Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

30 October 2011

Europe’s New Bailout Plan


Announced last Wednesday, the EU’s new bailout plan could be the beginning of a solution to the European debt crisis. The plan’s most important feature by far is forcing banks to take a 50% haircut on shaky Greek bonds.

The best current estimate of those bonds’ market value today is a 60% discount from their face value, for a market value of 40% of face. Early reports of the apparent deal were ambiguous. They did not make clear whether the 50% was the percentage of loss to be shared by banks and taxpayers or the percentage discount from face value (haircut) that banks would have to bear. Wednesday’s report made clear that the latter deal was in mind, making banks eat 50% of a 60% drop in face value, or 83% of the loss.

So for the first time since fall 2008, some Very Serious People want to put the lion’s share of the risk of default where it belongs: on the banks that are supposed to be experts in, and make a routine business of, assessing the risks of lending.

After all, a “bond” is just a securitized and formalized loan. And if banks aren’t good at deciding to whom to lend, at what interest rates and on what terms, what the hell good are they? If the public is to bear the loss, why shouldn’t it eliminate the middleman (banks) and fix the rates and terms through elected or appointed public officials with the public interest in mind? The idea that the public should bear the core risks of the banking business for private bankers’ benefit is nothing less than a frontal assault on the foundations of capitalism and free markets.

If implemented as reported, the EU deal could be the beginning of a solution to the central cause of the Crash of 2008 and all the angst since: a massive and systematic shift of the normal and proper risks of the banking business from banks and their “insurance” casinos (like AIG and Goldman Sachs) to governments and taxpayers.

Who is the hero (or heroine) so far? A woman―Chancellor Angela Merkel of Germany. According to reports, it was her leadership that led to putting the risk back where it belongs, on the banks, and her support that motivated expansion of the EU bailout fund to lower the risk and fear of problems in Italy, the EU’s third largest economy (after Germany and France).

France’s intrepid president, Nicolas Sarkozy, who courageously led the world in backing liberty in the form of Libyan rebels, wimped out. He would have opted to do more for the banking welfare queens. Go figure.

If nothing else, this result shows the wisdom and power of collective leadership, of the type that China has institutionalized and the EU now has in somewhat chaotic form. No single individual can be smart, wise, courageous or right all the time. So when you have good, thinking leaders of roughly equal power and influence, you can have good results in Libya and in finance, too. (We Yanks have the opposite: one good, wise leader and 535 crazed Lilliputians persistently trying to tie him down and emasculate him.)

I am working on an essay that will have much more to say about the value of collective leadership and its global progress, especially in China. But today the scoffing and jeering from American exceptionalists about Europe’s dysfunction and the EU’s imminent collapse sound hollow. Europe, unlike us, has begun to address with courage and clarity the central economic problem of our new century: rampant gambling by banks at public expense.

We are by no means out of the woods yet. The EU is indeed a congeries of separate polities, much like our own country as it struggled (briefly) under the Articles of Confederation. National approval of the announced deal and its implementation remain to be seen. The EU could backslide, or the overhang of the $600 million of outstanding derivatives could be more disastrous than anyone now expects.

But at least with Chancellor Merkel’s leadership the EU―unlike the US―has finally begun to address the central problem that led to the Crash of 2008 and all its aftermath, namely, an utterly unsustainable epidemic of reckless gambling by banks relying on implicit or explicit guarantees of governments and taxpayers to relieve them of the hazards that have been the very core of the business of banking since banking began.

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25 October 2011

A Second Great Depression


Are we slip-sliding into a Second Great Depression, which would again be global but would make the current so-called “Great Recession” look like a walk in the park? The answer is by no means certain, but it’s a distinct possibility.

The problem is that all the Very Serious People (as commentator Paul Krugman calls them) are working on the wrong problem. They are all trying to patch the leaky boats of insolvent or illiquid banks.

They are doing this―or in the EU’s case, just now threatening to do it―with public money. It’s a completely haphazard exercise, quintessentially ad hoc. It’s like trying to patch a leaky hull half-buried in water with a bucket of sticky tar. You can’t really see the leaks clearly, and you have no idea where the next one will spring up.

That in itself wouldn’t be so bad if the Very Serious People knew what they are doing and had a plan. But they don’t. They’re just temporizing and hoping their bucket of tar, paid for by global taxpayers, will last at least as long as new leaks spring up.

But that’s not all. It’s not even the beginning. You see, the Very Serious People are working on stabilizing bad banks and illiquid governments, one by one, as nervous markets declare them leaky. They haven’t even begun to address the root cause of the leaks: a global epidemic of financial gambling.

As usual, numbers tell the tale (1 and 2). Take the US for example. As of the second quarter of 2011, our annualized GDP was about $15 trillion [Table 1.1.5].

Now GDP for a nation is analogous to income for an individual or corporation. But what’s the size of the economy, analogous to its total value, net worth?

For a rough estimate you can use a valuation technique that business people use every day. It’s called capitalization of earnings. You take a reasonable, current interest rate, express it as a fraction, takes its reciprocal (i.e., divide one by it) and multiply that by the income. The result is the value of an income-earning asset according to the capitalization-of-earnings method. For example, if you rent your house out at $1,000 per month, or $12,000 annually, and you consider a reasonable interest rate to be 5%, then your house, as a business asset and according to this method, is worth 20 times (1/0.05) that income, or $240,000.

