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The Politics of Inequality: A Political History of the Idea of Economic Inequality - Part 1

by NBBooks Sun Jan 8th, 2023 at 08:08:00 PM EST

It has been over ten years since I frequented this blog. Way back then, I followed Jerome a Paris here from DailyKos, and always respected this blog for the highly intelligent comments of its readers, not to mention the posts by its contributors. I hope you will forgive my long absence, though I did visit here occasionally-the past year, it feels to me, ever more frequently.

I have been burdened with the conjoined thoughts that all the reigning ideologies have failed: liberalism, socialism, and most spectacularly, capitalism, and the only real alternative is to restore the ideology of civic republicanism. I am not alone in this -- there are a few scholars who have done important work. I initiate my return by presenting one of them. - Tony Wikrent

Excerpts from Michael J. Thompson, The Politics of Inequality: A Political History of the Idea of Economic Inequality in America, New York, NY, Columbia University Press, 2007.

Introduction

...the economic egalitarian tradition that I will present here is so crucial because it is at the heart of the American republican project itself. The American idea of a democratic republic had always been premised on an antipathy toward unequal divisions of property because early American thinkers saw in those unequal shares of economic power echoes of what had been historically overturned: a sociopolitical order of rank and privilege; a static society that sought to crystallize power relationships and hierarchical economic and social relations characterized by corruption and patronage; in short, a feudal order where the exercise of power was arbitrary and the prospect of domination pervaded everyday life. The reason I trace the historical development and inevitable dissolution of the discourse on economic inequality in American political thought is to show that the American republican project was, in fact, deeply tied to the issues of economic inequality as a reaction to feudal social relations. Any political community that suffers from severe imbalances between rich and poor is in danger of losing its democratic character....

...economic inequality must also be seen in political terms: in the ways that it creates new forms of hierarchy, social fragmentation, and constraints on individual liberty. American political thought was, at least through the beginings of the twentieth century, a mixture of liberal and republican themes. Politically, the emphasis on individual liberty was matched by a concern for a community of equals. Republican themes emphasized the need for the absence of domination, which was itself understood as the ability of one person to arbitrarily interfere with another. This was a more robust understanding of freedom than liberalism offers since it was sensitive to the ways that institutions bound working people to conditions that eroded their substantive freedom and rights....

What writers and thinkers within the economic egalitarian tradition sought to emphasize was the way that the growing disparity of economic power would form the groundwork for distortions in political and social power. New forms of economic life would foster not individual liberty and independence but a new form of economic dependence of working people on others (namely owners) and the erosion of social and political freedom. At the root of the American economic egalitarian tradition is the notion that economic divisions lead inexorably to political and social inequalities of power; that the essence of any real sense of political equality could only be guaranteed by a sensibly equal distribution of property and wealth. This meant that political and economic life were in fact inseparable and that social power was a function not only of political power but of the ways that individuals had the power over their own economic life and the ability to direct their lives independently of others--whether political tyrants or factory owners. Historically, Americans were reacting against the memories and vestiges of aristocracy and feudalism.
This formed part of a political-historical consciousness that militated against class divisions. The fear of the aristocracy and the destruction of America's republican experiment were therefore at the core of early American ideas about inequality. The political moment was therefore always explicit, and this is something that has been lost in contemporary American attitudes toward economic power and class inequality....

Chapter I. The Critique of Economic Inequality in Western Political Thought: The Continuity of an Idea

...The critique of economic inequality seems to be a fairly consistent theme because it was always bound to the discussion of how to govern with justice, or at least with some degree of order. This motivation is interesting because, unlike the approach of many scholars to the question of the emergence of equality as a political ideal in Western political thought, it indicates that economic inequality was not critiqued simply because it was seen as morally wrong but because it was viewed as a concrete social ill that would, more often than not, erode social cohesion, create political fragmentation, and even, in its worst instances, lead to the dissolution of the political community itself....

...The critics of inequality that make up the American egalitarian tradition interpreted economic inequality as not only pernicious in and of itself but also as a threat to social and individual freedom. The overwhelming majority of these critics saw that the political institutions of America's republican democracy could only function once there was a relative absence of unequal wealth....

