Barack Obama is a Sellout

First, of all I’m going to stop pretending that I’ll ever update this blog on anything like a regular basis… now on to our program.

I don’t believe we need any additional evidence to confirm that this President has allied himself with the American oligarchs of finance in their long-term war of attrition against the rest of the American people.  This article by the implacable Matt Taibbi is comprehensive, and damning.  It is an indictment and a must read.

Taibbi calls for Geithner’s head, and that would certainly be a welcome first step, but it will not be sufficient.  In just two or three weeks I have gone from believing ANWF Bay Area was on its death bed to being very optimistic about our current efforts to expand the organization for the purpose of creating an insurgency the likes of which will give Larry Summers nightmares.  I always had the feeling I was born to fight, and I figure I’ve got a good twenty years left to give all I can to a nascent movement that is simply trying to secure some kind of economic justice in this crazy place. I guess Che had it right, you go where the battle is being fought.

Dear President, members of his economic racket-protection cabinet, and American oligarchs everywhere, consider yourselves forewarned.

In Defense of Economics

This is a brief piece I wrote in response to a post Joe Costello, a fellow ANWF volunteer, published to his discussion group (which I would highly recommend you join). Joe and I agree on many things, but sometimes the disagreements can be just as illuminating.

While I agree with the general gist of Joe’s argument, as someone with a degree in sociology and a deep interest in economics, I would argue that economics is indeed a science.  It is simply not correct that ­there are no fundamental laws in the realm of economics, the law of supply and demand for instance, comes to mind.  However, the law of supply and demand is not the exact equivalent to something like the Newtonian laws of motion.  The Newtonian laws of motion operate in an “a priori” universe, meaning the one we actually live in, while the law of supply and demand can only operate to perfection in unattainable mathematical models that assume perfect distribution of information, classically rational agents, and the like.  Despite the lack of real world, “perfect” markets, it would be a mistake to conclude that the underlying mechanism of supply and demand is not universal and concrete.  People do respond to price information in ways that classical economics predicts, in fact we have just lived through a grand demonstration of that law.  Americans responded to an increasing supply of cheap housing-backed credit- made possible via tax subsidies, deliberately low interest rates, and other means- by increasing their consumption of this credit to ever new heights.  In addition, classical economics would correctly predict that the price of housing would have to come to equilibrium (in this case a severe crash in demand) as overbuilding, credit default, and other mechanisms effectively increased the supply.

One of the areas where economics still has a long way to go is in its ability to fully understand “imperfect” markets, or precisely the types of markets we have today, and which we will always have.  When we talk about “economies” we are talking about complex systems made up of human agents that are themselves complex systems.  It encompasses everything we do and don’t know about the underpinnings of human behavior, and then on top of that the increasingly sophisticated social constructs we humans have devised.  Any understanding of these things requires scientific empiricism or there will be no understanding at all.  The fact that economics relies on models and observation is in no way a reasonable indictment of the study of economics.  Meteorology also relies on increasingly complex modeling because conducting experiments with the weather is obviously next to impossible.  Much of what we know about the cosmos has been learned strictly through observation.  Are these not sciences?

What both Joe and I are both objecting to is not the science of economics, but the politics.  The science of economics will not necessarily tell you whether and when it is a good idea to subsidize residential mortgages, or whether or when to allow the systematic spread of fraudulent financial products.  These are the rules that Joe speaks of, and politics is the domain of social rules.  It is worth remembering that the whole field of economics was once considered part of philosophy, and until fairly recently was commonly referred to as “political economy”.  The latter is a term which I think gives proper deference to the notion that any economy is indeed a human construct inseparable from the societies that create and maintain them.  The advances of empiricism may have temporarily seduced many into thinking we had minimized the political variable of this equation, but recent events should be more than enough to destroy that delusion.

What is needed now is not a retreat from the science of economics, but the converse.  What if some significant portion of all those brilliant, Ivy League trained, minds had flooded the economics profession rather than Wall Street?  The reason Wall Street was able to attract a highly disproportionate number of talented people was due to the “rules”.  the rules that allowed people to run up huge speculative bets with other people’s money, the rules that allowed for the creation of “innovative” financial products without regard to safety or soundness, the rules that allowed pools of high-risk mortgages to be magically transformed into gold-plated bonds.  What is needed now is not a repudiation of science, but a repudiation of the politics of elitism and corruption.

Words and Numbers, Numbers and Words

First, please view this chart, which is one of many accompanying a Comstock Report appropriately entitled Deleveraging the U.S. Economy. As I mentioned, there are many useful charts in this very technical article, but the one displaying Total Credit Market Debt in relation to GDP is cold, harsh, and illuminating.