Traditionally, in normal times, business people often considered ten percent a reasonable rate of return. If so, our entire economy would be worth ten times (one divided by 10%) its income, or about $150 trillion. That number seems not unreasonable, as estimates of the aggregate value of all our real property alone are in the $40 to $60 trillion range.

But these, of course, are not normal times. Interest rates are at historic lows, in the 2.5 to 3 percent range for putatively risk-free Treasury bonds. So let’s say a reasonable, risk-adjusted rate of interest today is about 4 percent, for a capitalization ratio of 25. Then our entire economy is worth $15 trillion times 25, or about $375 trillion dollars.

Now, what’s the significance of that? Well, recent reports estimate (1 and 2) the total value of outstanding derivatives in the US alone as $600 trillion dollars. In other words, the Masters of the Universe have created a highly complex and entirely imaginary financial castle in the air. And all by itself, this airy castle has an aggregate face value of the better part of twice the worth of our entire economy, i.e., close to twice our collective total net worth.

If that doesn’t scare you, you’re a better man than I am, Gunga Din. Here are all our Very Serious People, busy applying sticky tar to the leaky, underwater hull of our collective boat, while above them (and us!) looms this huge, leaky tank of water about twice the size of the boat. Talk about focusing on the wrong problem!

And Paul Krugman, despite his Nobel Prize and consistently superior writing style (in both senses of the word “superior”) is one of those Very Serious People. Ever since 2008, he has never stopped banging the drum for more stimulus and less short-term obsession over deficits. Of course he’s right: the classic Keynesian solution to every economic dip since (and including) the (First) Great Depression has been to run short-term deficits so the government can “prime the pump” and put people back to work.

But no one, including Krugman, is paying any attention to the root cause of the Crash of 2008, and the continuing cause of our global financial precariousness: gambling.

Bubbles have happened before, lots of them, ever since the Dutch tulip bubble of the seventeenth century. But we’ve never before had an entirely imaginary global financial system, amounting to nearly twice the total net worth of the world’s largest national economy, based entirely on gambling.

So this time really is different, but not on the upside. Today’s difference makes this continuing crisis much worse than anything in human history, and possibly not susceptible to any of the simple remedies, like Keynesian pump priming, that have worked before.

The various articles that, a few months ago, announced the $600 trillion derivatives overhang all said, in effect, “Don’t worry, the Very Serious People have all those derivatives under control.” But they never explained why or how. We―interested people, politicians, governments, and non-financial experts―are asked to take it all on faith. But isn’t that precisely what we were asked in 1929, in the Saving-and-Loan Crisis, and before the Crash of 2008?

Anyone who believes the Very Serious People really have an answer, let alone that it works or that they actually understand what is going on, is the veriest rube. Financial “reform” was supposed to provide some transparency in the derivatives market. But it hasn’t yet even begun. The relevant federal agencies are still writing the rules. And the people who make piles of money from these obscure and totally non-transparent markets are doing their level best to make sure that whatever rules emerge won’t hold them back a bit.

Just think, again, of the numbers. Right now, as I write this, the Very Serious Politicians in the EU are whipping themselves into a frenzy. They are stretching as hard as they can (and squeezing their taxpayers as hard as they can) to come up with a 1 trillion euro bailout fund. Converted into dollars, that’s about $1.4 trillion, give or take. How far do you think that bailout fund will go if the $600 trillion derivatives house of cards begins to collapse?

And collapse it will. It’s just a matter of time. No one is minding the store. No one, least of all the avid traders in this blackest of black markets, has any idea of the big picture. That was crystal clear in 2008, and it’s even more crystal clear today. When they say, “Don’t worry. Everything’s fine!” the translation is “Don’t bother me! I’m making my fortune, and I’m on track to have my penthouse in Manhattan, my summer home on the Riviera, and my 150-foot yacht with full crew standing by off Capri long before the whole toxic mess blows up.”

The solution is clear but radical. That whole gambling casino―derivatives, interest-rate swaps, debt-default swaps, and every other instrument (perhaps excluding simple commodities futures) that gambles on uncertain future events―has become a cancer on society. And, as the numbers above show, the tumor is now far larger than the patient.

So the only way we can possibly survive is to quarantine, separate, and excise the tumor from the real economy, and eventually outlaw all but the most demonstrably beneficial gambling instruments. Otherwise, what eventually happens to all gambling addicts will happen to us. The bet will come along that starts the $600 trillion house of cards falling, and all of us will lose. Big.

Excising the huge tumor was what I and many observers thought we were trying to do in 2008-2009. But we never followed through. The gamblers were throwing too big a party. They got us to bail them out, and then they bought us off with piles of money and deeply entrenched political power. Nothing important changed, and the casinos stayed in business. They even grew.

Now the EU’s pols are poised to do the very same thing again: bail out the casinos and gamblers, let their game go on, and hope the next Great Unraveling will occur when they are safely out of office and running global charities for the increasingly numerous victims of their folly.

What assurance do we have that the same collapse won’t happen again, much bigger this time? Absolutely none. We have strong evidence to the contrary. The collapse of Dexia is a precise mirror of the collapse of AIG here that precipitated the Crash of 2008. And the world’s chief casino, Goldman Sachs, is the same one that, by making collateral calls, helped pull the plug in both cases.

