To see just how weird the intersection of racism and economics can be in modern America, one need go no further than Yves Smith's influential "Naked Capitalism" blog and an article with the title:

Exclusive: How Obama's Early Career Success Was Built on Fronting for Chicago Real Estate and Finance

Smith belongs with Matt Taibbi, William Black and others to a group of indignant critics of President Obama's supposed failure to restore the rule of law" in finance. These people portray themselves as pro-capitalism and anti-corruption. They claim things used to be a lot better on Wall Street back in the good old days of strong regulation and vigilant law enforcement (whenever that was). They are big fans of Paul Volcker,  cheer Paul Krugman when he is critical of the Obama administration, and put a great deal of emphasis on things like "market price". Smith is by far the most informative and sophisticated of this group, but she's caught up in the same dysfunctional anti-Obama nuttiness that they all inhabit. In this post, Smith is introducing and recommending what she calls a "prescient" speech given in 2008 by the late Robert Fitch. Fitch's speech begins by attacking Obama for saying there is a common national good that transcends class - a point disputed by both some Marxists and some right wingers. Fitch then goes on to situate Obama as either a stooge of or participant in a group of capitalists (rapacious and evil, of course) who have been redeveloping the south side of Chicago. The obvious question is what it is that Smith can find compelling in such a cliched Marxist critique. Is she unhappy that Obama is not a Marxist devotee of the class struggle or is it something else?  The answer can be found in the third part, the comments section which features an open sewer of racist resentment and paranoid conspiracy theorizing.

Let's take look at some examples:

• I'd wager BarryO did not have the grades to clerk for the SCOTUS. I have long suspected that the reason no one wanted his grades released is b/c it would show that his editorial position @ HLS was given to him.
• The grades are of little interest in themselves: the interest is in his obsessive determination to hide so much about life.
• Rumors abound. Like the real reason Blago went down was because he peeved off Obama by trying to sell off his old Senate seat. It was supposed to go to Alexi Gianoulias. Gianoulias family owned the failed Broadway Bank. It was a big scandal right before the election. They supposedly made a lot of loans to mobsters. Anyhoo, the poor guy who landed Obama's old seat, Repub. Mark Kirk, recently had a stroke. He just left rehab yesterday the local news reported. Lots of coincidences...hmmm...
• There actually is a very good reason to see Obama's records, as explained by Jack Cashill: "None of this, of course, proves Ayers' authorship [of Obama's Dreams from my Father] conclusively, but the evidence makes him a much more likely candidate than Obama to have written the best parts of Dreams.
• In general, Obama's rise seems mysteriously easy. But then con men can do that, and aren't necessarily Manchurian candidates when they do. So I think Occam's razor applies. (from Lambert Strether!)
• This is were Ayers comes in. He probably was more of Obama's handler, or fellow agent, etc., than he was anything else. He probably had the writing skills, as my link demonstrates. He is the one that appears to have helped Obama lay down his cover.
• Wonder what Breitbart had on them...? Now Breitbarts coroner died under suspicious circumstances. Its all quite disturbing.
•  broadly speaking of the left ... and I'm sure that there are plenty of exceptions ... their continued support of obama is tied to their vanity; they are so proud that THEY voted for a black man that obama has become a shining beacon of their moral superiority over all those that don't support him. His race was such a large part of why they voted for him ... the largest emotional reason why they voted for him, which for most people is the largest reason of all ... and they are so very conscious of his race that they also assume that if you don't like him it's becoz of his race.
• What you are saying about white leftys or Progressives voting for Obama because they wanted to congratulate themselves for helping to elect the first black man to be President, I think is also true of white Independents. It was about being part of a grand historical moment.
• The cops don't want to answer calls in the suburbs now.. Here is an example...my husband and I were in a local bar with friends when an african American decided to give the middle finger to our friend for no reason...A verbal altercation ensued..his African American friend joined the altercation and it was escalating so I called the cops. The dispatcher asked me if there were weapons involved..I said how would I know...? He tried to get out of sending help and at one point hung up on me. After my insistence this was going to get ugly... 5 cop cars eventually came. My point is the cops aren't so keen about going on these calls. I had to practically beg for them to show up.
• My local news reported Saul Alinsky's book Rules for Radicals is Obama's Bible.....Which promotes community organizing as a means of infiltration. It is Marxist/Leninism revised. Lots of secrets, lies and deceptions to commit a lot of fraud.
• Isn't the black community doing exactly the opposite of Martin Luther King Juniors dream? They are judging Obama based upon the color of his skin and NOT on the content of his character. If they judged him based upon the content of his character, they would be in the streets and angry in mass numbers over his policies whether it's on civil rights, the rule of law (especially letting financial fraud go unchecked), and too many other issues now to list in this comment.
• Oreobama was groomed from Day 1 (CIA, Harvard, Ford Foundation, + Chase +Rubin + Clinton for Tony Soprano-type HUD deals in Chi. Clinton is ever Magog's fixer. Obama is Stepinfetchit Glorified for C.21. How low can he get?
• Quite right. Obama has been a snake oil salesman from day one. Playing basketball while America burns...
• There are so many anomalies with respect to Barry Soetoro that the people who actually have done the research are left facing a shrill group who use every response in his defence except the use facts to state their case. I'm undecided about the man but I know he's a composite character with strong CIA connections to that composite. His mother's strong links to CIA fronts is not hard to confirm as is his first CIA fronted job.
• This is as ugly as it gets: murderous spoils politics via "Friendly FIRE" by Obama & Friends, ruining "his people" for profit behind their backs, as brazen as an organized crime Don in Chicago, brought to D.C. as their Trojan Horse. What has he done for his mob as the Black Don in the Office of President, our treacherous war-spoils Commander in Chief? Why would any citizen of color vote for Obama, the arch traitor for personal gain? Bring RICO.
• Obama is where he is because many many Liberals and sort-of-liberals wanted to vote for a Black man to prove to themselves that they were not prejudiced.
• Left/liberal/progressive support for Obama has always been mainly about the symbolism of the "first black President." It was a reversal of MLK's dream; Obama was judged not by the content of his character but by the color of his skin.
• Jeremy Scahill traced the funding of candidates by the MIC during the run up to the 08 election. MIC donors shifted over from Clinton to Obama and Obama was suddenly anointed as the candidate!
  Now we see one loser candidate arise after another on the part of Republicans. This serves to frighten Democrats. They keep up their donations to Obama, they scream loudly for the election of their war and financial criminal. To Obama's handlers, what's not to like!
  

