Originally posted on RealEconomics.

One of the major bastions of the new financial and corporate oligarchies that have emerged and entrenched themselves the past four or five decades is an international financial system that has usurped many of the powers of the sovereign nation state. Ironically, many nation states are in fact mere tools in the hands of these new oligarchies. These nation states function as tax havens, and there is an interesting new book on the subject, Treasure Islands: Tax Havens and the Men who Stole the World by Nicholas Shaxson. It has been reviewed by David Runciman in the London Review of Books.

Cross-posted from Real Economics.

Freddie DeBoer's recent argument that "the blogosphere is a flagrantly anti-leftist space" initiated a useful discussion of the current political climate in the United States.

History teaches us, however, that the left, especially socialists and communists, are really not any better at creating and maintaining democratic governments for advanced industrial societies. Repression of human rights was a notorious feature of communist countries before the shattering events of 1989.

The tubez in America this morning are filled with discussion of a "senior White House aide" attacking organized labor for labor's support of Bill Halter, who nearly unseated incumbent Arkansas Senator Blanche Lincoln in the Democratic primary yesterday.

Two weeks ago, I explored the problem of why President Obama's administration has so little concern for the problems of working Americans, in The Obama administration as "managed democracy".  I used Thorstein Veblen's insights into the Leisure Class  to extend Sheldon Wolin's analysis of "managed democracy" (a new form of authoritarianism developed in the past two or three decades, which most of us would also call corporatism). The fundamental point I was trying to make is that there is nothing in the education or life experiences of someone like Barack Obama or Larry Summers that would provide them an understanding of industrial economics or real (not politically expedient) empathy for the working class. (Let me qualify that, because I had hoped, and still cling to a hope, that Obama's experience as a community organizer might have given him a reservoir, not yet drawn upon, of support for industrial economics, or at least enmity for, or the very least suspicion of, financial economics.)

Forthwith, my post in full:

It's been a week since I first left this as a comment on DailyKos, but it is something I have been pondering for over a year. I am placing it before the readers of European Tribune to see if others recollect the same sequence of events, and their effect. Please do not let your initial reaction be your first judgment, because the "common wisdom" has been repeated so long and so often, that even I had come to believe it. Until, that is, this past month, when I was searching through some old files of mine and found a summary study I had forgotten about. What really caused Japan's Lost Decade? What do you remember about that period of time, the late 1980s, and early 1990s, not long after London's Big Bang?

One thing that caught my attention in the recent Atlantic profile of Treasury Secretary Tim Geithner was Geithner's being posted to Japan just as the infamous "Lost Decade" was beginning. There is one paragraph in which Geithner purveys the usual Versailles version of what caused the Lost Decade: that Japanese officials were unwilling to recognize that Japanese banks had been bankrupted by bad loans made in a frenzied real estate bubble.

Promoted by afew

Note to Eurotrib readers: I have cross-posted this at CorrenteWire, Real Economics, and DailyKos. Though it is considering the U.S. situation exclusively, it does discuss some of the European economies by way of comparing the U.S., so I thought it would be beneficial to solicit reactions here. - NBBooks

In the middle of last week, lambert posted on CorrenteWire a brief snippet of a very dramatic and gut wrenching conversation between David Cay Johnston and Chris Hedges, about the likelihood that America is near a tipping point into massive, militant, violent social dissent - but which is coming from the wrong-wing, not the left.

Revolutions occur when young men see the present as worse than the unknown future. We are not there. But it will not take a lot to get there.

There's more downstairs.

Cross-posted from Real Economics, and from DailyKos.

Danny Schechter, blogger in chief at Mediachannel.Org, and author of the 2008 book, PLUNDER: Investigating Our Economic Calamity, attended the Make Markets Be Markets Conference, and reports that Wall Street financial giants have quietly paid out $430 billion in damages and settlements in over 1500 civil lawsuits (NOTE: this is misleading; recent cases probably tied to the recent crash amount to $75 billion - see update below):

I did a search, and came up with next to nothing for Sara Robinson, who has written an excellent series on the meaning of the emergence of organized thuggery trying to disrupt the town hall meetings U.S. Comgressmen and Senators have been holding across the United States the past month. In her latest, she nails a topic I fear very few progressives understand or even care much about - the link between economics and the health of the body politic.

