (to commit a crime.) This is sophistry of the worst, most childish or evil sort. Guns don't shoot people. Money doesn't buy drugs.

The state will get its pound of flesh. The ONLY questions of relevance are:
1. How much?
2. Who pays?
3. Who decides?

An honest system is funded via HONEST and open debate and resolution to these questions. Civil Asset Forfeiture is the epitome of Newspeak, torturing the very meaning of words in order to rationalize what the powerful desire. Civil Asset Forfeiture is nothing but turning the "law enforcement apparatus" into a highwayman robbing people simply because he can.

Ironically, this is perfectly expected. Social trust grew these past decades (if not centuries) to a pathological level. Nature is cyclical, and so trust must drain from society.

Turning cops into de facto muggers and politicians (and bureaucrats) into open looters is a perfect case of people VOLUNTEERING to destroy the very basis for their authority.

Trust is poised to evaporate. That means people will pull inward and the vast labyrinth of economic, social and political systems will collapse of its own accord.

This is both unfortunate and natural. Nirvana (Utopia) was never an option. I like(d) a lot of our present times. But disposing of the bad without harming the good was never an option. It's all linked. The future has much chaos already baked in.

Kyle McKenna > , August 13, 2017 at 8:58 am GMT

@Anonymous Ahh Justice. Gotta love it, amirite?

"The State is the Enemy of the People"

(Nietzsche, paraphrased)

Kyle McKenna > , August 13, 2017 at 9:00 am GMT

President Trump could do the American people a favor by naming a new attorney general who opposes police state policies like the drug war and police state tactics like civil asset theft.

Definitely dispiriting to know these things about Mr Sessions, and there are several more just as dismaying. But virtually anyone who replaces him will be 'careless' shall we say on the immigration issue, and if the immigration issue isn't managed, yesterday, nothing else–even this–matters. It's right down the sewer for all of us.

GondwanaMan > , August 13, 2017 at 10:31 pm GMT

Surprised Ron Paul is attacking Jeff Sessions like this. I guess it shows his principles to go after anyone if they're violating our liberties?

jtgw > , August 14, 2017 at 1:36 pm GMT

@GondwanaMan Why are you surprised? I can't remember ever seeing RP say something favorable about Sessions.

Negrolphin Pool > , August 15, 2017 at 10:19 am GMT

@dc.sunsets Civil Asset Forfeiture is the same as "gun crime."

Money, or a boat or other property (inanimate objects all) is presumed "guilty" of acting (to commit a crime.) This is sophistry of the worst, most childish or evil sort. Guns don't shoot people. Money doesn't buy drugs.

The state will get its pound of flesh. The ONLY questions of relevance are:
1. How much?
2. Who pays?
3. Who decides?

An honest system is funded via HONEST and open debate and resolution to these questions. Civil Asset Forfeiture is the epitome of Newspeak, torturing the very meaning of words in order to rationalize what the powerful desire. Civil Asset Forfeiture is nothing but turning the "law enforcement apparatus" into a highwayman robbing people simply because he can.

Ironically, this is perfectly expected. Social trust grew these past decades (if not centuries) to a pathological level. Nature is cyclical, and so trust must drain from society.

Turning cops into de facto muggers and politicians (and bureaucrats) into open looters is a perfect case of people VOLUNTEERING to destroy the very basis for their authority.

Trust is poised to evaporate. That means people will pull inward and the vast labyrinth of economic, social and political systems will collapse of its own accord.

This is both unfortunate and natural. Nirvana (Utopia) was never an option. I like(d) a lot of our present times. But disposing of the bad without harming the good was never an option. It's all linked. The future has much chaos already baked in.

I live in a shitty neighborhood with lots of welfare people and felons. That group's actually not so bad.

But I stopped saying hi to random neighbors a long time ago. It was leading to too many physical confrontations and near misses. This place would be the Superdome if Katrina even winked at it.

There's no social trust here

[Jul 17, 2017] Hallucinating Banks Believe They Are Technology Start-Ups

Notable quotes:
"... And this begs an obvious question: if customers complain about how banks let them down, why are the banks not concentrating on what customers are telling them is wrong with the products and services the banks provide already – rather than spending time and money on creating new supposedly innovative ones? The answer is, of course, that it generates profits for the banks to do things which customers find annoying (high fees, obscure product features and even bank errors which cause the customer to lose and the bank to win). Or else it costs money, such as to train staff and then retain that knowledge in their workforces or to have sufficient numbers of staff available in the first place, to fix the problem. ..."
"... In a digital world filled with choice ..."
"... choice, empathy and ease of use designed into every interaction they have with the bank ..."
"... For one thing, which may not be obvious to those outside the industry, working in finance is usually incredibly boring, frustrating, tedious and slow. While the outsized pay can and does attract intelligent and talented people, some of whom are quite creative, it is just about the worst place for those sorts of people to work. Systems and operations are convoluted and difficult to change because of their complexity. Banks are large bureaucracies with fiefdoms, turf wars, massive egos and driven by the need – in the cause of maximising shareholder value, the alter upon which many business have to sacrifice themselves – to implement the lowest cost solutions. ..."
"... It is not uncommon for the graduates and those recruited from the top performers in science and technology to join banks. They are lured by high pay and the promise of joining the Masters of the Universe. Sadly, they often find that the reality is form-filling, battles with nickel-and-diming accountants and internecine warfare. Boredom, for want of a better word, drives many of them to seek out vanity projects or resume-burnishing novelties such as fintech. ..."
"... There is no greater trojan horse to change an organization than design thinking, said Stephen Gates, head of Citi Design. " Especially with something where there are lawyers, regulators Part of what we had to do was change thinking, not behavior. If it's new behavior on old thinking, we didn't really change anything." ..."
"... lawyers, regulators " ..."
"... Perhaps banking has killed off its most appealing aspects and left its minions filthy rich but with nothing stimulating to do. ..."
"... Automated decisioning has removed a lot of the skill and judgement for banks' credit officers. It has also removed a lot of credit officers! There's virtually no discretion available in retail credit policy and no-one empowered to override standard-model largely FICO derived lending decisions. As you say, a lot of local market knowledge helped banks and their lending teams make credit decisioning much more flexible in the past. ..."
"... It fascinates me how fascinated banks are with big data now. When banks were the first and ultimate big data company – just the data processors were people, not machines. Then they used the machines to streamline processes, seemingly w/o realisation that streamlining processes gets you commoditised (as its eminently copiable). So now banks are struggling to avoid a commoditization while working very very hard at it. ..."
"... I agree with Doctor Duck: the idea that because it's programmed, it's a better bureaucracy has really turned out to be a false promise. Just look at the financial crisis and reverse redlining (ie, predatory loans) was used as a financial weapon against minorities. ..."
"... Aside from racial injustices, it's pretty obvious that "the programming" is there to reify existing class divisions. There's no bureaucratic computer program that seeks to free people from the crushing bonds of class. Max Weber would have a field day. Bureaucratic technology ensures that there's no charisma appearing in the system. ..."
"... "On average", a college degree is an order acceptance and an endurance performance index within that order,thus, it is a cost efficient recruiting tool to exclude online non degree applicants from the very outset ..."
"... If you really want to get disgusted, look up "Learning Analytics". Venture capital is streaming into these startups that are aggressively data mining students. None of it ever passes through an ethics board and much of it violates FERPA, but the Department of Education seems to shrug their collective shoulders about it. Probably because many Dept of Ed personnel end up at those companies as advisors. ..."
"... And don't get me started on those tablets. Google hands out Chromebooks and swears up and down that they don't collect usage data. ..."
"... Well, see, arithmetic and maths and English and composition and Physics and Chemistry change so often that using paper textbooks would leave paper textbook students hopelessly behind students using tablets. OK, tablets cost on the order of 3 times what paper textbooks cost for the same usable time-span. But, hey! It's new! It's now! It's happening! (And also, too, rents.) /s ..."
"... One aspect you didn't cover, that I think may be more important than fighting off regulations (although that plays a role, I'm sure) is that I think execs are looking to get a piece of the silicon valley, techland infinite money-pile. They see Tesla worth more than Ford and they dream of where their stock price (and their stock options!) might go if they were thought of as tech companies instead of boring old banks. ..."
"... And part of it is fear. They are afraid of being the next Sears or local taxi company or whoever getting disrupted by the infinite silicon valley money-pile, either by the startups that can burn billions of dollars buying market share or by the big players who can leverage their entrenched monopoly positions in their core markets to spend billions trying to take over any market they feel like. ..."
"... The issue is that the banks have no incentive to address the 5 issues that you raised. They are a rent seeking cartel that does not care about the well being of the general populace at all. They certainly are not tech start-ups. I get the impression that most people think that tech startups are God, but in reality there are many bad start-ups too. ..."
"... Basically, their money is made screwing the general public over at this point. That's sad to say, but it is not far from the truth. What we need is a public bank and/or larger credit unions that can offer all the financial services of a big bank. ..."
Jul 17, 2017 | www.nakedcapitalism.com

The first paragraph states what may be obvious to those outside the finance industry bubble. Namely that users of financial services mostly do not want or need so-called innovative financial products or any new ways of using finance in their lives. Rather, they want banks to provide simple, easy-to-understand basic financial products that work. According to the copious data available from the Consumer Financial Protection Bureau which I've analysed, retail bank customers' top five sources of complaint are:

  1. Fees.
  2. Poor customer service.
  3. Unpaid checks or other bounced payments.
  4. "Gotcha's" hidden in product Terms and Conditions small print.
  5. Bank errors (which were either not corrected, took a lot of effort to get corrected or the corrections caused other knock-on issues).

I've worked in finance for nearly 30 years. The very first list I ever saw for complaints looked exactly the same as this.

And this begs an obvious question: if customers complain about how banks let them down, why are the banks not concentrating on what customers are telling them is wrong with the products and services the banks provide already – rather than spending time and money on creating new supposedly innovative ones? The answer is, of course, that it generates profits for the banks to do things which customers find annoying (high fees, obscure product features and even bank errors which cause the customer to lose and the bank to win). Or else it costs money, such as to train staff and then retain that knowledge in their workforces or to have sufficient numbers of staff available in the first place, to fix the problem.

Customers, even if we are supposed to be " In a digital world filled with choice " don't need " choice, empathy and ease of use designed into every interaction they have with the bank ". We want to not be ripped off and for the banks to act competently in our dealings with them.

It is too much of a stretch to expect that the banks, unprompted or without being cajoled by regulators, will address structural issues around their business culture, executive conduct and outlandish profitability ratio expectations. However, we should expect continued wailing and gnashing of teeth from the banks about "innovation" and the need to be "competitive" in "the marketplace". The latter is a complete and immediately disprovable canard though, because the top 5 banks control nearly half of the market .

So why, then, do the banks keep going, broken-record like, with their claims about the need to innovate?

For one thing, which may not be obvious to those outside the industry, working in finance is usually incredibly boring, frustrating, tedious and slow. While the outsized pay can and does attract intelligent and talented people, some of whom are quite creative, it is just about the worst place for those sorts of people to work. Systems and operations are convoluted and difficult to change because of their complexity. Banks are large bureaucracies with fiefdoms, turf wars, massive egos and driven by the need – in the cause of maximising shareholder value, the alter upon which many business have to sacrifice themselves – to implement the lowest cost solutions.

It is not uncommon for the graduates and those recruited from the top performers in science and technology to join banks. They are lured by high pay and the promise of joining the Masters of the Universe. Sadly, they often find that the reality is form-filling, battles with nickel-and-diming accountants and internecine warfare. Boredom, for want of a better word, drives many of them to seek out vanity projects or resume-burnishing novelties such as fintech.

Lining up alongside a desire to do anything to relieve the monotony push, bank C-level leaderships then adds a pull all of their own. A preoccupation with trying to escape regulatory and legal constraints. For evidence, let's return to the Tearsheet post:

There is no greater trojan horse to change an organization than design thinking, said Stephen Gates, head of Citi Design. " Especially with something where there are lawyers, regulators Part of what we had to do was change thinking, not behavior. If it's new behavior on old thinking, we didn't really change anything." ( emphasis mine)

Superficially, this doesn't sound especially problematic. It could even be construed as plodding old legacy businesses like banks trying to adapt themselves to the modern knowledge economy era. Such superficial analysis would be wrong. Firstly, repeating a cliché of innovation and relying on invisible hands that ceaselessly drive any and all businesses to discard everything they've done historically and start afresh is just that, clichéd.

The notion that everything a business has learned and any intellectual property it possesses has suddenly, somehow, been rendered obsolete by some vague notion of an immense technological development is repeated so often that it's become part of our prevailing culture. But aside from a very small number of breakout products, such as the personal computer, the internet and the smartphone, most products you buy or services you use are only ever incremental improvements on what has preceded them.

The same applies to banking. Without getting too bogged down in the technicalities, a bank's only functions are to intermediate maturities and interest rates on deposits taken and loans made, plus to offer some money transmission services. Within financial services, the only two true innovations in the past 50 years or more which stand up to a scrutinizing of that term are the ATM and the credit card. Changes to how customers are serviced such as the migration from the branch channel to the telephone or the internet have shifted the "where" and the "how" banks interact with their customers, but not the "what" of those interactions.

The line I highlighted in the Tearsheet article gave the game away. The participants who's thinking purportedly needs to change are not the accountants picking through expense reports stripping out costs (which usually means reducing headcount). Nor is it the thinking of executives to reduce their outsized compensation packages. Nor is it in boards who will only look at changes through the lens of a 5-year business case which must pay back within the shortest of short-term timeframes and satisfy outlandish Return on Investment (ROI) targets. These ways of thinking have been with us for at least 20 years or more, but apparently aren't in any danger of approaching a sell-by date.

No, the thinking that needs to change is that of " lawyers, regulators " who are being exhorted to change to embrace the latest design trends and technological innovations. But regulators and lawyers are not and cannot be creative types who spend their time considering new colors for logos and typefaces for websites. Their jobs are to enforce or provide advice and guidance on the laws governing a corporation's products and services or to interpret regulatory frameworks which have been enacted by regulators and lawmakers. Creativity, design thinking and behavior doesn't come into it. Just because a bank wants to label a change as being innovative doesn't -- or shouldn't -- lessen the obligations on a bank's legal team or the regulators to comply with laws or existing regulations.

Gutting regulatory compliance and trying to side-step legal obligations aren't "design thinking". They're the same connivances which would have killed the entire banking industry 10 years ago, had we not all been coerced into bailing it out.

You can't blame the banks for trying it on. They are what they are and will continue to be so until they are forced to change. You can, however, fairly and squarely blame regulators and lawmakers for not pouring a lot of cold water on this craving for technological fervour. Making the banks tackle their long-standing issues as evident in the CFPB's complaint data before they can try anything fancy like fintech would be a start.

Banking industry , Guest Post , Ridiculously obvious scams , Technology and innovation on July 12, 2017 by Clive . About Clive

Survivor of nearly 30 years in a TBTF bank. Also had the privilege of working in Japan, which was great, selling real estate, which was an experience bordering on the psychedelic.

timotheus , July 12, 2017 at 7:09 am

A question from a total outsider: if modern banking is tedious and frustrating, could this be related to the (often-mentioned here) move away from servicing credit needs to algorithm-driven mechanics? If I think of the banker who sat in a front window of his bank on the main square of my home town, he was surely engaged in figuring out who was mortgage-worthy, what businesses might be good bets for loans, etc. It might have had its routine aspects, but it was engaged, integrated into the town's life, and required complex skills including how to say no to the guy who would sit next to your family at church. Perhaps banking has killed off its most appealing aspects and left its minions filthy rich but with nothing stimulating to do.

Clive Post author , July 12, 2017 at 7:42 am

Automated decisioning has removed a lot of the skill and judgement for banks' credit officers. It has also removed a lot of credit officers! There's virtually no discretion available in retail credit policy and no-one empowered to override standard-model largely FICO derived lending decisions. As you say, a lot of local market knowledge helped banks and their lending teams make credit decisioning much more flexible in the past.

I was though more referring here to the technology side of banks -- they are the antithesis of what many attracted to enter the sector think it will be like. There's so many internal bureaucracy hurdles, complexity constraints and cost-focussed management to work with, the people who unwisely buy into the hype the recruitment consultants proffer end up frustrated and disappointed. It is almost inevitable they go looking for glamour projects -- however unworkable they may be like a lot of fintech -- to try to latch onto.

Jim A , July 12, 2017 at 8:20 am

Of course the bad mortgages that were a big part of the RE bubble were approved by poorly thought out algorithms. As were the ratings on the bonds created from them. Algorithms are really only as good as the data that they are based on and the knowledge of the people who write them. And when it is profitable in the short term to ignore the long term, rest assured that somebody will figure out a way to make the algorithms do that.

EricT , July 12, 2017 at 9:19 am

Not algorithms, fraud. Mears, Countrywide and Goldman come to my mind.

Vatch , July 12, 2017 at 9:59 am

Who or what is Mears?

Tinky , July 12, 2017 at 10:20 am

Probably meant "MERS", aka "Mortgage Electronic Registration Systems, Inc."

Though "Mears" is an anagram of "reams", so

Vatch , July 12, 2017 at 12:16 pm

Oh, okay, that makes sense. Thank you.

MERS is the source of much trouble.

vlade , July 12, 2017 at 8:29 am

Amen.

That said, it's an interesting world out there, as banks do vary from country to country (having had experience in a number of them, on both sides of the fence).

Say in NZ, I had a bank manager, and he had some (reasonably) ability to vary the interest rate on my mortgage when I came asking. He could also offer special rates on deposits (over a certain amount).

In the UK, I also had a bank manager. Who wasn't even told by the bank's credit card department my CC application was rejected as I wasn't in the country for long enough, so he kep submitting it in the belief it got lost.. To modify an interest rate on anything was impossible. And, most recently it's even impossible to override the automated lending decision. Hurrah for automation!

It fascinates me how fascinated banks are with big data now. When banks were the first and ultimate big data company – just the data processors were people, not machines. Then they used the machines to streamline processes, seemingly w/o realisation that streamlining processes gets you commoditised (as its eminently copiable). So now banks are struggling to avoid a commoditization while working very very hard at it.

notabanker , July 12, 2017 at 8:50 am

Screams Utility, doesn't it?

programmer3 , July 12, 2017 at 8:43 am

On the flipside, removing personal discretion from credit judgement calls also makes the process more fair – less "redlining," and no denying credit based on personal prejudices (or approving loans for friends and family)

Clive Post author , July 12, 2017 at 8:54 am

That's a valid point -- it was too easy for a friends-and-family bias and even bribery to creep in to human decisions before model-based credit decisions became the norm. The happy-medium was when predefined scoring criteria were used as the foundation for a loan but you could appeal to head/regional offices for an over-ride if you had good extenuating circumstances or other reliable evidence to back you up.

The latter option is now no longer available, for the most part.

Doctor Duck , July 12, 2017 at 9:08 am

Your nick is 'programmer' and you think an algorithm couldn't be written to include a few "red lines"? Hmmm

Harry , July 12, 2017 at 2:46 pm

Exactly what I was thinking

Thuto , July 12, 2017 at 4:35 pm

Exactly, see my comment below

cocomaan , July 12, 2017 at 9:42 am

I agree with Doctor Duck: the idea that because it's programmed, it's a better bureaucracy has really turned out to be a false promise. Just look at the financial crisis and reverse redlining (ie, predatory loans) was used as a financial weapon against minorities.

Aside from racial injustices, it's pretty obvious that "the programming" is there to reify existing class divisions. There's no bureaucratic computer program that seeks to free people from the crushing bonds of class. Max Weber would have a field day. Bureaucratic technology ensures that there's no charisma appearing in the system.

We've created machines in our image, with all our prejudices and all of our assumptions in place, preserved in silicon forever.

Sue , July 12, 2017 at 3:54 pm

cocomaan,
very good points!

Mel , July 12, 2017 at 1:23 pm

Process more objective. The red lines are the ones written into the algorithms. I recall a Ted Rall post about Dayton OH that described them demolishing empty historic buildings to get their occupancy rate up. Banks algos wouldn't grand mortgage funds in areas with high un-occupancy rates. This is death to Jane Jacobs' recommended city environment, where a range of available rents, low-to-high, nourished every kind of development. A new-scale developer, blogging as Granola Shotgun has a lot to say about this -- the linked posts and a lot before.

Scott F , July 12, 2017 at 1:40 pm

Actually, a recent study took a classic psychology evaluation used on humans to detect bias and modified them to apply to so-called Artificial Intelligence and found that the same biases pop-up. The authors conjectured that the training data – compiled by humans – introduced the humans' biases into the system.

https://www.princeton.edu/news/2017/04/18/biased-bots-artificial-intelligence-systems-echo-human-prejudices

David Barrera , July 12, 2017 at 3:43 pm

This reminds me of the statistical gender discrimination algorithms used in the past. Some subindustries considered cost efficient to screen out women for employment because of the probability of maternity leave-apparently there were other "average gender biased considerations too"-. This excluded first, women who did not want to have any kids, and secondly-and independently from that- diverse, able, capable and willing labor participants. Have you ever asked yourself why some jobs which would not require a college degree by any stretch of the imagination screen out electronically the non-college degree applicants? "On average", a college degree is an order acceptance and an endurance performance index within that order,thus, it is a cost efficient recruiting tool to exclude online non degree applicants from the very outset. This way the enterprise leaves out that which the average does not include and which in certain cases could bring terribly needed different approaches to a job .Yet, no one ever said enterprises were democratic, truly inclusive and open to certain changes.

In regards to the financial theme, programmer 3 commented "removing personal discretion approving loans from friends and family". Anyone who worked for a lending company in the past knows it was a matter of policy that no employee could make loans to relatives or friends.

Remember that personal discretion-as opposed to personal arbitrariness-acts within written and unwritten guidelines and rules too. Also, what your stand alone algorithmic dictatorship does to how delinquencies are currently managed by the mortgage industry it just simply has no name.

HotFlash , July 13, 2017 at 2:09 am

"On average", a college degree is an order acceptance and an endurance performance index within that order,thus, it is a cost efficient recruiting tool to exclude online non degree applicants from the very outset

.

These days, a college degree is also a prime indicator of life-controlling debt.

Thuto , July 12, 2017 at 4:34 pm

Not in South Africa, where race is big factor in determining the risk profile of the client. As you can probably guess, the machines have been programmed to grant punitive interest rates to black people

Mrs Smith , July 12, 2017 at 7:49 am

Someone just sent me this link, and it's a perfect example of the above.

Don't miss the "native negroni" complete with "chilled vibes" and "bonus badassness."

[A "nope" gif isn't nearly strong enough to constrain my gag reflex for this stuff.]

https://www.linkedin.com/pulse/time-something-new-james-haycock?trk=v-feed&lipi=urn%3Ali%3Apage%3Ad_flagship3_feed%3BT57ItR8S3HRsqyVGECS1vw%3D%3D

Clive Post author , July 12, 2017 at 8:00 am

That is the worst example of this kind of thing I've ever seen! And we've seen plenty here it deserves some kind of award, in the same vein as the anti-Academy Award "Golden Raspberries" does for motion pictures. It might, Clive says hoping, be some sort of parody. Unfortunately, I think it is for real.

Arizona Slim , July 12, 2017 at 8:35 am

And it's all too typical of the bovine manure that gets posted on LinkedIn Pulse. Consider the source.

Stephen Gardner , July 12, 2017 at 9:30 am

But was the gin in the negroni curated by a hipster in tight pants and an ironic mustache? If not I just am not interested. LOL.

John Wright , July 12, 2017 at 9:42 am

To show my disconnect from the modern world, the linkedin article closes with "PI-shaped people"

I had to search for that, first suspecting it meant a person who levers their abilities by 3.14159xxxx

From what I found, there are T-shaped, PI-shaped and Comb-shaped people and the symbol's shape is a sort of expertise indicator.

A T-shaped person has one area of expertise under their generalist/broad knowledge top hat, a PI shaped person has TWO areas of expertise under their generalist/ broad knowledge top, while a comb-shaped person has MULTIPLE expertise areas under their generalist/broad knowledge top.

Do people make a living coming up with this stuff?

NotTimothyGeithner , July 12, 2017 at 12:42 pm

"Do people make a living coming up with this stuff?"

Delta shaped people do.

cocomaan , July 12, 2017 at 12:16 pm

Is this satire? I know if I have to ask that I'm the negative negroni, but this can't be real.

Bill Smith , July 12, 2017 at 8:00 am

From the list, the first one, fees, aren't going away given that the interest margins are so narrow.

I've seen a number of banks partner with one of the non bank fintech's (even pre IPO fintech's) to make the bank fintech savvy. To get their computer driven credit system? It will take a while to see how that works out.

notabanker , July 12, 2017 at 8:37 am

The agile design led stuff reminds me a lot of the TQM programs I went through in the 80's / 90's. Independent thinking within the group, commitment to the group to do the work, rolled out in large scale. We're even moving away from the cube farm to the factory floor, with foosball, xbox's and (sometimes free) coffee for all.

Likewise, the whole spinoff/startup thing was in vogue back in the early 90's when banks were faced with e-commerce, this is just the 2017 version.

Legacy is, and in some ways should be, their issue. Systems of record for fin transactions should have a long shelf life. With that comes people, process, costs and profits, all major drags on change. They won't be able to have it both ways.

fajensen , July 12, 2017 at 9:18 am

Me thinks that this kind of hype reaching banks and even politicians (the Danish government has created a "Disruption-council") is a sign that things are not going so well inside the engine room on the mother ship of the technopocalypse. Governments and Banks are kinda the very last people on earth to discover anything. At All. When they are suddenly "getting the vibe" whatever "the vibe" was about, is absolutely over :).

I think that Silicon Valley is leaking flim-flam merchants and "evangelists" because the money is getting thinner, the sell is becoming harder, easy consulting opportunities are diminishing and fewer are being procured by the real operators (Apple, Google, Facebook, CISCO .) to provide their stunning insights and bold visions for the future. The accountants are ascending, ROI is being scrutinised, exponential growth is levelling off so now there is time to do that.

The visionaries and evangelists still like to be paid (and the travel), so instead of canvassing Silicon Valley harder with work better suited to the actual future, they spread out and seek new markets for the same old stuff, kinda like what happened when Monsanto poured PCB into everything plasticky when the market for oil-filled capacitors was tapped out.

I'd say, in only one-two years, there will be good "SPLAT!" in the .unicorn market.

HotFlash , July 13, 2017 at 2:17 am

Thanks, fajensen, I think you are quite right. Totally looking forward to the Big Splat!

SoCal Rhino , July 12, 2017 at 9:08 am

Keeping score from recent battles among local demi deities, currently turf beats innovation, and in a stunning reversal that may not last, cost cutting prevailed over turf. These battlefields rather than the PowerPoint campaigns being where I observe corporate culture.

vlade , July 12, 2017 at 9:14 am

I'd add one innovation to the list though – smart sweep systems. That is, something that optimises the costs of an account/accounts for a client. That could be just sweeps between saving/checking accounts (not talking US here), to queuing transactions as to minimize costs etc.

But the banks that implemented this found very quickly that it led to a significant drop in client profitability (namely overdraft fees collapsed, interest paid went up), so quietly canned it.

But the story doesnt' end there – the smart ones figured out that optimization doesn't care whether you do max or min, so used the technology to optimise the profit from the client – hence things like applying debits before credits (to take you into overdraft) etc. Forunately, this "innovation" went out too, but it took regulators to get it done.

Clive Post author , July 12, 2017 at 9:22 am

Yes indeedey. My TBTF stopped allowing new sweeps / pooling arrangements which was a great service for customers who wanted to keep money on deposit or even in a market-linked account but didn't want to have to worry about constantly keeping an eye on what was in their current (checking) account to make sure they weren't going to go overdrawn.

Simple to understand, easy to set up for both customers and the bank, worked flawlessly because it was just a nightly batch job with easy-peasy logic -- what was there not to like? Erm unfortunately for the customers, the hit on bank profitability.

flora , July 12, 2017 at 9:19 am

Gaaa. Let me fix a bit of the Tearsheet intro:
"In a digital world filled with choice, banks' customers need choice, empathy and ease of use need sound information, good customer service and accurate accounting designed into every interaction they have with the bank."

I use my bank as a utility, not as an exciting "experience."

Great post.

cocomaan , July 12, 2017 at 9:48 am

Hey Clive, loved this piece. This really caught my attention:

For one thing, which may not be obvious to those outside the industry, working in finance is usually incredibly boring, frustrating, tedious and slow. While the outsized pay can and does attract intelligent and talented people, some of whom are quite creative, it is just about the worst place for those sorts of people to work. Systems and operations are convoluted and difficult to change because of their complexity.

I've worked in higher education and you see the same thing going on right now. Education, to me, is a social process of imparting knowledge. Simple solutions to perennial problems in education are: (1)Smaller class sizes (2) Better pay/benefits for teachers (3) Support systems for parents to help them help their children do well.

But what happens in education? Well the same thing you mention above: technology is thrown at these kids a mile a minute. Suddenly, the solution to problems in the classroom is monitoring grades through centralized systems with their databanks on the cloud, where student's every move is considered and they are flagged technologically for not living up to expectations. There's a huge complex of technological charlatan/consultants infesting higher and primary education at the moment.

Before long, the "boring" solutions are impossible. Why? As you say above, the technology becomes ensnared in itself, taking on its own inertia. Before you know it, you can't afford to change anything for the better because you have several legacy systems running simultaneously and weighing down budgets.

Clive , July 12, 2017 at 12:24 pm

It takes a lot to shock me, nowadays, but I was genuinely taken aback when an educator friend of mine (in our equivalent of K-12) told me she'd been given a tablet with -- from what I could tell, I didn't see it in action -- proprietary software used by the chain academy (charter school as it would be called in the US) where she works which prompted her during lessons to capture certain metrics (numbers of students voluntarily putting their hands up when asked certain previously defined questions in class, time spent on a particular PowerPoint slide -- a PowerPoint slide I thought for cryin' out loud -- which had been similarly predefined and "tagged for follow up" versus the estimated "best practice" time slot for this classroom content, a teacher-subjective "score" for student "engagement" and similar).

As a bit of a data nerd, I was appalled not just by the intrusion into territory where, surely, experienced educators knew best what to do, how to pace lessons, how to make best use of classroom time and so on but -- more importantly -- by the risible quality of the data being gathered. It was what I call pseudo facts, things which sound like they might be telling you something worth knowing but don't actually prove anything.

It all reminded me of those animal behaviour studies, the ones which come to conclusions like "when a cat comes towards you and it has its tail upright, it is engaged with you and wants you to interact with it". Sufficed to say when I tried out the theories on my mother-in-law's cat, I got a scratched top of my hand for my trouble.

cocomaan , July 12, 2017 at 1:09 pm

Love the cat analogy. Glad, or rather not glad, to know that it's reached across the pond.

If you really want to get disgusted, look up "Learning Analytics". Venture capital is streaming into these startups that are aggressively data mining students. None of it ever passes through an ethics board and much of it violates FERPA, but the Department of Education seems to shrug their collective shoulders about it. Probably because many Dept of Ed personnel end up at those companies as advisors.

And don't get me started on those tablets. Google hands out Chromebooks and swears up and down that they don't collect usage data.

flora , July 12, 2017 at 2:05 pm

an aside, and off topic (apologies):

Well, see, arithmetic and maths and English and composition and Physics and Chemistry change so often that using paper textbooks would leave paper textbook students hopelessly behind students using tablets. OK, tablets cost on the order of 3 times what paper textbooks cost for the same usable time-span. But, hey! It's new! It's now! It's happening! (And also, too, rents.) /s

Clive Post author , July 12, 2017 at 2:45 pm

Yeah, it's not like those old fashioned printed text books wouldn't go out of date (unless there was a lot of needless curriculum churn) and not have a useable economic life, even allowing for students' not-too-careful handling, of 5 to 10 years or so. Oh wait a minute

PKMKII , July 12, 2017 at 1:55 pm

Example of what I like to the call the "If you want faster-than-light-speed travel tomorrow, you have to let us commit fraud today" argument. Question is, whose eyes are they trying to pull the wool over? Investors to be wooed by web 2.0 jibberish? The top brass, to justify their continued employment and/or promotions? The public, as a horse and pony show to distract us from the bezzle? Regulators, hoping that the innovation and tech talk will intimidate them from paying attention to the man behind the curtain?