[Plato argued that] Justice is not to be found in good acts or in the mere existence of "just" laws and virtuous rulers. More important, justice is found in the arrangement of social structure itself; it is manifest in the specific way that the polis is organized, with all having equal shares because each class depends on the activities of all others. The promotion of economic equality is therefore part and parcel of the project of building a just city. Plato's Republic therefore privileges economic equality in the light of a broader political and moral concern for social solidarity and the desire to prevent the fragmentation of community and the dissolution of political society itself. Economic inequality is not viewed simply in the light of justice or fairness, it is also, and to a certain extent more essentially, seen as crucial to the very survival of the political community itself.

The general view of social harmony and wholeness informs the classical republican idea, and it is central in understanding the basic foundations for the discourse of economic equality in Western thought. Plato, as well as other Greek thinkers of the period, saw that the institution of the polis was something that was naturally formed not something that existed naturally. The difference is crucial: individuals come together for mutual support and to take advantage of the different abilities that each individual, family, or class has to offer. Society flourishes only when it is efficient and each person is able to dedicate himself to his task and therefore enrich the totality of the polis -- individual self-sufficiency is dependent on the maintenance of the social totality....

[Cicero wrote] "When one person or a few stand out from the crowd as richer and more prosperous, then, as a result of their haughty and arrogant behavior, there arises [a government of one or a few], the cowardly and weak giving way and bowing down to the pride of wealth."  Cicero is able to point to the deformation of republican government under the influence of wealth and the imbalance it creates. It is not that he advocates the redistribution of property by the state, but rather that laws are to be made so that the possession of wealth remains a private affair, never becoming a public one. Laws are therefore to be crafted to treat all citizens equally, irrespective of their economic status: "Since law is the bond which unites the civic association, and the justice enforced by law is the same for all [ius autem legis aequale], by what justice can an association of citizens be held together when there is no equality among citizens? For if we cannot agree to equalize men's wealth, and equality of innate ability is impossible, the legal rights of those who are citizens of the same commonwealth ought to be equal. For what is a state except an association or partnership in justice?"

....The broader aim of political life for classical thinkers, of whom Cicero is only one of the more articulate exemplars, was the protection of the public good in the face of private interests so that citizens could live a life bereft of subjugation and domination and free from the interference of others. They saw economic inequality not simply as an empirical reality produced naturally by competing interests but more likely as a result of moral corruption itself. Plato refers to it as philochrematon, the "love of wealth"; both Plato and Aristotle also use the term chrematistikon, or the "art of wealth seeking"; and Cicero refers to the "worshiping of wealth" (admiratione divitiarum). But irrespective of the name, they saw the ascendance of economic life over politic life as fatal to republican government....

[Montesquieu wrote] "Though real equality be the very soul of a democracy, it is so difficult to establish, that an extreme exactness in this respect would not be always convenient. Sufficient is it to establish a census, which shall reduce or fix the differences to a certain point: it is afterwards the business of particular laws to level, as it were, the inequalities, by the duties laid upon the rich, and by the ease afforded to the poor. It is moderate riches alone that can give or suffer this sort of compensation; for as to men of overgrown estates, everything which does not contribute to advance their power and honor is considered by them as an injury...." [emphasis by TW]

....The coherence of this tradition lies not in the prescriptions that these various thinkers articulated to diminish economic inequalities but in the way that they all conceptualized inequalities of wealth and property as diminishing the strength of the political community and any kind of democratic or republican political culture. All believed that political life would be threatened by the unequal power relations that the concentration of economic power--wealth and property--created. The discourse also shows a growing response to the emergence and dominance of a market economy, and it shows a consistent concern with the welfare of the public, of society as a whole over its minority interests. Even those thinkers--such as Aristotle, Smith, and Hegel--who argue that there is a "natural inequality" between human beings do not argue that inequalities within society should persist if they lead to the dominance of one class. Indeed, what is consistently argued by both radical and moderate alike is that markets create inequalities that ought not to be tolerated and that require the intervention of society or the state....

Chapter 2 The Liberal Republic and the Emergence of Capitalism: The Political Theories of Optimism & Radicalism

P62
Thinkers such as Harrington, in his Commonwealth of Oceana, and Walter Moyle, in his Essay on the Roman Government, saw property and power as united. Liberals, too, were aware of this, and they sought--as did the English radicals before them--to eradicate forms of privilege inherent in feudal society. For liberals, once there was equality of opportunity--equal access for all to work, produce, trade, buy and sell--then the hierarchies of the past would melt away.