A liberal democratic society is a complex system that's designed to be very resilient and self-correcting in the face of all kinds of extremism. But the health of that system -- especially its natural immunity to would-be attackers -- ultimately depends on just one factor. It cannot survive without people's ongoing confidence in a functioning political contract.

When it's working right, this contract guarantees the upper classes predictable, reliable wealth in return for their investments. It promises the middle class mobility, comfort, and security. It ensures the working classes fair reward for fair work, chances to move ahead, and protection against very real risk that they'll be forced into poverty if they can't work any more. Generally, as long as everybody gets their piece of this constantly re-negotiated deal, everybody stays invested in keeping the system going -- and a democratic society will remain upright, healthy, and moving mostly forward.

For the past four decades, conservatives have done everything in their power to dismantle that essential contract, and thus destroy our mutual confidence in the fundamental agreements that allow any democratic system to function. (None dare call it treason -- but a solid case could be made.) This isn't news: by now, most of us can recite the litany, chapter and verse, of the all the many ways they hacked away at America's essential ability to function as the Constitution intended.

But the biggest loser, as always, has been the working class -- the people whose only real power lies in their sweat and their numbers. Their faith in the promise of democratic self-government has been shattered through years of union-busting, farm foreclosures, factory exports, college grant cuts, subprime mortgage scams, and all manner of betrayal, treachery, neglect, and abuse. Over in the comments threads at Orcinus, we hear from these furious folks almost every day. The way they see it, representative democracy has repeatedly failed to deliver on anything it might have once promised them. At this point, the disgust runs so deep that anybody who's got other ideas -- theocracy, corporatocracy, anarchy, whaddaya got? -- has a fair shot at getting their attention.

That is Sara Robinson today, on FDL, Fascist America III: Resistance for the Long Haul

Read the rest of the series:
Fascist America: Are We There Yet?
Fascist America II: The Last Turnoff

A big tip o' the hat to disrael  on DailyKos, who caught the latest from economist Thomas Palley, America’s Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession.  

Palley's introduction sets the hook quite well:      

Most commentary has therefore focused on market failure in the housing and credit markets. But what if the house price bubble developed because the economy needed a bubble to ensure continued growth? In that case the real cause of the crisis would be the economy’s underlying macroeconomic structure. A focus on the housing and credit markets would miss that.

I'm  on the road and running late already, so all I'll do here is vigorously urge everyone to read Palley's article in its entirety. Because until people in power, like Larry Summers, starts referring to the problems and solutions Palley identifies, things will never improve for the vast majority of the world's population, and only the behavior of vampire squids will be richly rewarded.  

I have been on the road for much of the past month or two, but I have a week at home, and want to post some of American economist Joseph Stiglitz's April presentation to the Hyman Minsky conference of the The Levy Economics Institute of Bard College. I did a cursory search, and it appears no one had diaried it yet here on EuroTrib.

But first, I want to point to an important piece Simon Johnson wrote on Thursday on his Baseline Scenario blog, The Case for Capital Controls, Again, in which Johnson writes:

. . . what is now being whispered about in the corridors of financial power - begin to consider ways to tighten capital controls, i.e., limit the amount of capital that can come into a country, or force investors to commit to stay in the country for longer periods of time.

OK, back to Stiglitz. YEEOOW ! he really gives it to 'em! Here's the audio file  (well worth listening to as an antidote to the "green shoots, we're at the bottom" bullshit that so many people, especially in the United States, want to cling to) And here's some of what he said, lifted from the transcripts (Stiglitz begins on page 71 of this HUGE pdf file).

More below...

promoted by whataboutbob

U.S. economist and editor of The American Prospect Robert Kuttner brings up the obvious solution to the problem of Goldman Sachs - or any other firm - reaping "profits" from computer-directed milli-second trading -- called High-Frequency Trading -- which as far as I'm concerned, is front-running, plain and simple.