Some Guy , July 12, 2017 at 2:01 pm

Good post Clive, as someone who's been in banking for a few decades now, the current moment is very reminiscent of the late 90's, even down to some of the details.

Was on a call with some senior folks a while back rhapsodizing about how cutting edge neural network models would revolutionize our business, and I turned to a colleague who also been around the block and said, 'yeah we tried all that in the 90's, it didn't really make a difference' (vs. the standard approach of using multiple regression for credit scoring), and he said to me, 'yeah we tried that at my bank too, same result'

One aspect you didn't cover, that I think may be more important than fighting off regulations (although that plays a role, I'm sure) is that I think execs are looking to get a piece of the silicon valley, techland infinite money-pile. They see Tesla worth more than Ford and they dream of where their stock price (and their stock options!) might go if they were thought of as tech companies instead of boring old banks.

And part of it is fear. They are afraid of being the next Sears or local taxi company or whoever getting disrupted by the infinite silicon valley money-pile, either by the startups that can burn billions of dollars buying market share or by the big players who can leverage their entrenched monopoly positions in their core markets to spend billions trying to take over any market they feel like.

DH , July 12, 2017 at 5:36 pm

Wells Fargo tried that where they made account creation essentially click-bait for their workers. It worked for a while until it didn't. It turned out that their account creation approach was just a retread of the 1999 dot.com model, so they really were a tech start-up after all.

Altandmain , July 12, 2017 at 6:29 pm

The issue is that the banks have no incentive to address the 5 issues that you raised. They are a rent seeking cartel that does not care about the well being of the general populace at all. They certainly are not tech start-ups. I get the impression that most people think that tech startups are God, but in reality there are many bad start-ups too.

Basically, their money is made screwing the general public over at this point. That's sad to say, but it is not far from the truth. What we need is a public bank and/or larger credit unions that can offer all the financial services of a big bank.

ScottS , July 12, 2017 at 7:09 pm

From http://m.builtinla.com/2017/06/30/4-la-startups-named-prestigious-fintech-list :

Manhattan Beach-based PeerStreet closed out 2016 with a bang, raising a $15 million Series A anchored by strong growth over the course of the year. The company developed a crowdfunding platform that gives real estate investors access to high-yielding loans, with individual investments starting from as low as $1,000.

What could go wrong?

Colonel Smithers , July 13, 2017 at 6:49 am

Thank you for this post and reader contributions.

Many of the examples cited apply (equally) to my former employer, Barclays. Having been shafted by shysters from Wall Street, the bank jumped into the frying pan of (pseudo-)techies (often from a particular part of the world). My current employer, the German twin of Barclays, is just the same as the blue eagle.

Clive , July 13, 2017 at 6:58 am

Mine too, they must be putting something in the water.

[Jul 11, 2017] Lee Camp Enjoy The Trump Show While Wall Street Pillages The Country

Notable quotes:
"... This is when the mainstream media did what they do best – they acted as the white blood cells attacking the infection in the system. (And I'm sure I'm not the first to use that analogy.) In this case the "infection" was activists calling attention to the full-blast destructive tendencies of capitalism. ..."
"... A small tax on all financial transactions would be a start in slowing down the crazy money-go-round that is strangling our real economy. ..."
"... At some point we need Wall Street ..."
"... just as truckers and pilots need to pass random drug and alcohol tests, congress kriters and strategic wall street participants should also be required to subject themselves to such monitoring and testing ..."
"... At some point we need Wall Street ..."
"... Gary Gensler's study, when he headed the CFTC, found that over 90% of so-called hedge trades were pure speculation. ..."
"... From 1914 to 1966, there was a transaction tax, begun with the Revenue Act of 1914, ended during the Johnson Administration. ..."
"... The media don't like Trump and they didn't much like Occupy either. So one should be clear about who is doing the distracting. While Trump certainly is a boorish person who rubs women in particular the wrong way, it's likely that's not what is motivating the rabid opposition. Commonsensical pronouncements about getting along with Russia or rolling back globalism strike at the heart of a plutocracy that seems to have the country in a death grip. Trump may not have been a very sincere or motivated reformer but clearly Sanders would have met with the same circus of distraction (the stories about his wife a shot across the bow). ..."
"... Consider the fate of Muammar Gadiffi. Ruler of the wealthiest an most socially progressive country in Africa. Liked to wear weird clothes and hang out in a tent in the desert with his harem. Made the mistake of meddling in regional power politics, and the fatal mistake of trying to organized a gold-based currency for trade in oil. His fate was to have his country torn apart with the active support of the CIA, NSA and other US spook agencies. And to die with a bayonet up his ass while Secretary of State Hillary Clinton watched on a live spy satellite camera and chortled madly. https://www.youtube.com/watch?v=dR45C6Vw8uM ..."
"... Getting people into debt is the whole point. If not willingly, by force if necessary. Debt keeps the mopes working. Debt works better than abject slavery because the oppressive nature of the practice is more easily rationalized by the perpetrators. Christianity once objected to usury for good reason. ..."
"... This dual arrangement, private elite money and Government need works so well for both parties because all the upside goes to the wealthy. The wealthy are shielded form the horrors of dishing out violence to achieve ones goals -- that task is relegated to the Government, while the Government is free from accountability- they can always get more "money" from the elite because they control all the wealth. ..."
"... That is the extreme tragedy of Privatization. The real wealth of the nation and potential of its people are squandered in a financial shell game. ..."
Jul 11, 2017 | www.nakedcapitalism.com

Donald Trump is the best thing to happen to Wall Street in twenty years. This is because since the moment he took the oath of office, no one has so much as uttered a word about Wall Street....

... ... ...

During the 2011/ 2012 Occupy movement, for the first time in years the entire country took a critical eye to the institution that was running our economy (by "running" I mean "dry humping"). The nation FINALLY cared that this institution was steadily extracting all of the wealth and resources and giving it (in an unmarked bag) to a tiny percentage of men and women (mainly men) who smelled impeccable. Even those citizens who were wrongly disgusted by Occupy still felt that Wall Street was exploiting the American people at a jaw-dropping pace. And they got angry. The country got angry. FINALLY – at long last – everyone got ANGRY.

This is when the mainstream media did what they do best – they acted as the white blood cells attacking the infection in the system. (And I'm sure I'm not the first to use that analogy.) In this case the "infection" was activists calling attention to the full-blast destructive tendencies of capitalism. The media piled on the protesters as if those activists were the ones sucking every last penny out of the American people. This, along with a healthy dose of militarized police and FBI infiltration , is how Occupy ended up maligned and imprisoned. The white blood cells then moved on to step three of Operation Protect Wall Street (step one is ignore the protests, step two is attack the protesters). Step three is the same as step one – "ignore," which is akin to silencing. We saw these identical steps with Standing Rock. Most protest movements don't get past step one; the mainstream media ignores them to see if they'll simply go away, and it usually works. In fact until social media came along, it almost always worked. But now the internet has allowed for an alternate path to public awareness (and an alternate path to AMAZING photos of cats partaking in a variety of very un-catlike tasks). And this is why crushing net neutrality is something the FCC and Wall Street are drooling over. But I digress.

Jim A. , July 11, 2017 at 8:10 am

At some level, we need Wall Street, just like we need a liver. But a swollen, bloated and inflamed liver is NOT a sign of health, and is indeed a dangerous. Wall Street has become a huge drag on the economy rather than an aid to it. Our economy is now structured to give Wall Street far more money than it can find actual, productive uses for. Instead of being used to build new plants and research new products, most of that money just goes into "financial products," that blow asset bubbles or stock repurchases, or leveraged buyouts, Low rates have fueled large levels of inflation in the monetary supply, but because little of that has been seen in wages, it hasn't had much effect on the prices of consumer products, Instead, it has pushed up asset prices, which in turn concentrates wealth every more. Which the wealthy, and their sycophants confuse with actual "growth" in the economy.

A small tax on all financial transactions would be a start in slowing down the crazy money-go-round that is strangling our real economy.

PKMKII , July 11, 2017 at 9:05 am

More like a tumorous liver, one that's come to see the other organs as superfluous. Heart, brain, digestive system, they're nice, but if sacrificing them means more for the liver, well TINA! We don't help the body perform, we are the body.

bdy , July 11, 2017 at 9:40 am

At some point we need Wall Street

Anyone care to elaborate? Cause me and mine do just fine down at the credit union. If Santa Monica wants to tunnel under downtown for the new Bio-Luminescent Fungus Park do they really have to borrow the funds from the vampire squids? Isn't Bank of Santa Monica just as capable of hitting the discount window after the fact to shore up reserves? What am I missing that makes an NYC clearing house for lottery tickets that profit the .1% so vital?

Vatch , July 11, 2017 at 11:08 am

The credit union won't be able to fund the construction of a new school or sewer system. They won't be able to fund a business that wants to expand. If you want to sell some of your stock to pay for your child's college education, you don't call your friends and neighbors and ask them to buy your stock. You sell it through a broker, who is part of the Wall Street network.

What we don't need is a lot of fancy options, elaborate asset backed securities like collateralized debt obligations, and credit default swaps. We certainly don't need high frequency trading. Wall Street is infested with those.

alex morfesis , July 11, 2017 at 11:47 am

the american credit union system is not much different than the german financial cooperatives and landesbank system except the germans get to use it to build a stable economic model, where here in the us, the credit union system is attacked as some form of "fidelismo"

http://www.abfjournal.com/articles/brave-new-world-community-banks-credit-unions-enter-syndication-market/

"in my hand I have a list of" .

https://www.bvr.de/About_us/Cooperative_Financial_Network

somehow, the whole euro thingee system only cheerleads for german use of its system and does not seem to encourage (other than perhaps the WIR in switzerland) anyone else being "european" enough to enjoy the "german advantage"

http://www.reuters.com/article/us-banking-germany-landesbanken-idUSBRE98G06720130917

there have been fannie/freddie type of conduits previously for credit unions to recycle capital lending capacities but those were the first to be shut down to eliminate competition with wall street

http://www.business.unr.edu/faculty/liuc/files/fin415/WSJ_01292009.pdf

http://news.cuna.org/articles/print/36683

credit unions can do all types of big projects

directly or via some form of syndication

they can also be formed for and by businesses to provide local capital they do not have to be just "consumer" deposit cycling organizations there are technically no restrictions on their growth

there is the acela vanity press which goes in a circle in respects to what a credit union is and what it does and how large a parcel of the citizenry in fact are members and have funds deposited and cycled through said credit unions

Vatch , July 11, 2017 at 12:38 pm

credit unions can do all types of big projects

directly or via some form of syndication

Wouldn't that syndication be something resembling Wall Street? (without all of the ridiculous derivatives, high frequency trading, and outlandish bonuses, of course)

alex morfesis , July 11, 2017 at 1:15 pm

just as truckers and pilots need to pass random drug and alcohol tests, congress kriters and strategic wall street participants should also be required to subject themselves to such monitoring and testing

can easily make a strong argument "for" derivatives, cds, cdo, squareds rectangulars and octoganals too even high frequency churning

the technical word is prudence within reason and for a small percentage beyond the market needs to keep market flows available and ready for moments of capital drying up

currency markets at trillions of dollars per day are perhaps just a convenient vehicle to "make bribery great again"

would argue there is now and has been for quite some time a very massive substance abuse problem in the capital markets which feed into the myopia of "allowable excesses"

more funds are given away to charities in this great american enterprise than is "thrown away/invested" in enterprise start ups

300 billion per year to charity vs less than 100 billion per year in start ups

the systems are all in place in this vast imperium for the small shmoes to do many things perhaps not enough transactional attorneys in the right places to make it work and happen in a consistent and sustainable manner, but the tools are all there however

we have our capital allocations all [family blogged] up

Hiho , July 11, 2017 at 1:06 pm

God, and why on the earth would someone agree with wall street funding schools or sewer systems. That is the duty of the government. Not even bondholders or private creditors are really needed once you understand that banks also create money from thin air.

Anon , July 11, 2017 at 1:37 pm

And the Wall Street route (selling Bonds), instead of using taxation, usually costs the locals a premium of 40% over the actual cost of the project. And the beneficiaries are the 1% who can afford to purchase those Bonds.

sgt_doom , July 11, 2017 at 1:50 pm

You need to have a serious question with the Clinton/Rodham family about this, since it really exploded under their watch.

Reagan did establish the Office for Privatization within the OMB, but he didn't do enough to suit the Heritage Foundation, which evidently loves their Clintons!

Vatch , July 11, 2017 at 2:00 pm

Hiho: City, county, and state/provincial governments can't create money, and sometimes there are necessary projects which require a lot more money than can be raise by taxes in just one year. Whether the money comes from bond sales or from bank loans, the governments will use taxes to pay the money back over a period of 20, 30, or 40 years. Since the local savings banks may not have the resources to make a lot of those loans, a bond market is needed.

Anon: It's not just the one percenters who benefit from buying bonds. There are also plenty of pension funds and mutual funds, and those benefit more than just the one percenters.

A vast amount of abusive behavior has occurred in the financial industry, but that doesn't change the fact that the industry does provide some value.

No Way Out , July 11, 2017 at 1:09 pm

At some point we need Wall Street

We need Wall Street to recycle back into the economy the huge sums of money that rise to the top of the human chain like crap rises to the top of a cesspool.

Either that, or we could reinstate the 90% marginal rate, properly tax capital gains in inheritances, and institute a wealth tax with a hard cap on how much a person could possess. We could also disallow the ownership of corporations by other corporations (since they are after all human beings), and make corporate officers indictable for any felonies their corporations committed which they did not report. And we could stop pretending that an economy needed more than 300 million people to function efficiently, and that human beings can pull themselves up by the bootstraps on $8/hour.

sgt_doom , July 11, 2017 at 1:53 pm

Recently read Survival of the Richest by Donald Jeffries, and he has a wonderful chapter there on the great American populist, Huey Long.

Long's tax reform program in his Share The Wealth project was most intelligent.

John Wright , July 11, 2017 at 10:04 am

While the country does need Wall Street to help allocate resources, a link I've posted before to NC has one observer (Paul Woolley) suggesting the US/UK financial industry is 2 to 3 times larger than optimum.

Essentially, the USA could downsize its financial industry by 50-66% and be better off

see: http://www.newyorker.com/magazine/2010/11/29/what-good-is-wall-street

See "I asked Woolley how big he thought the financial sector should be. "About a half or a third of its current size," he replied.""

But as we watch the Bush-Obama-Trump financial industry friendly administrations operate, the likelihood of "right sizing" the financial industry seems very remote.

In my view, only another financial massive crisis can precipitate any reform/resizing, it will not arise in the current financial industry fed political process otherwise.

justanotherprogressive , July 11, 2017 at 10:09 am

"to help allocate resources"????
Yea, they are good at that, aren't they? Oddly enough, that allocation seems to be to only a select few ..is that what allocation means?

Then bank robbers are also good at allocating resources

John Wright , July 11, 2017 at 11:15 am

It's a stretch, bu imagine you subtract the portion of Wall Street responsible for the Housing Bubble, Auto Bubble, Student loan bubble, Commercial property bubble, Internet bubble, LBO/Private Equity funding, and stock buyback funding, the remaining subset of Wall Street could be providing some societal value.

One could argue that crowd funding could lessen the size of even this residue.

So a portion of Wall Street may be useful for funding infrastructure and research/development in the future.

But rightsizing never seems to be appropriate for Wall Street.

Jim A. , July 11, 2017 at 10:58 am

Oh at this point I suspect that it is far larger than 2-3 times optimum size. I'd wager that the reason for that 2-3 estimate isn't so much that they get the optimum size wrong as that they underestimate the current size of Wall Street.

justanotherprogressive , July 11, 2017 at 10:07 am

"At some level, we need Wall Street"?
The biggest employer in my town is privately owned – it doesn't need Wall Street (and oddly enough, that company didn't suffer during the "recession", go figure .). There are many many small businesses in this country – they don't need Wall Street
I don't need Wall Street

Wall Street has been putting out its propaganda for so long that people are buying into it without thinking. Actually Wall Street needs us to keep buying and going into debt to survive but they've somehow convinced us that they are doing us a favor by keeping us in debt .

Hiho , July 11, 2017 at 1:10 pm

Exactly.

On top of that and contrary on what many people think, wall street does not fund industry. Industry funds wall street.

Thor's Hammer , July 11, 2017 at 10:14 am

"At some level we need Wall Street–" like we need a metastatic cancer. A neutron bomb that destroyed its core and sought out all its tentacles would be more appropriate.

What we need is an actual marketplace that evaluates asset allocation from the standpoint of how well it serves the citizens of the world and how well it supports the biosphere and ecosphere within which they live. Capitalist markets serve or evolve into casinos for the ultra-rich who control them. Central planned economies without the guiding hand of markets become calcified skeletons that are every bit as dysfunctional as capitalist markets.

in order for a market system to be sustainable it would have to be based upon a generally accepted wisdom about the human role in the ecosphere. And it would have to reflect a systemic decentralization of power that prevents the drive to domination that characterizes all of human social history.

Are humans smarter than yeast?

Thor's Hammer , July 11, 2017 at 2:49 pm

When this post was submitted there were only three posts before it. Why is is now 2/3 of the way down the list of 48?

Outis Philalithopoulos , July 11, 2017 at 3:19 pm

Look at the time stamps. The post order is a tree order (node, then branches), with posts on the same tree level ordered by time stamp. That means that if originally there are two posts, and then twenty people respond later to the first post, the second post will become the twenty-first.

Alex Morfesis , July 11, 2017 at 12:58 pm

The new york state stock transfer/transaction tax exists & has existed but has been handed back as a 100% tax refund since felix the Cheshire car crushed the municipal govt unions in the late 70's

TSB-M-82-(6)M

Depending on who you ask, the amount not collected each year is ten to twenty billion (yes with a B)

10 to 20 billion per year rebated to wall street for 25 years

well be reasonable

Times square is still a mrss and the abandoned piers on the west side of Manhattan and all those empty factory buildings that faith hope consolo just can't seem to get any retail enterprises into

Half a trillion bux

you can't have nice things

Because because

just because

RickM , July 11, 2017 at 8:43 am

Why a small tax on financial transactions? How about a flat 1%, instead of the 0.1% I read about in the usual sources? That sounds about right. Besides, I hear flat taxes are the best!

Vatch , July 11, 2017 at 10:56 am

I believe the thinking behind a small transaction tax is that it will not impede legitimate securities transactions, such as the purchase of some shares of stock for retirement. If the transaction tax is too large, it affects people on main street. But even a small transaction tax will have an effect on the high frequency trading that hedge funds and giant banks indulge in thousands or even millions of times per day. Ordinary investors have no possibility of beating the algorithmic high frequency traders, so to make things a little more fair, the high frequency traders should pay a tax on every transaction. This tax should not be large enough to harm the ordinary investors.

Jim A. , July 11, 2017 at 11:01 am

And if that HFT was just dueling algorithms in a cage match, it would be a zero-sum game. But the reason that it is profitable is that much of it constitutes automated "front running."

Anon , July 11, 2017 at 1:50 pm

This tax should not be large enough to harm the ordinary investors.

Who are these ordinary investors? What percent of transactions do they make? How do their transactions fare when their trades only have to be made within 48 hours of placement. (Arbitrage anyone?!)

sgt_doom , July 11, 2017 at 2:00 pm

Bulltwacky!

Gary Gensler's study, when he headed the CFTC, found that over 90% of so-called hedge trades were pure speculation.

From 1914 to 1966, there was a transaction tax, begun with the Revenue Act of 1914, ended during the Johnson Administration.

Vatch , July 11, 2017 at 2:07 pm

Right. So a small transaction tax will either inhibit the speculation, or raise money for the government. Either way it's a good thing.

José , July 11, 2017 at 4:55 pm

There's this interesting proposal on transaction taxes to stabilize the financial system – by Professor Marc Chesney from the University of Zürich (I translated from the original German):

"Micro taxes on electronic payments – This would also be a technically simple solution to stabilize the system. In Switzerland, there are about one hundred thousand billions of Swiss francs in electronic payments per year. That is, one plus 14 zeros. This is about 160 times the Swiss GDP. Taking 0.2 percent of this, one would have had in tax receipts two hundred billion francs a year, more than all present-day taxes in Switzerland, that do not exceed 170 billion Swiss francs per year.

That is, theoretically one could, in place of all other taxes, of almost all other taxes, just pay this micro tax every time that you get a bill electronically paid. Like, every time you go to the restaurant, to the hairdresser. Every time you go to the ATM, for example, to get 100 francs, you could pay 20 Rappen (cents) in taxes. It would be a simple measure and we would have much less of a headache with the annual tax declaration. In fact, we could also, in theory, use this micro tax for – quite simply – abolishing the annual tax declaration. So, it would be a simple, and cheap, measure. And yet we do not talk about this possibility."

Carolinian , July 11, 2017 at 8:51 am

The media don't like Trump and they didn't much like Occupy either. So one should be clear about who is doing the distracting. While Trump certainly is a boorish person who rubs women in particular the wrong way, it's likely that's not what is motivating the rabid opposition. Commonsensical pronouncements about getting along with Russia or rolling back globalism strike at the heart of a plutocracy that seems to have the country in a death grip. Trump may not have been a very sincere or motivated reformer but clearly Sanders would have met with the same circus of distraction (the stories about his wife a shot across the bow).

It's really the power of the media that is Fight Club, the thing nobody is allowed to talk about. Camp himself has come under attack from the NYT. Doubtless Trump understands this which is why he still clings, however ineptly, to Twitter. One can only wonder how long before the web itself comes under assault.

neo-realist , July 11, 2017 at 10:03 am

The mud heaping on Sanders wife, I suspect, is about destroying his credibility for 2020. With all their influential capability, TPTB still believe themselves very threatened by Sanders.

perpetualWAR , July 11, 2017 at 12:49 pm

It's actually enfuriating me the FBI has enough time to investigate Jane, but couldn't find the time to investigate the bank crimes causing 18.2 million unlawful foreclosures.

Audit the REMIC mortgage loan lists for multiply-pledged notes! Then, go after the uncollected billions in tax implications and give the houses back!

Thor's Hammer , July 11, 2017 at 10:37 am

We irrelevant posters in the blogsphere seem to have trouble learning from even the most recent past.

Consider the fate of Muammar Gadiffi. Ruler of the wealthiest an most socially progressive country in Africa. Liked to wear weird clothes and hang out in a tent in the desert with his harem. Made the mistake of meddling in regional power politics, and the fatal mistake of trying to organized a gold-based currency for trade in oil. His fate was to have his country torn apart with the active support of the CIA, NSA and other US spook agencies. And to die with a bayonet up his ass while Secretary of State Hillary Clinton watched on a live spy satellite camera and chortled madly. https://www.youtube.com/watch?v=dR45C6Vw8uM

If that is the response of the Deep State to a perceived threat from a small African country, imagine the measures it would take toward an out-or-control US president who threatens to make peace with the best and most profitable enemy they have ever been able to create.

Disturbed Voter , July 11, 2017 at 12:43 pm

Correct not only is politics war by other means, but finance is war by other means. The banking business is part of the WMD of the Anglo-American Empire. This is what happens when you unleash a predatory species of unparalleled capability on the planet.

jo6pac , July 11, 2017 at 1:09 pm

LOL and sadly so true.

polecat , July 11, 2017 at 2:01 pm

It' not really a laughing matter especially where the Russians & Chinese are uh 'concerned' --

At the ever-increasing rate of establishment insanity, I see a nuclear war in our future, perhaps not too far out, either.

Thor's Hammer , July 11, 2017 at 3:15 pm

I wouldn't exactly call the sounds that come out of the Hildabeast's mouth laughing!-.
https://www.youtube.com/watch?v=dR45C6Vw8uM

Lord Koos , July 11, 2017 at 4:21 pm

Iraq was a similar deal. Any country that attempts to operate outside of the western banking system must be destroyed.

RenoDino , July 11, 2017 at 10:48 am

I'll say again, Trump was elected to break things and he is doing his job perfectly. He is breaking the MSM and all three branches of government. He is destroying the global order and undermining the "democratic" process. Such is the hatred for these institutions, he is only marginally less popular than when he was elected. People may find fault with the way he breaks things, but he is not going for style points. Rather he is the perfect person for the job. He is totally dismissive of his critics, not open to suggestion and completely and utterly unpredictable. He is one of the few people who manages to live life on their own terms. This is an extreme rarity and its importance cannot be stressed enough. It drives his critics completely mad because they reflect on everything they say and do and try to gauge the response to every action.

The last forty years have wrought a society with a glass jaw that Trump intends to break. His antics expose the vulnerabilities inherent in the West's corrupt and hypocritical institutions who are desperately trying to cling to a unreal state of affairs that have become a bigger joke than Trump.

... ... ...

edr , July 11, 2017 at 11:44 am

The country didn't need "Occupy Wallstreet" to focus on Wall Street Corruption.

The loss of people's homes already had the entire country aware and fuming about Wall Street corruption, writing and calling Congress. Occupy's purpose was to convince Legislators, not the public, of the country's existing concerns and get them to break up the Wall Street MegaBanks. And what happened with the whole country fuming???? Nothing!!! 8 years of nothing.

Wall street Derivatives bets are about 2-3x the total of World's cumulative assets!! That's been staring the Fed and Congress in the face since 2008, and they can't figure out there is anything to fix. Worse than the housing crises, which they ALSO REFUSED to see or prevent. 40years of losses in real wages, also purposefully ignored by Congress and the white house.

(And, deciphering the facts behind Media reporting is a full time job.)

Therefore, Trump . why get all in a froth to resolve nothing? Enjoy the show, because nothing else was on offer.

Bill H. , July 11, 2017 at 11:52 am

Wall Street does not create the money that sloshes into it. That money pours into Wall Street from Pharma with its 50%+ profit margins, from "sharing economy" capitalists with 80% profit margins, from health care corporations with 50% profit margins, from IPO's that net the "creators" obscene amounts of money for trivial adventures and from the Federal Reserve for "quantitative easing."

Wall Street is not the problem, it is a symptom of the problem, it feeds on the problem, and it is a distraction from the problem. The problem is corporatism and its control of governance. That is why "Occupy" was such a farce.

sharonsj , July 11, 2017 at 12:05 pm

You're forgetting free credit from the Fed. They have given billions worldwide.

Lord Koos , July 11, 2017 at 4:25 pm

I disagree, Wall Street is an actor that is complicit with big capital and it is definitely a problem. I don't see how you can separate corporatism from Wall St. since they enable each other.

I wouldn't call an authentic grass-roots protest against inequality a farce.

jsn , July 11, 2017 at 7:43 pm

Occupy was a "farce" because bank security colluded with corporate press and the enforcement arms of the surveillance state to present you that image. Hook, line and sinker appears to be your take.

Marbles , July 11, 2017 at 11:55 am

More sky is blue commentary, with no discussion of what to do next.

Re occupy Wall Street?

Stop paying all of your loans and watch the banks implode?

Pin one's hopes on some snowball's chance to elect officials in every office that would use the force of the state to clawback ill gotten gains?

Pray for a computer hacker to create some debt jubilee and reset the clock?

agkaiser , July 11, 2017 at 12:17 pm

Look what happened to Mr. Robot! Yeah, that was all a dream too, wasn't it?

Marbles , July 11, 2017 at 12:47 pm

After the revolution is a topic that needs to be discussed more, not to bring Slavoj Zizek into the discussion.

diptherio , July 11, 2017 at 3:13 pm

Here's one:
https://nextcity.org/daily/entry/directory-worker-cooperatives-worker-owned-businesses

And another:
https://cooperativeeconomy.info/every-commune-is-a-cooperative-self-organisation-and-self-sufficiency-are-progressing-in-rojava/

agkaiser , July 11, 2017 at 12:12 pm

Everybody knows the rich and their banks and corporations pay lower percentages of taxes than the rest of us. Everybody knows many of them pay no taxes at all.

Many of us and our governments borrow money from the rich. We borrow to live a decent life. The governments borrow and do the things like build and repair roads, defense and other things we need in common. Some say we don't have to borrow. Is that really true?

Q: Why do the rich have excess money that they can loan to us and our government?

A: The rich don't pay taxes.

If the governments taxed the excess instead of borrowing it, maybe we could pay lower taxes and have more of our earnings so we wouldn't have to borrow so much either. What do you think?

Jcast23 , July 11, 2017 at 12:13 pm

Jello Biafra made the same point about Trump's tweets a couple of months back:

https://youtu.be/BPwdK9cBhK8

templar555510 , July 11, 2017 at 2:13 pm

Goldman Sachs = Vampire Squid . What more needs to be said ?

Norb , July 11, 2017 at 3:44 pm

Governments colluding with wealthy elites in order to rule the world is what human society is all about at the present time. It has been the driving force for millennia. Wealthy elites and Government are interchangeable terms- thus the problem for poor people.

Getting people into debt is the whole point. If not willingly, by force if necessary. Debt keeps the mopes working. Debt works better than abject slavery because the oppressive nature of the practice is more easily rationalized by the perpetrators. Christianity once objected to usury for good reason.

This dual arrangement, private elite money and Government need works so well for both parties because all the upside goes to the wealthy. The wealthy are shielded form the horrors of dishing out violence to achieve ones goals -- that task is relegated to the Government, while the Government is free from accountability- they can always get more "money" from the elite because they control all the wealth.

That is the extreme tragedy of Privatization. The real wealth of the nation and potential of its people are squandered in a financial shell game.

There is a bigger picture that is obfuscated by necessity. Limits to private ownership are essential to a fair and just society. Some form of common good must be defined.

As for taxes. Taxes are the main tool for social engineering. You either have the opportunity to create a middle class or cement an oligarchy in power. Take your pick on which to support.

Russia! Russia! Down with Socialism and Communism!

Repeat above phrase until your are unconscious.

Crazy Horse , July 11, 2017 at 5:56 pm

If we adopt the perspective of all the other millions of species that have evolved to find a home on this planet, homo sapiens can only be seen as a toxic weed that if left unchecked will destroy their home. Perhaps the bacteria will succeed where saber toothed tigers and grizzly bears failed and save the planet from humans. There certainly is little evidence that the Sapiens will evolve into an intelligent species that can live in harmony with all the other inhabitants.

[Jun 03, 2017] Walmart Workers to Executives We Can't Pay Our Bills

Jun 03, 2017 | finance.yahoo.com

At Walmart 's ( WMT ) annual shareholders meeting on Friday, some employees took the stage to voice their grievances against the company about pay and advancement.

"Today, I make over $10 an hour, and I appreciate that Walmart took this small step, but still too many of us are part-time, too many of us can't plan our lives or find the time to line up a second job or pay our bills," a three-year Walmart associate from North Carolina said at the meeting.

The associate argued that many employees who work part-time wish to increase their hours and advance their career at Walmart with a full-time position, but the company instead hires more part-time workers. She urged Walmart to disclose the percentage of workers who are employed full-time and part-time broken down by race, gender and ethnicity "to embrace fairness."

Walmart's 2017 shareholder's meeting.

A Walmart spokesman said hourly full-time associates can earn as much as $24.70 an hour and on average full-time employees make $13.70 an hour. He said the company's "Open Shifts" program also allows part-time workers to view and pick up extra, empty shifts to gain more hours.

Since 2014, Walmart has made various notable changes to how it treats its employees, after years of complaints. In 2015, the company introduced a$2.7 billion, two-year investment in its associates, raising its minimum wage initially to $9 an hour and then to $10 in 2016. Components of the program included bonuses, raises for 1.2 million employees and a training program that teaches fundamental retail skills, such as which items turn a profit, under which Walmart said it will graduate 225,000 associates from this year alone.

"Hundreds of thousands of associates have taken advantage of new opportunities to advance their career as a result of our $2.7 billion investment in training, education and higher pay," a Walmart spokesman said earlier today .

He claimed that Walmart's workforce is primarily comprised of full-time positions, adding: "Just last year, we converted more than 150,000 associates from part-time to full-time in Walmart U.S. alone."

Amy Ritter, who said she advocates for Walmart workers through the group,Making Change at Walmart (MCAW), also spoke at the meeting, stating that all employees deserve better pay and "a better life." In an interview with TheStreet ahead of the meeting, Ritter said U.S. taxpayers pay$6.2 billion a year to cover government assistance costs, like welfare, for Walmart employees who can't afford to live on what the company pays them. She said some still make as little as $9 an hour.

Shares of Walmart closed slightly down to $79.62.

