Democratic Action By You…to Save America

The U.S. financial system is broken, and the people know it, but the rich who rule dont see a problem. Can the American people figure out a way to reform the system without burning it to the groundby an end run around the corrupt ruling elite?
Debate is intensifying over the implications of the apparent emergence of a two-class economy (the uber-rich and the other 99%). The rich say its good; more and more of the rest disagree. Whatever the truth of that debate, two things are undeniable: 1) the shift in U.S. society toward inequality and 2) the failure of the uber-rich to manage professionally the economy from which they have derived such exorbitant personal rewards.
The data on rising inequality are stark:
Since 1980, about 5 percent of annual national income has shifted from the middle class to the nations richest households. That means the wealthiest 5,934 households last year enjoyed an additional $650 billion — about $109 million apiece — beyond what they would have had if the economic pie had been divided as it was in 1980, according to Census Bureau data. [Bloomberg Businessweek 10/13/11.]
When inequality is rising because some are rising faster than others, thats one thing. When inequality is rising, but the winners take care of the losers (providing honest jobs for all willing to work, taking care of all children, making good education available for all who are willing to study, and ensuring that the population is given a health care safety net, and using the police to provide security for all), that too may be defensible. But when inequality occurs because the rich are impoverishing the rest through brazen, illegal, and unproductive financial trickery and a corrupt political system designed of the elite, by the elite, and for the elite, then it is time to change the system.
At that point, the debate should perhaps start centering on the question, When should all options’—a phrase the political elite now likes to toss around in the foreign policy context–be put on the table? Personally, I still do not believe the U.S. has yet reached quite that point, but it is moving in that direction frighteningly fast.
How the elite reacts to the incoherent but heartfelt popular protests on Wall St. will say much about whether or not we will be able peacefully to reform the economic system in the U.S. that the elite has so disgracefully mismanaged over the past generation. So far, Washington and New York Mayor Bloomberg have essentially given the finger to the protestors; no wonder their protest is spreading. Expect violence as the elite temporizes.
A bit more government effort to identify, arrest, and try those who brought us the recession would send a welcome message to the protestors. Treasury Secretary Geithners promise this week of such action is somewhat encouraging, though he is one of the foxes guarding the henhouse, so we need to reserve judgment until we see action. Elimination of the Senate 60% majority rule and a serious demonstration of Democratic backbone in support of financial reform would also send a message. So far, it is a dangerous standoff between greedy politicians and weak-kneed politicians, with the people confused and increasingly angry.
The official news agency of that great American creditor, the Peoples Republic of China, which did so much to finance the U.S. invasion of Iraq with loans that our children will have to pay back, put it neatly:
Unbiased eyes can see through these anti-Wall Street protests a clear need for Washington, which habitually rushes to demand other governments to change when there are popular protests in their countries, to put its own house in order. [Xinhua, 10/10/11.]
Indeed: domestic and foreign policy are related. Might that have anything to do with the wild claims about Iranian plots coming out of Washington even as Americans are demonstrating on Wall Street for economic justice? Might some imagine that another nice little war in the Mideast would distract short-sighted Americans from the real source of their discontent?
As for specific solutions to U.S. financial problems, the protestors are now calling for the highly practical and eminently moderate solution of individuals transferring their bank accounts to banks that represent depositors interestsin other words, to banks that are banks, not brokerages or gambling firms, a sort of Glass-Steagal (the New Deal reform that put a legal wall between brokerages and banks) by democratic action rather than law.  
Hmmmcan we the people really change things without going through our legally elected but highly distracted (by temptation) representatives? Can we figure out ways to change our behavior directly, as individuals in order to counteract the elitist distortions in the economic system and put working Americans back on their feet? Bank at a local bank that is not part of a huge chain. Buy high quality made-in-America products even if you have to pay a bit more. Support environmental groups fighting against corporate pollution of your air and drinking water. Grow vegetables and share with your neighbors. Persuade those neighbors to change how they live. Don’t sit around waiting for the politicians to save you: that is exactly what they are counting on.
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Elizabeth Warren Speaks the Truth on the Economy

There is a class war in the U.S., and the financial crisis exposed it to all, but those under attack–the American people–have not yet begun to fight back against the super-rich.