Consider for a moment some first principles. The legitimate and efficient function of financial markets is to connect investors to entrepreneurs, and depositors to borrowers. There is no legitimate reason whatever for this to be done by the millisecond. At bottom, the process is pretty simple. The intermediary--the bank, savings institution, or investment bank makes its fees for making a judgment about risk and reward. How likely is the loan to be paid back? How high an interest rate should it charge? How should a new issue of securities be priced? The investor decides whether to indulge a taste for risk or for prudence.

But the hyperactive trading markets and creations of recent decades such as credit default swaps and high speed trading algorithms add nothing to the efficiency of financial markets. They add only two things--risk to the system, and the opportunity for insiders to reap windfall profits.

Therefore, whether or not Goldman's lawyers have figured out how it can engage in High Frequency Trading and stay within the law, there is a strong case that this entire brand of financial engineering should be prohibited. The whole game should be slowed down. Bona fide investors should get in line under the rule of first come, first served. Anything else should be considered illegal market manipulation. No dummy transactions. There is absolutely no gain to economic efficiency from having prices of securities change in milliseconds, and much gain to the opportunities for manipulation. . . .

. . . it is a mark of Wall Street's stranglehold on politics that the most sensible of remedies seem impossibly radical. One very good way to damp down the dictatorship of the traders, and raise some needed revenue along the way, would be through a punitively high transactions tax on very short term trades. Genuine investors should get favored fax treatment. Pure traders should be taxed, and very short term manipulation taxed into oblivion.

If the financial crisis has proven anything, it is that capital markets have become an insiders' game in which trading profits crowd out the legitimate business of investment. The whole business-models of the most lucrative firms on Wall Street are a menace to the rest of the economy. Until the Obama administration recognizes this most basic abuse and shuts it down, it will be more enabler than reformer.

 

Matt Taibbi has been wading through the objections to his Rolling Stone article a few weeks ago detailing how Goldman Sachs has profited obscenely by using its political influence in the United States to help create, then prick, a series of financial bubbles over the past century. Taibbi's reply is very much worth reading, to see the depths to which defenders of the financial status quo will stoop, such as hurling the "anti-semitic" charge. But, here is the conclusion, which I consider the best part:

Two, even if it is true that “everyone else was doing it”: so what? Who cares? To me this response is highly telling. We published a piece accusing Goldman Sachs of systematically ripping off pensioners and other retail investors by sticking them with rafts of toxic mortgages it knew were losers, of looting taxpayer reserves to cover its bad bets made with AIG, of manipulating gas prices to massive detrimental effect, of helping to explode an internet bubble that caused over $5 trillion in wealth to disappear, and numerous other crimes — and the response isn’t “You’re wrong,” or “We didn’t do that shit, not us,” but “Well, Morgan did the same stuff,” and “Why aren’t you writing about Morgan?”

Why didn’t we write about Morgan? Because we didn’t. Because it’s your turn, you assholes. Maybe later someone will tell the story of the other banks, but for now, while most ordinary people are only just learning about the workings of the financial innovation era that blew up in their faces last year, the top dog in that universe is going to be first in line to get the special treatment. That might be inconvenient for Goldman, but it doesn’t make the things I or anyone else say about them untrue. . . .

. . . the response of a bank like Goldman and Goldman’s supporters is characteristic of the subject matter in a way that is important to point out, even after the fact of publication. These are powerful people who know how to play the public relations game, have all the appropriate contacts, and have a playbook that they follow to discredit their critics. Whether it’s me now or the next guy who takes them on, they’re going to come back with some kind of charge, be it “Everyone was doing it,” or “We’re just smarter than the other guys, you can’t blame us for that,” or “The real culprits are the ineffective regulators,” something.

They’re going to say that and more, but whether it’s this time or the next time, the important thing is to pay attention to what they don’t say. And what they didn’t say about this piece is that it was wrong. They didn’t deny any of it. They said others were just as bad, they said I was a bad guy, they said it was a conspiracy theory. But they didn’t say it was mistaken, and that’s the only thing that matters.