[May 31, 2017] Nairu does not make sense

Notable quotes:
"... Of course part of the point of 401(k) and similar plans is to "align" workers with the company and companies in general, aside from paying them in stock rather than cash. I suspect it works more so than it doesn't, overall. ..."
"... Sarcasm or satire, yes. I'm not claiming that the narrative is "correct", but that it exists. Surely you must have heard of "alignment" between shareholders and employees. Usually used to justify large stock grants to executives, but also applicable more broadly. ..."
"... And in the case of vesting, (3) employees are supposedly reluctant to "leave money on the table" by quitting before the stock is vested. This must work in aggregate or companies wouldn't do this. ..."
"... Honestly cm, I have not heard about the alignment between shareholders and employees. That doesn't mean it doesn't exist, I realize that. ..."
"... I don't have any stats to cite but I would say that is ridiculous. I would say that almost all people who are characterized as working class make their income through their labor. Not from some stock ownership. ..."
"... It is supposedly common for startups to pay below-market (compared to established companies) to their employees, with the promise of appreciation of stock grants after an IPO/acquisition. Usually that's a bad deal for most employees, as the IPO may not happen, or when it happens, their stock has been heavily diluted. ..."
"... In established companies, stock-based compensation can be more substantial for managerial or professional staff, but not life-changing - e.g. you may get a 5-20% upgrade on your salary depending on how important you are considered, which is nice, but it will not change the fact that you still have to show up for work every day. ..."
Feb 17, 2017 | economistsview.typepad.com

Jerry Brown -> Poison Pen... February 17, 2017 at 02:18 PM

What country (or planet) are you referring to when you say Workers are primarily stock holders? It ain't this country.

cm -> Jerry Brown... February 17, 2017 at 10:44 PM

It is a commentary on a narrative. Of course part of the point of 401(k) and similar plans is to "align" workers with the company and companies in general, aside from paying them in stock rather than cash. I suspect it works more so than it doesn't, overall.

Jerry Brown -> cm... February 17, 2017 at 10:52 PM

Say What?? Are you saying that Poison Pen was being sarcastic? I hope he was. Or are you saying that narrative is correct?

cm -> Jerry Brown... February 18, 2017 at 12:03 AM

Sarcasm or satire, yes. I'm not claiming that the narrative is "correct", but that it exists. Surely you must have heard of "alignment" between shareholders and employees. Usually used to justify large stock grants to executives, but also applicable more broadly.

Companies have several programs: ESPP (employees can buy a limited amount of company stock at a 15% discount), 401(k) retirement accounts that may contain company stock or other investment funds, stock and stock option grants (employees are not buying the stock but get it as part of a regular or retention bonus program, usually with vesting - commonly your grant will vest over 4 years).

The idea behind all programs involving company stock is (1) disbursing stock is usually cheaper to the company than cash, for the same nominal amount - for large programs where administration overhead is amortized, (2) employees are supposedly "incentivized" to act to increase the stock price.

The latter is believable at higher management levels, for lower level employees it is supposed to increase their motivation to put business priorities before their own, how much it works is anybody's guess.

cm -> cm... February 18, 2017 at 12:07 AM

And in the case of vesting, (3) employees are supposedly reluctant to "leave money on the table" by quitting before the stock is vested. This must work in aggregate or companies wouldn't do this.

If somebody absolutely wants to quit because of a bad situation or a sufficiently compelling offer, they will. But it raises the bar. Also I have heard about companies sufficiently interested in hiring somebody with "handcuffs" offering compensation, i.e. effectively buying out your unvested stock (or replacing it with their own extra grant).

Jerry Brown -> cm... February 18, 2017 at 12:50 AM

Honestly cm, I have not heard about the alignment between shareholders and employees. That doesn't mean it doesn't exist, I realize that.

Regardless, I would want to see a bunch of stats that showed that workers were primarily (or "predominately" was the actual word used) stock holders and that they derive a meaningful part of their yearly income through that ownership while they are working.

I don't have any stats to cite but I would say that is ridiculous. I would say that almost all people who are characterized as working class make their income through their labor. Not from some stock ownership.

cm -> Jerry Brown... February 18, 2017 at 02:25 PM

I am not claiming that workers are primarily stockholders. I am claiming that companies have programs to issue, or sell stock at a discount, or match 401(k) contributions up to a limit (in all applicable cases with our without vesting) to their employees. 401(k) and ESPP probably have to be offered to everybody, stock grants are usually selective. (Probably restricted by grade level and job function.)

The primary motivations for companies are that stock is usually cheaper for them than cash, and the retention effect of vesting. Employee alignment with the stock price is also a narrative, but it is not clear to me who believes it.

Are you disputing that companies are interested in pushing narratives of their labor relations that are beyond just "you work here and we pay you", and are in fact doing this?

cm -> Jerry Brown... February 18, 2017 at 02:33 PM

It is supposedly common for startups to pay below-market (compared to established companies) to their employees, with the promise of appreciation of stock grants after an IPO/acquisition. Usually that's a bad deal for most employees, as the IPO may not happen, or when it happens, their stock has been heavily diluted.

In established companies, stock-based compensation can be more substantial for managerial or professional staff, but not life-changing - e.g. you may get a 5-20% upgrade on your salary depending on how important you are considered, which is nice, but it will not change the fact that you still have to show up for work every day.

[May 21, 2017] Note how quickly the price of oil fell, when the objective was to economically harm revenues of the gas station masquerading as a nation

Notable quotes:
"... Note how quickly the price of oil fell, when the objective was to economically harm revenues of the "gas station masquerading as a nation" (as McCain called his enemy), Russia. They wouldn't do that to benefit ordinary Americans, though they could have, long ago. ..."
"... And how quickly they were ready to export our own domestic oil surplus, and ordered laws be passed to do it, rather than have it accrue to the Americans to whom it really belongs. ..."
"... No, those "American Interests" are not the same as the interests of the millions of American people. ..."
"... Believe it or not, the CEOs of Exxon-Mobil, Shell or any other multinational hyper corporation don't consider what our opinions are, in the least, unless it creates a PR nightmare, in which case lawyers and liars are dispatched to distract ..."
May 21, 2017 | www.theamericanconservative.com

Fran Macadam, May 8, 2017 at 6:31 pm

"'Nor are these US interests that are of such geopolitical importance to politicians, congruent with the interests of hundreds of millions the actual American people.

"Unless those people want 'cheap' oil ?"

Note how quickly the price of oil fell, when the objective was to economically harm revenues of the "gas station masquerading as a nation" (as McCain called his enemy), Russia. They wouldn't do that to benefit ordinary Americans, though they could have, long ago.

And how quickly they were ready to export our own domestic oil surplus, and ordered laws be passed to do it, rather than have it accrue to the Americans to whom it really belongs.

No, those "American Interests" are not the same as the interests of the millions of American people.

Believe it or not, the CEOs of Exxon-Mobil, Shell or any other multinational hyper corporation don't consider what our opinions are, in the least, unless it creates a PR nightmare, in which case lawyers and liars are dispatched to distract.

[May 15, 2017] The Great Ponzi Scheme of the Global Economy by Michael Hudson

May 15, 2017 | www.counterpunch.org
March 25, 2016 CHRIS HEDGES: We're going to be discussing a great Ponzi scheme that not only defines not only the U.S. but the global economy, how we got there and where we're going. And with me to discuss this issue is the economist Michael Hudson, author of Killing the Host: How Financial Parasites and Debt Destroy the Global Economy . A professor of economics who worked for many years on Wall Street, where you don't succeed if you don't grasp Marx's dictum that capitalism is about exploitation. And he is also, I should mention, the godson of Leon Trotsky.

I want to open this discussion by reading a passage from your book, which I admire very much, which I think gets to the core of what you discuss. You write,

"Adam Smith long ago remarked that profits often are highest in nations going fastest to ruin. There are many ways to create economic suicide on a national level. The major way through history has been through indebting the economy. Debt always expands to reach a point where it cannot be paid by a large swathe of the economy. This is the point where austerity is imposed and ownership of wealth polarizes between the One Percent and the 99 Percent. Today is not the first time this has occurred in history. But it is the first time that running into debt has occurred deliberately." Applauded. "As if most debtors can get rich by borrowing, not reduced to a condition of debt peonage."

So let's start with the classical economists, who certainly understood this. They were reacting of course to feudalism. And what happened to the study of economics so that it became gamed by ideologues?

HUDSON: The essence of classical economics was to reform industrial capitalism, to streamline it, and to free the European economies from the legacy of feudalism. The legacy of feudalism was landlords extracting land-rent, and living as a class that took income without producing anything. Also, banks that were not funding industry. The leading industrialists from James Watt, with his steam engine, to the railroads

HEDGES: From your book you make the point that banks almost never funded industry.

HUDSON: That's the point: They never have. By the time you got to Marx later in the 19th century, you had a discussion, largely in Germany, over how to make banks do something they did not do under feudalism. Right now we're having the economic surplus being drained not by the landlords but also by banks and bondholders.

Adam Smith was very much against colonialism because that lead to wars, and wars led to public debt. He said the solution to prevent this financial class of bondholders burdening the economy by imposing more and more taxes on consumer goods every time they went to war was to finance wars on a pay-as-you-go basis. Instead of borrowing, you'd tax the people. Then, he thought, if everybody felt the burden of war in the form of paying taxes, they'd be against it. Well, it took all of the 19th century to fight for democracy and to extend the vote so that instead of landlords controlling Parliament and its law-making and tax system through the House of Lords, you'd extend the vote to labor, to women and everybody. The theory was that society as a whole would vote in its self-interest. It would vote for the 99 Percent, not for the One Percent.

By the time Marx wrote in the 1870s, he could see what was happening in Germany. German banks were trying to make money in conjunction with the government, by lending to heavy industry, largely to the military-industrial complex.

HEDGES: This was Bismarck's kind of social – I don't know what we'd call it. It was a form of capitalist socialism

HUDSON: They called it State Capitalism. There was a long discussion by Engels, saying, wait a minute. We're for Socialism. State Capitalism isn't what we mean by socialism. There are two kinds of state-oriented–.

HEDGES: I'm going to interject that there was a kind of brilliance behind Bismarck's policy because he created state pensions, he provided health benefits, and he directed banking toward industry, toward the industrialization of Germany which, as you point out, was very different in Britain and the United States.

HUDSON: German banking was so successful that by the time World War I broke out, there were discussions in English economic journals worrying that Germany and the Axis powers were going to win because their banks were more suited to fund industry. Without industry you can't have really a military. But British banks only lent for foreign trade and for speculation. Their stock market was a hit-and-run operation. They wanted quick in-and-out profits, while German banks didn't insist that their clients pay as much in dividends. German banks owned stocks as well as bonds, and there was much more of a mutual partnership.

That's what most of the 19 th century imagined was going to happen – that the world was on the way to socializing banking. And toward moving capitalism beyond the feudal level, getting rid of the landlord class, getting rid of the rent, getting rid of interest. It was going to be labor and capital, profits and wages, with profits being reinvested in more capital. You'd have an expansion of technology. By the early twentieth century most futurists imagined that we'd be living in a leisure economy by now.

HEDGES: Including Karl Marx.

HUDSON: That's right. A ten-hour workweek. To Marx, socialism was to be an outgrowth of the reformed state of capitalism, as seemed likely at the time – if labor organized in its self-interest.

HEDGES: Isn't what happened in large part because of the defeat of Germany in World War I? But also, because we took the understanding of economists like Adam Smith and maybe Keynes. I don't know who you would blame for this, whether Ricardo or others, but we created a fictitious economic theory to praise a rentier or rent-derived, interest-derived capitalism that countered productive forces within the economy. Perhaps you can address that.

HUDSON: Here's what happened. Marx traumatized classical economics by taking the concepts of Adam Smith and John Stuart Mill and others, and pushing them to their logical conclusion. 2KillingTheHost_Cover_rule Progressive capitalist advocates – Ricardian socialists such as John Stuart Mill – wanted to tax away the land or nationalize it. Marx wanted governments to take over heavy industry and build infrastructure to provide low-cost and ultimately free basic services. This was traumatizing the landlord class and the One Percent. And they fought back. They wanted to make everything part of "the market," which functioned on credit supplied by them and paid rent to them.

None of the classical economists imagined how the feudal interests – these great vested interests that had all the land and money – actually would fight back and succeed. They thought that the future was going to belong to capital and labor. But by the late 19 th century, certainly in America, people like John Bates Clark came out with a completely different theory, rejecting the classical economics of Adam Smith, the Physiocrats and John Stuart Mill.

HEDGES: Physiocrats are, you've tried to explain, the enlightened French economists.

HUDSON: The common denominator among all these classical economists was the distinction between earned income and unearned income. Unearned income was rent and interest. Earned incomes were wages and profits. But John Bates Clark came and said that there's no such thing as unearned income. He said that the landlord actually earns his rent by taking the effort to provide a house and land to renters, while banks provide credit to earn their interest. Every kind of income is thus "earned," and everybody earns their income. So everybody who accumulates wealth, by definition, according to his formulas, get rich by adding to what is now called Gross Domestic Product (GDP).

HEDGES: One of the points you make in Killing the Host which I liked was that in almost all cases, those who had the capacity to make money parasitically off interest and rent had either – if you go back to the origins – looted and seized the land by force, or inherited it.

HUDSON: That's correct. In other words, their income is unearned. The result of this anti-classical revolution you had just before World War I was that today, almost all the economic growth in the last decade has gone to the One Percent. It's gone to Wall Street, to real estate

HEDGES: But you blame this on what you call Junk Economics.

HUDSON: Junk Economics is the anti-classical reaction.

HEDGES: Explain a little bit how, in essence, it's a fictitious form of measuring the economy.

HUDSON: Well, some time ago I went to a bank, a block away from here – a Chase Manhattan bank – and I took out money from the teller. As I turned around and took a few steps, there were two pickpockets. One pushed me over and the other grabbed the money and ran out. The guard stood there and saw it. So I asked for the money back. I said, look, I was robbed in your bank, right inside. And they said, "Well, we don't arm our guards because if they shot someone, the thief could sue us and we don't want that." They gave me an equivalent amount of money back.

Well, imagine if you count all this crime, all the money that's taken, as an addition to GDP. Because now the crook has provided the service of not stabbing me. Or suppose somebody's held up at an ATM machine and the robber says, "Your money or your life." You say, "Okay, here's my money." The crook has given you the choice of your life. In a way that's how the Gross National Product accounts are put up. It's not so different from how Wall Street extracts money from the economy. Then also you have landlords extracting

HEDGES: Let's go back. They're extracting money from the economy by debt peonage. By raising

HUDSON: By not playing a productive role, basically.

HEDGES: Right. So it's credit card interest, mortgage interest, car loans, student loans. That's how they make their funds.

HUDSON: That's right. Money is not a factor of production. But in order to have access to credit, in order to get money, in order to get an education, you have to pay the banks. At New York University here, for instance, they have Citibank. I think Citibank people were on the board of directors at NYU. You get the students, when they come here, to start at the local bank. And once you are in a bank and have monthly funds taken out of your account for electric utilities, or whatever, it's very cumbersome to change.

So basically you have what the classical economists called the rentier class. The class that lives on economic rents. Landlords, monopolists charging more, and the banks. If you have a pharmaceutical company that raises the price of a drug from $12 a shot to $200 all of a sudden, their profits go up. Their increased price for the drug is counted in the national income accounts as if the economy is producing more. So all this presumed economic growth that has all been taken by the One Percent in the last ten years, and people say the economy is growing. But the economy isn't growing

HEDGES: Because it's not reinvested.

HUDSON: That's right. It's not production, it's not consumption. The wealth of the One Percent is obtained essentially by lending money to the 99 Percent and then charging interest on it, and recycling this interest at an exponentially growing rate.

HEDGES: And why is it important, as I think you point out in your book, that economic theory counts this rentier income as productive income? Explain why that's important.

HUDSON: If you're a rentier , you want to say that you earned your income by

HEDGES: We're talking about Goldman Sachs, by the way.

HUDSON: Yes, Goldman Sachs. The head of Goldman Sachs came out and said that Goldman Sachs workers are the most productive in the world. That's why they're paid what they are. The concept of productivity in America is income divided by labor. So if you're Goldman Sachs and you pay yourself $20 million a year in salary and bonuses, you're considered to have added $20 million to GDP, and that's enormously productive. So we're talking in a tautology. We're talking with circular reasoning here.

So the issue is whether Goldman Sachs, Wall Street and predatory pharmaceutical firms, actually add "product" or whether they're just exploiting other people. That's why I used the word parasitism in my book's title. People think of a parasite as simply taking money, taking blood out of a host or taking money out of the economy. But in nature it's much more complicated. The parasite can't simply come in and take something. First of all, it needs to numb the host. It has an enzyme so that the host doesn't realize the parasite's there. And then the parasites have another enzyme that takes over the host's brain. It makes the host imagine that the parasite is part of its own body, actually part of itself and hence to be protected.

That's basically what Wall Street has done. It depicts itself as part of the economy. Not as a wrapping around it, not as external to it, but actually the part that's helping the body grow, and that actually is responsible for most of the growth. But in fact it's the parasite that is taking over the growth.

The result is an inversion of classical economics. It turns Adam Smith upside down. It says what the classical economists said was unproductive – parasitism – actually is the real economy. And that the parasites are labor and industry that get in the way of what the parasite wants – which is to reproduce itself, not help the host, that is, labor and capital.

HEDGES: And then the classical economists like Adam Smith were quite clear that unless that rentier income, you know, the money made by things like hedge funds, was heavily taxed and put back into the economy, the economy would ultimately go into a kind of tailspin. And I think the example of that, which you point out in your book, is what's happened in terms of large corporations with stock dividends and buybacks. And maybe you can explain that.

HUDSON: There's an idea in superficial textbooks and the public media that if companies make a large profit, they make it by being productive. And with

HEDGES: Which is still in textbooks, isn't it?

HUDSON: Yes. And also that if a stock price goes up, you're just capitalizing the profits – and the stock price reflects the productive role of the company. But that's not what's been happening in the last ten years. Just in the last two years, 92 percent of corporate profits in America have been spent either on buying back their own stock, or paid out as dividends to raise the price of the stock.

HEDGES: Explain why they do this.

HUDSON: About 15 years ago at Harvard, Professor Jensen said that the way to ensure that corporations are run most efficiently is to make the managers increase the price of the stock. So if you give the managers stock options, and you pay them not according to how much they're producing or making the company bigger, or expanding production, but the price of the stock, then you'll have the corporation run efficiently, financial style.

So the corporate managers find there are two ways that they can increase the price of the stock. The first thing is to cut back long-term investment, and use the money instead to buy back their own stock. But when you buy your own stock, that means you're not putting the money into capital formation. You're not building new factories. You're not hiring more labor. You can actually increase the stock price by firing labor.

HEDGES: That strategy only works temporarily.

HUDSON: Temporarily. By using the income from past investments just to buy back stock, fire the labor force if you can, and work it more intensively. Pay it out as dividends. That basically is the corporate raider's model. You use the money to pay off the junk bond holders at high interest. And of course, this gets the company in trouble after a while, because there is no new investment.

So markets shrink. You then go to the labor unions and say, gee, this company's near bankruptcy, and we don't want to have to fire you. The way that you can keep your job is if we downgrade your pensions. Instead of giving you what we promised, the defined benefit pension, we'll turn it into a defined contribution plan. You know what you pay every month, but you don't know what's going to come out. Or, you wipe out the pension fund, push it on to the government's Pension Benefit Guarantee Corporation, and use the money that you were going to pay for pensions to pay stock dividends. By then the whole economy is turning down. It's hollowed out. It shrinks and collapses. But by that time the managers will have left the company. They will have taken their bonuses and salaries and run.

HEDGES: I want to read this quote from your book, written by David Harvey, in A Brief History of Neoliberalism , and have you comment on it.

"The main substantive achievement of neoliberalism has been to redistribute rather than to generate wealth and income. [By] 'accumulation by dispossession' I mean the commodification and privatization of land, and the forceful expulsion of peasant populations; conversion of various forms of property rights (common collective state, etc.) into exclusive private property rights; suppression of rights to the commons; colonial, neocolonial, and the imperial processes of appropriation of assets (including natural resources); and usury, the national debt and, most devastating at all, the use of the credit system as a radical means of accumulation by dispossession. To this list of mechanisms, we may now add a raft of techniques such as the extraction of rents from patents, and intellectual property rights (such as the diminution or erasure of various forms of common property rights, such as state pensions, paid vacations, and access to education, health care) one through a generation or more of class struggle. The proposal to privatize all state pension rights, pioneered in Chile under the dictatorship is, for example, one of the cherished objectives of the Republicans in the US."

This explains the denouement. The final end result you speak about in your book is, in essence, allowing what you call the rentier or the speculative class to cannibalize the entire society until it collapses.

HUDSON: A property right is not a factor of production. Look at what happened in Chicago, the city where I grew up. Chicago didn't want to raise taxes on real estate, especially on its expensive commercial real estate. So its budget ran a deficit. They needed money to pay the bondholders, so they sold off the parking rights to have meters – you know, along the curbs. The result is that they sold to Goldman Sachs 75 years of the right to put up parking meters. So now the cost of living and doing business in Chicago is raised by having to pay the parking meters. If Chicago is going to have a parade and block off traffic, it has to pay Goldman Sachs what the firm would have made if the streets wouldn't have been closed off for a parade. All of a sudden it's much more expensive to live in Chicago because of this.

But this added expense of having to pay parking rights to Goldman Sachs – to pay out interest to its bondholders – is counted as an increase in GDP, because you've created more product simply by charging more. If you sell off a road, a government or local road, and you put up a toll booth and make it into a toll road, all of a sudden GDP goes up.

If you go to war abroad, and you spend more money on the military-industrial complex, all this is counted as increased production. None of this is really part of the production system of the capital and labor building more factories and producing more things that people need to live and do business. All of this is overhead. But there's no distinction between wealth and overhead.

Failing to draw that distinction means that the host doesn't realize that there is a parasite there. The host economy, the industrial economy, doesn't realize what the industrialists realized in the 19 th century: If you want to be an efficient economy and be low-priced and under-sell competitors, you have to cut your prices by having the public sector provide roads freely. Medical care freely. Education freely.

If you charge for all of these, you get to the point that the U.S. economy is in today. What if American factory workers were to get all of their consumer goods for nothing. All their food, transportation, clothing, furniture, everything for nothing. They still couldn't compete with Asians or other producers, because they have to pay up to 43% of their income for rent or mortgage interest, 10% or more of their income for student loans, credit card debt. 15% of their paycheck is automatic withholding to pay Social Security, to cut taxes on the rich or to pay for medical care.

So Americans built into the economy all this overhead. There's no distinction between growth and overhead. It's all made America so high-priced that we're priced out of the market, regardless of what trade policy we have.

HEDGES: We should add that under this predatory form of economics, you game the system. So you privatize pension funds, you force them into the stock market, an overinflated stock market. But because of the way companies go public, it's the hedge fund managers who profit. And it's those citizens whose retirement savings are tied to the stock market who lose. Maybe we can just conclude by talking about how the system is fixed, not only in terms of burdening the citizen with debt peonage, but by forcing them into the market to fleece them again.

HUDSON: Well, we talk about an innovation economy as if that makes money. Suppose you have an innovation and a company goes public. They go to Goldman Sachs and other Wall Street investment banks to underwrite the stock to issue it at $40 a share. What's considered a successful float is when, immediately, Goldman and the others will go to their insiders and tell them to buy this stock and make a quick killing. A "successful" flotation doubles the price in one day, so that at the end of the day the stock's selling for $80.

HEDGES: They have the option to buy it before anyone else, knowing that by the end of the day it'll be inflated, and then they sell it off.

HUDSON: That's exactly right.

HEDGES: So the pension funds come in and buy it at an inflated price, and then it goes back down.

HUDSON: It may go back down, or it may be that the company just was shortchanged from the very beginning. The important thing is that the Wall Street underwriting firm, and the speculators it rounds up, get more in a single day than all the years it took to put the company together. The company gets $40. And the banks and their crony speculators also get $40.

So basically you have the financial sector ending up with much more of the gains. The name of the game if you're on Wall Street isn't profits. It's capital gains. And that's something that wasn't even part of classical economics. They didn't anticipate that the price of assets would go up for any other reason than earning more money and capitalizing on income. But what you have had in the last 50 years – really since World War II – has been asset-price inflation. Most middle-class families have gotten the wealth that they've got since 1945 not really by saving what they've earned by working, but by the price of their house going up. They've benefited by the price of the house. And they think that that's made them rich and the whole economy rich.

The reason the price of housing has gone up is that a house is worth whatever a bank is going to lend against it. If banks made easier and easier credit, lower down payments, then you're going to have a financial bubble. And now, you have real estate having gone up as high as it can. I don't think it can take more than 43% of somebody's income to buy it. But now, imagine if you're joining the labor force. You're not going to be able to buy a house at today's prices, putting down a little bit of your money, and then somehow end up getting rich just on the house investment. All of this money you pay the bank is now going to be subtracted from the amount of money that you have available to spend on goods and services.

So we've turned the post-war economy that made America prosperous and rich inside out. Somehow most people believed they could get rich by going into debt to borrow assets that were going to rise in price. But you can't get rich, ultimately, by going into debt. In the end the creditors always win. That's why every society since Sumer and Babylonia have had to either cancel the debts, or you come to a society like Rome that didn't cancel the debts, and then you have a dark age. Everything collapses.

[May 08, 2017] Karl Polanyi for President by Patrick Iber and Mike Konczal

Highly recommended!
Recommended !
Notable quotes:
"... Warren, who first made the argument, was speaking out against the idea that calling for higher taxes on the rich constitutes class warfare, saying: There is nobody in this country who got rich on his own-nobody. You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory -- and hire someone to protect against this -- because of the work the rest of us did. ..."
"... This is a fundamentally Polanyian point about the embeddedness of markets in society, and the always unnatural nature of income distribution. Polanyian arguments arise pretty naturally as rebuttals to certain libertarian notions of how economies should work, which may be one reason that certain Democrats sometimes sound like Polanyi. ..."
"... But Polanyi also helps explains some of the tensions within the Democratic Party. One of the divides within the Democratic primary between Bernie Sanders and Hillary Clinton has been between a social-democratic and a "progressive" but market-friendly vision of addressing social problems. Take, for example, health care. Sanders proposes a single-payer system in which the government pays and health care directly, and he frames it explicitly in the language of rights: "healthcare is a human right and should be guaranteed to all Americans regardless of wealth or income." ..."
"... Sanders here offers a straightforward defense of decommodification -- the idea that some things do not belong in the marketplace-that is at odds with the kind of politics that the leadership of the Democratic Party has offered more or less since Carter and the narrow policy "wonk" focus that tends to dominate coverage. ..."
"... Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society. It is the solution natural to industrial workers who see no reason why production should not be regulated directly and why markets should be more than a useful but subordinate trait in a free society. From the point of view of the community as a whole, socialism is merely the continuation of that endeavor to make society a distinctively human relationship of persons. ..."
"... Sanders's particular notion of a political revolution-in which people use democracy to change the rules governing our national political economy-is very Polanyian. Polanyi's socialism has a certain modern appeal when the more traditionally Marxist idea of having the state seize the means of production has been abandoned even by most who identify as socialists. Instead, Polanyi's relevance for today lies in his arguments that markets need to be subjected to democratic control, that human beings resist being transformed fully into commodities, and a fully realized market society is both impossible, undesirable, and at odds with genuine liberty and freedom. ..."
May 04, 2017 | www.dissentmagazine.org

Peter K: May 04, 2017 at 01:29 PM

https://www.dissentmagazine.org/online_articles/karl-polanyi-explainer-great-transformation-bernie-sanders

Karl Polanyi for President

Patrick Iber and Mike Konczal ▪ May 23, 2016

...

Is Bernie Sanders the only "Polanyian" Democrat?

Not at all. Democrats have taken up Polanyian arguments in response to many of the market-fundamentalist notions that the Tea Party has helped to circulate in recent years. The most notable example might be President Obama and Elizabeth Warren's "you didn't build that" faux-controversy from 2011 and 2012. Warren, who first made the argument, was speaking out against the idea that calling for higher taxes on the rich constitutes class warfare, saying:

There is nobody in this country who got rich on his own-nobody. You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory -- and hire someone to protect against this -- because of the work the rest of us did.

This is a fundamentally Polanyian point about the embeddedness of markets in society, and the always unnatural nature of income distribution. Polanyian arguments arise pretty naturally as rebuttals to certain libertarian notions of how economies should work, which may be one reason that certain Democrats sometimes sound like Polanyi.

But Polanyi also helps explains some of the tensions within the Democratic Party. One of the divides within the Democratic primary between Bernie Sanders and Hillary Clinton has been between a social-democratic and a "progressive" but market-friendly vision of addressing social problems. Take, for example, health care. Sanders proposes a single-payer system in which the government pays and health care directly, and he frames it explicitly in the language of rights: "healthcare is a human right and should be guaranteed to all Americans regardless of wealth or income."

Clinton, meanwhile, describes affordable health care as a right. Clinton also wants higher education to remain a market commodity, because she says that if the government paid, it would needlessly be giving a free ride to the children of the wealthy and the upper-middle class. Clinton's reasoning appeals to ideas of market efficiency, while Sanders, in stating that "Education should be a right, not a privilege," appeals to ideas of community beyond markets.

Sanders here offers a straightforward defense of decommodification -- the idea that some things do not belong in the marketplace-that is at odds with the kind of politics that the leadership of the Democratic Party has offered more or less since Carter and the narrow policy "wonk" focus that tends to dominate coverage.

Whether or not Sanders has read Polanyi-similar language about economic and social rights was also present in FDR's New Deal, which Sanders argues is the basis of his brand of socialism-Polanyi's particular definition of socialism sounds like one Sanders would share:

Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society. It is the solution natural to industrial workers who see no reason why production should not be regulated directly and why markets should be more than a useful but subordinate trait in a free society. From the point of view of the community as a whole, socialism is merely the continuation of that endeavor to make society a distinctively human relationship of persons.

Sanders's particular notion of a political revolution-in which people use democracy to change the rules governing our national political economy-is very Polanyian. Polanyi's socialism has a certain modern appeal when the more traditionally Marxist idea of having the state seize the means of production has been abandoned even by most who identify as socialists. Instead, Polanyi's relevance for today lies in his arguments that markets need to be subjected to democratic control, that human beings resist being transformed fully into commodities, and a fully realized market society is both impossible, undesirable, and at odds with genuine liberty and freedom.

Sanders's campaign has shown that a political platform favoring decommodification and a retreat from the extremes of society's subordination to markets has deep appeal. The future of the party does not belong to Bernie Sanders himself, but the Karl Polanyi Democrats are here to stay.

Peter K. -> Peter K.... Thursday, May 04, 2017 at 01:30 PM

I thought it was odd that DeLong linked to this:

http://crookedtimber.org/2017/05/01/the-thousand-day-reich-the-double-movement/

The Thousand Day Reich: The Double Movement

by HENRY on MAY 1, 2017

This is the second in a series of projected posts that try to look at the Trump administration and right wing populism through the lens of different books (the first – on civil society – is here). The last post was mostly riffing on Ernest Gellner. Today, it's another middle-European exile intellectual – Karl Polanyi.

...

[May 08, 2017] Karl Polanyi for President by Patrick Iber and Mike Konczal

Highly recommended!
Recommended !
Notable quotes:
"... Warren, who first made the argument, was speaking out against the idea that calling for higher taxes on the rich constitutes class warfare, saying: There is nobody in this country who got rich on his own-nobody. You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory -- and hire someone to protect against this -- because of the work the rest of us did. ..."
"... This is a fundamentally Polanyian point about the embeddedness of markets in society, and the always unnatural nature of income distribution. Polanyian arguments arise pretty naturally as rebuttals to certain libertarian notions of how economies should work, which may be one reason that certain Democrats sometimes sound like Polanyi. ..."
"... But Polanyi also helps explains some of the tensions within the Democratic Party. One of the divides within the Democratic primary between Bernie Sanders and Hillary Clinton has been between a social-democratic and a "progressive" but market-friendly vision of addressing social problems. Take, for example, health care. Sanders proposes a single-payer system in which the government pays and health care directly, and he frames it explicitly in the language of rights: "healthcare is a human right and should be guaranteed to all Americans regardless of wealth or income." ..."
"... Sanders here offers a straightforward defense of decommodification -- the idea that some things do not belong in the marketplace-that is at odds with the kind of politics that the leadership of the Democratic Party has offered more or less since Carter and the narrow policy "wonk" focus that tends to dominate coverage. ..."
"... Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society. It is the solution natural to industrial workers who see no reason why production should not be regulated directly and why markets should be more than a useful but subordinate trait in a free society. From the point of view of the community as a whole, socialism is merely the continuation of that endeavor to make society a distinctively human relationship of persons. ..."
"... Sanders's particular notion of a political revolution-in which people use democracy to change the rules governing our national political economy-is very Polanyian. Polanyi's socialism has a certain modern appeal when the more traditionally Marxist idea of having the state seize the means of production has been abandoned even by most who identify as socialists. Instead, Polanyi's relevance for today lies in his arguments that markets need to be subjected to democratic control, that human beings resist being transformed fully into commodities, and a fully realized market society is both impossible, undesirable, and at odds with genuine liberty and freedom. ..."
May 04, 2017 | www.dissentmagazine.org

Peter K: May 04, 2017 at 01:29 PM

https://www.dissentmagazine.org/online_articles/karl-polanyi-explainer-great-transformation-bernie-sanders

Karl Polanyi for President

Patrick Iber and Mike Konczal ▪ May 23, 2016

...