Of course, Smith is not responsible for comments people submit to her blog and but she is responsible for neither deleting them nor disassociating herself from what they say or at least chiming in to support the brave souls who write in defense of sanity in her comments section. And worse, Smith's writing is, consciously or not, a source of encouragement for a racist nutball audience.  She says the President was "fronting" for real-estate interests -"fronting" - a fascinating choice of expression. Maybe we could all benefit from more fake ghetto talk from white Wall Street consultants. She also directly feeds conspiracy theories - with a strikingly dishonest line of argument:

A central component of the seemingly impenetrable Obama mythology is his personal history: a black man, son of a broken home, who nevertheless got on the fast track to financial success by becoming editor of the Harvard Law Review, but turned instead to working with and later representing a particularly disadvantaged community, the South Side of Chicago.
Even so, this story does not quite add up. Why did Obama not follow the usual, well greased path of becoming a Supreme Court clerk, and seeking to exert influence through the Washington doors that would have opened up to him after that stint?

What exactly is it that "does not quite add up" ? Obama worked as a community organizer before law school and then went back to Chicago to take a job with Minor, Barnhill law firm, which Smith does not bother to explain was then and is now one of the most prominent law firms in the country involved in assisting victims of  sex, and race discrimination (see these and these).  It's suspicious! Because he is suspicious. And why is he suspicious? Well one can guess that Smith's comment contributors have a good idea.

But the important part is his [Fitch's] description of the role that Obama played in the redevelopment of the near South Side of Chicago, and how he and other middle class blacks, including Valerie Jarrett and his wife Michelle, advanced at the expense of poor blacks by aligning themselves with what Fitch calls "friendly FIRE": powerful real estate players like the Pritzkers and the Crown family, major banks, the University of Chicago, as well as non-profit community developers and real estate reverends . [ bold added]

 Unlike Fitch, Smith is pro-capitalism so she presumably is pro-making money. It makes sense for Fitch to assume that real-estate developers are evil bloodsuckers but why does it make sense for Smith? Is it wrong for people to make money developing section 8 housing in Chicago? Is the President morally tainted by knowing those people (because Fitch doesn't really show more than that)? Maybe the problem is that Obama is associated with people who make money while black (MMWB)? Those "real estate reverends" too - oooh!  And in association with the Pritzkers and Crowns, both of whom MMWJ? How vulgar! I assume Smith finds the stuff in her comments section repellent, but if you scatter enough crap around, flies will come. Note: Written as a response to this and discussion that followed.