The authors conclude that the American deleveraging process will be much like the Japanese experience- which should make us all tremble (with the exception of the ignorant or truly rich).  Unfortunately, it is nearly impossible to imagine an alternate scenario than the American savings rate slowly, tortuously, rising back to a more sane 10% by say 2018.  The unfortunate part of that prediction is that for an economy precariously reliant on the heady steroids of debt, going clean will be a difficult adjustment indeed.  In fact, the patient is already beginning the arduous recovery from overdose and near death due almost exclusively to the tireless Government owned/sanctioned money presses.  Of course, this is merely trading one imbalance for another, akin to switching from heroin to methadone.  A former junkie can survive for years on a regimen of the latter, but the quality of that life is at least questionable.

While the Government may have saved the patient from dying on the operating room table, it unwisely declined to proceed with any significant surgery.  The fundamental structure of the U.S. economy, and certainly that of its cancerous financial sector, remains essentially untreated.  I for one have little to no faith in the current leaders of our political establishment, thus the longer term prognosis is grim.  As they say in Japan: “Ganbatte, Ne!”.

I Hope You Like These Bananas

Some food for thought. This quote is from the Wikipedia entry on Banana Republics: “a banana republic also typically has large wealth inequities, poor infrastructure, poor schools, a “backward” economy, low capital spending, a reliance on foreign capital and money printing, budget deficits, and a weakening currency. Banana republics are typically also highly prone to revolutions and coups.”

The original reference was taken from an interesting article by Senator Fritz Hollings.

The Oligarch in the Room

It is a primordial behavior of oligarchs everywhere and at all times to continue looting and plundering up until the very last bloody minute.  Without the existence of a sufficient countervailing force they have no incentive to do otherwise.  Take the money and prepare to run if necessary, or better yet hole up behind gated walls and privately secured enclaves.  This is the oligarch’s modus operandi, pursued even more energetically when the havoc he has sown envelopes all the lesser groups around him.

Goldman Sachs recently revealed earning record “profits” last quarter.  Record as in never before recorded by that institution.  Naturally, they also announced record “bonuses” would be dispensed in accordance with their return to “profitability”.  I am enclosing words such as “profits” in quotes because while they usually have no importance beyond mundane business accounting, in light of our current predicament and Goldman’s recent history they should now be considered political statements.  I will leave most of the important details to others (see links below), but allow me to briefly recount some of that recent history.

Lehman Brothers, one of the only true GS competitors, is allowed to go under.  In the minds of many this marks the start of the Great Crisis, although in reality this was simply a particularly sharp point on the continuum of disruptions that had already been going on for quite some time.

Goldman Sachs (heretofore referred to as GS) was peering into the abyss of insolvency (bankruptcy) until handed a taxpayer-financed injection of $10B via the infamous TARP bailout.  Recall, dear Reader, that Hank Paulson, previous US Secretary of the Treasury and former CEO of GS was the sole decider behind this decision.

GS would have been bankrupt, or certainly close to it, if not for Mr. Paulson directing an additional payment of $13B in taxpayer-financed money to the GS coffers in another series of opaque sole decider moments.  Interestingly enough, these payments were made through the government’s strangest special investment vehicle, also known as AIG.

GS raised $28B by issuing FDIC-backed debt.  Forget all the technical details, the truth is that this basically amounts to a huge pile of free money, financed by the tax payer of course.

I could go on, this list is by no means exhaustive, but I think you get the point.  The result of all this material support provided on the backs of the long-suffering, and undeniably ill-informed, public is that GS feverishly accelerates the trading and underwriting machine.  The result of which is the most recent announcement that they will be taking the money (which they refer to as “bonuses” and “salaries”) and (presumably) preparing to abscond.  Oh, and for good measure they will be using part of the leftovers to wage a bloody fight against any meaningful financial reform.

If you harbor any doubts that there exists, here and now, a small class of citizens who deem themselves separate, superior, and entitled to massive transfers of wealth from everyone else to them in perpetuity, you would be wise to re-consider your position.

Additional Reading:

Matt Taibbi (required for serious readers)
Peter Daou
Arianna Huffington
NYT
WSJ
Paul Krugman
Andy Kessler

The Prosecution will Soon Rest Its Case

The evidence is overwhelming that the stratospheric rise in financial industry profits over the past few years was essentially a massive pump-and-dump scheme perpetrated on a jealous and cowering public.  Robert Peston’s article for the BBC is only the latest in a near continuous stream of irrefutable argument.  His analysis deals exclusively with the UK financial industry, but these days there is little difference between their money changers and ours, except for the accents.

The truly terrifying part is that there are many high officials of government and industry that still believe this casino capitalism represents the economic pinnacle of our immediate past and foreseeable future.  For those who rely on the casino for their wealth such faith is understandable, but for the rest of us it can only be self-destructive delusion.