Is Bernie Sanders the only "Polanyian" Democrat?

Not at all. Democrats have taken up Polanyian arguments in response to many of the market-fundamentalist notions that the Tea Party has helped to circulate in recent years. The most notable example might be President Obama and Elizabeth Warren's "you didn't build that" faux-controversy from 2011 and 2012. Warren, who first made the argument, was speaking out against the idea that calling for higher taxes on the rich constitutes class warfare, saying:

There is nobody in this country who got rich on his own-nobody. You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory -- and hire someone to protect against this -- because of the work the rest of us did.

This is a fundamentally Polanyian point about the embeddedness of markets in society, and the always unnatural nature of income distribution. Polanyian arguments arise pretty naturally as rebuttals to certain libertarian notions of how economies should work, which may be one reason that certain Democrats sometimes sound like Polanyi.

But Polanyi also helps explains some of the tensions within the Democratic Party. One of the divides within the Democratic primary between Bernie Sanders and Hillary Clinton has been between a social-democratic and a "progressive" but market-friendly vision of addressing social problems. Take, for example, health care. Sanders proposes a single-payer system in which the government pays and health care directly, and he frames it explicitly in the language of rights: "healthcare is a human right and should be guaranteed to all Americans regardless of wealth or income."

Clinton, meanwhile, describes affordable health care as a right. Clinton also wants higher education to remain a market commodity, because she says that if the government paid, it would needlessly be giving a free ride to the children of the wealthy and the upper-middle class. Clinton's reasoning appeals to ideas of market efficiency, while Sanders, in stating that "Education should be a right, not a privilege," appeals to ideas of community beyond markets.

Sanders here offers a straightforward defense of decommodification -- the idea that some things do not belong in the marketplace-that is at odds with the kind of politics that the leadership of the Democratic Party has offered more or less since Carter and the narrow policy "wonk" focus that tends to dominate coverage.

Whether or not Sanders has read Polanyi-similar language about economic and social rights was also present in FDR's New Deal, which Sanders argues is the basis of his brand of socialism-Polanyi's particular definition of socialism sounds like one Sanders would share:

Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society. It is the solution natural to industrial workers who see no reason why production should not be regulated directly and why markets should be more than a useful but subordinate trait in a free society. From the point of view of the community as a whole, socialism is merely the continuation of that endeavor to make society a distinctively human relationship of persons.

Sanders's particular notion of a political revolution-in which people use democracy to change the rules governing our national political economy-is very Polanyian. Polanyi's socialism has a certain modern appeal when the more traditionally Marxist idea of having the state seize the means of production has been abandoned even by most who identify as socialists. Instead, Polanyi's relevance for today lies in his arguments that markets need to be subjected to democratic control, that human beings resist being transformed fully into commodities, and a fully realized market society is both impossible, undesirable, and at odds with genuine liberty and freedom.

Sanders's campaign has shown that a political platform favoring decommodification and a retreat from the extremes of society's subordination to markets has deep appeal. The future of the party does not belong to Bernie Sanders himself, but the Karl Polanyi Democrats are here to stay.

Peter K. -> Peter K.... Thursday, May 04, 2017 at 01:30 PM

I thought it was odd that DeLong linked to this:

http://crookedtimber.org/2017/05/01/the-thousand-day-reich-the-double-movement/

The Thousand Day Reich: The Double Movement

by HENRY on MAY 1, 2017

This is the second in a series of projected posts that try to look at the Trump administration and right wing populism through the lens of different books (the first – on civil society – is here). The last post was mostly riffing on Ernest Gellner. Today, it's another middle-European exile intellectual – Karl Polanyi.

...

[May 08, 2017] The Thousand Day Reich The Double Movement

Notable quotes:
"... The Great Transformation ..."
"... Polanyi believed that fascism had little to do with the outcomes of World War I, and depended for success more on the sympathies of the powerful than on any true mass movement. ..."
"... More broadly, fascism, like socialism, was rooted in a market society that refused to function' (p.239). The more market crisis, the better fascism prospered, since it purportedly offered a way to re-embed markets within social structures, albeit at the cost of human freedom. ..."
"... Mark Blyth's book, Great Transformations ..."
"... they create their own disciplining apparatuses that subordinate national economies to international markets. Traditional social protections haven't been gutted, but they have been greatly weakened. ..."
"... As Piketty and others have documented, the benefits of globalization have flowed, to a vastly disproportionate extent, to those who were already rich. ..."
"... Unions have been crippled, often quite deliberately. Traditional labor markets have been hollowed out, leaving working class people exposed to uncertain and often miserable futures. Just like the nineteenth and early twentieth century paupers and workers that Polanyi discusses, modern workers and members of the lower middle class find themselves exposed to an unrestrained market, that seems intent on ripping out the social bulwarks that used to protect them. ..."
"... Review of International Political Economy ..."
"... The problem, they argue, building on Kalecki's thought and generalizing it, is that each regime contains the seeds of its own destruction. More precisely, each regime encourages actors within it to behave in ways that gradually make the regime politically unworkable. ..."
"... Blyth and Matthijs argue that this is indeed what happened, giving rise to neoliberalism. The neoliberal regime identified the key problem of the previous regime, inflation, as its major policy target. And indeed, advanced industrialized democracies have had relatively low inflation over the last thirty years. However, pursuit of this policy goal has its own problems. Neoliberalism too contains the seeds of its own demise, even if they are different seeds, and it is a different demise. ..."
"... If the previous era was a debtor's paradise, where inflation made it cheaper to pay back debts, Blyth and Matthijs identify the current order as a creditor's paradise where the real value of debt is maintained (on the struggle between creditors and debtors, see also James Buchan's wonderful and neglected book on money, Frozen Desire ..."
"... Lots of mentions of "society" there, and none of the nation-state, which is interesting, since one of the forms that disembedding has taken since the 1970s is "globalization", a process whereby the economy has ceased to be a national economy but "society" has largely remained within borders. ..."
"... Interesting to characterize these movements as a debtors revolt given that trump allegedly owes a lot of money to some dubious creditors. ..."
"... Whereas all groups made great educative gains in the 1900/1970 period (with first universal primary and secondary education, then the massification of undergraduate education), only the top 15% to 25% went on to pass this threshold (at least for several decades). ..."
"... I think members of this latter group, who typically do not own significant amounts of capital yet are hardly accurately described as workers, can legitimately be counted on the side of the winners, even when not capitalists themselves. And indeed, the normal constituent voter of left-of-center mainstream parties in advanced democracies (as well as the normal candidate, in fact) has been a non-capitalists member of this group, making the "supine response" of these parties to the inherent problems of the neoliberal regime almost natural: elected representatives of these parties and their core voters profited, and still profit, from this regime (in the increasingly present context of climate disruption, it is not unconceivable that this group-aka as us-would experience a net reduction of its level of economic prosperity in the event of an egalitarian redistribution more attuned to ecological needs). ..."
"... Blyth and Matthijs do need for reasons of self-preservation to shy away from calling neoliberalism one Big Lie, though it does take away a bit from the clarity of their exposition that they must refrain from doing so, for the moment. ..."
"... A regime as explanator implicitly rejects the core idea of the neoliberal regime - a general market equilibrium, complete with a not quite invisible hand of monetary policy, as the stabilizing mechanism for the growth path of the economy. ..."
"... A regime, as a common alignment of many things, many trends if you will, is compatible with a vision of an economy which is fundamentally driven by disequilibrium dynamics, an economy which for fundamental reasons of uncertainty, accumulation and depletion, in which the distribution of risk reflexively drives the distribution of income and economic behavior. A regime explanation says that periods of apparent stability are the result of a kind of gyroscopic stability imparted by forward motion that aligns and coordinates, in much the way that pedaling a bicycle makes the bicycle smoothly stable as long as it is in forward motion. ..."
"... The implied essence of the regime as explanator is that capitalism is inherently dynamic and unstable - really that uncertainty ..."
"... I crossed this bridge myself in 2008. Trump's supporters are principally concerned with creating opportunities for their kids, not improving their own immediate circumstances, which are just fine for the most part. ..."
May 06, 2017 | crookedtimber.org

by Henry on May 1, 2017 This is the second in a series of projected posts that try to look at the Trump administration and right wing populism through the lens of different books (the first – on civil society – is here ). The last post was mostly riffing on Ernest Gellner. Today, it's another middle-European exile intellectual – Karl Polanyi.

Karl Polanyi's key book, The Great Transformation has enjoyed a big revival in the last decade. This Dissent article by Patrick Iber and Mike Konczal provides a great summary. Their article – from last year – was intended primarily to frame a discussion of differences between Hillary Clinton and Bernie Sanders. However, as Iber and Konczal suggest in passing, Polanyi would not have been surprised by Trump. Why not? In part, because Polanyi offers a macro-level account of the changing relationship between society and economy, and how efforts to free the economy from the embrace of social relations become self-undermining.

In Polanyi's argument, the economy is 'socially embedded.' This means that economic transactions and relationships aren't separate from society – they are part of it. Efforts to free the market from society and make it self-regulating are not only utopian, but are likely to have disastrous consequences. For Polanyi, the liberal market societies that sprung up in countries such as Britain in the eighteenth and nineteenth centuries, and spread across the world, are not rooted in some natural propensity to 'truck, barter and exchange one thing for another.' Instead, they are an unnatural extrusion – the result of a doomed effort to separate out the market from the society that constitutes it, turning nature and social relations like labour into artificial commodities to be bought, sold and exchanged.

This is rooted in Polanyi's understanding of economic history, which discusses other ways in which the economy has worked (an aside: a substantial portion of the work of the Nobel prize winning economist Doug North can be read as an extended effort to prove Polanyi wrong ). It also leads to his famous (among social scientists) argument about the 'double movement.' Polanyi argues that efforts to disembed markets from their social supports leads to a backlash from 'Society,' which looks to re-embed market relations within a social context.

This effort to re-embed social relations can take both benign and malign forms. Polanyi was a social democrat. He wanted to roughly map out a set of social protections that could restrain the harmful effects of markets, effectively re-embedding them within a set of social protections. Yet his book was first published in 1944, and he was equally concerned with the malign ways in which Society might re-embed markets. He saw the economic crises of the 1930s as a product of disembedded markets and the gold standard. This led to direct political confrontations between workers – immiserated by lower wages and capitalists who had "built industry into a fortress from which to lord the country" (p.235). Economic and political paralysis provided ideal conditions for fascism to succeed: "Fear would grip the people, and leadership be thrust upon those who offered an easy way out at whatever ultimate price" (p. 236).

Polanyi believed that fascism had little to do with the outcomes of World War I, and depended for success more on the sympathies of the powerful than on any true mass movement. At least as important as an actual fascist movement "were the spread of irrationalist philosophies, racialist esthetics, anticapitalist demagogy, heterodox currency views, criticism of the party system, widespread disparagement of the 'regime' or whatever was the name given to the existing democratic set-up" (p.238). More broadly, fascism, like socialism, was rooted in a market society that refused to function' (p.239). The more market crisis, the better fascism prospered, since it purportedly offered a way to re-embed markets within social structures, albeit at the cost of human freedom.

Thus, for Polanyi, the key challenge was to re-embed markets in society in a healthy rather than pernicious fashion. This would involve social protections and the restoration of the primacy of society over the economic system, so that "the market system would no longer be self-regulating" (p. 251). Governments would cooperate more, while retaining the freedom to organize their national life as they wanted, rather than being strangled by the need to maintain an artificial currency standard. The valuable aspects of liberal society – specifically, the civil liberties, private enterprise and wage system which sprung up from nineteenth century liberalism – would have to be maintained through persistent efforts to ensure that every move to strengthen society be accompanied by a move to strengthen individual freedom.

Polanyi's arguments provided many post World War II social democrats with a set of intellectual tools to understand and justify the world that was being created. They suggested that European social democracy, rather than being a way station on the path to true revolution, was an end-state, and arguably a more attractive end-state than exemplars of post-revolutionary society such as the USSR and China. In domestic politics, national governments instituted the welfare state and other social protections. In international politics, scholars such as John Ruggie argued in the 1980s that the post World War II economic order provided a kind of 'embedded liberalism' of the kind recommended by Polanyi.

They also provide, potentially a diagnosis of what has gone wrong since the 1980s. Embedded liberalism is dead, and neo-liberalism has triumphed in its place. Mark Blyth's book, Great Transformations , is an explicit updating of Polanyi. It documents how intellectuals and business leaders brought through an intellectual, social and economic transformation, deliberately intended to undermine embedding institutions, and reinstitute market freedoms in their place. The world of the last twenty years has seen an extraordinary transformation. International markets do not any more have an equivalent of the gold standard (although the euro served quite well in its place in the European Union), yet they create their own disciplining apparatuses that subordinate national economies to international markets. Traditional social protections haven't been gutted, but they have been greatly weakened.

As Piketty and others have documented, the benefits of globalization have flowed, to a vastly disproportionate extent, to those who were already rich.

Unions have been crippled, often quite deliberately. Traditional labor markets have been hollowed out, leaving working class people exposed to uncertain and often miserable futures. Just like the nineteenth and early twentieth century paupers and workers that Polanyi discusses, modern workers and members of the lower middle class find themselves exposed to an unrestrained market, that seems intent on ripping out the social bulwarks that used to protect them.

Hence, a straightforward Polanyian account of Trump and right wing populism would explain it as a backlash to the renewed efforts of market liberals (or neoliberals in market parlance) to free the economy from the social restraints that make it bearable for human beings. It would argue that we are again seeing a 'double movement,' as right wing populist politicians take advantage of popular anger to restore a social and moral order which may look appalling to liberal eyes, but which reinstitutes (or, at least, claims to reinstitute) much desired social protections.

Fred Block and Peggy Somers provided such an account a couple of years ago, where they foresaw the threat of resurgent right wing populism. Their analysis is worth quoting in extenso

Polanyi argued that the devastating effects on society's most vulnerable brought on by market crises (such as the Great Depression in the 1930s) tends to generate counter movements as people struggle to defend their livelihoods, their neighborhoods, and their cultures from the destructive forces of marketization. The play of these opposing dynamics is the double movement, and it always involves the effort to remobilize political power to tame the apparent over-extension of market forces. The great danger Polanyi alerts us to, however, is that mobilizing politics to protect against markets run wild is just as likely to be reactionary and conservative, as it is to be progressive and democratic. Whereas the American New Deal was Polanyi's example of a democratic counter movement, fascism was the classic instance of a reactionary counter-movement; it provided protection to some while utterly destroying democratic institutions.

This helps us to understand the tea party as a response to the uncertainties and disruptions that free market globalization has brought to many white Americans, particularly in the South and Midwest. When people demonstrate against Obamacare with signs saying "Keep Your Government Hands off My Medicare," they are trying to protect their own health care benefits from changes that they see as threatening what they have. When they express deep hostility to immigrants and immigration reform, they are responding to a perceived threat to their own resources-now considerably diminished from outsourcing and deindustrialization. Polanyi teaches us that in the face of market failures and instabilities we must be relentlessly vigilant to the threats to democracy that are often not immediately apparent in the political mobilizations of the double movement.

We just saw in the European elections that right-wing, seemingly fringe parties, came in first in France and the U.K. This is a response to the continuing austerity policies of the European Community that have kept unemployment rates high and blocked national efforts to stimulate stronger growth. It might still be largely a protest vote-a signal to the major parties that they need to abandon austerity, create jobs, and reverse the cuts in public spending. But unless there are some serious initiatives at the European Community and the global level to chart a new course, we can expect that the threat from the nationalist and xenophobic right will only grow stronger.

The best evidence for this perspective comes from the rhetoric of Trump and other right wing populists. Trump's rhetoric differs from traditional Republicanism in that it isn't as viscerally hostile to social protections (at least social protections that Trump supporters don't associate with African Americans and immigrants). He welds together a detestation for foreigners with anger towards a perceived cosmopolitan elite, and a promise to protect ordinary Americans from both. Irrationalist philosophies . Racialist esthetics . Anticapitalist demagogy . Heterodox currency views . Criticism of the party system . Widespread disparagement of the 'regime.' Und so weiter .

Orban and Kaczynski, pari passu, offer much the same blend. So, for that matter, does Theresa Mayin a watered down form. They may or may not deliver on their rhetoric (Trump's anti-Wall Street fervor, for example, has miraculously disappeared after his election), but each bases their appeal on it.

There are different flavors of Polanyian thought. Iber and Konczal represent a left-leaning social democratic flavor, that is in line with the Sanders wing of the Democratic party, and look to build bridges with those further to the left. Other Polanyians like Sheri Berman are more attracted to a moderate version, which builds more directly on the European example, and are skeptical of anti-system versions of leftism. Polanyian arguments involve compromise between a left critique of markets and a more centrist defense of liberalism. Different writers strike the compromise in different places.

This also has implications for how one analyses Trump and other populists. For example, Berman argues that the dangers of right wing populism depends to a very great extent on the strength of existing liberal institutions and practices, and the willingness of others to oppose Trump (just as traditional fascism depended for its success on the willingness of 'establishment' conservatives to strike a deal).

Polanyi's arguments about great transformations differ from civil society oriented approaches like Gellner's in some important ways. Gellner is, in the end, on the side of the cosmopolitans – he prefers a detached and ironic liberalism to more traditionalist versions of identity, and believes that it is crucially linked to the thought system that has given rise to science and the partial mastery of nature (even if he prefers to maintain a quasi-ironic stance towards that thought system too). Civic nationalism, for Gellner, is the homage that virtue pays towards vice – an identity politics homeopathically diluted so as to make it stronger in some ways (people remain oriented to the general interest of a larger collective), but weaker in others (they are also capable of maintaining and moving between other forms of identification). Polanyi, in contrast, values community attachment and accompanying 'thick' notions of society as good things in their own right. While he also sees great virtue in some aspects of liberalism, he seeks always to prevent it from overwhelming society, both because of the devastation that it wreaks itself, and the corresponding devastation that may be wreaked by Society taking its revenge.

This makes Polanyi attractive to two, somewhat different, strains of modern argument on the left. The first – closer to the center – is a strand of communitarianism, which similarly looks to reconcile the values of liberalism and community order. The second is a more strongly left leaning social democratism, which is indirectly influenced by Marx and friendly to Marxian thought, but which looks to find a different set of intellectual ancestors than those of the Marxist tradition.

The weakness of traditional Polanyian thought is twofold. First, modern conditions are not the same as those identified by Polanyi in the 1930s. There isn't a stalemate between the workers and the capitalists (the capitalists seemed mostly to have won). Second, the mechanisms that Polanyi identifies are notably vague. To argue that 'Society' strikes back against the 'Market' is to identify an already indistinct relationship between two indistinctly defined abstracts. There is arguably something very important in there, somewhere. However, without further specificity, it is hard to make concrete arguments about what is going to happen when, let alone to build on these arguments towards successful action.

One possible way forward is offered in a new paper ( non-paywalled until the end of May at Review of International Political Economy ) by Blyth and Matthias Matthijs. As noted before, Blyth's first book riffed explicitly on Polanyi, while drawing out a separate set of arguments about the relationship between ideas and institutions, and how this explained the senescence of embedded liberalism as well as its birth. This paper, in contrast, is not a development of Polanyi's arguments so much as an effort to do what Polanyi did in the 1940s. Blyth and Matthijs use current events to come to a systemic understanding of changes in the world economy, changes in domestic economies, and how they are related to each other.

They argue, more or less, that the international economic order tends at any one moment in time to have a specific 'regime' – a set of 'policy targets' or expected goals that actors within the system, look to achieve, and the institutions within which these targets are embedded. The problem, they argue, building on Kalecki's thought and generalizing it, is that each regime contains the seeds of its own destruction. More precisely, each regime encourages actors within it to behave in ways that gradually make the regime politically unworkable.

Thus, after World War II, the regime of Western countries was oriented towards the policy target of achieving full employment. This, however, as Kalecki argued, meant that the median wage kept on rising, advantaging skilled workers, and disadvantaging business, which found it hard to 'discipline' labour, or maintain productivity. In turn then, private investment fell, and unemployment rose at the same time as inflation rose too – the so-called 'stagflation' of the 1970s. Kalecki predicted, rightly, that this would lead business and capitalists to start pushing actively for a more 'orthodox' set of policies which would move away from trying to maintain full employment, and towards cutting deficits instead.

Blyth and Matthijs argue that this is indeed what happened, giving rise to neoliberalism. The neoliberal regime identified the key problem of the previous regime, inflation, as its major policy target. And indeed, advanced industrialized democracies have had relatively low inflation over the last thirty years. However, pursuit of this policy goal has its own problems. Neoliberalism too contains the seeds of its own demise, even if they are different seeds, and it is a different demise.

If the previous era was a debtor's paradise, where inflation made it cheaper to pay back debts, Blyth and Matthijs identify the current order as a creditor's paradise where the real value of debt is maintained (on the struggle between creditors and debtors, see also James Buchan's wonderful and neglected book on money, Frozen Desire ). Thus, the current regime is pursuing a "policy of price stability in an environment of wage stagnation and rising debt levels driven by the [regime] itself" (p. 22). Stagnant wages and low job security led people to borrow money to retain their ability to consume, helping lead to the financial crisis. The policy responses to this crisis – which have boosted returns to asset holders, while imposing austerity on others – have not eased the systemic problems of the new regime, but rather worsened them.

This (combined with the supine response of the center left to these problems) is what is leading to the new populism that is threatening to overwhelm the existing system – the "anti-creditor pro-debtor political coalitions that have been systematically eating away at mainstream center-left and center-right party vote shares since the crisis." The political success of Trump, and politicians like him, is the consequence of endogenous breakdown within the regime.

Blyth and Matthijs's account differs from Polanyi's in some very important ways. The key dynamic is not 'Society' striking back at the 'Market.' Instead, it is a more specific set of actors, whose interests are largely determined by the situation that they find themselves in, and how that situation changes as the dynamics of a given regime become self-undermining (in the sense that they erode the underlying foundations of the regime) at the same time as they are self-reinforcing (in the sense that the core actors try to keep the system going through increasingly desperate measures. It also is, as they note, exploratory rather than dispositive. What it does is to usefully show how Polanyi's basic intuitions – that the neo-liberal project of market creation is inherently self-undermining – can be applied to a far more specific set of actors, and specific set of mechanisms entraining those actors, than described in Polanyi's own work.

(Updated to include many small fixes and a couple of clarifications. Updated again to include Block and Somers quote which really should have been there in the first place).

Brad DeLong 05.01.17 at 4:16 pm ( 1 )

Looks like you are going to write my paper about how Gellner, Polanyi, Keynes, and Tocqueville are the master social-theory keys to understanding the 21st century before I do

May I recommend "Highway to Hitler"? http://www.nber.org/papers/w20150

Yours,

Brad DeLong

Ronan(rf) 05.01.17 at 4:58 pm ( 2 )
Afaict a lot of the research would say that what we're seeing is primarily a reaction to cultural change, and although that can't be completely divorced from market driven socio economic changes (for example occupational/class shifts) a lot is just simply demographics (a reaction to immigration, decline in status for once dominant ethnic groups etc)

What could polanyi say about that, if the changes people were reacting to were mainly demographic rather than socio economic ?

bruce wilder 05.01.17 at 5:16 pm ( 4 )
Very interesting essay. I will offer only a reaction to a couple of small points.

after World War II, the regime of Western countries was oriented towards the policy target of achieving full employment. This, . . . meant that the median wage kept on rising, advantaging skilled workers, and disadvantaging business, which found it hard to 'discipline' labour, or maintain productivity. In turn then, private investment fell, and unemployment rose at the same time as inflation rose too – the so-called 'stagflation' of the 1970s.

A couple of things are questionable in this narrative account and that may be telling to larger arguments. What is "advantaging skilled workers" doing in this narrative? Really, it was "skilled" workers who were advantaged? What skills? "Skills" are one of those things people introduce to economic arguments willy nilly when they want to invoke moral factors but avoid mentioning political power. It's hand-waving of the worst sort.

The auto and steel workers scored because they were organized and because the economic rents enjoyed by their oligopolistic employers were vulnerable. "Discipline" was a real enough problem - quality in car production was notorious. But, the "unskilled" nature of production labor was also conspicuous - the jobs were extremely boring. And, management wasn't sure whose side they were on; that management employees would get the same union benefits that they conceded to hourly labor was surely a factor in the generous terms of the 1969 labor agreements.

"private investment fell" Not actually true. Returns on investment fell, even as rates of investment continued to rise - that was the problem of the late 1960s and 1970s. There's a paradox here, in the relationship of invested capital to wages and it has to do with diminishing returns. That was then, and today, we are experiencing the mirror image problem: rates of return are now very high, but rates of investment are quite low - in fact, a large part of the apparent increase in the share of national income going to "capital" over the last generation is attributable to net disinvestment, cashing out of accumulated capital stock, tangible and intangible, and diversion of flows from social reproduction of that capital stock. In the 1960s, the U.S. was building the interstate highway system and great state university systems; now infrastructure is conspicuously shabby and college is a trapdoor into debt peonage.

I am thinking it might be worthwhile to throw in a bit of Frank Capra and It's a Wonderful Life to show what Polanyi is pointing at. What are the economics of that movie fantasy? And, the alternative of Potterville? Savings and loans on the one hand, and casinos on the other, among other things. And, now we have as President, someone who profited pushing casino gambling as a key to economic development.

bob mcmanus 05.01.17 at 5:25 pm ( 5 )
Gellner, Polanyi, Keynes, and Tocqueville are the master social-theory keys

Really?

I'm reading Henry's pieces, largely without comment, looking to see which way the winds are blowing. Okay, maybe the Marxians lost and are over, and the Continental Theorists aren't welcome, but the Social Constructionists? Michael Mann, Giddens, Baumann, Randall Collins, Bellah, Sassen not political theory enough maybe. And then the cyberkids, post-90s thinkers:Fuchs, Castells, Hayles, Kittler, Manovich, Couldry, Bakardjieva, Kosseleck media studies, cultural studies nothing to do with political economy. Nor the feminists, critical race theorists, or post-colonialists or queer theorists. (Not that I have read them all, but I want to, I should)

Gellner, Polanyi, Keynes, and Tocqueville. Right.

Chris Bertram 05.01.17 at 6:49 pm ( 6 )
Lots of mentions of "society" there, and none of the nation-state, which is interesting, since one of the forms that disembedding has taken since the 1970s is "globalization", a process whereby the economy has ceased to be a national economy but "society" has largely remained within borders.
engels 05.01.17 at 7:09 pm
we are again seeing a 'double movement,' as right wing populist politicians take advantage of popular anger to restore a social and moral order which may look appalling to liberal eyes, but which reinstitutes (or, at least, claims to reinstitute) much desired social protections

This sounds a bit like: 'we are about to see the end of human mortality because Sergey Brin is going to live forever (or at least claims he will)'.

Stephen 05.01.17 at 7:42 pm ( 8 )
Henry: "Polanyi believed that fascism had little to do with the outcomes of World War I".

Life is short, I have many other things to do, I confess I've not read Polanyi. But could you enlighten me: does he explain why Fascism did well in states badly defeated in WWI (Germany, Austria, Hungary) or disappointed (Italy, Romania), but not in states more or less victorious (France, Belgium, UK, USA, Canada, Australia) or happily neutral (Sweden, Norway, Denmark, Netherlands, Switzerland)?

Also: "Blyth and Matthjis identify the current order as a creditor's paradise where the real value of debt is maintained". As far as I can see, negative real interest rates are becoming more and more common. Some mistake here?

JimV 05.01.17 at 8:24 pm ( 9 )
There were skilled workers outside of the automobile assembly lines.

Ships, turbines, generators and other complex machinery were not built using assembly lines. Skilled workers in those fields included welders, grinders, machinists, crane operators, riveters, pattern-makers, foundry workers, electricians and drafters. GE had an Apprentice Program to teach high-school graduates these skilled trades, in the 1950's, 60's, and 70's.

At a design meeting in the 1970's, Dr. W, the Manager of Aerodynamic Development Engineering at GE Large Steam Turbine once told us, "The key to aerodynamic efficiency in a turbine blade is continuity of the second-derivative." To which the Rotor Design Engineering Technical leader replied, "Someday let me introduce you to the large Polish guy who grinds the second derivative." (Who probably made as much as Dr. W, with overtime to get things shipped in December instead of January to meet year-end billing.)

Not so much anymore, of course.

nastywoman 05.01.17 at 8:49 pm ( 10 )
– and I always thought that contemporary 'Populists' just pick -(without a lot of 'thought') – whatever (currently) is popular to get elected?
– and that's why so much 'Social-Democratic-Policy' is in the programs of Europeans Populists – but so little in the thoughts of a Von Clownstick.
And that the only 'things' Populists in the US and in Europe share – is 'braindead nationalism' – very 'narrow minds' – and pretending to be -(courtesy – Oxford Dictionary) –
'A member or adherent of a political party seeking to represent the interests of ordinary people'?

And I never thought there is any thought behind the willy-nilly-ways Von Clownstick picked his friends – from US Republicans to Crazy Right-Wingers – Russians – if helpful – or even the Blond from Wikileaks – und so weiter

And there is this old German Fairy Tale -I think from Wilhelm Hauff – where a 'citizen' who hates the establishment in the town he lives – dresses up an Ape in very fancy clothes and presents him as 'a gentlemen' – and how 'visionary' was that – and did you guys ever enter a Trump Hotel? I mean – the way the dude picks his Interior Design – that's so 'Nouveau Rich Russian' – that we should ask for his birth certificate?

bob mcmanus 05.01.17 at 9:41 pm ( 11 )
I expected to like the Mark Blyth and very much did, thanks for the link. Blyth seems to be good, much better than I, at communicating the useful ideas to the audience that needs to hear them.

Bertram: whereby the economy has ceased to be a national economy but "society" has largely remained within borders.

Blyth and co-writer at the end talk about a return to "neo-nationalism" without being clear how it differs from nationalism. My early impressions of the current reaction is that globalization, cosmopolitanism and uhh diversity have progressed much further than say 1900-1925 (how much is left of agricultural and rural sectors, or even mass manufacturing) and are embedded more deeply and broadly in national populations, up to 20 to 30 percent. Not yet enough to be hegemonic in adverse conditions.

So reactionary nationalism will mostly fail, as we are seeing, in strong economic changes. We will remain neoliberal. It will I think fail on social or cultural changes, except in areas where the state makes a difference. it will roll back state programs, including immigration, minority protections, cultural support etc. But culture will continue to globalize and diversify as a media and social project.

PS: Blyth does the now std periodization, 1945-75 as the Keynesian Fordist era, 1975-2008 as the neoliberal retrenchment (?). But stuff like the National Endowment for the Arts, Food Stamps, Great Society and Civil Rights Programs endured and prospered throughout the latter period. Could we possibly reassess those as more neoliberal than Fordist, and therewith expand our understanding of neoliberalism?

engels 05.01.17 at 10:11 pm ( 12 )
I think JimV and Bruce are both right. Skilled worker can be a meaningful concept hut nowadays it seems to be commonly used as a kind of virtus dormitiva explanation for the higher wages paid to people higher up the corporate food chain and a fig-leaf for various kinds of rent, connections, cultural capital, etc
Russell Arben Fox 05.02.17 at 12:03 am ( 13 )
A wonderful review-essay, Henry; I'll be thinking about some of the things you say here for a while. My only comment is that when you say

This makes Polanyi attractive to two, somewhat different, strains of modern argument on the left. The first – closer to the center – is a strand of communitarianism, which similarly looks to reconcile the values of liberalism and community order. The second is a more strongly left leaning social democratism, which is indirectly influenced by Marx and friendly to Marxian thought, but which looks to find a different set of intellectual ancestors than those of the Marxist tradition.