All we have is assurances of Very Serious People like Tim Geithner and the CEOs of the casinos that things are under control. If you believe them, you deserve what’s going to happen to you and yours if you don’t start preparing seriously for a Second Great Depression. And this time, like the first time, it will be absolutely global, with the possible exception of China, because there is no sign that any Very Serious Person, anywhere in the world, is wising up.

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23 October 2011

Dexia = AIG Redux, or Einstein’s Definition of Insanity


[For my recent post on the Arab Spring, click here. But this one is probably just as important, that is, if you think Western economies are important.]

I don’t want to upstage my post on the Arab Spring, which is a key development in human history in its own right. But I can’t refrain from commenting on the Dexia debacle now taking place in Europe. It is proof positive that, if Europe continues on the disastrous path broken (and I do mean “broken”) by Hank Paulson and Tim Geithner, it will do nothing but flush the economies of the EU and US, and probably Japan by association, further down the drain.

The essential facts appear in a good and succinct report in the New York Times today. The report summarizes a bunch of dry banking details, but it’s only two online pages. Everyone who wonders why Western economies are in such bad shape should read it, maybe three times.

Dexia is a European bank unknown to most Americans. It is insolvent, and it owes a lot of money to American banks like Goldman Sachs and Morgan Stanley. The EU is now deciding how much its governments and taxpayers, especially those of France and Belgium, will pay Dexia and (indirectly) its creditors to bail it out.

If you’ve followed the 2008 crisis with any interest and attention, what immediately strikes you is how exact an analogue is Dexia in 2011 to the failed American insurance company AIG in 2008. And I mean exact.

Dexia was once a sleepy bank helping finance municipalities in Europe. It did what every bank has done from time immemorial. It lent them money at a certain interest rate. It tried to borrow at a lower interest rate, to make money on the spread. But the Crash of 2008 and its aftermath made interest rates volatile and uncertain.

So what did Dexia do? Did it reduce its business, seek more capital, and batten down the hatches for a coming storm, as every other capitalist in the world did (outside finance)?

Hell, no. It went straight to the casino. It bought a number of “innovative” financial-gambling vehicles, many from American companies, to “hedge” the risk of unpredictable interest rates.

Dexia’s bets weren’t very smart. It gambled that interest rates would go up. Unfortunately, as the global economy tanked and central banks began printing money furiously to prevent a global collapse, they went down. So Dexia lost big.

That, of course, was exactly what AIG had done here in the US. The only difference was that AIG had bet on ever-rising housing prices and mortgage-backed securities, and Dexia bet on ever-rising interest rates.

But that’s not all. When you gamble, the house always has an advantage. Just so with the interest-rate hedges that Goldman Sachs and other American casinos sold Dexia. Their creative financial instruments held a big trick in favor of the house: collateral. When things even began to turn against the gambler, the house could demand more collateral―as much as twice the amount of any putative loss.

That is exactly what happened, both to AIG and to Dexia. As interest rates turned south and Dexia’s balance sheet turned red, the American casinos demanded collateral, according to the fine print they themselves had written into their instruments of gambling, in order to stay safe.

And guess who was in the forefront of the demand for collateral? Goldman Sachs, the very firm whose early demand for collateral had, according to crack reporter Matt Taibbi in his now-famous book Griftopia, sunk the State of Texas and AIG, leading to the Crash of 2008.

One last thing. European governments are on the hook for much of this nonsense because they guaranteed it. That’s a bit more than on our side of the pond. Our government only made implicit guarantees of banks “too big to fail.” Europe’s guarantees were explicit and in writing. But that’s a distinction without a difference. Whether implicit or explicit, paying private bankers on all these guarantees without radical structural changes will just make another round of 2008 virtually inevitable. Crash of 2014, anyone?

Einstein’s definition of insanity is doing the same thing over and over again and expecting different results. The Russians have a similar proverb. If you step on the short end (the tines) of a rake, and the handle comes up and bonks you in the head, you should learn. That should only happen once. If it happens more than once, you’re either careless or pretty stupid. If it happens three times, no one is going to hire you for anything other than menial labor.

Well, after watching the US do it, all of Europe is about to step on the rake’s tines a second time. All we here across the pond can do is watch in utter horror. And China, which has all its banks under pretty firm control, is smiling and waiting to pick up the pieces.

The bankers say there is no alternative. They would, wouldn’t they? Bail us out and let us keep all our power and our perks and continue gambling with your money, they say, or the whole system will collapse.

No, it won’t. Not if we bail out the innocent parties and let the gamblers and swindlers, or at least the casinos, fail.

The solution is radical but simple. The global financial system―not capitalism itself―is badly and plainly broken, So bail out its innocent victims but let it die.

That’s precisely what we did during the Great Depression. We bailed out depositors and other innocent creditors and let government take over the failed banks. That’s what the FDIC still does with failed retail banks. But the really big banks, which are now also investment banks and casinos (thanks to repeal of Glass-Steagall), have managed to win themselves immunity by infiltrating every level of government from here to Brussels.

The banking system is much more complicated now that it has become a nexus of interlocked casinos. But the principle is still the same. Bail out individual depositors (but not traders!), no matter how rich, and any firm with a legitimate non-financial business, but only to the extent of that business. Then let the whole global financial casino go through an extended, specially structured bankruptcy proceeding to see which croupier gets to feast on what’s left of the collective rotten carcass.