 

 

This month's cover story in Harper's magazine is a must-read for those who recognize that the broad currents of human history repeat themselves. In "Barack Hoover Obama: The best and the brightest blow it again" Kevin Baker writes:

Much like Herbert Hoover, Barack Obama is a man attempting to realize a stirring new vision of his society without cutting himself free from the dogmas of the past-without accepting the inevitable conflict. Like Hoover, he is bound to fail.

. . . . The most appalling aspect of the present crisis has been the utter fecklessness of the American elite in failing to confront it. From both the private and public sectors, across the entire political spectrum, the lack of both will and new ideas has been stunning. . .  we have seen a parade of aged satraps from vast, windy places stepping forward to tell us what is off the table. Every week, there is another Max Baucus of Montana, another Kent Conrad of North Dakota, another Ben Nelson of Nebraska, huffing and puffing and harrumphing that we had better forget about single-payer health care, a carbon tax, nationalizing the banks, funding for mass transit, closing tax loopholes for the rich. These are men with tiny constituencies who sat for decades in the Senate without doing or saying anything of note, who acquiesced shamelessly to the worst abuses of the Bush Administration and who come forward now to chide the president for not concentrating enough on reducing the budget deficit, or for "trying to do too much," as if he were as old and as indolent as they are.

SNIP

Obama will have to directly attack the fortified bastions of the newest "new class" -- the makers of the paper economy in which he came of age -- if he is to accomplish anything. These interests did not spend fifty years shipping the greatest industrial economy in the history of the world overseas only to be challenged by a newly empowered, green-economy working class. They did not spend much of the past two decades gobbling up previously public sectors such as health care, education, and transportation only to have to compete with a reinvigorated public sector. They mean, even now, to use the bailout to make the government their helpless junior partner, and if they can they will devour every federal dollar available to recoup their own losses, and thereby preclude the use of any monies for the rest of Barack Obama's splendid vision.

Franklin Roosevelt also took office imagining that he could bring all classes of Americans together in some big, mushy, cooperative scheme. Quickly disabused of this notion, he threw himself into the bumptious give-and-take of practical politics; lying, deceiving, manipulating, arraying one group after another on his side-a transit encapsulated by how, at the end of his first term, his outraged opponents were calling him a "traitor to his class" and he was gleefully inveighing against "economic royalists" and announcing, "They are unanimous in their hatred for me -- and I welcome their hatred."

Obama should not deceive himself into thinking that such interest-group politics can be banished any more than can the cycles of Wall Street. It is not too late for him to change direction and seize the radical moment at hand. But for the moment, just like another very good man [Hoover], Barack Obama is moving prudently, carefully, reasonably toward disaster.

Cross posted from The Economic Populist. Also on DailyKos.

Suggestions to solve the financial crises by basically shutting down most of Wall Street are always shouted down by howls of "How are companies going to raise money?" or "How are people going to invest in companies?"

Well, take a good, long look at this graph, which shows the percentage of capital expenditures by U.S. non-financial companies that was raised in U.S. financial markets from 1952 to 2006.

From the diaries - afew

Cross-posted from epluribusmedia.net

With the defeat of the bill allowing judges to force mortgage restructuring on reluctant creditors in the U.S. Congress, and now the defeat of Senator Bernie Sanders' (Vermont - Socialist) bill reintroducing limits on usury, the momentum toward real reform of the American financial system has clearly been stopped. There is now a rapidly growing danger that the lack of reform, coupled with the growing consensus in “the Village” that multiplying signs of economic “green shoots”signal that “the bottom is near” (see Arianna Huffington’s May 12, 2009 post, Wall Street, DC, and the New Financial Euphoria),  will leave the majority of Americans who are not rich, dealing with prolonged economic hardship.

Not really important, this, but useful to have as a historical reference. Well written and amusing, also.

Death and Texas, by Bryan Burrough
The Washington Post, Sunday, February 22, 2009

The past week, since the news that Merrill Lynch had hurried to pay out billions of dollars in bonuses before the end of the year, provoked a torrent of tirades and rage against Wall Street. Now, progressives are debating each other over the value and efficacy of President Obama's attempts to attract Republican support for the stimulus program. Many defenders of President Obama demand to know what he might do differently.