I think you might be making a slight category error, in that you're looking at different elements of the left that ground themselves in slightly differing disciplinary perspectives, but which are very much a part of the same whole. The theorists who call themselves "communitarians" and those who call themselves "social democrats" do not necessarily overlap, but that's because they're looking at different sets of conceptual questions: at the collective nature of humankind's social epistemology and moral evaluation, in the former, and at the collective nature of political legitimacy and public goods, in the latter. The Marxist tradition has things to contribute to both, I think.

John Quiggin 05.02.17 at 12:41 am

Pro-debtor politics is always in competition with social democracy. In the US, for example, there is a strong negative correlation at the state level between redistributive taxation and debtor-friendly bankruptcy laws. Trump, a repeated bankrupt and tax dodger, embodies this perfectly.

alfredlordbleep 05.02.17 at 2:05 am ( 15 )
Thus, Polanyi believed that fascism had little to do with the outcomes of World War I, and depended for success more on the sympathies of the powerful than on any true mass movement.

Orwell specifically offered this [emphasis added] which admittedly doesn't go as far as the Polanyi attribution:

Mein Kampf by Adolf Hitler
reviewed by George Orwell

. . . It is a sign of the speed at which events are moving that Hurst and Blackett's unexpurgated edition of Mein Kampf, published only a year ago, is edited from a pro-Hitler angle. The obvious intention of the translator's preface and notes is to tone down the book's ferocity and present Hitler in as kindly a light as possible. For at that date (early 1939) Hitler was still respectable. He had crushed the German labour movement, and for that the property-owning classes were willing to forgive him almost anything.

john c. halasz 05.02.17 at 2:38 am ( 16 )
I'm a bit puzzled by JQ @12. "Financial assets" are at bottom debt, i.e. claims held by creditors against underlying production incomes, wages and profits. One might argue that there are all sorts pf property and equity claims count as much (though that's increasingly untrue with stock buy-backs, PE buy-outs, etc.), but "wealth" is held primarily in the form of "financial assets" and those assets are increasingly inflated in "value" by debt leveraging, officially supported by CBs among other agencies; while drawing off production incomes from the rest of the economy, they are based on speculation, M-M' without any intermediating C, IOW fictitious capital. Public debt, while stigmatized by neo-liberal austerity advocates, nonetheless supplies key collateral for the financial system and its leveraging strategies and instruments, while substituting for taxation. So just how would progressive income taxation be the opposite of bankruptcy, i.e. debt reduction and restructuring, when increasing potions of basic earned income are consumed in debt servicing, while large shares of income are siphoned off by inflated financial "assets"? Doesn't that just indicate the weakness of traditional social democratic thinking and the economic models that supported it, which largely missed the debt dynamics that culminated in the current continuing crisis? Now if you wanted to talk of taxation of financial "wealth" and the blocking off of financial flows to tax havens and the substitution of public investment for private extractions, in the face of public deficit fear-mongering, then you might get at the required debt-restructuring and head toward a real program of income redistribution and economic revival oriented toward alternative ends. But it's hard to see how one could do that while maintaining a "cosmopolitan" outlook that ignores states and their citizen publics.
Brett 05.02.17 at 6:15 am ( 19 )
I don't quite understand the "discipline" argument. Productivity growth rates were higher in the Postwar Period than in the decades before, despite far stronger and more militant unions. Why would such be easier to discipline than before?

It feels more like declining productivity was caused by something else, and that plus inflation increasingly cratered returns on investment (especially since this was back when the stock market was still boring in the US).

phenomenal cat 05.02.17 at 7:10 am ( 20 )
halasz, it would be helpful, for me anyway, if you could further unpack your reasoning starting with "so just how would progressive taxation " and especially the bit about the weakness of "social democratic thinking" that follows.

I think I'm following based on the last couple of sentences, but something more explicit would be nice. Insofar that I am, this may be the cul de sac in which the political economy of globalization/neoliberalism will founder with its inability/unwillingness to reverse direction.

If there can be no limits or boundaries to the flows of "cosmopolitan" capital and wealth (or its concentration) within and across various configurations of the state (or other kinds of communities) the outcome will be increasing constrictions on the power and sovereignty of states and communities. This much is already clear. What is less clear, though outlines are taking shape, is the full extent of social reaction to this state of affairs. The de riguer right wing and/or "populist" reactionary reaction among some publics is plainly visible but will go no further than exacerbating existent problems or further devolving states' atrophied capacity to act on behalf of the public. The political wildcard is on the leftward spectrum of reaction where actors are finally waking up en masse to the realities of a sociocultural compromise with liberalism and to the plain fact that neoliberal governance as financialized corporate globalism is willing to compromise on exactly nothing. The problem, as you seem to be indicating, is the left spectrum remains enthralled to models that appear to have been checkmated. As of yet the left has yet to produce any novel solutions that confront actually existing concentrations of power and not those of 75 – 100 years ago.

Given current state of affairs, mass or public reaction may well push toward more or less complete withdrawal of "participation," general refusal, and legitimacy collapse across political and economic institutions. Bartelby the Scrivener as world history.

Faustusnotes 05.02.17 at 9:16 am ( 21 )
Interesting to characterize these movements as a debtors revolt given that trump allegedly owes a lot of money to some dubious creditors.
MFB 05.02.17 at 12:57 pm

Interesting point, faustusnotes, but perhaps you are making the mistake of a) thinking that Trump believes what he says and b) thinking that Trump voters know what they're doing.

In reality, there is obviously an enormous amount of debt generated by the need to promote easy credit in order to keep consumption high while keeping wages low. This was bound to piss people off sooner or later. There is also an enormous amount of underemployment and unemployment driven by a reluctance to invest in anything which doesn't offer an enormous return on investment.

It seems likely that what is happening at the moment is simply a revulsion against the circumstances in which people find themselves, combined with absolute ignorance (and massive misinformation) about the source and cause of those circumstances. Hence, all over the world, people are making extremely unwise choices of leaders and then getting immensely pissed off when those leaders don't do what they imagine the leaders have promised to do, and going off and voting for even less wise choices in consequence.

The long-term effects of this are not promising.

Z 05.02.17 at 1:36 pm ( 23 )
Commenting on such a deep yet wide-ranging post almost feels like cheapening. Here goes nevertheless

there isn't a stalemate between the workers and the capitalists (the capitalists seemed mostly to have won)

and

This (combined with the supine response of the center left to these problems) is what is leading to the new populism

attracted my attention.

In addition to the reaction of the business community described in Blyth & Matthjis, a designed economical response if I understood correctly their thesis, isn't it also the case that the educative trajectories of the various groups in advanced societies started to diverge (and more properly sociological change)? Whereas all groups made great educative gains in the 1900/1970 period (with first universal primary and secondary education, then the massification of undergraduate education), only the top 15% to 25% went on to pass this threshold (at least for several decades).

I think members of this latter group, who typically do not own significant amounts of capital yet are hardly accurately described as workers, can legitimately be counted on the side of the winners, even when not capitalists themselves. And indeed, the normal constituent voter of left-of-center mainstream parties in advanced democracies (as well as the normal candidate, in fact) has been a non-capitalists member of this group, making the "supine response" of these parties to the inherent problems of the neoliberal regime almost natural: elected representatives of these parties and their core voters profited, and still profit, from this regime (in the increasingly present context of climate disruption, it is not unconceivable that this group-aka as us-would experience a net reduction of its level of economic prosperity in the event of an egalitarian redistribution more attuned to ecological needs).

Hence also the preference for irrationalism and intellectual heterodoxy amongst the political adversaries of this group.

Ronan(rf) 05.02.17 at 7:05 pm ( 24

Further to (2) above

https://www.adamtooze.com/2017/03/01/explaining-brexit-trump-search-method/

"Inglehart, is a die hard modernization theorist. So he would insist on long-term connections between economic development, affluence and liberal postmaterial values. But this is a very different kind of socio-economic determinism than the one usually invoked to explain the current surge of radical right politics. And it would seem to me that the Polanyians should concede some major modifications to their crisis model. How exactly one might modify the Polanyian model, I will need to write a separate post.

The trigger of immigration, after all, can easily be squared with a basic Polanyian position. It is the model of cultural development, or lack of it, that is the problem. Why do some people react to globalization protectively and not others and does this reduce to sectional economic interests and exposures to competitive pressure?
" the aforementioned 'other post'

https://www.adamtooze.com/2017/03/02/notes-global-condition-mapping-debate-around-left-behind-white-working-class/

bruce wilder 05.02.17 at 7:24 pm ( 26 )
engels @ 12: I think JimV and Bruce are both right.

Indeed. JimV experienced and is describing aspects and manifestations of what I abstractly labeled, "disinvestment" - the dismantling and burning off of accumulated often intangible social capital to fund upward income redistribution.

Brett @ 19: I don't quite understand the "discipline" argument. . . . It feels more like declining productivity was caused by something else, and that plus inflation increasingly cratered returns on investment (especially since this was back when the stock market was still boring in the US).

Blyth and Matthijs are arguing a "regime" as explanator, which is to say that it isn't any one thing, but the common alignment of many things, that matters. And, they are explicitly insisting on - or at least emphasizing - a top-down, macro dictates micro, everything-becomes-endogenous approach in constructing the identification of how the regime both explains and orders dynamic development.

The conventional Chicago School mainstream neoclassical economics that underpins the neoliberal explanation of the neoliberal regime (1980-2008+) says that we live in a market economy, a decentralized system of markets loosely coordinated by more-or-less competitive market prices, drawn toward manifest stability most of the time by the strange attractor of a near-by general equilibrium cum Solow growth path, to which to the U.S. economy (it is always the U.S. economy which is the implicit model for macroeconomic speculation) always returns after exogenous shocks have knocked it down temporarily. This market economy stabilized by general equilibrium in price is imagined to be rather like the one Hayek imagined for his essay on the Use of Knowledge in Society, a better-than-socialist-planning emergent utopian economy, which is less-than-perfect only because wages and prices are too "sticky". Wages are sticky downward, you see, and that is particularly unfortunate in blocking the path of necessary adjustments toward a utopia of ever cheaper labor - workers are inexplicably stupid about not-accepting lower wages when that would be to their advantage in restoring equilibrium full-employment. (Do I have to mention that I am being sarcastic?)

Neoliberalism's explanation of the neoliberal regime helped to create the neoliberal regime. And, Blyth and Matthijs are self-consciously aware that they must find a way out of that explanatory structure, which is why, for example, they feature a recasting of the Lucas Critique, which was an important foundation stone in erecting the intellectual superstructure of the neoliberal regime way back when. The previous regime's "Keynesian" (or New Deal or ordo-liberal) intellectual superstructure was subverted pretty completely over a long period of time, its main threads thoroughly marginalized, so it is hard to get a clear view without calling the whole of mainstream economics a giant cabal of fools and liars.

Blyth and Matthijs do need for reasons of self-preservation to shy away from calling neoliberalism one Big Lie, though it does take away a bit from the clarity of their exposition that they must refrain from doing so, for the moment.

A regime as explanator implicitly rejects the core idea of the neoliberal regime - a general market equilibrium, complete with a not quite invisible hand of monetary policy, as the stabilizing mechanism for the growth path of the economy.

A regime, as a common alignment of many things, many trends if you will, is compatible with a vision of an economy which is fundamentally driven by disequilibrium dynamics, an economy which for fundamental reasons of uncertainty, accumulation and depletion, in which the distribution of risk reflexively drives the distribution of income and economic behavior. A regime explanation says that periods of apparent stability are the result of a kind of gyroscopic stability imparted by forward motion that aligns and coordinates, in much the way that pedaling a bicycle makes the bicycle smoothly stable as long as it is in forward motion.

So, a regime explanation says that the post-war period of economic growth and expansion was the consequence of getting a lot of things aligned and then launching the bicycle on its course down a smooth slope. Not one thing alone, but many things, repeating and repeating in pattern like the spinning of a bicycle's wheels: trivial things many of them, like the auto industry's annual introduction of new models or negotiating new labor contracts. And, not by the emergent magic of the market alone, but by deliberate institution building and management.

So, if you were to go back and seek an explanation for the steady increase of productivity and wages over the nearly thirty years from 1946 to 1973, using a regime to organize your thinking would allow an identification of many underlying factors - increasing use of petroleum, increasing use of process manufacturing techniques and increasing scale of production under those techniques, increasing scope and reach of the money economy, increasing scale of global trade and exchange. What allows for the appearance of stability in what is a highly dynamic period is getting all of that moving forward in a way that lets people coordinate their expectations and behavior: the overarching regime that imparts stability to dynamic change. Risks are low despite epic rates of change and people act confidently, increasingly assured that the recent past is a good guide to a reliable and therefore beneficent future.

The implied essence of the regime as explanator is that capitalism is inherently dynamic and unstable - really that uncertainty (that we don't know a lot more than we do know or can expect to learn and we never know exactly what we do not know) dominates economic organization; rational expectations is b.s. in a world driven to founder on disappointed expectations). All the factors that might explain some apparently linear trend, like say productivity growth, over some seemingly stable period are in fact arcing thru a cycle, self-subverting if you like but also not unlike an arrow shot up into the sky that must come down somewhere.

Labor discipline is no different from any other factor trend: it was arcing across the 1940s to the 1970s just like the expansion of petroleum and electricity, or the expansion of world trade within the framework of Bretton Woods. The bicycle of the world economy centered on the U.S. hit a wall and the rider fell off in the 1970s stagflation. Talk about over-determined! Bretton Woods broke; the vestigial gold exchange standard broke, the petroleum economy hit a ceiling and broke, the Fordist manufacturing economy broke, the U.S. agricultural economy built on subsidized control of production broke.

Or, if you prefer, not-broke so much as simply passed an inflection point on an inevitable arc, and a new institutional regime was required to organize and structure the economy, to put the bicycle back up and into forward motion to restore the sense of stable movement. Blyth and Matthijs are proposing that the neoliberal regime put into place around 1980 can be understood as organized around a monetary policy of disinflation leading to deflation: that was the essential stabilizing element around which everything else aligned. I think they might be being too clever by half, self-consciously trying to lead a neoliberal establishment away from its self-regarding orthodoxy by playing on its narcissism and its self-love for the Great Moderation.

A remarkable thing about the 1930s is how reluctant liberals were to take the opportunity presented by the New Economy of electricity and gasoline and mass production. The means to greatly expand production and increase human welfare were ready to hand and people were stumbling over reactionary resistance and their own certainty that there was magic in the hair-shirt of austerity and the gold standard. (The non-liberal left in the 1930s was fomenting revolution in a way that seemed mostly to add to the palsy of liberalism. Then there was Stalin, who certainly transformed Russia in an ugly hurry.)

We liberals and leftists, today, do not have such great opportunities, but we seem to want to imagine that we do. Elon Musk is our hero. Post-scarcity is our leftish vision for an overpopulated world on the eve of what is almost certain to be a toboggan ride toward a collapse of ecologies and probably civilization itself.

Z 05.02.17 at 7:56 pm ( 27 )
Sorry for the double post, I'm slowly grappling with the ideas.

I think in the end what I meant to say is that Polanyi's Great Transformation can be conceptualized as a struggle between Society and Markets in the context of a convergence of social groups within a given society (convergence driven by rising educative level, the correlative universal participation in the political sphere and perhaps the massive destruction of capital in the two world wars and the Great Depression) while the current Great Transformation of the neoliberal and post-neoliberal regime can be likewise conceptualized as a struggle between Society and Markets but this time in the context of a divergence of social groups (driven by diverging educative achievements, the correlative diverging modes of participation in the political sphere and perhaps the lack of massive destruction of capital by cataclysmic events).

An interesting aside, also touched upon by Chris, is that even though Polanyi's Great Transformation happened in a converging context within the national system, it was remarkable in its diversity internationally (New Deal in the US, Front Populaire in France, Nazism in Germany ). It is unclear to me to whether the current Transformation is happening in a diverging or converging context internationally. On the one hand, comparable nation-states are currently clearly engaged in diverging socio-economic trajectories (if only in terms of demographic evolution) and supposedly homologous political forces actually do diverge quite a bit (there is not so much in common politically between the US under Trump, the UK under May and Germany under Merkel for instance, even though they supposedly all represent the mainstream rightwing party of their respective national systems). On the other hand, the governing élite is very cosmopolitan and socially homogeneous and actual political reactions to the current economic system tend to be quite similar, perhaps.

JRLRC 05.02.17 at 9:50 pm ( 28
So, disembedded markets are or tend to be bad for (the) people, who eventually realize that in a very imperfect fashion. Fascism has required the costs of disembedded markets. Deregulated markets are disembedded markets. Neoliberalism leads or contributes to fascism. And those who co-built and opened the door for the fascists can close it behind them both

In the trumpian case, I do see both fascism and neoliberalism (continuity of; Obamacare excepted). There is a fascist perspective within the administration, with its nationalist-populist components, not just authoritarian, but it coexists with neoliberal bullshit and policy, such as the usual tax breaks for the usual suspects. Neoliberal fascism?
Is there room (and time) for neoliberal fascism as a national regime properly understood?
Very useful text, Henry.

kidneystones 05.03.17 at 1:03 am ( 30 )
There's a great deal to admire and enjoy in this essay. So much so that I won't bother to comment on the many useful and informative elements. The piece is well-grounded, well-argued, and clearly the product of Henry's solid scholarship. The problems appear, predictably I'm afraid, in Henry's characterization of the tea party and of Trump supporters.

Few, in any, social scientists of Henry's political disposition appear to have spent much time digesting tea party arguments first hand, or those of Trump. Immigration can be a magnet and code argument for xenophobes and racists. I'd suggest, however, that many tea party people see/saw themselves as pro-immigration. Every call for the wall by Trump was followed a call for legal immigration through a great, beautiful gate. At the local level, immigration presents both opportunities for new experiences and revitalizing old fears. The industry and optimism of immigrants (generally) is a slap in the face to those who've learned their very existence is regarded by the powers that be (including elites on both coasts) as an impediment to progress and efficiency. The 'left' certainly displays no interest, or sympathy, for coal miners in West Virginia, for example, despite efforts by Obama and HRC to draw attention to their plight, a plight clearly of concern to Henry and many here.

Yet, submission on cultural issues such as abortion and trans-gender rights seems to be the price demanded by rank-and-file 'liberals' as a condition of re-humanizing this group of fellow citizens. That rank ignorance and bigotry are rife in some of these same communities should not and cannot be a factor in forming economic alliances with these folks, not least because right-leaning populists are far more motivated and committed to change than those on the left. (Henry's earlier critique on the motivations of the new Labour members is worth recalling)

I crossed this bridge myself in 2008. Trump's supporters are principally concerned with creating opportunities for their kids, not improving their own immediate circumstances, which are just fine for the most part. This vision of the world is not one in which most of the people in the picture are a different color, creed, or culture. Most people would like to think (I believe) that their own kids can raise families of their own in circumstances somewhat better than their own – without being forced to learn a new language, or adapt customs foreign to their own way of life.

I'll close by restating that culture is at least as important as cash – that's the conclusion of Arlie Hochschild. Liberals need to set aside their own prejudices and disdain for those who vote for Trump and Brexit if liberals have any hope of winning their trust. Both this essay and others like it suggest that task may be easier said than done.

Maynard Handley 05.04.17 at 2:45 am ( 31 )
Let me suggest that the real problem here is the wrong level of analysis. What the essay presents is a series of models for how the world works - the Polanyi model was relevant then but broke down, the Blyth and Matthijs model now describes today. Instead let me suggest that the problem is meta: Modernism (growing since the Enlightenment) is an insistence that the messiness of reality can be captured by models. This is not just an insistence on rationality, it is an insistence that the axioms that feed into that rationality are fairly few and can be fairly easily grasped.

And what I see over "recent" history is occasional angry rebellions against the feeling of living in a society that is created by these rigid rules - an unhappiness stemming from both constant (always apparently, frequently actually) stupid constraints AND also a constant need to have to make and deal with choices even when you don't care about the choices. (Not just choices of "what peanut butter to buy" but choices of the "I don't know how to be a man anymore" or "how come what we used to say thirty years ago is suddenly so taboo?" form.)

So we have, for example, Nazism (and Japan) as a reaction to this. (I'm not about the more backward parts of Europe, and I think Russia, like China was something different.) Then we have 1968 and The Greening of America. Then we have the Iranian Revolution. Then we the Tea Party in America and Al Qaeda in the Arabic world.

I'm not denying that political entrepreneurs hijack the zeitgeist to suit their ends; nor am I claiming that every spasm of recent world history was a reaction to the world created by Modernism; but I am saying that the events I listed had this reaction as their ultimate cause. Which means, IMHO, that you can't satisfy the unhappiness simply with a political program because the unhappiness is not of political origin, even though that's a particularly graphic manifestation.

In other words, the sorts of texts that *I* think are relevant to understanding are things like Bendict Anderson, _Seeing like a State_, the point being not a trivial libertarian "states are stupid and they suck" but rather "Modernist models of the world try to impose legibility on situations that are fundamentally complex, and this enforced legibility will frequently lead to backlash and disaster, whether it's ignorantly designed "scientific forestry in Germany, or attempts to redesign agriculture in the USSR, or the assumption that risk can be so well modeled and distributed that it can be nullified as we saw in 2007".

Or Iain McGilchrist, _The Master and his Emissary_, talking about two alternative ways in which the brain works (holistic vs analytic, filled with fascinating anecdotes about the consequences of various types of brain traumas), and how the West (and I'd say much of Asia) appears to be in thrall to the analytic, to the extent that it can no longer see or even understand that the map is not the territory.

[May 08, 2017] Thoughts on Mirowski and Neoliberalism from a Polanyian Perspective by Kari Polanyi Levitt and Mario Seccareccia

May 05, 2017 | www.ineteconomics.org

May 2016 | Economic History | History of Economic Thought | Institutions, Policy & Politics

Commentary By

Download paper


Karl Polanyi demonstrated that Classical Liberalism and current Neoliberalism were organized political movements, but their successes sparked political backlashes against laissez-faire economics - a dialectic that continues to shape politics to this day. Laissez faire was planned, explained Karl Polanyi in The Great Transformation: The origins of the market system go back to the intentional project of institutional transformation initiated in England in the 19th century, establishing a free labor market, free trade and the gold standard. Institutions such as the unions, the industrial cartels and the Welfare State instead emerged subsequently as spontaneous counter-reactions to laissez faire. Kari Polanyi Levitt and Mario Seccareccia show, with a new periodization, how this dialectic interaction, or 'double movement' can still guide the understanding of today's Neoliberalism.

This is a response to "The Political Movement that Dared not Speak its own Name: The Neoliberal Thought Collective Under Erasure" by Philip E. Mirowski

[May 07, 2017] The Conservative Rout and Donald Trump

Notable quotes:
"... Last week, Madame Le Pen declared that 'finance' is a primary enemy of France. Bankers are now lumped with Muslims as dire threats to the republic. ..."
"... With promises to "drain the swamp!" still ringing in our ears, we have watched Trump appoint nothing but Goldman banksters, Soros stooges, neocon war hawks and police state zealots to head his cabinet. ..."
May 07, 2017 | www.unz.com

TheJester , May 5, 2017 at 2:42 pm GMT \n

200 Words As Ed Margolis comments in his latest piece in the Unz Review,

" Last week, Madame Le Pen declared that 'finance' is a primary enemy of France. Bankers are now lumped with Muslims as dire threats to the republic. Outgoing President Francois Hollande made the same warning last year, but no one paid him any attention.

Coming from the hard-right Le Pen, it's a bombshell. 'Finance' is really political code for Jews who dominate parts of France's media, banking, and industry. France has Europe's largest Jewish population, followed by Ukraine.

Le Pen's gun sights are trained squarely on the youthful Macron who may, it is rumored, have some Jewish background, and squarely on his former employer, the mighty French Rothschild banking empire."

It seems we have the same problem in the United States with a (((tribal))) faction who dominate parts of media, banking, and industry in the United States also holding our country ransom to their globalist agenda albeit we call them Neocons, which is also a code word for Jews.

Agent76 , May 5, 2017 at 4:32 pm GMT \n
Feb 3, 2017 How Trump Filled The Swamp

With promises to "drain the swamp!" still ringing in our ears, we have watched Trump appoint nothing but Goldman banksters, Soros stooges, neocon war hawks and police state zealots to head his cabinet.

Read More Reply Agree/Disagree/Etc. More... This Commenter Display All Comments

jilles dykstra , May 5, 2017 at 4:55 pm GMT \n
@War for Blair Mountain Best comment in this thread!!!


Two Nations..one White...one non-White...occupying and competing for the exact same LIVING AND BREEDING SPACE=VIOLENT RACE WAR...with great international c0nsequences...I personally would like to see China nuked off the map for exporting its population....

Trump is an enthusiast for importing Chinese Legal Immigrants into the US...so they can enthusiastically vote his White Male voting bloc...into a violently persecuted racial minority within the borders of America....And while this is going on...Jared Taylor...Richard Spencer....and Steve Sailer want to have eternal discussions about IQ test score psychometrics...and PISA test scores...I despise all three of the aforementioned.... Nothing breathing space, control of oil, gas, mineral resources.
The USA consumes some 40% of those resources on this planet, with some 5% of the world population.

Bill , May 5, 2017 at 5:40 pm GMT \n
100 Words @jilles dykstra In W European eyes the USA does not have political parties.
A USA correspondent long ago explained the mystery of the difference between democrats and conservatives: conservatives is old money, democrats new.
Yet I do see a difference, democrats want war, conservatives are more prudent about war.
So I was quite happy that Hillary was defeated, who I saw, and see, capable of fighting a nuclear war against Russia, far from her home, but destroying ours.
I had hoped that Trump would end USA militarism, what since Roosevelt has been the great evil of this world.
Alas I fear that Deep State still is pursuing its goals, the goals Hillary was expected to attain.
If Trump really wants to end USA militarism, or that Deep State is more powerful than an elected president, for the present it is wait and see.

A USA correspondent long ago explained the mystery of the difference between democrats and conservatives: conservatives is old money, democrats new.

That's not it at all. The difference is in the industry they represent. The Republicans represent the state: the energy, defense, and what's left of the manufacturing industries. The Democrats represent the church: finance, high-tech, education, entertainment, social work, and Sillycon Valley (now that the valley is no long about manufacturing).

jilles dykstra , May 6, 2017 at 6:46 am GMT \n
200 Words @IvyMike mindless anti semitic blind worms wriggling throughout the internet A great war cry, antisemitism, it is supposed, and, I must admit it does most of the time, to silence any criticism of jews.

In the row in Europe between Brussel and Hungary about ending Soros's activities in Hungary this war cry now also has been used.

The Hungarian prime minister Orban had a talk with Brussels bureaucrat Timmermans about throwing Soros out of Hungary, especially his 'prestigious' university, in my view meant to undermine Hungarian nationalism.

Orban in his talk with Timmermans seems to have called Soros a speculator, what he was, he made his fortune speculating in currencies.
He even was condemned to three months jail by a French court for trading with foreknowledge.

Soros is hated to this day in Malaysia, they feel he lowered the value of their currency, making their lives more expensive.

But now Timmermans has labeled 'speculator' as 'reeking of antisemitism'.
Hungary now demands that Timmermans be fired.

Brussels wants Hungary to adhere to EU values, this seems to include allowing Soros to undermine the Hungarian government.

Sean , May 6, 2017 at 9:44 pm GMT \n
200 Words Wellington was aghast at the size of the army Napoleon brought to Waterloo (and that was after Napoleon had made the fatal error of dividing his force). Any objective objective observer aware of the correlation of forces would have given Napoleon a far greater chance of victory at Waterloo that any expert gave Trump. He risked everything including his fortune, because it endless investigation by a hostile Hilary administration would have taken it from him had he lost

Trump is like Peisistratos of Athens–the good tyrant who broke the stranglehold of the aristocracy. A very capable businessman, who relies on the support of the common people, just as the wealthy Peisistratos did. Trump has also mobilised an army of the lower orders to overturn all received wisdom about who rules and who can expect to benefit. Expect him to reward his supporters in the only way that he would want to be rewarded himself: with money. Trump will move left domestically.

[Apr 17, 2017] High Cost of Our Finance Sectors

Notable quotes:
"... US finance sector is a net drag on their economy ..."
"... Overcharged: The High Cost of High Finance ..."
"... Download the mp3 to listen offline anytime on your computer, mobile/cell phone or handheld device by right clicking here and selecting "save link as." ..."
angrybearblog.com

April 16, 2017

Via www.truth-out.org/news/item/40002-taxcast-staggering-numbers-on-the-high-cost-of-our-finance-sectors

Published on Mar 23, 2017

In the March 2017 Taxcast: the high price we're paying for our finance sectors – we look at staggering statistics showing how the US finance sector is a net drag on their economy.

www.youtube.com/embed/E7oOiJl1n1I

John Christensen and Alex Cobham of the Tax Justice Network, and Professor of Economics Gerald Epstein of the University of Masachusetts Amhurst. Produced and presented by Naomi Fowler for the Tax Justice Network.

In our March 2017 Taxcast: the high price we're paying for our finance sectors -- we look at staggering statistics showing how the US finance sector is a net drag on their economy.

Also, as the British government initiates Brexit divorce negotiations to leave the EU, we discuss something they ought to know, but obviously don't -- they're actually in a very weak position. Could it mean the beginning of the end of the finance curse gripping the UK economy?

Featuring: John Christensen and Alex Cobham of the Tax Justice Network, and Professor of Economics Gerald Epstein of the University of Masachusetts Amhurst, author of Overcharged: The High Cost of High Finance. Produced and presented by Naomi Fowler for the Tax Justice Network.

"If you look at particular finance centres, say London and New York, the problem is that the net cost of this system is quite significant, it imposes a cost not only on people who use finance but for the whole economy. So, what we need to think about is what are the more productive activities that ought to be substituted for these excessive aspects of finance?"-Professor Gerald Epstein

"We might be seeing the start of the end of Britain's grip by the Finance Curse"-John Christensen, Tax Justice Network on Britain's weak position in Brexit negotiations

Download the mp3 to listen offline anytime on your computer, mobile/cell phone or handheld device by right clicking here and selecting "save link as."

[Apr 15, 2017] Oil Production Cuts OPEC Saudis Want $60 Price

Apr 15, 2017 | finance.yahoo.com

As the Wall Street Journal's Benoit Faucon and Summer Said report: "Saudi Arabia, Iraq and Kuwait believe $60 a barrel will lift their economies and allow for more energy-industry investment, the officials said, without jump starting too much American shale output, which can be ramped up and down with prices more easily than most oil production. Saudi Arabia, Iraq and other members of the 13-nation cartel have signaled they will push to extend those cuts for another six months on May 25, when they meet in Vienna." Crude prices are influenced by a hard to predict group of variables, from Chinese demand and supply disruptions in the Middle East to the amount of crude U.S. frackers pull out of the ground. Oil prices hit $100 a barrel in 2014 before the market collapsed.

Read more Barrons.com

[Apr 06, 2017] The Western Consensus has been that capital controls on the free movement of capital is bad and inefficient, just as government management of free trade is bad and inefficient

Apr 06, 2017 | economistsview.typepad.com
anne

, April 05, 2017 at 07:41 AM
http://blogs.worldbank.org/allaboutfinance/there-natural-resource-curse-finance

April 4, 2017

Is there a natural resource curse in finance?
By THORSTEN BECK and STEVEN POELHEKKE

The natural resource curse has featured prominently in discussions on why many developing countries fail to grow. This curse takes on many flavours - adverse exchange rate effects, underinvestment in human capital and institutions, political conflict and violence, to name just a few. What about the effect on the financial sector? The financial sector has been shown to have a critical role in intermediating domestic savings into domestic investment and in allocating scarce resources effectively, with positive repercussions for economic growth (Levine, 2005). The financial system should thus serve as an important absorption tool for windfall gains, such as arising from natural resource rents. Does it fulfill this role? Previous work has shown that financial systems are less developed in more resource-rich countries (Beck, 2011), but this could be driven by demand, rather than by a supply-side related curse.