In the meantime, instead of having central banks printing money to support the casinos, let them lend to worthy individuals and real businesses. Let them support, take over or re-create the commercial-paper market to keep real business alive. In other words, let central bankers take over the essential non-casino functions of the financial sector to sustain real global businesses, including America’s excellent ABC companies.

I suspect we will find that the essential functions comprise a surprisingly small subset of the things so-called “banks” now do. Every gambler thinks that the next bet is the one that will make him whole. That why we have Gamblers Anonymous. It’s time for our global gamblers, who have tanked economies worldwide and now threaten to do so a second time, to begin their twelve-step healing program.

Is this a radical solution? You bet! Are there any better ones? I’m listening. To continue stepping on the short end of the rake with the wild abandon of a battered and half-crazed gardener would epitomize Einstein’s definition of insanity. Unfortunately, that looks like precisely what the EU is about to do, beginning with Dexia.

So the Western world may be about to hit the canvas a second time. The third time, and we’ll be down for the count.

Me? I've got my money nearly all in cash and safe investments until I can foresee how many times we’ll step on the short end of the rake, before we learn that gambling is neither finance nor legitimate business, and bailing out casinos and gamblers is not capitalism.

P.S. For all you day traders out there, I just wanted to note that I’m aware of how the “markets” view these bailouts. They are salivating over them. They are just waiting for European governments to bail out the likes of Dexia, and through them the likes of Goldman Sachs and Morgan Stanley. Then they’ll surge.

But that irrational exuberance won’t last for long. It may last months, maybe even a whole year. It might last about as long as it takes a drinking binge to turn into a terrible hangover.

The writing is on the wall. We Yanks are broke―as broke as we’ve even been since the world’s greatest war. Europeans are broke and about to get broker, the more so the more they bail out the casinos and gamblers.

Who’s next? The Chinese? I don’t think so. They’re far too smart. They didn’t work like dogs and bear insufferable pollution and authoritarian government for several decades just to throw it all away on the likes of Goldman Sachs. They’ll say some nice words and make a token contribution for the sake of international good will. They they’ll politely bow out. Ditto for Brazil, India, Russia and whoever else the broke gamblers pass their empty hats to.

The fact is, bailing out casinos and gamblers is simply unsustainable, as every housewife with a gambling husband knows. You either stop gambling, or you lose big.

If you personally want to gamble on being comfortably seated when the music stops, be my guest. But don’t delude yourself that you’re investing. You’re not; you’re gambling. You might win in the short term. But in the medium term, let alone the long term, investors will beat you every time.

That’s one reason why this century promises to be the Asian Century. Asians gamble as individuals. They don’t gamble with their governments or big institutions. So if the West persists in gambling away all its riches, they’ll win. And they’ll win much quicker than they would if the West offered serious, disciplined competition.


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22 October 2011

The Arab Spring, Ten Months In


It seems hard to believe, but the Arab Spring is not even eleven months old. An unknown Tunisian street vendor named Mohamed Bouazizi struck the spark (literally) by igniting himself in protest on December 17, 2010.

So far, the conflagration that Bouazizi ignited has made the most significant and positive changes in human affairs since the Russians wised up and threw off Communism of their own free will. Here’s the score so far:

Arab Spring Results So Far
Tyrants deposed or killed: three
Nations liberated: three (Tunisia, Egypt, and Libya)
Dictators tottering: two more (in Yemen and Syria)
Elapsed time: less than eleven months
Wars caused: one
Western lives lost: none
US and NATO expense: a few billion dollars

It’s instructive to compare what the Arab Spring has accomplished with what unilateral exercise of American power has accomplished in ten times the time:

Results of Unilateral American Power
Tyrants deposed or killed: one (Saddam)
Nations liberated: maybe one (Iraq)
Dictators tottering: none
Elapsed time: a decade
Wars caused: two
Western lives lost: 7,565 and counting
US and NATO expense: over one trillion dollars

In this age of moral relativism and “spin,” these raw facts show three things beyond question. First, there are right ways and wrong ways to accomplish an objective. Second, the right way costs immeasurably less in lives, blood, toil, dollars, tears, and sweat. Being smart really matters.

Third and most important, no matter how noble it may be, a good end never justifies bad means. In the last century, we Americans and other Westerners disparaged Marxism and Communism for believing that it does. Now the shoe is on the other foot. We freedom-loving Americans have caused no end of misery for ourselves (including a broken economy) and no end of havoc for others by trying to do good things the wrong way. How you do things really matters.

The irony is that both Dubya and our current President were and are idealists. Dubya had a psychiatrist’s grab-bag of complex motivations for invading Iraq, including a desire to prove himself to a skeptical father and a desire to avenge Saddam’s attempt on his father’s life. But among those mixed motives was a sincere and noble desire to bring liberty and modernity to a still-medieval part of the world that still has a resource we need to make the modern world run.

It was not always thus. The Marshall Plan was one of the most enlightened and effective foreign policies in human history. After sharing the suffering and sacrifice of World War II, we could have turned back to isolationism. But we didn’t. We spent our hard-earned money to build up Western democracies in devastated Europe and occupied Japan. In so doing, we nurtured the soft flame of the Western Enlightenment, which today has begun to light the world.

But after that, and in other parts of the world, our intelligence faltered. We still had good intentions, or at least we gave them lip service. We purported to espouse liberty and self-determination for all peoples. But in practice any tyrant who publicly damned Communism (no matter what he did in private) and kept the oil flowing was good enough for us.