Banks make money via statistics. The idea is that 1000 people all deposit $1000 getting say %1 interest, and the bank lends $900,000 to other people getting %8 interest. Over a year, the bank earns $72,000 and pays $10,000 plus its operating expenses. In general, withdrawals will be matched by deposits and borrowers usually don't default so the bank can afford to have 90% of the money deposited with it out on loan. In fact, because many borrowers need credit not a lump sum loan, a bank can lend out more than 100% of its deposits - relying on the borrowers to leave large parts of what they borrowed in the bank between expenses. If the bank is smart, it can ride this statistical advantage by lending to people who keep paying back. However over 700 years or so, societies have learned that this business model always fails in the long run. First, the quality of the banks operation (how good its loans are etc. ) is not visible to depositors until something goes wrong - at which point there is not enough money to cover withdrawals.  Second, and more dangerous, when there are business cycle recessions or panics or other unexpected (but predictable ) events, the model fails: more borrowers default and customers take money out without putting more money in.  So every nation has a complex system of bank regulations to supposedly compensate for the first problem and deposit insurance plus central bank loan programs to compensate for the second problem. Banks can get short term loans from the central bank to keep from sinking under short term imbalances and depositors get their money back from some sort of government insurance if the bank fails. There are three drawback to this model: first, it appears to need regular emergency supplemental bailouts of increasing size,  second it's a ridiculous use of public funds, and third it encourages non-productive investment.

The arguments of the so-called "libertarians" against our system of central bank lending and government insurance are, despite the problems noted above, just stupid. Without some system of public regulation, Marx would have been proved right and capitalism would have collapsed. When a bank fails, not only do depositors lose money, but wreckage is generated throughout the economy. A business can't meet payroll because its payroll money disappears in the bank failure. A supplier can't get paid because the buyer's money disappeared. As each component fails in turn more people are forced to pull savings out of banks and default on loans - spreading a circle of failure. By the late 19th century it was clear that modern market economies are so tightly interconnected that bank failures infect the whole economy with fail. And the world economy is far more tightly connected now than it was 100 years ago. Naked depository banking has been tried and it fails. But the New Deal combination of a strengthened reserve bank plus deposit insurance backed by the government - a method that is now in use worldwide - is not working so well anymore.

Suppose the government provided citizens and businesses with deposit services. Let's say, deposits of up to $100,000 earned 3% plus inflation and deposits over that amount earn nothing. Furthermore, business and individuals can qualify for credit up to a certain amount based on statistical measures.  If you want to borrow more or earn more, then take your chances in the marketplace. But if you want to keep your savings, your cash deposits from your business, your operating funds, somewhere safe and convenient - go to the government bank. The side advantage of this is that the government would not need to borrow money from banks to run. Consider that nations in the EU now are begging banks to buy their bonds - and the banks have money to buy the bonds only because they have deposits which they only have because the government guarantees bank deposits!  This is a scheme that only makes sense to bankers - but they could get real jobs.

(from here )

Krugman believes that liberalism can be restored to its 1950's health without the need for any new policies. However, 1950's liberalism was based on southern white racism and solid support from the unions, neither of which exists any more. There is no future in pure redistributional policies in the USA for this reason. Indeed, if one looks at other social democratic countries, almost all are moving from corporate liberalism to embrace new options, such as Sarkozy in France (French socialists have the same pathetic political sense as American liberals, and will share the same fate).
I am sorry that we can't do better than Krugman. There are very serious social problems to be addressed, but the poor, pathetic, liberals simply haven't a clue. Conservatives, on the other, are political sophisticated and hold clear visions of what they want. It is too bad that what they want does not include caring about the poor and the otherwise afflicted, or dealing with our natural environment.

from Gintis' Amazon review of Krugman's book.

Crossposted People's View

In the early months of the Obama administration, with the economy in  free-fall and Bush's bank bailout having poured hundreds of billions  into an apparently bottomless bank collapse, Nobel Prize winners Paul  Krugman and Joe Stiglitz among others "on the left", authoritatively and  confidently  explained that the policies advanced by the new  Administration were naive, stupid, complicit, and sure to fail abysmally  and catastrophically. The extent of the error made by these economists  and others, like Dean Baker, Simon Johnson, and Robert Reich, not to  mention all their often ludicrously ignorant followers in "progressive"  blogs  is all the more remarkable given their subsequent lack of  interest in figuring out why they were so wrong or even admitting to  error in the first place.