Ben Bernanke had the opportunity recently to tell the truth about the economy and evaded it. Others are doing far worse. So what would an honest person in public office say? Elizabeth Warren, who should at a minimum be our Secretary of the Treasury, just said it:

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.
“Now look, you built a factory and it turned into something terrific, or a great idea. God bless — keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along.” [As reported by Campaign for America’s Future.]

Now that is honesty. Can you tell the difference between that and the drivel you hear from your representative in your state capitol or Washington?


The underlying issue here is of course the hypocritical references to “class warfare” being bandied about by those defending privilege. They are right: it is class warfare, but what Americans need to understand is what those classes are in the U.S. today. The conservative attempt to make an under-the-table allusion to the old Soviet Union merely illustrates their ignorance about world history…or their assumption that you are too ignorant to realize you are being cheated. Class warfare in 1917 Russia grew out of a huge majority in Russian society of poor peasants and poor factory workers. That has little to do with modern America, where the story since WWII and arguably since 1776, has been one of an expanding middle class. 

Two generations ago, Americans congratulated themselves on being in the process of rapidly inventing the world’s first 100% middle class society. Poor existed still, but any poor individual had a real shot at rising into the middle class and permanently keeping his family there. The rich existed too, but they increasingly seemed just like the rest of us except a bit luckier. 

That dream is obviously off the charts today, with the explosive growth of the permanent poor at one extreme (if one can term some 40%!! of the population an “extreme”) and the equally explosive growth of a thin layer of super-rich now almost totally out of control at the other. Don’t relax in the impression that the U.S. is implementing a three-class society, with “you” comfortably in the middle, however. The trends of foreclosures, employment, wage levels, hours worked, availability of jobs for those who want jobs (excluding truck driver in Afghanistan), house values, job security, job benefits, and pensions all suggest that the middle is being sucked into the bottom.

The trends toward 1) a poor majority, 2) a steady weakening of the middle, and 3) a distant, thin layer of the super-rich controlling a steadily rising percentage of total national wealth at the top jointly lay the foundation for the evisceration of democracy and a rude awakening from the American Dream. Now, this brings us to class warfare. The class warfare that exists is a war by the super-rich to exploit everyone else. You don’t have to read socialist analysis to see this, though you owe it to yourselves to get that education; you don’t even have to read the commentary of leading economists (e.g., Robert Reich, Paul Krugman, Joseph Stiglitz, or William Black); just take a look at the executive summary of the recently published U.S. Senate report from the Permanent Subcommittee on Investigations (“Wall Street and the Financial Crisis“) on the fraudulent behavior of the super-rich that brought us the endless recession.

The Senate report lays out in no uncertain terms what it means for the super-rich to be “out-of-control,” detailing such “shoddy lending practices” as “steering” customers to high-risk mortgages [3] and a pattern of “unacceptable lending and securitization practices.” [4] Former U.S. financial regulator William Black pointed out the elephant in the financial room by posing the question:why, this is the greatest financial crime in the history of the world and no one senior, at any of the major places that drove the crisis, has gone to jail?[Interview on Financialsense.com.]


Ms Warren has cut to the chase: the point of the war of the super-rich is to evade responsibility for building the future.

The Economy Is About Jobs, Not Stock Prices

Paul Krugman, cutting as usual to the chase, provides this bottom line little set of statistics on the real state of the economy (where ECONOMY = JOBS):

In June 2007, around 63 percent of adults were employed. In June 2009, the official end of the recession, that number was down to 59.4. As of June 2011, two years into the alleged recovery, the number was: 58.2. [New York Times, 8/4/2011.]