Dubya was our first president to try to change all that. With the goading of then Secretary of State Condoleezza Rice, he actually announced the new policy several times. I noted it on this blog and gave it credit for his win over John Kerry, despite Dubya’s gross mismanagement of the both war in the Iraq and domestic policy.

But means matter. Dubya tried to realize his noble and idealistic policy like a combination of an untutored child and a West-Texas sheriff revived from the nineteenth century. He actually said of bin Laden, “wanted, dead or alive.” He acted unilaterally and heedless of international conditions, starting two wars that no one wanted, one on false pretenses. And in the process, he announced the asinine “Bush Doctrine,” namely, that those who harbor terrorists are our sworn enemies. In so doing, he implicitly declared war on some sixty countries, including ones (like Yemen and Pakistan) trying vainly to suppress terrorism, and others (like Somalia) that were and are failed states.

In contrast, our current President had and has precisely the same goals but is acting like an intelligent adult, like the leaders who brought us the Marshall Plan.

He can’t take credit for the Arab Spring. No American can. The Arab Spring is a creation of the Arab people, who have suffered abysmal government and truncated futures for far too long. But after a little dithering, our President was smart enough to catch the wave and is now riding it to the far-off destination of Arab liberation and a better world.

The difference is one of brains versus brawn, finesse versus brute force, understanding versus bald desire. And the results, summarized in the tables above, show how intelligence matters.

Will there be bumps in the road ahead? Of course. The future of Libya is no more certain than the future of Iraq, which is still precarious despite our massive investment of blood and treasure.

But this time, we’re doing things the right way. We’re acknowledging what we Americans held to be “self-evident” in our own Declaration of Independence. Liberation is up to each people alone. It can be neither forced nor granted by others. Others can help, as Lafayette and the French did with our own liberation two centuries ago. But the spark and the suffering have to come from the people themselves.

And this time we’re unambiguously on the right side: the side of ordinary people who want their share of the coming global Golden Age, with free markets, free speech, and basic human rights. That side has been the (slowly) winning side since the Western Enlightenment began half a millennium ago. It’s also the natural side for us, and it’s about time we put ourselves firmly on it.

But to be on that side, we sometimes have to let foreign peoples lead, at least in their own affairs.

That, I think, is the meaning of the President’s announcement yesterday that we really are pulling out of Iraq. We have supposed the Iraqis to be sovereign ever since 2004, but we haven’t always acted that way. Now the President is treating them as sovereign adults. We wanted legal immunity for our troops; they wouldn’t (or politically couldn’t) give it. So we’re leaving.

Iraq’s noisy and chaotic politics are schizophrenic about us. Because we acted so clumsily and disastrously in our invasion, the Iraqis can’t quite figure out whether to applaud us as liberators or despise us as invaders.

And so we’re leaving and letting them figure it out. Our much-abused troops will mostly be home by Christmas, and the President’s campaign promise will be fulfilled.

But I don’t for a moment believe domestic politics or his campaign promise was the root of the President’s decision. Our troops can come back to Iraq any time they’re needed and invited. Some will remain, out of harm’s way, just across the border in Kuwait.

What the President did was to give an unambiguous signal to the entire world. The era of unilateral American action is over. The West-Texas sheriff is gone, and a successor (Rick Perry) is highly unlikely.

What we have instead is a mature and intelligent leader of the world’s largest economy and greatest military power (still). He and we are now firmly and intelligently on the side of ordinary people worldwide, ready to help them ride the waves they themselves create to liberation and a better life. But they have to make the waves themselves.

P.S. As I was publishing this post, it occurred to me that the President is taking the same tack at home as abroad. I do not for a minute believe his heart is really with Wall Street. The whole arc of his life speaks to the contrary.

Yet, as a realist, the President knows he cannot overcome thirty years of “government bad―greed good” propaganda all by himself, let alone in a single presidential term. He knows that real change always comes from the grass roots, whether in Arabia or here at home.

That’s why the Occupy Wall Street movement has such promise. It may be the beginning of a genuine grass-roots movement to throw the welfare-queen bankers out and restore regulated capitalism here at home.

With the Arab Spring in full flower, can an American Spring be far behind? Winter is almost upon us, but hope, like spring, blooms eternal.


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20 October 2011

Capitalism Isn’t Broken; Wall Street Is


Now that the WSJ has succumbed to Rupert Murdoch’s plunder and lost all pretense to journalistic independence and quality, Bloomberg.com is the new apostle of capitalism. Today, it published a short piece under the provocative headline “Protests Show Capitalism is ‘Nearly Broken’.”

Of course that wasn’t an editorial. Bloomberg.com is as much committed to capitalism and Wall Street as the WSJ; it’s just more intelligent and objective about it. The headline was a quote from a capitalist investor, a refugee from eighteen years with Goldman Sachs, who now invests in forward-looking stuff like clean energy and environmental protection.

But the very idea that the new apostle of capitalism could publish such a headline is a sign of our times. Like the inevitable loonies wearing nothing but barrels and signboards proclaiming “The End is Near,” there are always bizarre theories in tough times. Now is no different.

The problem, of course, is theory itself. Everyone has a theory, AKA ideology, as to how the world works. For most of the last century, large parts of the world subscribed to variants of Marxism. Two huge societies―the Soviet Union and pre-Deng-Xiaoping China―tried Marxism for decades. They accomplished nothing but grossly retarding their national progress and making their people miserable. In the 1970s, China abandoned Communism for heavily regulated capitalism and took off like a rocket. Russia and its people are still suffering because their leaders can’t figure out what they want to do.