In recent research, we address the causality challenge by gauging whether natural resource windfalls are associated with deeper financial intermediation, using a panel dataset of over 150 developed and developing countries over the period 1970 to 2008. Using a novel methodology to isolate exogenous changes in natural resource rents and applying structural VAR methods allows us to address concerns related to cross-country explorations of the relationship between natural resources and financial development and make statements beyond simply correlations.

Why would there be a natural resource curse in finance? ...

[ There should be no necessary natural resource curse in finance for developing countries. The actual curse amounts to the failure of natural resource rich developing countries to use capital controls for extended periods of time. ]

Peter K. -> anne... , April 05, 2017 at 08:01 AM
Good point. The Western Consensus has been that capital controls on the "free movement of capital" is bad and inefficient, just as government management of "free trade" is bad and inefficient.

(government interference is bad.)

Mainstream economist pushed this propaganda. But lately the consensus on capital controls has been changing.

pgl -> Peter K.... , April 05, 2017 at 09:42 AM
But you dismiss enforcing the transfer pricing rules. Go figure!
Peter K. -> pgl... , April 05, 2017 at 01:44 PM
I would be in favor of doubling the IRS's budget and enforcing the transfer pricing rules.

I would be in favor of more regulation like Capital Controls, unlike free traders like you.

paine -> Peter K.... , April 05, 2017 at 12:30 PM
The corporate liberation front

The CLF

Has been emboldened by trump

Limited liability Kongs everywhere breaking chains

[Mar 26, 2017] Staggering cost of Finance Sector under neoliberalism

Notable quotes:
"... Originally published at the Tax Justice Network ..."
"... US finance sector is a net drag on their economy ..."
"... It is a cleverly worked out system for wealth transfer. Complex laws, political backing and protection even if you break the law. At least in the old days when you got robbed you had the signal of having a pistol pointed at you. The modern version, with all the insider media psyops, leaves those who are preyed upon feeling that they are the ones to blame. ..."
"... The business model is straight out of the Cosa Nostra playbook – except there is media, political and legal backing. ..."
"... As an Italian friend of mine (who rarely goes north of 14th Street) once remarked, "The difference between the Mafia and bankers is that the Mafia always leaves a few crumbs on the table." ..."
"... Did I hear that right – the private finance sector will have cost us (in the US) 23Tr$ by 2020. And from 1990 to 2005 big finance cost us (already) 14Tr in fees, pay, fraud, misallocation and lost productivity. Yet we continue to deregulate even though all governments know how destructive deregulated finance is. ..."
"... yes, the EU does seem to be hungry to grab up all that finance for itself I keep thinking about Schaeuble coming to NYC c2012 and holding an impromptu news conference wherein he said it was fine with him if some banks went down because "we are overbanked." But we do have to admit that "overbanked" is an understatement since there are no productive investments and it's just self-defeating. I mean, how long can this go on? ..."
"... I don't know, how much money do you have left? ..."
"... It pays to remember that prior to 2008, hot (sovereign state backed) money flowed unimpeded like water across all EU borders, regardless of regulation, in search of quick handsome and easy returns, and much of it from subsequently bailed out by the ECB backdoor major lenders in France and Germany lending recklessly to poorer EZ members. ..."
"... The lasting results of this and its hasty, damaging retreat and the inequitable socialisation of the debt across the EZ are, of course, still being felt today. ..."
"... One of the major causes of the financial crisis was lax global regulation period. So let's not kid ourselves that by removing the UK from the European Union equation it is suddenly going to render it a bastion of sound prudential banking practice, particularly given various members recent comments that they intend to do anything in their power to tempt a post Brexit UK's financial services at the earliest opportunity. ..."
"... I do subscribe to the belief that the UK financial services sector has been and still is toxic to its economy and long-term future, and without a doubt this informed the Brexit vote, albeit in some cases on a subconscious level. ..."
Mar 26, 2017 | www.nakedcapitalism.com
Posted on March 25, 2017 by Yves Smith Originally published at the Tax Justice Network

In our March 2017 Taxcast: the high price we're paying for our finance sectors – we look at staggering statistics showing how the US finance sector is a net drag on their economy .

Also, as the British government initiates Brexit divorce negotiations to leave the EU, we discuss something they ought to know, but obviously don't – they're actually in a very weak position. Could it mean the beginning of the end of the finance curse gripping the UK economy?

Featuring: John Christensen and Alex Cobham of the Tax Justice Network, and Professor of Economics Gerald Epstein of the University of Masachusetts Amhurst , author of Overcharged: The High Cost of High Finance . Produced and presented by Naomi Fowler for the Tax Justice Network.

Professor Gerald Epstein:

If you look at particular finance centres, say London and New York, the problem is that the net cost of this system is quite significant, it imposes a cost not only on people who use finance but for the whole economy. So, what we need to think about is what are the more productive activities that ought to be substituted for these excessive aspects of finance?

John Christensen, Tax Justice Network on Britain's weak position in Brexit negotiations:

We might be seeing the start of the end of Britain's grip by the Finance Curse

https://www.youtube.com/embed/E7oOiJl1n1I

Download the mp3 to listen offline anytime on your computer, mobile/cell phone or handheld device by right clicking here and selecting 'save link as'.

Want more Taxcasts? The full playlist is here .

Want to subscribe? Subscribe via email by contacting the Taxcast producer on naomi [at] taxjustice.net OR subscribe to the Taxcast RSS feed here OR subscribe to our youtube channel, Tax Justice TV OR find us on iTunes

skippy , March 25, 2017 at 3:01 am

Drag = Rentier = bottle neck economics which in the end becomes a death spiral due to lack of demand and jobs quality .

Si , March 25, 2017 at 3:45 am

It is a cleverly worked out system for wealth transfer. Complex laws, political backing and protection even if you break the law. At least in the old days when you got robbed you had the signal of having a pistol pointed at you. The modern version, with all the insider media psyops, leaves those who are preyed upon feeling that they are the ones to blame.

The business model is straight out of the Cosa Nostra playbook – except there is media, political and legal backing.

Genius.

Hayek's Heelbiter , March 25, 2017 at 6:14 am

As an Italian friend of mine (who rarely goes north of 14th Street) once remarked, "The difference between the Mafia and bankers is that the Mafia always leaves a few crumbs on the table."

Watt4Bob , March 25, 2017 at 11:00 am

"Wouldn't you rather give me my money, that you have in your pocket, rather than force me to take the pistol out of my pocket, and point it at you, and rob you, and become a criminal?"

As you can clearly see, the logic is flawless, we are all much better off acquiescing to the reasonable demands of the FIRE sector, the only alternative being an admission that we're in the clutches of a deeply organized criminal element.

susan the other , March 25, 2017 at 11:44 am

thanks for this Taxcast, very to the point.

Did I hear that right – the private finance sector will have cost us (in the US) 23Tr$ by 2020. And from 1990 to 2005 big finance cost us (already) 14Tr in fees, pay, fraud, misallocation and lost productivity. Yet we continue to deregulate even though all governments know how destructive deregulated finance is.

And we know that the US is the biggest and most secret tax haven of them all

The first part of Taxcast speculated that Brexit will actually free the UK from the stranglehold of big finance and the country will be able to move on to more productive economic activity. So let us hope the US comes to its senses – just as the EU has finally isolated the rot of UK finance, maybe the rest of the world will isolate us.

Regulation seems to be hand-in-glove with national sovereignty. Whereas globalized finance might have escaped national regulation bec. there was always a safe haven for banksters, now with a backlash of indignant people all over the world there will be re-regulation at national levels. Since there is no global authority that can do that yet. Anyway, now that economies are trashed, there is way too much hot money to find good investments. It has already become absurd.

Colonel Smithers , March 25, 2017 at 11:51 am

Thank you, Susan.

I would not be so hasty thinking that the EU(27) has finally isolated the rot of UK finance. Much of that finance was not UK, but using the UK. The EU(27) is no less corrupt than the UK and as susceptible to big finance's charms.

I worked as a lobbyist in Brussels (and Basel and DC) for years.

susan the other , March 25, 2017 at 12:31 pm

yes, the EU does seem to be hungry to grab up all that finance for itself I keep thinking about Schaeuble coming to NYC c2012 and holding an impromptu news conference wherein he said it was fine with him if some banks went down because "we are overbanked." But we do have to admit that "overbanked" is an understatement since there are no productive investments and it's just self-defeating. I mean, how long can this go on?

Watt4Bob , March 25, 2017 at 3:21 pm

I mean, how long can this go on?

I don't know, how much money do you have left?

Gman , March 25, 2017 at 6:25 pm

Great piece. Thank you.

I'm not sure I get the 'rules on financial services are different than other goods and services' line being peddled here though. Maybe in theory, but it's pretty much a moot point.

It pays to remember that prior to 2008, hot (sovereign state backed) money flowed unimpeded like water across all EU borders, regardless of regulation, in search of quick handsome and easy returns, and much of it from subsequently bailed out by the ECB backdoor major lenders in France and Germany lending recklessly to poorer EZ members.

The lasting results of this and its hasty, damaging retreat and the inequitable socialisation of the debt across the EZ are, of course, still being felt today.

One of the major causes of the financial crisis was lax global regulation period. So let's not kid ourselves that by removing the UK from the European Union equation it is suddenly going to render it a bastion of sound prudential banking practice, particularly given various members recent comments that they intend to do anything in their power to tempt a post Brexit UK's financial services at the earliest opportunity.

I do subscribe to the belief that the UK financial services sector has been and still is toxic to its economy and long-term future, and without a doubt this informed the Brexit vote, albeit in some cases on a subconscious level.

[Mar 25, 2017] The popular press acts as if governments should act like a family. And just as families have to balance the budgets, governments have to. But this is a false analogy

Notable quotes:
"... The result was the economy had to depend on banks to create the money to expand. If the government doesn't create it, who will create the spending power? The answer was the banks. ..."
"... Clinton did what he was told to do by the Secretary of the Treasury, Robert Rubin. In effect, his policy was: "Let the banks create all the money and charge interest instead of the government creating money by spending it like the greenbacks were spent." ..."
"... The advantage of governments creating money is you they don't have to pay interest, because the spending is self-financing. Bank lobbyists cry about how large the government debt is, but this is debt that is not expected to be repaid. Adam Smith wrote that no government has ever paid its debt. ..."
"... The bank strategy continues: "If we can privatize the economy, we can turn the whole public sector into a monopoly. We can treat what used to be the government sector as a financial monopoly. Instead of providing free or subsidized schooling, we can make people pay $50,000 to get a college education, or $50,000 just to get a grade school education if families choose to if you go to New York private schools. We can turn the roads into toll roads. We can charge people for water, and we can charge for what used to be given for free under the old style of Roosevelt capitalism and social democracy." ..."
"... The guiding idea of a well-run economy is to keep natural monopolies out of private hands. This was not done in Russia after 1991. Its disaster under the neoliberals is a classic example. It led to huge immigration rates, shortening life spans, rising disease rates and drug use. You can see how to demoralize a country if you can stop the government from spending money into the economy. That will cause austerity, lower living standards and really put the class war in business. So what Trump is suggesting is to put the class war in business, financially, with an exclamation point. ..."
"... You used the word "stability" and this is often a slogan to prevent thought. George Orwell didn't use the term "junk economics," but he defined what doublethink is. The function is to prevent thought. "Stability" is akin to the "Great Moderation." Remember how economists running up to the 2008 crisis said, "This is a Great Moderation." ..."
"... By dismantling government spending on the Consumer Financial Protection Agency, the public news agencies, the National Endowment for the Arts, you're stripping the economy away and making the American economy like what Margaret Thatcher did in England. You make it less dynamic, a less lively place, and above all a poorer economy. That is the aim of these "reforms," which mean undoing what reforms used to mean for the last century. ..."
Mar 24, 2017 | economistsview.typepad.com

RGC said in reply to RGC...

MICHAEL HUDSON: The popular press acts as if governments should act like a family. And just as families have to balance the budgets, governments have to. But this is a false analogy, because if you personally spend more than you earn, you can't just write an I.O.U., which everybody else can spend as if it's real money. You have to pay the I.O.U. at some point, usually with interest, to the bank. But that's not the case with sovereign governments. When a government runs a budget deficit, it can do so in the way that Abraham Lincoln funded the Civil War: You print the money.

You print it into the economy by spending it.

Almost every year until the 1990s, the United States, like every other country in the world, increased its debt by running a budget deficit, by spending money into the economy for infrastructure, schooling, and roads. This is what enables economies to grow. That stopped during the Clinton administration in the 1990s. At the end of the administration he fell for neoliberal theory that you should balance the budget, and he actually ran a budget surplus. So the government stopped spending money into the economy.

The result was the economy had to depend on banks to create the money to expand. If the government doesn't create it, who will create the spending power? The answer was the banks.

Clinton did what he was told to do by the Secretary of the Treasury, Robert Rubin. In effect, his policy was: "Let the banks create all the money and charge interest instead of the government creating money by spending it like the greenbacks were spent."

The advantage of governments creating money is you they don't have to pay interest, because the spending is self-financing. Bank lobbyists cry about how large the government debt is, but this is debt that is not expected to be repaid. Adam Smith wrote that no government has ever paid its debt.

I think it's easiest for most Americans to understand this by looking at Europe. Under the Eurozone's rules, central banks are not allowed to create much money. As a result the economies of Europe are shrinking into austerity. Greece is the most notorious example. Here you have unemployment among youth up to 50% as the economy for the last five years is suffering from the worst depression since the 1930s. Yet the government is not able to spend the money needed to rebuild the economy. The banks won't let them do it. The aim of neoliberals is to prevent governments from spending money to revive growth by running deficits. Their argument is: "If a government can't run a deficit, then it can't spend money on roads, schools and other infrastructure. They'll have to privatize these assets – and banks can create their own credit to let investors buy these assets and run them as rent-extracting monopolies."

The bank strategy continues: "If we can privatize the economy, we can turn the whole public sector into a monopoly. We can treat what used to be the government sector as a financial monopoly. Instead of providing free or subsidized schooling, we can make people pay $50,000 to get a college education, or $50,000 just to get a grade school education if families choose to if you go to New York private schools. We can turn the roads into toll roads. We can charge people for water, and we can charge for what used to be given for free under the old style of Roosevelt capitalism and social democracy."

This idea that governments should not create money implies that they shouldn't act like governments. Instead, the de facto government should be Wall Street. Instead of governments allocating resources to help the economy grow, Wall Street should be the allocator of resources – and should starve the government to "save taxpayers" (or at least the wealthy). Tea Party promoters want to starve the government to a point where it can be "drowned in the bathtub."

But if you don't have a government that can fund itself, then who is going to govern, and on whose terms? The obvious answer is, the class with the money: Wall Street and the corporate sector. They clamor for a balanced budget, saying, "We don't want the government to fund public infrastructure. We want it to be privatized in a way that will generate profits for the new owners, along with interest for the bondholders and the banks that fund it; and also, management fees. Most of all, the privatized enterprises should generate capital gains for the stockholders as they jack up prices for hitherto public services."

The reason why the European countries, the United States and other countries ran budget deficits for so many years is because they want to keep this infrastructure in the public domain, not privatized. The things that government spends money on – roads, railroads, schools, water and other basic needs – are the kind of things that people absolutely must obtain. So they're the last things you want to privatize. If they're privatized instead of being publicly funded, they can be monopolized. Most public spending programs are for such natural monopolies.

The guiding idea of a well-run economy is to keep natural monopolies out of private hands. This was not done in Russia after 1991. Its disaster under the neoliberals is a classic example. It led to huge immigration rates, shortening life spans, rising disease rates and drug use. You can see how to demoralize a country if you can stop the government from spending money into the economy. That will cause austerity, lower living standards and really put the class war in business. So what Trump is suggesting is to put the class war in business, financially, with an exclamation point.


SHARMINI PERIES: You talked about the implications of cutting government spending and, in fact, your myth number 18 deals with this. You describe this myth as saying that cutbacks in public spending will bring the government budget into balance, restoring stability. And you just demonstrated through the Russian example that this is quite misleading and in fact has the opposite effect and destabilizes the population. So this policy Trump seems to endorse – the cutback in public spending – give us some examples of how this could affect society.


MICHAEL HUDSON: You used the word "stability" and this is often a slogan to prevent thought. George Orwell didn't use the term "junk economics," but he defined what doublethink is. The function is to prevent thought. "Stability" is akin to the "Great Moderation." Remember how economists running up to the 2008 crisis said, "This is a Great Moderation."

We now know that it was the most unstable decade in a century. It was a decade of financial fraud, it was a decade where economic inequality between wealth and the rest of the economy widened. So what made it moderate? Alan Greenspan went before the Senate Committee and gave a long talk on what was so "stable"? He said that what's stable is that workers haven't gone on strike. They are so deeply in debt, they owe so much money that they're one paycheck away from missing an electric utility payment. So they're afraid to strike. They're afraid even to protest against working conditions. They're afraid to ask that their wages be increased to reflect their productivity. What's stable is the wealthy people, Greenspan's constituency, the five percent or the one percent get all of the income and the people get nothing. That is stability according to Alan Greenspan.

Words like "stability" or similar euphemisms are used to make people think that somehow the economy is stable and normal. The reality is that it is being slowly squeezed. That's basically what happened in the Great Moderation. The government was cutting back spending on social programs, dismantling the New Deal array of consumer protection agencies, which Trump also wants to get rid of. The first thing he wanted to get rid of, he said, is Elizabeth Warren's Consumer Financial Protection Agency. The problem for Republicans serving their bank lobbyists is that it's trying to prevent fraud – and that limits consumer choice. Just like we let people go to MacDonald's and buy junk food and junk sodas to get obese, we have to let them have the free choice to put their pension funds in Wall Street companies that are going to cheat them.

These are the Wall Street firms that have paid tens of billions of dollars for the financial fraud they've committed. The Republicans want to dismantle all of the penalties against financial fraud, against cheating consumers. That would reduce the amount of money that sector can extract, and these people are what's driving the economy. But they're driving the economy largely by debt leveraging bordering on fraud. That's the kicker in all this.

By dismantling government spending on the Consumer Financial Protection Agency, the public news agencies, the National Endowment for the Arts, you're stripping the economy away and making the American economy like what Margaret Thatcher did in England. You make it less dynamic, a less lively place, and above all a poorer economy. That is the aim of these "reforms," which mean undoing what reforms used to mean for the last century.

These words and the vocabulary used in the press dovetail into each other to paint a picture of a fictitious economy. The aim is to make people think that they're living in a parallel universe, unable to use a vocabulary and economic concepts to explain just why life is so unfair and why they're being squeezed so badly.

Above all, the aim is to dissuade them from thinking about how it doesn't have to be this way. There is no natural law that says that they should be squeezed by debt, monopolies and fraud. But that kind of thinking requires an alternative program – and an alternative program requires recapturing the language to explain what it is that you're trying to create as an alternative.

[Mar 22, 2017] Taibbi: Trump Pick Jay Clayton Will Be Most Conflicted SEC Chair Ever

Mar 22, 2017 | www.rollingstone.com

America's incoming top cop on finance is literally married to industry

Clayton is already an unusual choice, given that he's slated to be a primary regulator of Wall Street while a chunk of his family income will continue to come from Goldman Sachs, where his wife Gretchen works . Although he will have to recuse himself from enforcement cases involving Goldman, he will not have to sit out of a broad range of other regulatory decisions that affect the company. This is already notable.

But Public Citizen has stumbled onto some other oddities about Clayton's personal holdings.

In Clayton's absurdly baroque Form 278 financial disclosure – if you want to feel like your financial life is meager and uncomplicated, take a look at this staggeringly long list of income sources for the former Sullivan and Cromwell mainstay – he lists, under "other assets and income," a series of entries involving a company called WMB Holdings.

WMB Holdings, he explains in a verbose and unhelpful endnote, is a Delaware-based entity that provides "business, financial, and representational services."

According to Clayton, WMB secures business licenses, files UCC forms, creates special purpose vehicles (you might remember these little financial Frankensteins from the Enron story), engages in "compliance support services," secures data storage and helps with "anti-counterfeiting services," among other things.

This sounds harmless enough. But WMB, and a company called CSC – with which it appears to have a connection – is a company of a very particular type, known well to white-collar investigators.

"It's a corporate formation company," says Jack Blum , an expert on white-collar crime and money laundering who is best known for his investigation of the BCCI scandal. "You call them up, and 20 minutes later you've got a Delaware corporation. I'm exaggerating, of course, but that's what they do."

These firms can be used to create chains of legal entities, sometimes ending in offshore accounts, that make tracing financial transactions difficult, if not impossible. "They can make the ownership of anything completely impenetrable," says Blum, speaking generally and not necessarily about Clayton's firm. "If you want to launder money, evade tax or hide assets from a spouse, you can do it."

Clayton's family seems to have a serious interest in this firm. He lists a series of family trusts containing WMB holdings, most producing high annual dividends.

If you add up each of the dividends – some of which are listed as generating over $1 million a year, while others are listed at $100,000-$1,000,000, etc. – the total annual value of these holdings comes out to over $4 million annually, at least.

The endnote claims Clayton has no beneficial interest or control in these holdings, but that his wife and/or children have a "beneficial interest."

Given that the company would appear to be subject to SEC oversight, it's worth asking the nature of his family's involvement with WMB, and moreover to learn more about what his attitude is toward such companies in general.

Clayton has pledged to divest from WMB when his wife has "directly held financial interests" in the company, but not where his wife or his children are "solely a beneficiary."

Public Citizen for a variety of reasons believes that WMB "may also be the parent of Corporation Service Co. (CSC)," another large business services firm with offices in "Delaware, Australia, France, Hong Kong, Singapore, Sweden, and the United Kingdom."

Among other things, WMB was for some time listed as the parent of a company called CSC Trust Co., now called Delaware Trust Co.

CSC Global claims 2,500 employees as well as 180,000 corporate customers, while also representing 10,000 law firms. The company appears to do more or less the same things that Clayton says WMB does, dealing with creating legal business entities, management of licenses, upkeep of filings, dealing with service of process, etc.

Interestingly, and to Blum's point, Clayton's disclosure does not list any interest in CSC. So although he gives some information about what appears to be a holding company with little to no public profile, the company that boasts of its connections to 180,000 corporations is not mentioned in the disclosure form.

Neither CSC nor Clayton have responded to requests for comment.

The real issue with companies like these is the vast array of tools they can offer big companies and high-net-worth individuals to complicate their financial profiles. The worst-case scenario is a string of shell companies that end in an opaque offshore haven.

"That's when the trail becomes impossible to follow," says Blum. Investigators who try to follow money into offshore banking havens have almost no hope of getting answers there, he says.

"You need a formal mutual legal request that may or may not be honored in the lifetime of the investigator," says Blum.

Interestingly, when Public Citizen ran the names of WMB and CSC through the Panama Papers database, they found nothing. But when they ran the address common to both companies – 2711 Centerville Rd., Wilmington – through the database, they found it connected with numerous firms whose agent was the infamous Mossack Fonseca, many of them offshore companies.

In its letter to the Senate Banking Committee, Public Citizen asked the Senate to ask Clayton what this means. Did either WMB or CSC do business with Mossack Fonseca? Have either of those companies provided services to Mossack Fonseca clients?

Even if WMB and CSC are completely above-board, it's a strange sort of investment for the top cop on the financial beat. It will be interesting to see if he sheds some light on his holdings when he's questioned this week.

[Mar 17, 2017] The recent decision by the Fed to raise interest rates is the latest example of the rigged economic system

Notable quotes:
"... The left under-appreciates the power of the Fed. Hillary said discussion of the Fed was off limits during election season. It's too important to be debated about by us plebes. ..."
"... Now, following an act of Congress that has forced the Fed to open its books from the bailout era, this unofficial budget is for the first time becoming at least partially a matter of public record. Staffers in the Senate and the House, whose queries about Fed spending have been rebuffed for nearly a century, are now poring over 21,000 transactions and discovering a host of outrages and lunacies in the "other" budget. ..."
"... It is as though someone sat down and made a list of every individual on earth who actually did not need emergency financial assistance from the United States government, and then handed them the keys to the public treasure. The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses. ..."
"... "Our jaws are literally dropping as we're reading this," says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. "Every one of these transactions is outrageous."" ..."
Jan 28, 2017 | economistsview.typepad.com
Peter K. -> yuan... January 28, 2017 at 09:25 AM
"Where have I heard this belief, that the all-powerful-fed if the source of all evil?"

Straw man much?

"PS: What is your zero hedge handle?"

Zero Hedge is a sad joke.

The left under-appreciates the power of the Fed. Hillary said discussion of the Fed was off limits during election season. It's too important to be debated about by us plebes.

Bernie Sanders wrote a good New York Times editorial about the Fed.

"The recent decision by the Fed to raise interest rates is the latest example of the rigged economic system. Big bankers and their supporters in Congress have been telling us for years that runaway inflation is just around the corner. They have been dead wrong each time. Raising interest rates now is a disaster for small business owners who need loans to hire more workers and Americans who need more jobs and higher wages. As a rule, the Fed should not raise interest rates until unemployment is lower than 4 percent. Raising rates must be done only as a last resort - not to fight phantom inflation."

https://www.nytimes.com/2015/12/23/opinion/bernie-sanders-to-rein-in-wall-street-fix-the-fed.html

And from Matt Taibbi of Rolling Stone magazine:

"Now, following an act of Congress that has forced the Fed to open its books from the bailout era, this unofficial budget is for the first time becoming at least partially a matter of public record. Staffers in the Senate and the House, whose queries about Fed spending have been rebuffed for nearly a century, are now poring over 21,000 transactions and discovering a host of outrages and lunacies in the "other" budget.

It is as though someone sat down and made a list of every individual on earth who actually did not need emergency financial assistance from the United States government, and then handed them the keys to the public treasure. The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses.

"Our jaws are literally dropping as we're reading this," says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. "Every one of these transactions is outrageous.""

http://www.rollingstone.com/politics/news/the-real-housewives-of-wall-street-look-whos-cashing-in-on-the-bailout-20110411?print=true

[Mar 17, 2017] 4 Wall Street Bonus Charts That May Make You Scream

Mar 17, 2017 | economistsview.typepad.com
RGC : March 17, 2017 at 07:26 AM , 2017 at 07:26 AM
The Fed has worked out perfectly for the private banks. They can be private when they make a profit and they can be bailed-out when they take a loss.

And in the meantime they can decide which of their buddies get sweetheart loans and send them a kick-back. And they can decide the future of the US economy according to what works best for them - screw the 90%.

RGC -> RGC... , March 17, 2017 at 11:49 AM
4 Wall Street Bonus Charts That May Make You Scream

http://www.alternet.org/economy/wall-street-bonuses-make-you-scream

[Mar 04, 2017] Is Wall Street Responsible for Our Economic Problems

Mar 04, 2017 | www.newyorker.com

The New Yorker

When I met Jeffrey Sachs, an economist at Columbia University and the author of " The End of Poverty ," for coffee recently, he was stubbornly holding on to a sense of optimism in spite of a discouraging turn in world events. Sachs served as an adviser to Bernie Sanders during his Presidential campaign, and has published a new book, " Building the New American Economy ," in which he presents the policy ideas that likely would have animated a Sanders Presidency-ideas that feel almost inconceivable in the current political climate.

At the core of Sachs's argument is the idea that the United States has been locked in a self-destructive tax-cutting mindset since January 20, 1981, the day Ronald Reagan was inaugurated as the nation's fortieth President. From that point forward, he argues, the country stopped funnelling sufficient resources into areas of society that are now in decline: the construction and maintenance of highways and airports; an education system that adequately serves people from all economic backgrounds; public health, technology, and communal spaces. Against a backdrop of the dramatic shifts in the global economy, the predictable result has been the gradual weakening of the middle class, the same group of people who finally rose up and reacted in anger and frustration, contributing to Donald Trump's election to the Presidency. "Long-term economic improvement occurs when societies invest adequately in their future," Sachs writes. "The harsh fact is that the United States has stopped investing adequately in the future; slow U.S. economic growth is the predictable and regrettable result."

Even if the economy were growing robustly, Sachs points out, it wouldn't guarantee that the wealth being generated is spread around in ways that encourage long-term prosperity. Over the last few decades, economic growth has disproportionately accrued to the wealthy, "who least need it," he says, leaving far too many people struggling. Median household incomes in the United States, when adjusted for inflation, have barely changed since 2000; most Americans still haven't recovered whatever economic footing they had prior to the financial crisis.

The steps that Sachs suggests are necessary to reverse this stalled growth and imbalance between the very wealthy and everyone else include the restoration of the government's role as a master planner of ambitious public-works projects on par with the creation of the national highway system, along with the raising of tax revenue to fund those kinds of projects. The sweeping but vague pronouncements emanating from the Trump Administration are not encouraging on this point: While Trump announced plans for a trillion-dollar infrastructure investment during his address to Congress this week, he has offered almost no details on how it would work or be funded, other than suggesting that it would involve enormous tax credits to incentivize private companies to get involved. He has made no indication as to how such a program would be administered, what projects would be tackled, or how it would be paid for.

The third step Sachs suggests seems equally unlikely to come to pass under a Trump Administration, but it is possibly the most intriguing: Sachs advocates the reorienting of the financial system away from short-term speculation and back toward the sorts of activities that help businesses grow. It may sound obvious that the purpose of banks is to lend money to businesses-which in turn hire employees, buy equipment, and make the economy hum. But, since the nineteen-eighties, Wall Street and the big banks and brokerage firms have shifted their emphasis away from the crucial but unglamorous task of helping companies gain access to capital that others have to lend. Instead, much of Wall Street has come to rely not on interest from loans for its profits but on short-term trading, at the expense of almost everything else.

Steven Cohen, the founder of the hedge fund S.A.C. Capital, whose rise and fall is the subject of my book, " Black Edge ," was one of the early pioneers of short-term trading. The hedge-fund business grew, over the course of the nineties and the two-thousands, into the dominant industry on Wall Street, believed by one estimate to manage three trillion dollars in assets. S.A.C. was not built on Warren Buffet-style long-term investments in companies but through rapid-fire trading that generated profits on the rising and falling of stocks. This made Cohen and others like him enormously wealthy while doing relatively little, their critics argue, for the economy as a whole. This critique doesn't capture the contributions hedge funds have made: they have historically played a role in exposing frauds and other problems at companies, and their high returns (when they've happened) have accrued to the pension and endowment funds that invest in them. But the short-term, high-velocity mindset that they embody spread to every actor in the financial system. Soon the major banks and other financial institutions were doing everything they could to cater to hedge funds, while also trying to emulate them by engaging in proprietary trading with their own money, or even buying hedge funds outright or starting their own. As for Cohen, his fund, S.A.C. Capital, was indicted for insider trading, in 2013, and ultimately shut down. Cohen came to stand for the idea of Wall Street as a crazy profit machine for those who work there, at the exclusion of everyone else.

Sachs, for his part, views this mindset as a toxic influence on the larger economy. We need "to shift Wall Street from high-frequency trading and hedge fund insider trading back to long-term capital formation," Sachs writes. "We remember J. P. Morgan as a titan of finance not for shaving a nanosecond from high-frequency stock market trades, but because his banking firm financed much of America's new industrial economy of the early twentieth century, including steel, railroads, industrial machinery consumer appliances, and the newly emergent telephone system."

The economic transformation Jeffrey Sachs envisions would require a reshaping of the culture of the financial industry. Prudent regulation could accomplish some of that by making short-term speculation costlier, and by requiring banks to align their compensation plans with their profits and losses over longer periods of time, and by reducing banks' and bankers' ability to distance themselves from the risks they take. Enforcement of securities laws, and creating an environment where senior bankers and traders face prosecution for their crimes, would be a powerful disincentive to reckless behavior-a stark contrast to the pay-your-way-out-of-trouble model that emerged from the financial crisis, when most banks and hedge funds like S.A.C. settled charges with fines. The Dodd-Frank financial-reform legislation passed after the crisis has been criticized for its complexity and is under attack in the Trump Administration, but it went part of the way toward making the financial sector more conservative. "Wall Street's true future vocation should be to underwrite the new age of sustainable investments in renewable energy, smart grids . . . high speed rails, broadband connected schools, and hospitals and other strategic investments of the new era," Sachs writes. "The financial industry, which created so much mayhem and destruction in the last decade, would once again return to its core vocation."

Even as President Trump prepares to cut back on financial regulation, Sachs was able to find historical reasons to be optimistic about the future.