P63
As capitalism matured, industrialism began to surge, and wage labor displaced guild and farm labor, the republican themes begin to erode; liberal ideas become flattened into an equality of opportunity and an ethic of competition.

P66
Although not all republicans shared the same skepticism of the market, they mostly agreed that political life ought not be subservient to economic life. Markets may be mechanisms for the free exchange of individuals, but they were also based on narrow self-interest, as opposed to political life and its emphasis on the preservation of commonwealth.

P72-73
The fear of the poor was matched by the fear of an emerging aristocracy. Adams recognized that an economic aristocracy could emerge from even the humble classes that made up the small-scale economy in early America, dominated as it was by merchants and small manufacturers. He saw that inequality would increase in the United States as long as a too rapid course was followed toward modern industry and the production of national wealth; the result would be social divisions, political strife, and, most important for Adams, the corruption of republican virtue....

Adams's political philosophy was simple enough. Since all men by their nature seek power, economic inequality needed to be kept in check, for it would result in political tyranny or domination by one class in one form or another. The bicameral system could therefore provide a check on these opposing interests and defend the republic. But the real problem was clear: economic inequality and the divisions it produced were permanent features of a commercial society, and the idea of reclaiming the moral ideal of a political community founded on republican virtue was nothing more than illusory. Ideally, property should be widespread to prevent the emergence of an aristocracy, but the complexity of the market system presented thinkers like Adams--and others who agreed broadly with the same
idea--with the difficult reality of controlling the effects of inequality rather than eliminating the problem itself or the mechanisms that caused it.
The fear of a return to aristocracy in the early republic was widespread, and it was commonly thought that this would result from an increase in economic inequality. Inequality arising from economic divisions was a threat to the democratic experiment, and Adams feared that it would produce the very things that the American republic was defined against: tyranny, demagoguery, and aristocracy. Adams was hardly alone on this front. The Pennsylvanian George Logan, writing in 1792, commented on the corporate charter that was given to Alexander Hamilton's Society for Useful Manufactures by asking, "will it not, by fostering an inequality of fortune, provide the destruction of the equality of rights, and tend strongly to aristocracy?"" James Lyon, the editor of the National Magazine, wrote in 1799, 'Any person who pays attention to the subject, will discover that the aristocratic faction, which is growing into influence in the United States, is built by various classes of citizens, as opposite in their interests, as their designs are to honesty, or light to darkness."33

P80
But despite this argument, which embraced economic inequality; it is undeniable that for many thinkers in the early American republic, economic inequality posed a threat to the idea of a morally cohesive and politically ordered republic and also threatened the kind of freedom that they envisioned for that republic. Like the Greeks well over two thousand years earlier, they called into question the simultaneous existence of economic inequality and democracy. Economic divisions were the source of political divisions and, ultimately, the seed from which the tyranny and the end of republican government would grow. This was seen as one of the most important problems facing the social, economic, and political maturation of the nation. The solution was not to be found in economic policy but rather in political architecture. Inequality would have to be tolerated, but it could not be allowed to distort political arrangements, to allow certain factions to co-opt power, or to destroy the balance of interests that economic divisions created and that political arrangements would theoretically contain.

P83
The more radical set of ideas that emerged did not come out of imported European notions (with the exception of Robert Owen's experiments), Rousseau, or the Levellers; they were derived from what was seen to be the initial ethical tenets of the American Revolution and the founding principles of American society and politics. The radical critique of economic inequality stressed the need for redistribution, the ending of special privileges, and an opposition to banks and new financial institutions that acted only as means for wealth accumulation. These institutions were regarded as tending toward a new aristocracy, one built on the backs of true and honest labor. The radical critics held that a moral economy based on the liberal ethic of individual labor and property was being shattered at the expense of self-interest and a narrow search for profit, which would result not only in inequality but in the destruction of the republican principles that American society embodied.

P86
But even more, these radical critics of inequality saw that the force of property was once again emerging to destroy the liberal republican notion of political freedom. Indeed, what drove their critique was the realization that relations between employers and employees--characterized essentially by master-servant relations of power--were untouched by the revolution. Instead, these critics held that the new form of economic life that was emerging--industrial capitalism--articulated relations of domination and control reminiscent of the feudal past. The individual was no longer able to keep what he had labored for, on the one hand, and the relations between citizens were refeudalizing, on the other. They sensed what we know today to be the case: that the rise of market society itself was unable to destroy the preliberal labor relations that carried over from the feudal era. And it was these relations that they sought to overturn.