Today, the US and its fellow travelers have an opposing theory. “Government is the problem, not the solution.” If we just got rid of government and went back to nineteenth-century, brutal, unregulated, laissez faire capitalism, we’d be fine, they say.

But these people don’t know history and can’t predict consequences. If we went back to the nineteenth century with our population and far more massive industry today, we’d burn out our people and their children with massive exploitation of both (and probably spawn a bloody revolution), and we’d burn out our planet with massive environmental spoliation even quicker.

The problem, as I said, is theory. If we just junked theory and looked at actual practice, we’d be a lot smarter.

Marxism had two big, honest trials in the last century. Those experiments took seventy and nearly forty years, respectively. They were run by huge, authoritarian societies whose every level of leadership was totally committed to Marxism, which was taught in every school.

Those trials failed. Don’t ask the rest of the world, which might be biased. Look at those societies themselves. The Soviet Union is no more. Russia and China are now capitalist. So what does that tell you about the effectiveness of Marxism? Do you even have to ask?

Ever since the demise of monarchy and the Western Enlightenment brought real science and free markets to humanity, capitalist societies have beat their competitors hands down. First it was Britain and its colonies in the nineteenth century. Then it was we Americans in the twentieth. And today it’s China and India, both of which are enthusiastic proponents of regulated capitalism, despite the anachronistic and incongruous name of China’s ruling party.

So forget theory. What does experience, that is, history, tell us about capitalism? It tells us it’s the most successful and powerful economic system that we humans have yet devised. In contrast, Marxism is an utter failure. That result is unsurprising, for Marx and Engels were neither modern quantitative scientists nor even second-rank political thinkers. They were mere creative writers reacting to the evils of the nineteenth-century capitalism, which was all they knew.

But closet Marxists who keep pecking away at every stumble of capitalism are not the only short-sighted ones. A lot of people who style themselves “capitalists” are just as stupid and rigid. “If capitalists do it,” they think, “it must be right.”

Wrong. The mere fact that so-called “capitalists” do something doesn’t make it workable, right or proper. It doesn’t even make it capitalism.

And so we had the specter of bankers making millions of loans to people they knew (or ought to have known) couldn’t repay them. And then we had them stick their palms out to government, which they had maligned for thirty years as “the problem , not the solution,” to repay the losses their own greed and stupidity had caused.

That’s not capitalism. It’s welfare―welfare for the rich. And Wall Street got away with it because, in an era that disparaged and ridiculed government, Wall Street had slowly and secretly collected virtually all civilian power, at least here at home.

There is no doubt that the nation―ours―that has styled itself the chief exponent of global capitalism is now in steep decline. But that’s not due to capitalism. It’s due first of all to our financial sector, which has gone from capitalism to socialism for the rich without attracting much notice. And it’s secondly due to our political and business leaders, who made capitalism into a religion, with dogma replacing intelligent pragmatism.

So what’s the answer? For God’s sake it’s not more theory, thank you very much! It’s looking at experience, including history, and learning from it. The right wing wants us to learn (over and over again!) from the abject failure of Marxism but adamantly persists in refusing to learn from the worst stumbles of capitalism.

About a century ago, our economy tanked and took most of the world’s economies with it because our bankers and financiers, i.e., Wall Street, got out of control. It took about two decades, massive government regulation and human history’s greatest war to get things back in balance.

Recently, the same thing happened all over again. With the postwar economy humming smoothly, we relaxed our regulations and let Wall Street get out of control again. The Crash of 2008 followed, as night the day.

Then we compounded our error by bailing out the culprits, rather than their innocent victims. And now we find, mirabile dictu, that there’s no more money to bail anyone else out, including underwater mortgagors. So the global economy is slowly sinking in a mire of its own making.

Even China can’t help much, although it has its own bankers pretty much under control. It’s still a distant second in economic size. And since it has yet to let its renminbi float, it’s still not fully integrated with the global economy. It’s a good flywheel, but it’s not yet powerful enough or linked up enough with the global economic engine to balance things by itself.

So what should we do? The left―or at least the theorists among them―wants to junk capitalism because the financial welfare queens are abusing it. The right wants to make capitalism more “pure,” i.e., to jettison all the intelligent regulation that made it work so well during the last century. They’re kind of like the people who want to go back to coal, a nineteenth-century fuel that’s the dirtiest known to mankind, to make our industry run. Indeed, many of the economic troglodytes and the energy troglodytes are the very same people!

But we don’t need more theory or more fundamental revolutions. We know that capitalism is the best system we humans have yet discovered for running economies. We know it mirrors natural human evolutionary incentives to work hard for oneself, one’s family, one’s legacy (see, e.g., Steve Jobs) and (sometimes) one’s community. We know it works best when strong government regulation weeds out the worst of the stupidity that comes from unbridled and inappropriately rewarded greed. And we know full well who, at this particular moment in history, are the chief exponents and culprits of the stupidity that arises from unbridled and inappropriately rewarded greed.

So we don’t need to kill the goose that laid the golden egg, namely capitalism. We certainly don’t need to kill any of the excellent ABC . . . companies like Apple, Boeing, Caterpillar, Disney, Exxon-Mobil, Ford, Google, etc., which make all the modern marvels that enrich our lives. And we don’t need to try Marxism, which the two societies that tried it fairly have abandoned of their own volition as a complete failure.