"I am counting on [the historian] Arthur Schlesinger, Jr., coming through, because he championed an idea which I bought hook, line, and sinker, that America has political cycles. And we are well overdue for a progressive cycle," Sachs said. "Just as the Gilded Age was followed by the progressive era, and the roaring nineteen-twenties were followed by the New Deal, and just as the postwar Eisenhower years were followed by the Kennedy-Johnson period, which was a very transformative period of policies. We will get out of the Reagan era yet."

[Feb 19, 2017] 401K was a Trojan horse that changed things dramatically. It pushed people into stock market.

Feb 19, 2017 | economistsview.typepad.com
ilsm -> pgl... , February 18, 2017 at 12:37 PM
yup.

Income and wealth distribution.

Decline of hard sector, rise of services sector. Employment was different, no ERISA, defined benefit retirement was saved, etc. Unions declined.

Bretton Woods was working, the WTO was not a factor, public investment outside the war dept was minimal. How corporate profits were used differed.

Public psychology......

a few externalities to consider.

For what the chart speaks.

pgl -> ilsm... , February 18, 2017 at 01:24 PM
A lot of factors maybe but zero articulation on how they impacted either the national savings rate or net investment/income. Not that they are not relevant but a list is not an explanation without at least some discussion.
libezkova -> pgl... , February 18, 2017 at 07:04 PM
401K was a Trojan horse that changed things dramatically. It pushed people into stock market.

[Feb 19, 2017] it is neoliberalism that created the current political instability and should be in the center of our attention, not Trump

Feb 19, 2017 | economistsview.typepad.com
libezkova : February 19, 2017 at 06:56 PM

I am thinking that it is neoliberalism that created the current political instability and should be in the center of our attention, not Trump.

Trump is just an artifact created by the current crisis of neoliberalism.

The whole idea of redistribution wealth to the top is extremely destabilizing. And now with Trump chicken start coming home to roost.

Neoliberalism created the fundamental positive feedback loop in which the financialization of the economy undermines the rest of it.

It is somewhat similar to what happens in animal world: the main danger for the population of predators are not other predators, but a sudden and dramatic collapse of the population of prey. Which is what is in the center of the current crisis and secured the election of Trump.

[Feb 12, 2017] Half of US finance is parasitic

Approximately nine percent of U.S. GDP is finance of that probably three to five percent is useful for allocating capital and the rest is preying on asymmetric information
Notable quotes:
"... asymmetric information, and the recent illuminating example of Wells Fargo's excellence in pushing products that customers did not want nor need. ..."
"... Approximately 9 percent of U.S. GDP is finance. Some economists argue that probably 3-5 percent is useful for allocating capital, storing value, smoothing consumptions, and creating competition, and the rest is preying on asymmetric information ..."
"... When vendor expects deflation he dumps inventory, but when he expects inflation he holds on to inventory as he waits for higher profit margins to arrive. He holds onto merchandise by simply raising prices. But why do economists advertise the reverse mechanism? Why does the status quo have a need for distorting truth? ..."
"... Inflation is offered to the proles as a substitute for tax relief to the impoverished. Do you see how it works? ..."
Feb 12, 2017 | economistsview.typepad.com

Choco Bell -> Ed Brown... February 12, 2017 at 07:50 AM , 2017 at 07:50 AM

asymmetric information, and the recent illuminating example of Wells Fargo's excellence in pushing products that customers did not want nor need.

BY: Some financial "innovation" is faddish. It does not create value.

GR: Approximately 9 percent of U.S. GDP is finance. Some economists argue that probably 3-5 percent is useful for allocating capital, storing value, smoothing consumptions, and creating competition, and the rest is preying on asymmetric information
"
~~Guy Roinik~

Do you see how this asymmetric information plays out?

It is the retail vendor who keeps better information than the retail customer. It is the vendor's expectations of disinflation vs inflation rather than the customer's expectations that control the change in M2V. Got it?

When vendor expects deflation he dumps inventory, but when he expects inflation he holds on to inventory as he waits for higher profit margins to arrive. He holds onto merchandise by simply raising prices. But why do economists advertise the reverse mechanism? Why does the status quo have a need for distorting truth?

Inflation is offered to the proles as a substitute for tax relief to the impoverished. Do you see how it works?

" Tax relief for the wealthy will give you delicious inflation. Now jump for it! " ~~The Yea Sayers~

Jump, Fools, Jump

[Feb 11, 2017] The Paradox of Financialized Industrialization

Notable quotes:
"... More than any other economist of his century, Marx tied together the three major kinds of crisis that were occurring. His Theories of Surplus Value explained the two main forms of crises his classical predecessors had pointed to, and which the bourgeois revolutions of 1848 were fought over. These crises were the result of survivals from Europe's feudal epoch of landed aristocracy and banking fortunes. ..."
"... Financially, Marx pointed to the tendency of debts to grow exponentially, independently of the economy's ability to pay, and indeed faster than the economy itself. The rise in debt and accrual of interest was autonomous from the industrial capital and wage labor dynamics on which Volume I of Capital focused. Debts are self-expanding by purely mathematical rules – the "magic of compound interest." ..."
"... Industrial companies profit from labor not only by employing it, but by lending to customers. General Motors made most of its profits for many years by its credit arm, GMAC (General Motors Acceptance Corp.), as did General Electric through its financial arm. Profits made by Macy's and other retailers on their credit card lending sometimes accounted for their entire earnings. ..."
"... This privatization of rents and their transformation into a flow of interest payments (shifting the tax burden onto wage income and corporate profits) represents a failure of industrial capitalism to free society from the legacies of feudalism. ..."
"... Marx expected economies to act in their long-term interest to increase the means of production and avoid unproductive rentier income, underconsumption and debt deflation. Believing that every mode of production was shaped by the technological, political and social needs of economies to advance, he expected banking and finance to become subordinate to these dynamics. ..."
"... It seemed that the banking system's role as allocator of credit would pave the way for a socialist organization of economies. Marx endorsed free trade on the ground that industrial capitalism would transform and modernize the world's backward countries. Instead, it has brought Western rentier finance and privatization of the land and natural resources, and even brought the right to use these country's currencies and financial systems as casinos. And in the advanced creditor nations, failure of the U.S. and European economies to recover from their 2008 financial crisis stems from leaving in place the reckless "junk mortgage" debts, whose carrying charges are absorbing income. Banks were saved instead of industrial economies, whose debts were left in place. ..."
"... No observer of Marx's epoch was so pessimistic as to expect finance capital to overpower industrial capitalism, engulfing economies as the world is seeing today. Discussing the 1857 financial crisis, Marx showed how unthinkable anything like the 2008-09 Bush-Obama bailout of financial speculators seemed to be in his day. "The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values." [6] ..."
"... Marx wrote this reductio ad absurdum not dreaming that it would become the Federal Reserve's policy in autumn 2008. The U.S. Treasury paid off all of A.I.G.'s gambles and other counterparty "casino capitalist" losses at taxpayer expense, followed by the Federal Reserve buying junk mortgage packages at par. ..."
"... The failure to socialize banking (or even to complete its industrialization) has become the most glaring economic tragedy of Western industrial capitalism. It became the tragedy of post-Soviet Russia after 1991, letting its natural resources and industrial economy be financialized while failing to tax land and natural resource rent. The commanding heights were sold to domestic oligarchs and Western investors buying on credit with their own banks or in association with Western banks. This bank credit was simply created on computer keyboards. Such credit creation should be a public utility, but it has broken free from public regulation in the West. That credit is now reaching out to China and the post-Soviet economies as a means of appropriating their resources. ..."
"... Note: Marx described productive capital investment by the formula M–C–M´, signifying money (M) invested to produce commodities (C) that sell for yet more money (M´). But the growth of "usury capital" – government bond financing for war deficits, and consumer lending (mortgages, personal loans and credit card debt) – consist of the disembodied M–M´, making money simply from money in a sterile operation. ..."
Jan 26, 2017 | newscontent.cctv.com
RGC -> RGC... January 26, 2017 at 05:44 AM

The Paradox of Financialized Industrialization
By Michael Friday, October 16, 2015

These remarks were made at the World Congress on Marxism, 2015, at the School of Marxism, Peking University, October 10, 2015. The presentation was part of a debate with Bertell Ollman (NYU). I was honored to be made a permanent Guest Professor at China's most prestigious university.

When I lectured here at the Marxist School six years ago, someone asked me whether Marx was right or wrong. I didn't know how to answer this question at the time, because the answer is so complex. But at least today I can focus on his view of crises.

More than any other economist of his century, Marx tied together the three major kinds of crisis that were occurring. His Theories of Surplus Value explained the two main forms of crises his classical predecessors had pointed to, and which the bourgeois revolutions of 1848 were fought over. These crises were the result of survivals from Europe's feudal epoch of landed aristocracy and banking fortunes.

Financially, Marx pointed to the tendency of debts to grow exponentially, independently of the economy's ability to pay, and indeed faster than the economy itself. The rise in debt and accrual of interest was autonomous from the industrial capital and wage labor dynamics on which Volume I of Capital focused. Debts are self-expanding by purely mathematical rules – the "magic of compound interest."

We can see in America and Europe how interest charges, stock buybacks, debt leveraging and other financial maneuverings eat into profits, deterring investment in plant and equipment by diverting revenue to economically empty financial operations. Marx called finance capital "imaginary" or "fictitious" to the extent that it does not stem from within the industrial economy, and because – in the end – its demands for payment cannot be met. Calling this financial accrual a "void form of capital." [1] It was fictitious because it consisted of bonds, mortgages, bank loans and other rentier claims on the means of production and the flow of wages, profit and tangible capital investment.

The second factor leading to economic crisis was more long-term: Ricardian land rent. Landlords and monopolists levied an "ownership tax" on the economy by extracting rent as a result of privileges that (like interest) were independent of the mode of production. Land rent would rise as economies became larger and more prosperous. More and more of the economic surplus (profits and surplus value) would be diverted to owners of land, natural resources and monopolies. These forms of economic rent were the result of privileges that had no intrinsic value or cost of production. Ultimately, they would push up wage levels and leave no room for profit. Marx described this as Ricardo's Armageddon.

These two contributing forces to crisis, Marx pointed out, were legacies of Europe's feudal origins: landlords conquering the land and appropriating natural resources and infrastructure; and banks, which remained largely usurious and predatory, making war loans to governments and exploiting consumers in petty usury. Rent and interest were in large part the products of wars. As such, they were external to the means of production and its direct cost (that is, the value of products).

Most of all, of course, Marx pointed to the form of exploitation of wage labor by its employers. That did indeed stem from the capitalist production process. Bertell Ollman has just explained that dynamic so well that I need not repeat it here.

Today's economic crisis in the West: financial and rent extraction, leading to debt deflation Bertell Ollman has described how Marx analyzed economic crisis stemming from the inability of wage labor to buy what it produces. That is the inner contradiction specific to industrial capitalism. As described in Volume I of Capital, employers seek to maximize profits by paying workers as little as possible. This leads to excessive exploitation of wage labor, causing underconsumption and a market glut.

I will focus here on the extent to which today's financial crisis is largely independent of the industrial mode of production. As Marx noted in Volumes II and III of Capital and Theories of Surplus Value, banking and rent extraction are in many ways adverse to industrial capitalism.

Our debate is over how to analyze the crisis the Western economies are in today. To me, it is first and foremost a financial crisis. The banking crisis and indebtedness stems mainly from real estate mortgage loans – and also from the kind of massive fraud that Marx found characteristic of the high finance of his day, especially in canal and railroad financing.

So to answer the question that I was asked about whether Marx was right or wrong, Marx certainly provided the tools needed to analyze the crises that the industrial capitalist economies have been suffering for the past two hundred years.

But history has not worked out the way Marx expected. He expected every class to act in its own class interest. That is the only way to reasonably project the future. The historical task and destiny of industrial capitalism, Marx wrote in the Communist Manifesto, was to free society from the "excrescences" of interest and rent (mainly land and natural resource rent, along with monopoly rent) that industrial capitalism had inherited from medieval and even ancient society. These useless rentier charges on production are faux frais, costs that slow the accumulation of industrial capital. They do not stem from the production process, but are a legacy of the feudal warlords who conquered England and other European realms to found hereditary landed aristocracies. Financial overhead in the form of usury-capital is, to Marx, a legacy of the banking families that built up fortunes by war lending and usury.

Marx's concept of national income differs radically from today's National Income and Product Accounts (NIPA). Every Western economy measures "output" as Gross National Product (GNP). This accounting format includes the Finance, Insurance and Real Estate (FIRE) sector as part of the economy's output. It does this because it treats rent and interest as "earnings," on the same plane as wages and industrial profits – as if privatized finance, insurance and real estate are part of the production process. Marx treated them as external to it. Their income was not "earned," but was "unearned." This concept was shared by the Physiocrats, Adam Smith, John Stuart Mill and other major classical economists. Marx was simply pressing classical economics to its logical conclusion.

The interest of the rising class of industrial capitalists was to free economies from this legacy of feudalism, from the unnecessary faux frais of production – prices in excess of real cost-value. The destiny of industrial capitalism, Marx believed, was to rationalize economies by getting rid of the idle landlord and banking class – by socializing land, nationalizing natural resources and basic infrastructure, and industrializing the banking system – to fund industrial expansion instead of unproductive usury.

If capitalism had achieved this destiny, it would have been left primarily with the crisis between industrial employers and workers discussed in Volume I of Capital: exploiting wage labor to a point where labor could not buy its products. But at the same time, industrial capitalism would be preparing the way for socialism, because industrialists needed to conquer the political stranglehold of the landed aristocracy and the financial power of banking. It needed to promote democratic political reform to overcome the vested interests in control of Parliaments and hence the tax system. Labor's organization and voting power would press its own self-interest and turn capitalism into socialism.

China has indeed exemplified this path. But it has not occurred in the West.
All three kinds of crisis that Marx described are occurring. But the West is now in a chronic depression – what has been called Debt Deflation. Instead of banking being industrialized as Marx expected, industry is being financialized. Instead of democracy freeing economies from land rent, natural resource rent and monopoly rent, the rentiers have fought back and taken control of Western governments, legal systems and tax policy. The result is that we are seeing a lapse back to the pre-capitalist problems that Marx described in Volumes II and III of Capital and Theories of Surplus Value.

This is where the debate between Bertell Ollman and myself centers. My focus is on finance and rent overwhelming industrial capitalism to impose a depression stemming from debt deflation. This over-indebtedness is making the labor/capital problem worse, by weakening labor's political and economic position. To make matters worse, labor parties in the West no longer are fighting over economic issues, as they were prior to World War I.

My differences with Ollman and Roemer: I focus on non-production costs
Bertell follows Marx in focusing on the production sector: hiring labor to produce products, but trying to get as much markup as possible – while underselling rivals. This is Marx's great contribution to the analysis of capitalism and its mode of production – employing wage labor at a profit. I agree with this analysis.

However, my focus is on the causes of today's crisis that are independent and autonomous from production: rentier claims for economic rent, for income without work – "empty" pricing without value. This focus on rent and interest is where I differ from that of Ollman, and also of course from that of Roemer. Any model of the crisis must tie together finance, real estate (and other rent-seeking) as well as industry and employment.

The rising debt overhead can be traced mathematically, as can the symbiosis of the Finance, Insurance and Real Estate (FIRE) sector. But the interactions are too complex to be made into a single economic "model." I am especially worried that Roemer's model might be followed here in China, because it overlooks the most dangerous tendencies threatening China today: Western financial practice and its pro-rentier tax policy.

China has spent the last half-century solving Marx's "Volume I" problem: the relations between labor and its employers, recycling the economic surplus into new means of production to provide more output, higher living standards, and most obviously, more infrastructure (roads, railways, airlines) and housing.

But right now, it is experiencing financial problems from credit creation going into the stock market instead of into tangible capital formation and rising consumption standards. And of course, China has experienced a large real estate boom. Land prices are rising in China, much as they are in the West.

What would Marx have said about this? I think that he would have warned China not to relapse into the pre-capitalist problems of finance funding real estate – turning the rising land rent into interest – and into permitting housing prices to rise without taxing them away.

Soviet planning failed to take the rent-of-location into account when planning where to build housing and factories. But at least the Soviet era did not force labor or industry to pay interest or for rising housing prices. Government banks simply created credit where it was needed to expand the means of production, to build factories, machinery and equipment, homes and office buildings.

What worries me about the political consequences of Roemer's model is that it focuses only on what Marx said about the production sector and employer-labor relations. It does not ask how "endowments" come into being – or how China has changed so radically in the past generation. It therefore neglects the danger of industrial capitalism lapsing back into a rent-and-interest economy. And by the same token, it underplays the threat to China and other socialist economies of adopting the West's surviving pre-feudal practices of predatory Bubble Finance (debt leveraging to raise prices) and wealth in the form of land-rent charges.

These two dynamics – interest and rent – represent a privatization of banking and land that rightly are public utilities. Marx expected industrial capitalism to achieve this transition. Certainly socialist economies must achieve it!

China has no need of foreign bank credit – except to cover the cost of imports and the foreign-exchange cost of investment in other countries. But China's foreign exchange reserves already are large enough to be basically independent of the U.S. dollar and euro. Meanwhile, the American and European economies are suffering from chronic debt deflation and depression that will reduce their ability to serve as markets – for their own producers as well as for China.

Today's debt-wracked economies throw into question just what kind of crisis the capitalist countries are experiencing. Marx's analysis provides the tools to analyze its financial, banking and rent-extraction problems. However, most Marxists still view the 2008 financial and junk mortgage crash as resulting ultimately from industrial employers squeezing wage labor. Finance capital is viewed as a derivative of this exploitation, not as the autonomous dynamic Marx described.

The costs of carrying the rising debt burden (interest, amortization and penalties) deflate the market for commodities by absorbing a growing wedge of disposable business and personal income. This leaves less to be spent on goods and services, causing gluts that lead to crises in which businesses scramble for money. Banks fail as bankruptcy spreads. By depleting markets, finance capital is antithetical to the expansion of profits and tangible physical capital investment.

Despite this sterility, finance capital has achieved dominance over industrial capital. Transfers of property from debtors to creditors – even privatizations of public assets and enterprises – are inevitable as the growth of financial claims surpasses the ability of productive power and earnings to keep pace. Foreclosures follow in the wake of crashes, enabling finance to take over industrial companies and even governments.

China has largely solved the "Volume I" problem – that of expanding its internal market for labor, investing the economic surplus in capital formation and rising living standards. It is confronted by Western economies that have failed to solve this problem, and also have failed to solve the "Volumes II and III" problem: finance and land rent. Yet few Western Marxists have applied his theories to the present downturn and its rentier problem. Following Marx, they view the task of solving this problem to be solved by industrial capitalism, starting with the bourgeois revolutions of 1848.

Already in 1847, Marx's Poverty of Philosophy described the hatred that capitalists felt for landlords, whose hereditary rents siphoned off income to an idle class. Upon being sent copies of Henry George's Progress and Poverty a generation later, in 1881, he wrote to John Swinton that taxing land rent was "a last attempt to save the capitalist regime." He dismissed the book as falling under his 1847 critique of Proudhon: "We understand such economists as Mill, Cherbuliez, Hilditch and others demanding that rent should be handed over to the state to serve in place of taxes. That is a frank expression of the hatred the industrial capitalist bears towards the landed proprietor, who seems to him a useless thing, an excrescence upon the general body of bourgeois production." [2]

As the program of industrial capital, the land tax movement stopped short of advocating labor's rights and living standards. Marx criticized Proudhon and other critics of landlords by saying that once you get rid of rent (and usurious interest by banks), you will still have the problem of industrialists exploiting wage labor and trying to minimize their wages, drying up the market for the goods they produce. This is to be the "final" economic problem to be solved – presumably long after industrial capitalism has solved the rent and interest problems.

Industrial capitalism has failed to free economies from rentier interest and rent extraction
In retrospect, Marx was too optimistic about the future of industrial capitalism. As noted above, he viewed its historical mission as being to free society from rent and usurious interest. Today's financial system has generated an overgrowth of credit, while high rents are pricing American labor out of world markets. Wages are stagnating, while the One Percent have monopolized the growth in wealth and income since 1980 – and are not investing in new means of production. So we still have the Volume II and III problems, not just a Volume I problem.

We are dealing with multiple organ failure.

Instead of funding new industrial capital formation, the stock and bond markets to transfer ownership of companies, real estate and infrastructure already in place. About 80 percent of bank credit is lent to buyers of real estate, inflating a mortgage bubble. Instead of taxing away the land's rising rental and site value that John Stuart Mill described as what landlords make "in their sleep," today's economies leave rental income "free" to be pledged to banks. The result is that banks now play the role that landlords did in Marx's day: obtaining for themselves the land's rising rental value. This reverses the central thrust of classical political economy by keeping such rent away from government, along with natural resource and monopoly rents.

Industrial economies are being stifled by financial and other rentier dynamics. Rising mortgage debt, student loans, credit card debt, automobile debt and payday loans have made workers afraid to go on strike or even to protest working conditions. To the extent that wages do rise, they must be paid increasingly to creditors (and now to privatized health insurance and drug monopolies), not to buy the consumer goods they produce. Labor's debt dependency thus aggravates the "Volume I" problem of labor's inability to purchase the products it produces. To top matters, when workers seek to join the middle class "homeowner society" by purchasing their homes on mortgage instead of paying rent, the price entails locking themselves into debt serfdom.

Industrial companies profit from labor not only by employing it, but by lending to customers. General Motors made most of its profits for many years by its credit arm, GMAC (General Motors Acceptance Corp.), as did General Electric through its financial arm. Profits made by Macy's and other retailers on their credit card lending sometimes accounted for their entire earnings.

This privatization of rents and their transformation into a flow of interest payments (shifting the tax burden onto wage income and corporate profits) represents a failure of industrial capitalism to free society from the legacies of feudalism.

Marx expected industrial capitalism to act in its own self-interest by industrializing banking, as Germany was doing along the lines that the French reformer Saint-Simon had urged. However, industrial capitalism has failed to break free of pre-industrial usurious banking practice. And in the sphere of tax policy, it has not shifted taxes away from land and natural resource rent. It has inverted the classical reformers' idea of "free markets" as being free from economic rent and predatory moneylending. The slogan now means economies free for the rentier class to extract interest and rent.

Mode of production or mode of parasitism?

Instead of serving industrial capitalism, today's financial sector is bleeding it to death. Instead of seeking profits by employing labor to produce goods at a markup, it doesn't even want to hire labor or engage in the process of production and develop new markets. The epitome of this postindustrial economics is Enron: its' managers wanted no capital at all – no employment, only traders at a desk (and crooked accountants).

Today's characteristic mode of accumulating wealth is more by financial than industrial means: riding the wave of debt-financed asset-price inflation to reap "capital" gains. This seemed unlikely in Marx's era of the gold standard. Yet today, most academic Marxists still concentrate on his "Volume I" crisis, neglecting finance capitalism's failure to free economies from the rentier dynamics surviving from European feudalism and the colonial lands conquered by Europe.

Marxists who went into Wall Street have learned their lessons from Volumes II and III. But academic Marxism has not focused on the FIRE sector – Finance, Insurance and Real Estate. It is as if interest and rent extraction are secondary problems to the dynamics of wage labor.

The great question today is whether post-feudal rentier capitalism will stifle industrial capitalism instead of serving it. The aim of finance is not merely to exploit labor, but to conquer and appropriate industry, real estate and government. The result is a financial oligarchy, neither industrial capitalism nor a tendency to evolve into socialism.

Marx's optimism that industrial capital would subordinate finance to serve its own needs

Having provided a compendium of historical citations describing how parasitic "usury capital" multiplied at compound interest, Marx announced in an optimistic Darwinian tone that the destiny of industrial capitalism was to mobilize finance capital to fund its economic expansion, rendering usury an obsolete vestige of the "ancient" mode of production. It is as if "in the course of its evolution, industrial capital must therefore subjugate these forms and transform them into derived or special functions of itself." Finance capital would be subordinated to the dynamics of industrial capital rather than growing to dominate it. "Where capitalist production has developed all its manifold forms and has become the dominant mode of production," Marx concluded his draft notes for Theories of Surplus Value, "interest-bearing capital is dominated by industrial capital, and commercial capital becomes merely a form of industrial capital, derived from the circulation process." [3]

Marx expected economies to act in their long-term interest to increase the means of production and avoid unproductive rentier income, underconsumption and debt deflation. Believing that every mode of production was shaped by the technological, political and social needs of economies to advance, he expected banking and finance to become subordinate to these dynamics. "There is no doubt," he wrote, "that the credit system will serve as a powerful lever during the transition from the capitalist mode of production to the production by means of associated labor; but only as one element in connection with other great organic revolutions of the mode of production itself." [4]

The financial problem would take care of itself as industrial capitalism mobilized savings productively, subordinating finance capital to serve its needs. This already was happening in Germany and France.

It seemed that the banking system's role as allocator of credit would pave the way for a socialist organization of economies. Marx endorsed free trade on the ground that industrial capitalism would transform and modernize the world's backward countries. Instead, it has brought Western rentier finance and privatization of the land and natural resources, and even brought the right to use these country's currencies and financial systems as casinos. And in the advanced creditor nations, failure of the U.S. and European economies to recover from their 2008 financial crisis stems from leaving in place the reckless "junk mortgage" debts, whose carrying charges are absorbing income. Banks were saved instead of industrial economies, whose debts were left in place.

Irving Fisher coined the term debt deflation in 1933. He described it as occurring when debt service (interest and amortization) to pay banks and bondholders diverts income from being spent on consumer goods and new business investment. [5] Governments use their tax revenues to pay bondholders, cutting back public spending and infrastructure investment, education, health and other social welfare.

No observer of Marx's epoch was so pessimistic as to expect finance capital to overpower industrial capitalism, engulfing economies as the world is seeing today. Discussing the 1857 financial crisis, Marx showed how unthinkable anything like the 2008-09 Bush-Obama bailout of financial speculators seemed to be in his day. "The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values." [6]

Marx wrote this reductio ad absurdum not dreaming that it would become the Federal Reserve's policy in autumn 2008. The U.S. Treasury paid off all of A.I.G.'s gambles and other counterparty "casino capitalist" losses at taxpayer expense, followed by the Federal Reserve buying junk mortgage packages at par.

Socialist policy regarding financial and tax reform

Marx described the historical destiny of industrial capitalism as being to free economies from unproductive and predatory finance – from speculation, fraud and a diversion of income to pay interest without funding new means of production. On this logic, it should be the destiny of socialist economies to treat bank credit creation as a public function, to be used for public purposes – to increase prosperity and the means of production to give populations a better life. Socialist nations have freed their economies from the internal contradictions of industrial capitalism that stifle wage labor.

China has solved the "Volume I" problem. But it still must deal with the West's unsolved "Volume II and III" problem of privatized finance, land rent and natural resource rent. Western economies seek to extend these neoliberal practices to use finance as a lever to pry away the economic surplus, to finance the transfer of property at interest, and to turn profits, rent, wages and other income into interest.

The failure to socialize banking (or even to complete its industrialization) has become the most glaring economic tragedy of Western industrial capitalism. It became the tragedy of post-Soviet Russia after 1991, letting its natural resources and industrial economy be financialized while failing to tax land and natural resource rent. The commanding heights were sold to domestic oligarchs and Western investors buying on credit with their own banks or in association with Western banks. This bank credit was simply created on computer keyboards. Such credit creation should be a public utility, but it has broken free from public regulation in the West. That credit is now reaching out to China and the post-Soviet economies as a means of appropriating their resources.

The eurozone seems incapable of saving itself from debt deflation, and the United States and Britain likewise are limping along as they de-industrialize. That is what leads them to hope that perhaps socialist China can save them – as long as it remains free of the financial disease. asset stripping and debt deflation. Western neoliberal economists claim that this financialization of erstwhile industrial capitalism is "progress," and even the end of history. Yet having watched China grow while their economies have remained stagnant since 2008 (except for the One Percent), their hope is that socialist China's market can save their financialized economies driven too deeply into debt to recover on their own.

Note: Marx described productive capital investment by the formula M–C–M´, signifying money (M) invested to produce commodities (C) that sell for yet more money (M´). But the growth of "usury capital" – government bond financing for war deficits, and consumer lending (mortgages, personal loans and credit card debt) – consist of the disembodied M–M´, making money simply from money in a sterile operation.

Footnotes

http://michael-hudson.com/2015/10/the-paradox-of-financialized-industrialization/

RC AKA Darryl, Ron -> RGC... January 26, 2017 at 07:32 AM

THANKS! It was awesome, Dude and easy enough to read.

[Jan 29, 2017] The financial crisis just demonstrated this in remarkable ways too as truly unreal, uneconomic leveraged financial asset trading was bailed out.

Notable quotes:
"... 'Yes, fuel for financial asset trading marketplaces makes even more sense when you realize that tax cuts give you even more speculative abilities without having to earn it through real investments, you know, the ones that require labor, materials, equipment, and marketing and selling efforts to produce real earnings in a real market. ..."
"... The other name for neoliberalism is casino capitalism. "When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done" ~John Maynard Keynes ..."
Jan 29, 2017 | economistsview.typepad.com
JF -> pgl... January 29, 2017 at 05:32 AM , 2017 at 05:32 AM
Market based capitalism has been undermined and the radical republican plans to offer even more tax grants to the already wealthy are just evidence of this. I am not surprised that since the election the data are moving downward.

Here is what I tried to give as a comment to Paul Mathis's note about financial assets:

'Yes, fuel for financial asset trading marketplaces makes even more sense when you realize that tax cuts give you even more speculative abilities without having to earn it through real investments, you know, the ones that require labor, materials, equipment, and marketing and selling efforts to produce real earnings in a real market.

Of course we want real investments not political power expressions that pander away with tax grants to the trading class of people. Can they not earn their largess like they did before all the tax cutting lowered rates below any comparable society's? And that is the point to me, thus group has learned that they can use self government to redistribute wealth, power and control over future income flows - upward to themselves.

The world of earning has been turned upside down. The financial crisis just demonstrated this in remarkable ways too as truly unreal, uneconomic leveraged financial asset trading was bailed out.'

libezkova -> JF... , January 29, 2017 at 07:48 AM
JF,

The other name for neoliberalism is casino capitalism. "When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done" ~John Maynard Keynes

And so on.

The term itself was coined by Susan Strange who used it as a title of her book Casino Capitalism published in 1986. She was one of the first who realized that

1. "The roots of the world's economic disorder are monetary and financial";

2. "The disorder has not come about by accident, but has in fact been nurtured and encouraged by a series of government decisions." (p. 60).

In other words its was a counter-revolution of the part of ruling elite which lost its influence in 30th (dismantling New Deal from above in the USA (Reaganomics) or Thatcherism in the GB).

According to Susan Strange transformation of industrial capitalism into neoliberal capitalism ("casino capitalism") involved five trends. All of them increased the systemic instability of the system and the level of political corruption:

1.Innovations in the way in which financial markets work due to introduction of computers;

2. The sheer size of markets (401K, etc)

3. Commercial banks turned into investment banks;

4. The emergence of Asian nations as large players;

5. The shift to self-regulation by banks (pp.9-10).

[Jan 16, 2017] Bernie Madoff manipulated the market for hot cocoa mix at his prison

Jan 16, 2017 | www.nakedcapitalism.com
MtnLife , January 15, 2017 at 9:43 am

Bernie Madoff manipulated the market for hot cocoa mix at his prison

Grifters gotta grift.

Paid Minion , January 15, 2017 at 9:45 am

Incurable disease.

Corey , January 15, 2017 at 12:18 pm

This makes a cute story, but I seriously doubt its accuracy. I did three years in Federal prison (1999-2002) and I recall that commissary purchases were regulated quite strictly. It would have been nearly impossible to buy up all of the hot chocolate mix, or anything else for that matter. Further, there were restrictions on the types and amounts of items that were permitted be kept in an inmate's cell or cube. It would have been impractical to purchase and store up a large quantity of an item, and attempting to corner a market in a popular product and exploit the consumers could very well prove – ahem – hazardous to one's well-being. The FCI commissary order list confirms my recollection. Inmate purchases of drink mixes are limited to 1 each:

FCI Commissary List

Cute story. Former billionaire financier now small-time hustler in prison. But almost certainly false.

nechaev , January 15, 2017 at 1:36 pm

your comment interesting, esp. in light of reports in the past decade that canned mackerel had replaced cigarettes as barter currency within federal prisons: see, f. ex: http://www.wsj.com/articles/SB122290720439096481 .