Krugman pointed this out a few days ago; it is worth recalling in light of the gyrations of the stock market this week. It does not matter what the stock market does. Ignore it. What matters is whether or not the average person has a job or is unemployed, frustrated, stressed, angry, unproductive…

So if politicians talk about ANYTHING ELSE, they are probably hiding something (like their inability to solve real problems). Bob Reich explains this very clearly.

And here’s the video on how to generate those jobs [Real TV].

Too Big to Exist

When corporate or government institutions become too big and too socially destructive to exist, we need a graceful method of putting them on a diet and reforming their lifestyle.

The American genius for creating magnificently productive mega-institutions has a potentially fatal downside: we have, as a society, no idea how to downsize them when they “go rogue,” i.e., become socially destructive. On balance, today, several of America’s major mega-institutions–the Imperial Presidency, Big Oil, Big Pharma, and Big Finance–either are or are fast becoming socially destructive. They are “too big to exist;” we need to figure out how to downsize them gracefully, reorienting them toward socially useful behavior.

Perhaps the first step toward this new way of thinking that needs to replace the tarnished old “bigger is better” mantra is to understand the evidence supporting the contention that these mega-institutions are so bloated that American and, indeed, global society can no longer afford them. (I call these social units “institutions” because each is truly a unified organization composed of, perhaps, separate governmental or private units, but operating according to a clear if unstated and frequently illegal set of monopolistic rules designed to maximize profit and power at public expense and, in the case of the Imperial Presidency, at the expense of the rest of the Government as well.) Consider the following examples of mega-institution misbehavior:

  1. The Imperial Presidency, i.e., the rising ability of the White House and all its military-industrial support mechanism to overshadow Congress and Constitution on foreign policy, now employs something in the neighborhood of a quarter of a million mercenaries overseas, constituting an armed force capable of making independent war on most countries–completely outside of Congressional control and often beyond the reach of U.S. judicial authorities [see Jean MacKenzie, Jeremy Scahill, Glen Ford]. Since Augustus overthrew the Roman Republic with his palace guards and established the Roman Empire, we have known the profound threat to democracy posed by a mercenary army under the command of the chief executive.
  2. Big Pharma, constituting the whole U.S. health care industry, has degenerated so far that, to boost profits, it now essentially writes off as a “business loss” all of the nationa’s elderly with the almost universal cognitive problems associated with aging. At their most vulnerable, they are thrown into the arms of untrained relatives utterly unprepared for 24/7 nursing.
  3. Big Oil, alb eit receiv ing billions annually in welfare payments from U.S. taxpayers, can destroy ever-growing chunks of the earth through careless cost-cutting measures and escape responsibility. For the rest of our lives, we will be watching BP’s poison creep with Gulf Stream currents up the North American east coast and over toward England, while everyone complains about $4 a gallon gas, a price only a fraction of the real cost.
  4. As for Big Finance, the cost of its irresponsibility is now glaringly obvious to everyone. At the very least, Wall St. should keep accurate books, and regulators should scrutinize them.

The traditional way of toppling rogue mega-institutions is of course well known: the “barbarians” did it to Imperial Rome, Lincoln did it to the Southern slave system, Gorbachev did it to the Soviet state. But as these mega-institutions take on global scale, the cost of violent overthrow rises sharply. We should be able to do better.

Key to the smooth downsizing of rogue mega-institutions is twofold: 1) the breakthrough understanding of the bottom line insight that a cherished social structure has outlived its usefulness as currently designed combined with 2) the identification of specific traits requiring elimination. Specific reforms (Step 2) without acceptance of the goal of institutional downsizing, and redirection into a socially beneficial mode misses the point. That was the mistake of the Wall Street bailout, which successfully saved the bad old exploitative system rather than taking the opportunity to dismantle it by, for example, rebuilding the wall between the stock market and personal savings accounts. Similarly, eliminating mercenary forces while leaving the political supremacy over Congress of the Imperial Presidency untouched will only have a temporary impact. Surgical removal of a specific cancerous tumor must be done in the context of lifestyle changes related to nutrition, avoiding pesticides, and exercise.