I was under the impression that he might bring in the voices of brother Joseph Stiglitz and brother Paul Krugman. I figured, OK, given the structure of constraints of the capitalist democratic procedure that's probably the best he could do.
-Princeton Professor Cornel West (not a hotel porter)

The  basic Krugman/Stiglitz argument was that the financial markets had  correctly priced bank assets as junk and so the biggest banks owed more  money than they could ever repay and the government should "nationalize"  them. The Administration, on the other hand, said that the financial  markets were in the grip of a panic and that arranging for temporary government  and government/private finance would calm things down at less cost to  the taxpayer. Obviously, Geithner, Obama, and Bernanke were correct and  the critics from the left were incorrect - the banks have stabilized,  the "toxic assets" purchased by government have turned out to be a great  investment, and the economy is recovering slowly, not smoldering in  ruins. But the strangest thing about the incorrect analysis of the "left  critics" is that it's based on a fundamentally right wing view of the  economy wrapped up in a bunch of pseudo-populist signifying.  The right  insists that that market price is value. The right insists that financial  markets are rational. And the right is contemptuous and derisory about  reformers.

Just for reference, I want to provide a little counter-narrative on what is left/right in the US and the continuing worldwide economic crisis: A Quick Note on Bank Liabilities (The Baseline Scenario blog)

[S]ome decision must be reached on bank liabilities. Sweden guaranteed all of them. If forced to say, I would go the Swedish route; but of course we can't do that unless we're prepared to put all troubled banks in receivership. And I'm ready to be persuaded that some debts should not be honored -- this is a deeply technical question.

This is Paul Krugman advocating the Irish solution for the US in 2009.

Crossposted at People's View

Most of us think of economic theories as lining up from left to right, from communism to free-marketism, but there is a whole other school of economics that is on a slant to that line and provides an escape from the limits of conventional economics. During the 1800s that school was so influential in the USA that it was called "The American System" or the "high wage system". Here is something from the right winger economists at the Mises Institute complaining about one of the advocates of that system:

And those political views were clearly stated by Lincoln when he first ran for the Illinois legislature in 1832: "My politics are short and sweet, like the old woman's dance. I am in favor of a national bank . . . in favor of the internal improvements system and a high protective tariff." These three things -- protectionism, government subsidies to railroad and canal-building companies, and central banking -- were called the "American System" by Henry Clay. Economists have another word for them: "mercantilism."

Practically every conventional economist from Marx to Hayek to Paul Krugman and Gary Becker shares this same contempt for the American System. According to them, it's just dumb "mercantilism" and economics theory proves that it can't work. But every single nation that has become wealthy since the dawn of the industrial age has embraced something very much like the American System: China, Korea, Sweden, Taiwan, Germany, and of course the USA. And every nation that has adopted or been forced to adopt the recipes of conventional economics has seen wages fall, manufacturing collapse, and the middle class disappear. That is where we are going in our era of wage cuts where even a decent education is something that middle class people can no longer afford. Sadly for America we have abandoned the American System and we are paying the price.

Beginning in the 1760s the mighty Dutch system experienced several serious incapacitating crisis: crisis which all resemble one another and appear connected with credit. The mass of commercial paper, the total sum of 'artificial money', seems to have enjoyed a degree of autonomy vis-a-vis the economy in general, but there were limits that could not be overstepped.  

Braudel.

If the "progressive" blogs represented a functional American left wind power success would be being trumpeted as a massive victory.So one might expect a message like: Our efforts to put Obama in office saved 100,000 good jobs and helped America start becoming energy independent and rebuild manufacturing - we need 10 times more . Instead, the "progressives" are complaining that an anti-waste component of the Presidents state of the union "accepts framing" of the right. This exemplifies two characteristics of the US "progressive" movement: focus on elite governance tactics and focus on (pathetic) efforts to persuade elites as opposed to building popular movements.

To create corporations and invest in political debate in the USA. Just imagine, the French Socialists should conduct a television campaign explaining how well the French health care system works and inviting Americans to enjoy the benefits of social democracy. Norwegians - use your oil money to keep the Republicans out of office. The Supreme Court has invalidated US laws limiting corporate electioneering, so come on in and help us out.