P94
Orestes Brownson's essay "The Laboring Classes" of 1840 pointed out that inequality was not simply the result of banks and privilege. The system itself worked in such a way so as to effectively rob those who labored of their own property. Merchants did this by artificially adding price to what was already produced. Remuneration was no longer based on effort, skill, and labor. It was increasingly becoming based on "mischievous social arrangements" created by the drive for profits and the manipulation of the market: "It may be laid down as a general rule, with but few exceptions, that men are rewarded in an inverse ratio to the amount of actual service they perform."

P97
[the radicals] accepted the idea that individual labor was the source of wealth as well as equality, but they rejected Lockean ideas such as the ability to claim ownership through the payment of wages, a core aspect of Locke's pre-political state of nature and a crucial addition to his labor theory of value. Instead, they argued that there was a conception of the common good that needed to be enforced: unequal wealth would be the path toward a new feudalism and the destruction of liberty.   

Their movement failed, but not because their arguments were not heard. Their critiques of inequality resounded with skilled laborers and new workers in a rapidly changing economic system. The move to large-scale industrialism would render calls for the abolition of wage labor obsolete.

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Mitt Romney and "the contemptible cunning of Financiers"

by NBBooks Fri Jul 20th, 2012 at 01:07:57 PM EST

Cross posted from Real Economics.

In response to President Obama's rather inept explanation that nobody can build a successful business outside the supportive legal and physical environment created and funded by all the rest of us citizens of the republic, Mitt Romney declared that, "I'm convinced [the President] wants Americans to be ashamed of success."

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Offshore tax havens and the rise of new oligarchies

by NBBooks Mon May 16th, 2011 at 12:20:01 AM EST

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.

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Pecuniary Culture and the Problem of Class Analysis

by NBBooks Fri Jan 21st, 2011 at 12:29:28 PM EST

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. Photobucket

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Using Veblen to explain the Obama's adminstration's hostility toward labor

by NBBooks Wed Jun 9th, 2010 at 09:54:48 AM EST

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:

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What really caused Japan's Lost Decade?

by NBBooks Wed Mar 24th, 2010 at 03:08:47 AM EST

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

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How do we get grandma to bring the pots and pans?

by NBBooks Sun Mar 14th, 2010 at 11:29:30 AM EST

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.

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Wall Street quietly paying billions in damages + Simon Johnson on financial "Doomsday"

by NBBooks Wed Mar 10th, 2010 at 12:09:49 PM EST

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):

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LQD +: Resisting America's Plunge Into Fascism

by NBBooks Thu Aug 27th, 2009 at 11:50:03 PM EST

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

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LQD: Palley - Macroeconomic Causes of the Financial Crisis

by NBBooks Mon Aug 10th, 2009 at 10:01:26 AM EST

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.  

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LQD: Stiglitz at Hyman Minsky Conference in April

by NBBooks Tue Aug 4th, 2009 at 07:25:46 AM EST

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...

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LQD: Tax Wall Street's Speed Freaks into Oblivion

by NBBooks Tue Jul 28th, 2009 at 08:36:53 AM EST

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.

 

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LQD: Matt Taibbi shreds Goldman Sachs excuses

by NBBooks Thu Jul 9th, 2009 at 10:53:11 AM EST

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.

 

 

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LQD: Barack Hoover Obama

by NBBooks Mon Jul 6th, 2009 at 03:15:11 PM EST

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.

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Debunking the Myth of the Financial Markets

by NBBooks Tue May 26th, 2009 at 04:03:05 AM EST

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.

NFC Capex from Financial Markets

From the diaries - afew

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Will Obama forfeit a second term because of Wall Street?

by NBBooks Fri May 15th, 2009 at 07:24:49 PM EST

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.

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LQD: A Short History of Texas and its oil influence

by NBBooks Sun Feb 22nd, 2009 at 10:02:10 AM EST

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

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If I were President . . . [Ending Wall Street's rule]

by NBBooks Fri Feb 6th, 2009 at 09:32:00 AM EST

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.

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Davos LQD: My dog ate the financial system

by NBBooks Sat Jan 31st, 2009 at 01:36:39 AM EST

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.

 

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Political Power of Just 6 Banks is the Problem

by NBBooks Fri Jan 30th, 2009 at 09:21:34 AM EST

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

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