The Foreclosure Front of this War

This is a re-post (complete with lack of proper capitalization) that I just made to the ANWF discussion list.

i feel like many of us have been flailing about on the question of how much weight ANWF should throw behind foreclosure mitigation vs. our mission and while reading naked capitalism (http://www.nakedcapitalism.com/) it just clicked in my mind that these are inextricably related. as this http://www.nytimes.com/2009/07/11/business/11nocera.html?pagewanted=1&_r=1&ref=business nyt article reports geithner and the administration are going to call the bankers into the principle’s office for another scolding over their lack of get-to-it-ness on the government’s foreclosure mitigation program.  it appears this is mainly a pr stunt after a previous nyt piece (http://www.nytimes.com/2009/06/29/business/29loanmod.html) exposed the bankers absolute stonewalling on this issue and undoubtedly embarrassed treasury.  the government’s current program has the force of a strongly worded memo from your 5th grade teacher, and it would be charitable to label these efforts as weak.

here is a key section from the first nyt article (emphasis mine):

Many institutions also are reluctant to do large-scale mortgage modifications because they will hurt the balance sheets. After all, if a loan is modified, the bank has to take a write-down on the portion of the loan it is swallowing. If lots of loans are modified, that means a lot of write-downs.

At this moment in the financial crisis, banks are trumpeting their new-found profitability and racing to return bailout money to the Treasury. They’ve been able to do so in part by pretending that their loan portfolios, across the board, are healthier than they actually are. The government’s willingness to ease the rules surrounding mark-to-market accounting have helped this effort. (This is not true of every bank, I should note: JPMorgan Chase, the healthiest of the big banks, has also been the most aggressive about modifying mortgages.)

Sure, foreclosure ultimately costs the bank more money than a modification would. But foreclosures these days take a long time — as much as 18 months in some states. And all that time the banks can keep the loans on their books at inflated values. Daniel Alpert, the managing partner of Westwood Capital, calls this practice “extend and pretend.”

so the meta analysis is this.  the reason the banks are resisting foreclosure mitigation with all their might is that to do so would puncture the government supported illusion that they are not either technically insolvent or close to it.  as the article points out, this was the same purpose of the change in mark-to-market accounting shenanigans.  all to produce the illusion of financial health for these rapacious institutions.  the issue here is that this is simply a back-handed way to give another subsidy from the public to the banks, except in this case it’s not even filtered through acronym challenged, opaque, financial black-ops programs like TARP, but directly on the backs of citizens being forced from their homes.  Remember this is a zero sum game, either the bank takes the haircut on these bullshit loans or the homeowner does by getting kicked out on their ass.

i think this analysis gives the proper frame through which we ANWF warriors understand and prioritize this issue.  it is core.  perhaps we should add as a principle plank of our platform either the re-reinstatement of the law allowing bankruptcy judges to order loan modifications, or a federal law mandating principal reductions for primary residences that are in the foreclosure process or on the verge of heading there.

Down for the Cause

Current Book: The Scientist as Rebel by Freeman Dyson.

Okay, I’ve been meaning to write this post for weeks now, and I guess 3am on a Sunday morning is as good as time as ever.  I have been working with a grass roots organization that I will hope will be the vanguard fighters in fundamental reform of the US financial sector.  The organization is A New Way Forward and you, dear reader (of whom I have precious few) should check it out.  I am a member of the ANWF-Bay Area “steering committee” and we also have a Facebook group page.

Geithner Exposed

This is the best article I’ve seen thus far on the background and policy proclivities of our current Treasury Secretary.   Overall the picture it paints is of a man who is extremely close to the discredited titans of finance that he should now be responsible for bringing to heel.  Unfortunately, it seems quite clear to me, and other observers like J. Stiglitz, that Geithner is the de facto representative of these oligarchs whose interests are in opposition to those of the broader taxpaying public.

This is a long and well researched article that must have required considerable time to piece together, thus one has to wonder about the timing of its publication.  Investigative journalism of this type tends to be produced only when the subject is under fire, and the article states quite explicitly that this is the case.  As far as I know, this is the first negative review of Mr. Geithner to be published by a “mainstream” media outlet, and it is certainly a lagging indicator of the building current of dissent among the more vocal economists/intellectuals and informed laymen.  We’ll see if this story has legs and I’ll be doing my part to insure it does.  More on that later.

The Distinguished Panel

The PEN American Center recently held a very lively panel discussion on the economic crisis.  The panel included Bill Bradley, Niall Ferguson, Paul Krugman, Nouriel Roubini, George Soros, Robin Wells, and was moderated by Jeff Madrick. I highly recommend listening to the entire discussion.