What we do need to do is stop giving welfare to the people who secretly rule us and call themselves capitalists but are not. We need to stop coddling them, send the worst to prison, and make the others work as hard for their living as the rest of us do. In short, we need to bring Wall Street to heel.

That’s why the name of the movement is Occupy Wall Street, not “Occupy Apple, Boeing, etc.,” and certainly not “Occupy Silicon Valley, Route 128, Silicon Gulch, or Biotech Alley.” We need our industrial capitalists pretty much just as they are, maybe a little wiser. (In particular, they could benefit from a little less lemming-like class solidarity with financier-welfare recipients, who are slowly starving their businesses by depriving them of customers.) And we need to bring our rogue bankers and financiers back into the market discipline of capitalism. That’s why the name of the movement and its target are precisely correct.

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15 October 2011

Zuccotti Park, or the Power of Numbers


“Something is happening here, but you don’t know what it is, do you, Mr. Bloomberg?”――Bob Dylan (with slight emendation)

What’s going on in Zuccotti Park is now crystal clear. As the spent leaves and bitter rains of autumn fall, that heretofore inconsequential place now holds a tiny spark of liberty, all that is left of what was once a great light unto nations. The so-called rag-tag youth are freezing and fighting for all of us.

They are small in number, but they are only the tip of the spear. To see how many millions stand figuratively behind them, you have only to read the on-line comments on any article on the subject, anywhere.

Millions now know the bankers of Wall Street have not done their jobs. Millions see how they have deceived, swindled and bamboozled their peers in finance, real business and the rest of us. Millions laugh when they claim the exalted status of “essential” capitalists, “too big to fail.”

Wall Street has exerted its unholy influence over our elected officials, our political system, and our media. It has won virtually every battle of significance for the last thirty years.

But as the old song goes, “the times they are a-changin’.” Wall Street did not fight fair. It did not fight openly. It acted by stealth and indirection, backed by the greatest propaganda machine in human history. And now, when the tide is just beginning to turn, its minions wail, “class warfare!”

They should have thought of that when they started the war on the middle class thirty years ago. They were vastly outnumbered from the start.

They seem to have forgotten Lincoln’s famous admonition: “you can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.” Now the people are waking up.

For the bankers and their sorry myths of “too big to fail,” “trickle down” and “competitiveness” with foreign bankers, the time is up. We don’t need people who gamble and swindle under the guise of “innovation” and “modernity.” We don’t need people who torpedo the global economic system and, when their victims―the swindled, defrauded, and innocent depositors, homeowners and creditors―come to collect their just bills, point to the government and us taxpayers. We don’t need people who lack even the basic humility to give up their corporate jets while flying to Senate hearings to explain why their mistakes, greed and dishonesty should be rewarded with continuing power and more obscene bonuses.

It’s not just that we want them stripped of the power to do further damage. We do. It’s not just that we want the worst of them behind bars, in real prisons where real criminals do hard time. We do. It’s not just that we want them stripped of their wealth (although we’d be happy if most of them would just retire to their yachts or luxury mansions in Europe and never bother us again). We do.

It’s that we hate their guts for what they have done to our economy, our country and our democracy, for spoiling the most just and equitable society in human history.

And it will be a long, long time―and will take a lot of real contrition and public sacrifice―before we forgive them, if ever. There is no sign yet of the slightest contrition, even a mere acknowledgement of mistakes. So there is no basis for forgiveness or mercy.

These men (they are all men) have no sense of perspective and little imagination. What little imagination they possess bends toward numbers and greed. But the hatred of millions could lead to the same results here as in the French and Russian revolutions. That’s why the private owner of Zuccotti Park, under pressure form politicians who can sense the public tide, called off the police yesterday.

Thomas Jefferson wrote that “The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.” But in that quote, Jefferson forgot one thing. An enlightened society need not shed blood if people can count. Our democracy started nearly eight centuries ago, on the fields of Runnymede, when King John counted the opposing barons and their armies.

He decided not to fight, but to settle, and our Magna Carta was the result. Isn’t that the whole idea of democracy, ballots not bullets?

They have taken our ballots from us by stealth, guile and corruption. But it doesn’t take a genius to count us now. Even the loopy Tea Partiers want to bring the bankers down and break up their monstrous, thieving empires, as does everyone who can read and think.

We the people have the plutocrats outnumbered at least 100,000 to one. And, if it comes to that, the army is the one force in our society they do not yet control. We just have to make it clear even to these supremely arrogant fools that they are outnumbered, their days are numbered, and their number of days is small. Then they’ll retreat to their gated mansions and let us begin the Herculean job of cleaning up the mess they have made. We can’t even begin with them standing in the way, claiming their disastrous prerogatives.

The notion that the protesters are “disorganized” and lack plans is absurd. They are not protesting to form a government, at least not yet. They are protesting to bring a corrupt and monstrous system down, or at least bring it to heel. Their grievances have been read on cable TV, are crystal clear, and are well and succinctly expressed.

Millions share those grievances, and justly so. Nobody likes the bankers of Wall Street. Nobody who is not on their payroll thinks they are doing a good job. Nobody believes they are necessary to the survival of capitalism, let alone democracy.

We all want them gone. We want their fine leather boots off our necks, so our economy and our liberty can breathe again. If you took a real popular vote today, you could probably summon a majority for nationalizing all the big banks. We the people have paid for them many times over. We should own them.