Well, here's my suggestion, in the form of a speech the President can give explaining measures I have concluded are essential to solving the financial and banking crises. Here is what I would do to root out and destroy the root cause of our troubles.

Slate's Daniel Gross reports from Davos:  

By Daniel Gross

Posted Thursday, Jan. 29, 2009, at 12:23 PM ET

Ordinarily, Davos is a Great Men kind of place, as the motto of this year's gathering implies: "Shaping the post-crisis world." The people who show up here—political leaders, scientists, entrepreneurs, musicians, and, above all, businesspeople—have all shown an ability to impose themselves on history. Otherwise, they wouldn't be invited. And yet in the many discussions held here about the recent global financial debacle, the question of human agency is shunted to the side.  

At a CNBC event yesterday, groups of 10 to 12 people sat at tables and mooted three questions: Which policy assumption failed? Which regulatory failure proved to be the largest systemic shock? And which market failure proved most damaging? The answers were obvious: poor regulation of the shadow banking system, mispricing of risk, the failure of models. But there was very little talk about the people who helped design and justify the systems, the mispricing, and the models. . . .

The dismissal of human agency is ironic, but also predictable. Just as financial markets in the United States privatize profits and socialize losses, Davos and other conferences like this privatize success (by chalking it up to individuals) and socialize failure (by blaming it on large systemic problems).

The preferred strategy at Davos is to simply ignore failure. By and large, screw-ups don't make the agenda. It's just not that sort of place. If you screw up, you don't get invited, and you don't show up. This explains why I couldn't see a single economist or official associated with the Bush administration on the roster, and why there are very few American bankers at Davos this year.

 

Last week ago, Institutional Risk Analytics interviewed Josh Rosner of Graham Fisher & Co and David Kotok of Cumberland Advisors, and the discussion is one of the most direct and revealing of the true political nature of the financial collapse I have yet seen. As I have written before, using reports from the Fed, FDIC, and Comptroller of the Currency, the financial problems are very tightly concentrated in a handful of the largest banks, with over 8,000 plus smaller and regional banks having declined to participate in Wall Street’s derivatives madness.

But in this interview, the participants explain that there are only six large banks and financial firms that are the core of the problem – and the problem is not being addressed in the public’s best interest because of the huge political power these firms have. Citigroup, Bank of America, JPMorganChase, Wells Fargo, and to a lesser degree, Goldman Sachs, and Morgan Stanley are essentially dead.

from the diaries - afew

Did the 2005 Bankruptcy "Reform" cause the world financial collapse?

Federal Reserve Bank of New York Staff Report No. 358 - Seismic Effects of the Bankruptcy Reform.

Remember the Bankruptcy Abuse [sic] Reform act of 2005? Yeah, the one that the credit card companies and banks got passed by buying the very best Congress money can buy. Turns out, according to the New York Fed's research, that since people going bankrupt after the BAR found it more difficult to stop paying their unsecured debts - i.e. credit cards - they were forced to stop paying their mortgages instead. Over 120,000 of them a year, according to the NY Fed researchers.

Who Obama picks as a Treasury Secretary is going to tell us just about all we need to know about how far Obama is willing to break with the unfortunately named "neo-liberal" economic policies of free markets and free trade that have dominated U.S. economic policy since Ronald Reagan - even under Bill Clinton. At this moment, there is a diary on the recommended list on DailyKos, Summers' call for poisoning Developing World?, that quickly turned into a discussion of who might be an acceptable Treasury Secretary. Unfortunately, scanning through the DailyKos thread, it appears not too many people understand that the most important fight Obama can undertake -- with the financial system in ruins and the real economy sinking into depression (shadowstats.com reportedly now calculates the real U.S. unemployment to be approaching fifteen percent, with GDP shrinking at over two percent on an annual basis) - is to replace the reigning paradigm of "neo-liberal" economic policies with something more akin to Europe's social democratic policies.