How then are / were quantities accumulated if the limits on canned fish is 5 cans per inmate. Ditto cigs back in the day when smokes were allowed?

alex morfesis , January 15, 2017 at 3:09 pm

Madoff made off with all the cash with the help of a not so little firm named fiserv, which seemed to be the go to firm for corporate criminals as its software was "malleable" maybe his old friends at fiserv handle the BOP accounting system and magically the magic is back ??

[Dec 18, 2015] The Upward Redistribution of Income: Are Rents the Story?

December 18, 2015 | http://cepr.net/publications/reports/working-paper-the-upward-redistribution-of-income-are-rents-the-story

Dean Baker:

Working Paper: : In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period.

This paper argues that the bulk of this upward redistribution comes from the growth of rents in the economy in four major areas: patent and copyright protection, the financial sector, the pay of CEOs and other top executives, and protectionist measures that have boosted the pay of doctors and other highly educated professionals. The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to this rapid rise in inequality, as for example argued by Thomas Piketty.

Flash | PDF

RC AKA Darryl, Ron said in reply to Fair Economist, December 18, 2015 at 11:34 AM

"...the growth of finance capitalism was what would kill capitalism off..."

"Financialization" is a short-cut terminology that in full is term either "financialization of non-financial firms" or "financialization of the means of production." In either case it leads to consolidation of firms, outsourcing, downsizing, and offshoring to reduce work force and wages and increase rents.

Consolidation, the alpha and omega of financialization can only be executed with very liquid financial markets, big investment banks to back necessary leverage to make the proffers, and an acute capital gains tax preference relative to dividends and interest earnings, the grease to liquidity.

It takes big finance to do "financialization" and it takes "financialization" to extract big rents while maintaining low wages.

RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:42 AM
[THANKS to djb just down thread who supplied this link:]

http://www.democraticunderground.com/10021305040

Finance sector as percent of US GDP, 1860-present: the growth of the rentier economy

[graph]

Financialization is a term sometimes used in discussions of financial capitalism which developed over recent decades, in which financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics.

Financialization is a term that describes an economic system or process that attempts to reduce all value that is exchanged (whether tangible, intangible, future or present promises, etc.) either into a financial instrument or a derivative of a financial instrument. The original intent of financialization is to be able to reduce any work-product or service to an exchangeable financial instrument... Financialization also makes economic rents possible...financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics...

Companies are not able to invest in new physical capital equipment or buildings because they are obliged to use their operating revenue to pay their bankers and bondholders, as well as junk-bond holders. This is what I mean when I say that the economy is becoming financialized. Its aim is not to provide tangible capital formation or rising living standards, but to generate interest, financial fees for underwriting mergers and acquisitions, and capital gains that accrue mainly to insiders, headed by upper management and large financial institutions. The upshot is that the traditional business cycle has been overshadowed by a secular increase in debt.

Instead of labor earning more, hourly earnings have declined in real terms. There has been a drop in net disposable income after paying taxes and withholding "forced saving" for social Security and medical insurance, pension-fund contributions and–most serious of all–debt service on credit cards, bank loans, mortgage loans, student loans, auto loans, home insurance premiums, life insurance, private medical insurance and other FIRE-sector charges. ... This diverts spending away from goods and services.

In the United States, probably more money has been made through the appreciation of real estate than in any other way. What are the long-term consequences if an increasing percentage of savings and wealth, as it now seems, is used to inflate the prices of already existing assets - real estate and stocks - instead of to create new production and innovation?

http://en.wikipedia.org/wiki/Financialization

pgl said in reply to RC AKA Darryl, Ron, December 18, 2015 at 03:25 PM
Your graph shows something I've been meaning to suggest for a while. Take a look at the last time that the financial sector share of GDP rose. The late 1920's. Which was followed by the Great Depression which has similar causes as our Great Recession. Here is my observation.

Give that Wall Street clowns a huge increase in our national income and we don't get more services from them. What we get is screwed on the grandest of scales.

BTW - there is a simple causal relationship that explains both the rise in the share of financial sector income/GDP and the massive collapses of the economy (1929 and 2007). It is called stupid financial deregulation. First we see the megabanks and Wall Street milking the system for all its worth and when their unhanded and often secretive risk taking falls apart - the rest of bear the brunt of the damage.

Which is why this election is crucial. Elect a Republican and we repeat this mistake again. Elect a real progressive and we can put in place the types of financial reforms FDR was known for.

Peter K. said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:50 AM

" and it takes "financialization" to extract big rents while maintaining low wages."

It takes governmental macro policy to maintain loose labor markets and low wages. Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low.

djb said...

http://www.democraticunderground.com/10021305040

I don't know about the last couple years but this chart indicates a large growth in financials as a share of gdp over the years since the 40's

RC AKA Darryl, Ron said in reply to djb, December 18, 2015 at 12:03 PM
[Anne gave you FIRE sector profits as a share of GDP while this gives FIRE sector profits as a share of total corporate profits.]

*

[Smoking gun excerpt:]

"...The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent...

[Ouch!]

[Now the whole enchilada:]

http://www.washingtonmonthly.com/magazine/novemberdecember_2014/features/frenzied_financialization052714.php?page=all

If you want to know what happened to economic equality in this country, one word will explain a lot of it: financialization. That term refers to an increase in the size, scope, and power of the financial sector-the people and firms that manage money and underwrite stocks, bonds, derivatives, and other securities-relative to the rest of the economy.

The financialization revolution over the past thirty-five years has moved us toward greater inequality in three distinct ways. The first involves moving a larger share of the total national wealth into the hands of the financial sector. The second involves concentrating on activities that are of questionable value, or even detrimental to the economy as a whole. And finally, finance has increased inequality by convincing corporate executives and asset managers that corporations must be judged not by the quality of their products and workforce but by one thing only: immediate income paid to shareholders.

The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent. This isn't just the decline of profits in other industries, either. Between 1980 and 2006, while GDP increased five times, financial-sector profits increased sixteen times over. While financial and nonfinancial profits grew at roughly the same rate before 1980, between 1980 and 2006 nonfinancial profits grew seven times while financial profits grew sixteen times.

This trend has continued even after the financial crisis of 2008 and subsequent financial reforms, including the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Financial profits in 2012 were 24 percent of total profits, while the financial sector's share of GDP was 6.8 percent. These numbers are lower than the high points of the mid-2000s; but, compared to the years before 1980, they are remarkably high.

This explosion of finance has generated greater inequality. To begin with, the share of the total workforce employed in the financial sector has barely budged, much less grown at a rate equivalent to the size and profitability of the sector as a whole. That means that these swollen profits are flowing to a small sliver of the population: those employed in finance. And financiers, in turn, have become substantially more prominent among the top 1 percent. Recent work by the economists Jon Bakija, Adam Cole, and Bradley T. Heim found that the percentage of those in the top 1 percent of income working in finance nearly doubled between 1979 and 2005, from 7.7 percent to 13.9 percent.

If the economy had become far more productive as a result of these changes, they could have been worthwhile. But the evidence shows it did not. Economist Thomas Philippon found that financial services themselves have become less, not more, efficient over this time period. The unit cost of financial services, or the percentage of assets it costs to produce all financial issuances, was relatively high at the dawn of the twentieth century, but declined to below 2 percent between 1901 and 1960. However, it has increased since the 1960s, and is back to levels seen at the early twentieth century. Whatever finance is doing, it isn't doing it more cheaply.

In fact, the second damaging trend is that financial institutions began to concentrate more and more on activities that are worrisome at best and destructive at worst. Harvard Business School professors Robin Greenwood and David Scharfstein argue that between 1980 and 2007 the growth in financial-industry revenues came from two things: asset management and loan origination. Fees associated either with asset management or with household credit in particular were responsible for 74 percent of the growth in financial-sector output over that period.

The asset management portion reflects the explosion of mutual funds, which increased from $134 billion in assets in 1980 to $12 trillion in 2007. Much of it also comes from "alternative investment vehicles" like hedge funds and private equity. Over this time, the fee rate for mutual funds fell, but fees associated with alternative investment vehicles exploded. This is, in essence, money for nothing-there is little evidence that hedge funds actually perform better than the market over time. And, unlike mutual funds, alternative investment funds do not fully disclose their practices and fees publicly.

Beginning in 1980 and continuing today, banks generate less and less of their income from interest on loans. Instead, they rely on fees, from either consumers or borrowers. Fees associated with household credit grew from 1.1 percent of GDP in 1980 to 3.4 percent in 2007. As part of the unregulated shadow banking sector that took over the financial sector, banks are less and less in the business of holding loans and more and more concerned with packaging them and selling them off. Instead of holding loans on their books, banks originate loans to sell off and distribute into this new type of banking sector.

Again, if this "originate-to-distribute" model created value for society, it could be a worthwhile practice. But, in fact, this model introduced huge opportunities for fraud throughout the lending process. Loans-such as "securitized mortgages" made up of pledges of the income stream from subprime mortgage loans-were passed along a chain of buyers until someone far away held the ultimate risk. Bankers who originated the mortgages received significant commissions, with virtually no accountability or oversight. The incentive, in fact, was perverse: find the worst loans with the biggest fees instead of properly screening for whether the loans would be any good for investors.

The same model made it difficult, if not impossible, to renegotiate bad mortgages when the system collapsed. Those tasked with tackling bad mortgages on behalf of investors had their own conflicts of interests, and found themselves profiting while loans struggled. This process created bad debts that could never be paid, and blocked attempts to try and rework them after the fact. The resulting pool of bad debt has been a drag on the economy ever since, giving us the fall in median wages of the Great Recession and the sluggish recovery we still live with.

And of course it's been an epic disaster for the borrowers themselves. Many of them, we now know, were moderate- and lower-income families who were in no financial position to borrow as much as they did, especially under such predatory terms and with such high fees. Collapsing home prices and the inability to renegotiate their underwater mortgages stripped these folks of whatever savings they had and left them in deep debt, widening even further the gulf of inequality in this country.

Moreover, financialization isn't just confined to the financial sector itself. It's also ultimately about who controls, guides, and benefits from our economy as a whole. And here's the last big change: the "shareholder revolution," started in the 1980s and continuing to this very day, has fundamentally transformed the way our economy functions in favor of wealth owners.

To understand this change, compare two eras at General Electric. This is how business professor Gerald Davis describes the perspective of Owen Young, who was CEO of GE almost straight through from 1922 to 1945: "[S]tockholders are confined to a maximum return equivalent to a risk premium. The remaining profit stays in the enterprise, is paid out in higher wages, or is passed on to the customer." Davis contrasts that ethos with that of Jack Welch, CEO from 1981 to 2001; Welch, Davis says, believed in "the shareholder as king-the residual claimant, entitled to the [whole] pot of earnings."

This change had dramatic consequences. Economist J. W. Mason found that, before the 1980s, firms tended to borrow funds in order to fuel investment. Since 1980, that link has been broken. Now when firms borrow, they tend to use the money to fund dividends or buy back stocks. Indeed, even during the height of the housing boom, Mason notes, "corporations were paying out more than 100 percent of their cash flow to shareholders."

This lack of investment is obviously holding back our recovery. Productive investment remains low, and even extraordinary action by the Federal Reserve to make investments more profitable by keeping interest rates low has not been able to counteract the general corporate presumption that this money should go to shareholders. There is thus less innovation, less risk taking, and ultimately less growth. One of the reasons this revolution was engineered in the 1980s was to put a check on what kinds of investments CEOs could make, and one of those investments was wage growth. Finance has now won the battle against wage earners: corporations today are reluctant to raise wages even as the economy slowly starts to recover. This keeps the economy perpetually sluggish by retarding consumer demand, while also increasing inequality.

How can these changes be challenged? The first thing we must understand is the scope of the change. As Mason writes, the changes have been intellectual, legal, and institutional. At the intellectual level, academic research and conventional wisdom among economists and policymakers coalesced around the ideas that maximizing returns to shareholders is the only goal of a corporation, and that the financial markets were always right. At the legal level, laws regulating finance at the state level were overturned by the Supreme Court or preempted by federal regulators, and antitrust regulations were gutted by the Reagan administration and not taken up again.

At the institutional level, deregulation over several administrations led to a massive concentration of the financial sector into fewer, richer firms. As financial expertise became more prestigious than industry-specific knowledge, CEOs no longer came from within the firms they represented but instead from other firms or from Wall Street; their pay was aligned through stock options, which naturally turned their focus toward maximizing stock prices. The intellectual and institutional transformation was part of an overwhelming ideological change: the health and strength of the economy became identified solely with the profitability of the financial markets.

This was a bold revolution, and any program that seeks to change it has to be just as bold intellectually. Such a program will also require legal and institutional changes, ones that go beyond making sure that financial firms can fail without destroying the economy. Dodd-Frank can be thought of as a reaction against the worst excesses of the financial sector at the height of the housing bubble, and as a line of defense against future financial panics. Many parts of it are doing yeoman's work in curtailing the financial sector's abuses, especially in terms of protecting consumers from fraud and bringing some transparency to the Wild West of the derivatives markets. But the scope of the law is too limited to roll back these larger changes.

One provision of Dodd-Frank, however, suggests a way forward. At the urging of the AFL-CIO, Dodd-Frank empowered the Securities and Exchange Commission to examine the activities of private equity firms on behalf of their investors. At around $3.5 trillion, private equity is a massive market with serious consequences for the economy as a whole. On its first pass, the SEC found extensive abuses. Andrew Bowden, the director of the SEC's examinations office, stated that the agency found "what we believe are violations of law or material weaknesses in controls over 50 percent of the time."

Lawmakers could require private equity and hedge funds to standardize their disclosures of fees and holdings, as is currently the case for mutual funds. The decline in fees for mutual funds noted above didn't just happen by itself; it happened because the law structured the market for actual transparency and price competition. This will need to happen again for the broader financial sector.

But the most important change will be intellectual: we must come to understand our economy not as simply a vehicle for capital owners, but rather as the creation of all of us, a common endeavor that creates space for innovation, risk taking, and a stronger workforce. This change will be difficult, as we will have to alter how we approach the economy as a whole. Our wealth and companies can't just be strip-mined for a small sliver of capital holders; we'll need to bring the corporation back to the public realm. But without it, we will remain trapped inside an economy that only works for a select few.

[Whew!]

Puerto Barato said in reply to RC AKA Darryl, Ron,
"3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5"
~~RC AKA Darryl, Ron ~

Growth of the non-financial-sector == growth in productivity

Growth of the financial-sector == growth in upward transfer of wealth

Ostensibly financial-sector is there to protect your money from being eaten up by inflation. Closer inspection shows that the prevention of *eaten up* is by the method of rent collection.

Accountants handle this analysis poorly, but you can see what is happening. Boiling it down to the bottom line you can easily see that wiping out the financial sector is the remedy to the Piketty.

Hell! Financial sector wiped itself out in 008. Problem was that the GSE and administration brought the zombie back to life then put the vampire back at our throats. What was the precipitating factor that snagged the financial sector without warning?

Unexpected
deflation
!

Gimme some
of that

pgl said in reply to djb...

People like Brad DeLong have noted this for a while. Twice as many people making twice as much money per person. And their true value to us - not a bit more than it was back in the 1940's.

Rock O Sock O Choco said in reply to djb... December 18, 2015 at 06:26 PM

JEC - MeanSquaredErrors said...

Wait, what?

Piketty looks at centuries of data from all over the world and concludes that capitalism has a long-run bias towards income concentration. Baker looks at 35 years of data in one country and concludes that Piketty is wrong. Um...?

A little more generously, what Baker actually writes is:

"The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to **this** rapid rise in inequality, as for example argued by Thomas Piketty." (emphasis added)

But Piketty has always been very explicit that the recent rise in US income inequality is anomalous -- driven primarily by rising inequality in the distribution of labor income, and only secondarily by any shift from labor to capital income.

So perhaps Baker is "correctly" refuting Straw Thomas Piketty. Which I suppose is better than just being obviously wrong. Maybe.

tew said...

Some simple math shows that this assertion is false "As a result of this upward redistribution, most workers have seen little improvement in living standards" unless you think an apprx. 60% in per-capita real income (expressed as GDP) among the 99% is "little improvement".

Real GDP 2015 / Real GDP 1980 = 2.57 (Source: FRED)
If the income share of the 1% shifted from 10% to 20% then The 1%' real GDP component went up 410% while that of The 99% went up 130%. Accounting for a population increase of about 41% brings those numbers to a 265% increase and a 62% increase.

Certainly a very unequal distribution of the productivity gains but hard to call "little".

I believe the truth of the statement is revealed when you look at the Top 5% vs. the other 95%.

cm said in reply to tew...

For most "working people", their raises are quickly eaten up by increases in housing/rental, food, local services, and other nondiscretionary costs. Sure, you can buy more and better imported consumer electronics per dollar, but you have to pay the rent/mortgage every months, how often do you buy a new flat screen TV? In a high-cost metro, a big ass TV will easily cost less than a single monthly rent (and probably less than your annual cable bill that you need to actually watch TV).

pgl said in reply to tew...

Are you trying to be the champion of the 1%? Sorry dude but Greg Mankiw beat you to this.

anne said...

In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period....

-- Dean Baker

anne said in reply to anne...

http://www.census.gov/hhes/www/income/data/historical/families/index.html

September 16, 2015

Real Median Family Income, 1948-1980-2014

1948 ( 27,369)

1980 ( 57,528)

2014 ( 66,632)


57,528 - 27,369 = 30,159

30,159 / 27,369 = 110.2%


66,632 - 57,528 = 9,104

9,104 / 57,528 = 15.8%


Between 1948 and 1980, real median family income increased by 110.2%, while between 1980 and 2014 real median family income increased by a mere 15.8%.

cm said...

"protectionist measures that have boosted the pay of doctors and other highly educated professionals"

Protectionist measures (largely of the variety that foreign credentials are not recognized) apply to doctors and similar accredited occupations considered to be of some importance, but certainly much less so to "highly educated professionals" in tech, where the protectionism is limited to annual quotas for some categories of new workers imported into the country and requiring companies to pay above a certain wage rate for work visa holders in jobs claimed to have high skills requirements.

A little mentioned but significant factor for growing wages in "highly skilled" jobs is that the level of foundational and generic domain skills is a necessity, but is not all the value the individual brings to the company. In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers.

This applies less so e.g. in medicine. There are of course many heavily specialized disciplines, but a top flight brain or internal organ surgeon can essentially work on any person. The variation in the subject matter is large and complex, but much more static than in technology.

That's not to knock down the skill of medical staff in any way (or anybody else who does a job that is not trivial, and that's true for many jobs). But specialization vs. genericity follow a different pattern than in tech.

Another example, the legal profession. There are similar principles that carry across, with a lot of the specialization happening along different legislation, case law, etc., specific to the jurisdiction and/or domain being litigated.

[May 25, 2011]Robert Guttman Casino Capitalism Can It Be Contained

huffingtonpost.com

"I don't want casino type jobs at our big banks. It is not acceptable for big banks to gamble with our money and I would hope our banks would stop their gambling. I have no problem with casinos if you are in Las Vegas and you want to gamble, "stated Simon Johnson, the author of the informative new book 13 Bankers which focuses on the background of the financial crisis, in a talk at Johns Hopkins SAIS on April 26th.

The chairman and CEO of Bertelsmann Foundation Dr. Gunter Thielen, speaking at the Bertelsmann/Financial Times conference on the worldwide financial crisis in Washington recently rearked, "If we continue with casino capitalism, then sooner or later the legitimacy of our entire economic system will come into question on a global level."

And, we all heard Senator Claire McCaskill at the hearings with Goldman Sachs senior executives exclaim, "You are all the house, you're the bookie. [Clients] are booking their bets with you. I don't know why we need to dress it up. It's a bet."

The casino comparison from diverse onlookers on the financial crisis is an apt and correct one. While the government regulators were asleep or looking the other way they were not regulating Wall Street. Simon Johnson feels that the "regulators are now completely captured by the big banks."

It is beyond me that there is not more outrage around the country. After watching the smug and arrogant Goldman executives, one felt like demanding that they be contrite and ashamed of what they had done to our financial system. Yet there they sat, looking bored, not being back in the Big Apple making their bets so they can rake in their bonuses. Can anyone seriously explain how you bet against investments that you are making to your clients? Is there not fraud or at least misrepresentation involved in these transactions?

And, let us not forget that Congress was also asleep at the wheel and did not foresee or try to prevent the financial crisis. While the traders from Goldman played their role as arrogant and aloof from the financial storm, the senators all performed their roles as outraged citizens who yelled before the cameras so the voters could see their populist anger. Where was their outrage while the economy was tanking and people who could not afford homes were given loans as if they were candy?

While Congress and the administrations' answer was to spend boatloads of our money on the stimulus package, the head of Pew Research Center Andrew Kohut, speaking at the Bertelsmann/FT conference said, "The public feels that the stimulus and TARP did not work".

While Americans continue to be bombarded by the reckless casino attitude and practices that exist on Wall Street and in our largest banks we see the rest of the world is not immune from similar economic and financial problems--most of them man -made.

Greece is trying to keep its head above water and not default on its large debt. Portugal and other European Union nations are also reeling from a large debt and too much public spending.

Having worked at the European Commission for fifteen years and given many talks on the euro in its early years I would point out that the introduction of the single currency was more of a political event than an economic one.

If this was purely an economic problem across Europe we would see a different outcome. However, the EU countries have too much invested in the success of the euro to see it collapse. They have too much political capital involved to let the single currency fail.

Europe and the U.S. are so intertwined with trade and investments that a collapse of the Greek economy (some are calling Greece the Lehman Brothers of Europe) would affect not only the rest of its EU partners, but America as well.

Are countries like banks too big to fail? Are traders at Goldman Sachs really allowed to go long and short on the same trade? Are government regulators who didn't regulate beyond being fired?

As Simon Johnson stated at his talk at Johns Hopkins, "There is no social value for having large banks. And, big banks should be able to fail."

As anyone who has taken Economics 101 knows the laws of capitalism provide winners and losers. If you provide enough campaign money and lobby effectively I guess that negates you from losing in today's America. This has to change. If traders take unacceptable risks and do it from our banks they need to suffer the consequences when their deals go south.

We should break up our largest banks, as being bigger does not provide any guarantee of anything these days except, it appears, immunity from any wrongdoing. We should control the outrageous behavior of casino gamblers posing as bankers and seriously curtail their activities in trading that cause more harm than good.

Big is not better and wrong is wrong. Get some serious financial reform with real teeth that can send people who break the law to jail. Move our casinos from the banks and insurance firms in New York back to Las Vegas where they belong. As Simon Johnson said, "Bets in Vegas don't upset the U.S. financial system".

We may not be able to change the smugness and arrogance of the Goldman traders who testified before Congress but we certainly can pass tougher legislation that could put them in prison if they break the law. Casino capitalism has to end before it is allowed to bring on another financial crisis.

[May 25, 2011] James Kwak '13 Bankers' Who's In Charge, The Banks Or The Government

huffingtonpost.com

Tyler Cowen agrees with our argument in 13 Bankers that there is a confluence of interests between the financial sector and the government that results in policies that are generally favorable to the banks. Cowen argues, however, that it is Washington, not Wall Street, that is calling the shots. The federal government needs a large and concentrated financial sector and liquid markets in order to finance its large and increasing debts, and for that reason has allowed the megabanks to flourish. In Cowen's words:

It's our government deciding to assemble a cooperative ruling coalition -- which includes banks -- at the heart of its fiscal core. It's our government deciding who belongs to this coalition and who does not, mostly for reasons of political expediency and also a perception - correct or not -- of what is best for the welfare of American voters. If we don't in this year 'get tough' with banking regulation, it's because our government itself doesn't want to, not because of some stubborn recalcitrant Republicans.

One piece of evidence Cowen provides is the government's past willingness to bail out entities other than major banks, such as Mexico and (via the International Monetary Fund) emerging markets such as Indonesia. I find this not entirely convincing, since the indirect beneficiaries of those bailouts often included U.S. banks who had lent money indiscriminately to the latest developing-world "economic miracle." But it is certainly true that the federal government has motives other than simply looking out for Citibank.

More generally, I would argue that our interpretation and Cowen's are not necessarily contradictory. There is certainly a symbiosis between the banking sector and the federal government, although our book is predominantly about one side of that relationship. When push came to shove in late 2008, the banks' ultimate power was not that they were secretly controlling the levers of power, but that their place at the center of the financial system enabled them to hold the real economy hostage. It was politicians in Washington who made the decisions. In early 2009, President Obama tried to make it clear that he was taking orders from no bankers. But he, too, decided that the government needed the banks it had -- instead, for example, of taking over the weakest megabanks and making them wards of the state.

Cowen is no doubt right when he says that the government finds it convenient to manage its debts through a handful of broker-dealers. In fact, the government debt is handled by a continuum of entities, from the Treasury Department (part of the administration) to the Federal Reserve Board of Governors (an independent government agency) to the Federal Reserve Bank of New York (a private institution with a government mandate) to the Wall Street broker-dealers.

Still, though, I find it unsatisfying to say that the weakness of financial reform is that "our government itself doesn't want to [get tough]" -- unsatisfying because the government is the product, and the creature, of private interests. And if "the government" has a certain view of the world -- one in which large, sophisticated financial institutions play a central role -- in this case that view was largely promulgated by the financial sector and in service of its own interests.

The counterargument to my counterargument (I don't go to law school for nothing) is that governments, like banks, are made up of people, and those people have their own interests apart from those of either the voters who vote for them or the corporations who fund them. So "the government" can constitute a distinct interest group.

If this is the case, I still think the striking fact of the past few decades is that the "government employees" interest group and the "bankers" interest group came to see their interests as being largely identical, at least on issues affecting the financial sector. And the problem is that the interests of those two groups are not the same as the interests of the economy or society at large. The solution still lies in politics: convincing the government employees that they should represent the interests of society at large, not those of the banking sector. But insofar as the government independently needs the financial system we have, that only makes the job that much tougher.

13-bankers-financializati_b_561096

A New Elite

There's a lot of talk about brain drain as a result of finance. Our smartest minds are dedicating their lives to finding ways to trade ahead of our pensions and 401(k)s 15 milliseconds in order to make a windfall, instead of leading the globe on any number of much more worthwhile endeavors. This is a major problem. Simon Johnson is a professor of entrepreneurship at the Sloan School of Management at MIT and must see this unfortunate trend firsthand. I would love to hear more from him on this matter.

But I'd like to go further and note that increasingly our elites, be it government, corporate, etc., will come from the financial sector. Notice Ezra Klein's interview with a Harvard student who works on Wall Street. For him, it's something to do for a few years before moving on to elite positions in other parts of the economy.

But what kind of future elites will the next decades feature when their primary experience of work and the economy will be fashioned through work in the financial market? Obviously, the superstar economy and "rip their face off" client relationship undermines any potential for solidarity. But it also undermines entrepreneurship, even though it is surrounded by business. When a business is something to manage from the aerial view of a spreadsheet, when it is something to breakup or build up solely for the purpose of manipulating a stock price in the short term, it isn't part of the organic process of finding a way of advancing the economy through meeting the needs of consumers and a work force.

A disadvantage to this crisis, as opposed to the 1970s Keynesian crash, was that it occurred so fast that it became another policy issue instead of a call to rethink the way our real economy is put together. With the clock already running on next major financial collapse, I hope there will be time to take a step back and realize that the problems here aren't some rich people ripping off other rich people, but that this new financial power is shaping the world and the experiences of millions of people who aren't directly on Wall Street.

Simon Johnson, James Kwak On 'Bill Moyers Journal' (VIDEO)- 13 Bankers Authors Explain Financial Crisis, Reform Effort

Simon Johnson- 'Most Observers' Do Not Agree With Larry Summers On Banking

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Groupthink : Two Party System as Polyarchy : Corruption of Regulators : Bureaucracies : Understanding Micromanagers and Control Freaks : Toxic Managers :   Harvard Mafia : Diplomatic Communication : Surviving a Bad Performance Review : Insufficient Retirement Funds as Immanent Problem of Neoliberal Regime : PseudoScience : Who Rules America : Neoliberalism  : The Iron Law of Oligarchy : Libertarian Philosophy

Quotes

War and Peace : Skeptical Finance : John Kenneth Galbraith :Talleyrand : Oscar Wilde : Otto Von Bismarck : Keynes : George Carlin : Skeptics : Propaganda  : SE quotes : Language Design and Programming Quotes : Random IT-related quotesSomerset Maugham : Marcus Aurelius : Kurt Vonnegut : Eric Hoffer : Winston Churchill : Napoleon Bonaparte : Ambrose BierceBernard Shaw : Mark Twain Quotes

Bulletin:

Vol 25, No.12 (December, 2013) Rational Fools vs. Efficient Crooks The efficient markets hypothesis : Political Skeptic Bulletin, 2013 : Unemployment Bulletin, 2010 :  Vol 23, No.10 (October, 2011) An observation about corporate security departments : Slightly Skeptical Euromaydan Chronicles, June 2014 : Greenspan legacy bulletin, 2008 : Vol 25, No.10 (October, 2013) Cryptolocker Trojan (Win32/Crilock.A) : Vol 25, No.08 (August, 2013) Cloud providers as intelligence collection hubs : Financial Humor Bulletin, 2010 : Inequality Bulletin, 2009 : Financial Humor Bulletin, 2008 : Copyleft Problems Bulletin, 2004 : Financial Humor Bulletin, 2011 : Energy Bulletin, 2010 : Malware Protection Bulletin, 2010 : Vol 26, No.1 (January, 2013) Object-Oriented Cult : Political Skeptic Bulletin, 2011 : Vol 23, No.11 (November, 2011) Softpanorama classification of sysadmin horror stories : Vol 25, No.05 (May, 2013) Corporate bullshit as a communication method  : Vol 25, No.06 (June, 2013) A Note on the Relationship of Brooks Law and Conway Law

History:

Fifty glorious years (1950-2000): the triumph of the US computer engineering : Donald Knuth : TAoCP and its Influence of Computer Science : Richard Stallman : Linus Torvalds  : Larry Wall  : John K. Ousterhout : CTSS : Multix OS Unix History : Unix shell history : VI editor : History of pipes concept : Solaris : MS DOSProgramming Languages History : PL/1 : Simula 67 : C : History of GCC developmentScripting Languages : Perl history   : OS History : Mail : DNS : SSH : CPU Instruction Sets : SPARC systems 1987-2006 : Norton Commander : Norton Utilities : Norton Ghost : Frontpage history : Malware Defense History : GNU Screen : OSS early history

Classic books:

The Peter Principle : Parkinson Law : 1984 : The Mythical Man-MonthHow to Solve It by George Polya : The Art of Computer Programming : The Elements of Programming Style : The Unix Hater’s Handbook : The Jargon file : The True Believer : Programming Pearls : The Good Soldier Svejk : The Power Elite

Most popular humor pages:

Manifest of the Softpanorama IT Slacker Society : Ten Commandments of the IT Slackers Society : Computer Humor Collection : BSD Logo Story : The Cuckoo's Egg : IT Slang : C++ Humor : ARE YOU A BBS ADDICT? : The Perl Purity Test : Object oriented programmers of all nations : Financial Humor : Financial Humor Bulletin, 2008 : Financial Humor Bulletin, 2010 : The Most Comprehensive Collection of Editor-related Humor : Programming Language Humor : Goldman Sachs related humor : Greenspan humor : C Humor : Scripting Humor : Real Programmers Humor : Web Humor : GPL-related Humor : OFM Humor : Politically Incorrect Humor : IDS Humor : "Linux Sucks" Humor : Russian Musical Humor : Best Russian Programmer Humor : Microsoft plans to buy Catholic Church : Richard Stallman Related Humor : Admin Humor : Perl-related Humor : Linus Torvalds Related humor : PseudoScience Related Humor : Networking Humor : Shell Humor : Financial Humor Bulletin, 2011 : Financial Humor Bulletin, 2012 : Financial Humor Bulletin, 2013 : Java Humor : Software Engineering Humor : Sun Solaris Related Humor : Education Humor : IBM Humor : Assembler-related Humor : VIM Humor : Computer Viruses Humor : Bright tomorrow is rescheduled to a day after tomorrow : Classic Computer Humor

The Last but not Least Technology is dominated by two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt. Ph.D


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Last modified: April, 26, 2021