Rogue mega-institutions must be recognized as enemies of society and redesigned to return to their proper purpose of servinhg society. The Presidency’s power should be balanced with that of Congress; stock market investments should b e used to stimulate growth, not gamble with people’s mortgages and savings accounts; the health care system should exist to provide a universal right, not to make a profit; the cost of gas should b e set by government to reflect its true value, incluyding the cost of pollution clean-up and the cost of wars fought to get the oil. And no industry that takes welfare from the taxpayer should turn its leaders into billionaires immune from prosecution.

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READINGS:
To its credit, Washington is at least thinking about this issue. See comments by FDIC’s Sheila Bair.

The Lesson of AIG

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The man-made recession, which continues, did not, apparently, cause the collapse of civilization as we know it, but if we do not take this opportunity to learn how better to manage big institutions, the next time may be worse. Or, perhaps civilization as we know it, based on a capitalist rampage, should undergo planned obsolescence.
The lesson of AIGs collapse and purchase by the Government, using taxpayer funds definitely not intended for that risky purpose, at a minimum is this: some of our societys institutions have in fact become too big to fail, without unacceptable collateral damage, and should thus be managed under intense public scrutiny to minimize such potential collateral damage. Whether or not the AIGs fail is a private concern; how they fail is the business of the Government and the People.
It seems fairly obvious that AIG decision-makers were running their company in a manner irresponsible to their shareholders, their customers, and society [Sorkin, 376-411]. This statement is based not just on their business decisions but, more, on their lack of understanding of their own business: despite the billions they maneuvered, they evidently did not know their own numbers, like a private individual who borrows from all his friends and spends every penny he gets without ever figuring out how much income he has, how much he is spending, or how much he owes. Such an individual will end up in jail; the penalty for executives in organizations too big to fail should be much more severe. A number of specific questions about the degree to which AIG decision-makers were held responsible for this failure of duty follow:
  1. To what degree were AIGs CEO and, perhaps more importantly, its previous CEO (for the one at the time of its collapseWillumstad–had not been in the position long enough to have cleaned house) a) made to explain AIGs failure and b) made to pay personally via fines that, after the fact, amounted to a removal of incentive for others to behave with such irresponsibility?
  2. Were the decision-makers just below the CEO criticized by AIGs own controller (David Herzog) [Sorkin, 410] fired, fined, and debriefed for the public record?
  3. Where is the official evaluation of how the business practices of AIG went so wrong and what we as a Government and a Society should do to ensure transparency for such institutions in the future?
For their clients who held AIG paper (e.g., insurance policies), for their investors who hoped for a profit, and for the millions of innocent victims who would suffer from AIG failure, AIG had a minimal responsibility at least to understand its own balance sheet. The Government had a more profound duty since its primary (and grossly failed) responsibility in the years from the gutting of Glass-Steagall under Clinton until the Bush Recession was to society, not to the rich. The Government, specifically the regulatory agencies and Congress (which sent the financial institutions the message that anything goes and sent regulators the message that befriending the fat cats they were supposed to be regulating was OK), betrayed the interests of the U.S. public in favor of rich and generous institutions.
American society needs to think deeply about how to minimize such corruption. The first step surely is for Americans to wake up and educate themselves so they can differentiate between corrupt politicians who support the elite rather than the public interest, for it is unclear how to punish the politicians responsible for creating the anti-regulatory environment in which the recession was cultivated except by voting them into the ash heap of history. A second step would be to pass an amendment to the Constitution clearly defining person as referring only to people, not groups, institutions, or companies. A third step would be to prohibit three things that present clear conflicts of interest:
1.      electoral contributions by financial institutions;
2.      the revolving door through which the billionaire financial elite flows from Wall Street to Washington (where it passes legislation favorable to Wall Street) and then back to Wall Street, where they earn further billions with yet further safety from being held responsible;
3.      lobbying by financial institutions (which should be allowed only public statements of what they favor, not private lobbying of politicians).
Further Reading:
·        Brief review of the post-bailout continuation of Government favoritism for AIG, despite years of scandalous and criminal (for which a huge fine had been assessed even before the recession) behavior, at the expense of the public
·        Outspoken review of AIG

The Pattern of Democratic Decline

It is not about tinkering; it’s about making moral judgments.