(mostly the same in Boomantribune) During the US Presidential primary campaign, Paul Rosenberg's essays (from here) on ideology and "hegemony" provoked nothing more than laughter from me, but he was sort of right. It's impossible to understand the destructive role of the "anger left" as represented by Taibbi, Rosenberg, Firedoglake, and others in American politics without applying some class analysis. First, consider the cohesive underlying political message of this group - which can be boiled down to

We, the people, have been betrayed by a weak, unqualified Obama who is under the control and inimical influence of a shadowy Rahm Emmanuel and too close to bankers like Ben Bernancke.

All you have to do is fill in the ethnicity of the characters, which everyone knows, and you've produced something from the traditional language of the far right. Now mentioning this provokes howls of rage from the guilty, who are deeply offended that anyone should question their enlightened bone-fides - howls that are especially ironic from people like Rosenberg who throw around the term "hegemony" apparently with no understanding of what it means.

The "independent" inspector" of the US bailout issued a report on the AIG bailout. Table 2--Total Payments to AIG Credit Default Swap Counterparties
(in billions) (collateral, cash, total)

Société Générale                            6.9                   9.6  16.5
Goldman Sachs                               5.6                   8.4  14.0
Merrill Lynch                               3.1                   3.1   6.2
Deutsche Bank                               2.8                   5.7   8.5
UBS                                         2.5                   1.3   3.8
Calyon                                      1.2                   3.1   4.3
Deutsche Zentral-Genossenschaftsbank        1.0                   0.8   1.8
Bank of Montreal                            0.9                   0.5   1.4
Wachovia                                    0.8                   0.2   1.0
Barclays                                    0.6                   0.9   1.5
Bank of America                             0.5                   0.3   0.8
The Royal Bank of Scotland                  0.5                   0.6   1.1
Dresdner Bank AG                            0.4                   0.0   0.4
Rabobank                                    0.3                   0.3   0.6
Landesbank Baden-Wuerttemberg               0.1                   0.0   0.1
HSBC Bank, USA                              0.0*                  0.2   0.2
                           Total           27.1**                35.0  62.1

Krugman and Sachs make an expected value argument as if each asset was covered by a non-recourse loan. But the Geithner plan is based on pools. Let use Krugman's numbers of $100 face, $50 bad, $150 good with an even distribution. If you are able to assure 50/50 distribution, then $130 is investor break even since the investors 1/12 investment of about $10 makes $10 profit on the good assets and loses $10 on the bad ones. I'd say that nobody would be stupid enough to make investments on this type of basis, but reliance on Moody's AAA ratings convinces me otherwise. However the loans are not being sold individually, but in pools. If we minimally pool in sets of 4 then the investor only earns profit on sets with majority good loans and loses money on the even and majority bad loan sets. Binomial distribution then tells us that the break even bid is $105 (oops!)

Talk about centralisation! The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives to this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner -- and this gang knows nothing about production and has nothing to do with it.

Marx, Capital Vol. III Part V
Division of Profit into Interest and Profit of Enterprise. Interest-Bearing Capital.

And then he quotes this
"Banking establishments are ... moral and religious Institutions.... How often has the fear of being seen by the watchful and reproving eye of his banker deterred the young tradesman from joining the company of riotous and extravagant friends? ... What has been his anxiety to stand well in the estimation of his banker? ... Has not the frown of his banker been of more influence with him than the jeers and discouragements of his friends? Has he not trembled to be supposed guilty of deceit or the slightest misstatement, lest it should give rise to suspicion, and his accommodation be in consequence restricted or discontinued? ... And has not that friendly advice been of more value to him than that of priest?" (G. M. Bell, a Scottish bank director, in The Philosophy of Joint Stock Banking, London, 1840, pp. 46, 47.)

During WWI, British officers were famous for living well back from the front and living luxuriously well, while their soldiers lived and died in mud. I only recently read
 "The last true story" a memoir of a US National Guardsman who "served" in Iraq. The grisly picture of effect of the US occupation on Iraq comes through well, but what also is striking is the gross incompetence, stupidity, delusion, and lack of responsibility in the Republican officer class. While the soldiers live 15 to a room without even fans in the Iraqi summer, sleeping on bare floors with no water, patrolling the streets with no mission, equipped with Vietnam era worthless body armor, lacking guidance, intelligence, or any semblance of a plan, the officers cower in air-conditioned fortresses, emerging only to play Patton and give cliched speeches to soldiers whose names they can't bother to remember.

Somehow, without a heriditary aristocracy, the US has found itself managed by a collection of twits who could have emerged from Mayfair.