The ramparts of American democracy remain strong, if subtly undermined by long-term trends I have discussed elsewhere. The gathering hordes stand not at the walls but within and can hardly be called “hordes” at all, though they are, because a rampaging crowd of the rich is not what the term “horde” typically brings to mind. But it is the rich of America, not the poor of the world, who are focusing their energies against us. If American democracy is to be successfully defended against these, well, hordes–for they are multitudinous and they are running amok, then Americans must come to understand the context of events so they can give proper meaning to those events.

Politicians’ lies about the reasons for sending American soldiers to die in foreign lands might perhaps be explained away, though we forgive such sins at our peril. Financiers’ attempts to destroy government regulatory oversight and carve out special exemptions from anti-gambling statues in a mad rush to get rich quick with our money may be interpreted by the generous as just another example of “boys will be boys.” The eagerness of the banking community, which–as the place we all put our money for safekeeping–should be the most conservative and risk-averse institution in society, to join in the fun and games ought at least to begin to give one a funny feeling in one’s stomach. The viciousness of the battle to provide health care as a right rather than a privilege for the privileged could only shock any foreigner, but the U.S. remains, as we members well know, something of a primitive, frontier society with a long list of its own special prejudices, and the idea that society should ignore the health of the poor has always been one of the most cherished, so, self-defeating as it may be, at least it is nothing new. The egregiously contemptuous attitude toward the environment of BP and the sickening effort by Washington to kiss up and explain away BP’s flouting of the rules is also just the worst of an endless series of needlessly and inexcusably rapacious thefts by corporations of America’s dwindling heritage; inexcusable but hardly surprising. And now, after a decade of astonishing examples of corruption and irresponsibility, the latest is the emerging scandal of the clearly intentional, industry-wide practice of corruption in the process of foreclosing and reselling homes, i.e., the process of kicking people out on to the street because, most likely, they lost their jobs in the recession that same financial elite created and the process of selling those homes to unsuspecting buyers. It’s quite a coup when a middleman can manage to cheat both buyer and seller.

Each of the above events, in isolation, can be explained away as a bad apple in a good barrel, but when you put any one of them in the context of all the others, the picture becomes vastly darker: a pattern of fundamental corruption across virtually all of the major institutions of American society, an elite gone mad with greed and short-sighted irresponsibility…gamblers burning down the barn in which they raise their racehorses in order to collect on the fire insurance.

There is, fortunately, some good news. The media, albeit vastly compromised, did finally bring itself to write up this scandal, though rather later than it perhaps should have, and Washington now seems to be taking notice. If democracy is on life-support, at least its heart continues to beat, though there is precious little evidence of any willingness to adopt a more healthful diet.

More seriously by far, the voters seem oblivious to the underlying message of this long pattern of corruption: it is not a matter of tinkering with administrative procedures but of facing up to immorality at the heart of society. The “elite” in America may be trying its best to make itself hereditary, but it still is not; the “elite” is composed of all who “make it good,” and they are making it good by cheating. If Big Finance can only succeed by impoverishing the society off which it lives, if oil can only be pumped by poisoning the nation’s fisheries, if politicians are to be allowed to get away with starting wars on false pretenses that leave the country less secure and more impoverished, then America is sliding down a slippery slope.

Those who make good by cheating must be punished – perhaps because they deserve it but more to teach the lesson that a democracy cannot tolerate such behavior and survive. It is not yet 1917 in America nor is it 1789, but the tsars and the kings did not see their revolutions coming either. Reform during a revolution is more likely than not just to pour gasoline on the fire. However, to punish the guilty, one must make a moral judgment, and that is precisely where America is in denial.