The protesters have done as much as our Founders, who listed their grievances against King George III in our Declaration, asserted the right of self determination, and left the rest to the future. It took five more years (mostly in war) to form a government under the Articles of Confederation, and fifteen in all to form a lasting government under our Constitution. To ask more of youth whose bulwarks are courage, zeal and outrage (which all of us feel) is not just unfair. It’s ridiculous.

Make no mistake about it. The protesters in Zuccotti Park are no paid front group like the Tea Party. They are the genuine article. They are a spontaneous popular movement drawn from millions of people who have been pushed beyond endurance. And they represent all the millions of us―including me―who are just now deciding how much of our “lives, fortunes and sacred honor” we are willing to put at risk to get our country back. We know that what we do next will seal our own and our childrens’ fate, not to mention our nation’s.

Sparks can catch fire even in the depths of wet autumn. Just ask the Russians about October 1917. The bankers and their shills and lackeys had better start reading some history and readying their exits, for the hour is growing late.

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10 October 2011

How Rick Santelli Killed the Housing Rescue


Ezra Klein is an economically trained columnist for various publications, including the Washington Post. On Saturday, the Post published his thorough review of why our economic recovery is going so slowly.

It’s the best non-book-length explanation I’ve yet read. It combines sophisticated economic understanding with political realism. So it deserves everyone’s careful attention.

Among many other things, Klein explains why our housing decline still hasn’t reached bottom. Housing was the core of the financial crisis. Virtually every toxic asset was a derivative of home mortgages: mortgaged-backed securities, “risk tranche” derivatives of mortgage-backed securities, debt obligations collateralized by packages of mortgages or mortgaged-backed securities, and debt swaps and other “insurance” on banks that held the foregoing assets.

The simple home mortgage lay at the core of it all. If each homeowner could have paid as promised, all the other assets would have had face value, and no crisis would have arisen. So the logical place to start detoxifying the assets was with the home mortgages that underlay the whole mess.

This was and is not rocket science, or even particularly sophisticated economics. It was just common sense. I myself proposed such a solution in September 2008.

The idea was and is as follows. For homeowners in default or facing foreclosure, the government would intervene and let the homeowner pay what he could, for example, by reducing the principal amount of the mortgage. Then it would reimburse the mortgage holder for the loss. The mortgage would then be good, and so would all the securities derived from it. Problem solved.

When you think about it arithmetically, this solution would have been far better than what actually happened. Most, if not all, homeowners could pay something, even if they were on unemployment. So nearly every defaulted mortgage would have been worth some non-zero percentage of original face value, and the home would still have been occupied and maintained.

What actually happened was much worse. Homeowners defaulted and had their homes foreclosed. Their mortgages became worth zero, lowering the values of all securities derived from the mortgages. Homes went vacant. Neighborhoods went downhill; and homes in neighborhoods with still-paying homeowners lost value. Everybody lost.

The government lost, too. In the “rescue” scenario described above, every home mortgage would have been worth some substantial percentage of face value, depending on what the homeowner could pay. So would all the toxic assets that derived from the mortgages. But when the mortgagors defaulted and stopped paying, the mortgages all became worth zero.

And remaining mortgages not yet foreclosed had much more uncertain value, because they were either worth nothing or face value, with unknown probability. Therefore, the government had to pay much more to bail out the various banks and quarantine the toxic assets than it would have had to pay had each each underlying mortgage been worth a known and substantial percentage of its face value.

So why didn’t this rescue happen? Enter Rick Santelli. He’s the trader on the floor of the Chicago Board of Trade whose famous tirade killed the whole deal.

Here’s how Klein describes it [search for “hideous”]:
“Rick Santelli’s famous CNBC rant wasn’t about big government or high taxes or creeping socialism. It was about a modest program the White House was proposing to help certain homeowners restructure their mortgages. It had Santelli screaming bloody murder.

‘This is America!’ he shouted from the trading floor . . . . ‘How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills? Raise their hand.’ The traders around him began booing loudly. ‘President Obama, are you listening?’

If you believe Santelli’s rant kicked off the tea party, then that’s what the tea party was originally about: forgiving housing debt.”

Klein writes that “[h]ome prices have fallen almost 33 percent since the beginning of the crisis.” How much less would they have fallen if the estimated 2.2 million homes that are now abandoned had owner occupants? How many of the additional estimated 7.5 million homeowners facing foreclosure would be secure? How many neighborhoods would not be decaying with abandoned properties, crime and crack houses?

We’ll never know. But one thing is certain. Even stringing up Rick Santelli now wouldn’t save a single home.

I mention Santelli not to make a villain, although he certainly (and briefly) played that role. Santelli epitomizes a much larger problem that has laid our country low.

He’s a trader. What do traders create? Nothing. What do they build? Nothing. What win-win contracts for mutual gain do they sign? None. If a trader buys low and sells high, someone else has bought high and sold low. He wins; they lose. That’s the way it is in trading: a zero-sum game.

But here’s the thing. If Santelli had thought a little more, rather than just braying like a bull about paying for his neighbor’s extra bathroom, he might have asked a simple question: “Could I, too, benefit from this program?”

As it turns out, he would have. By saving his neighbor’s home from foreclosure and abandonment, he would have protected the property value of his own home from decline and his neighborhood from blight, crime and decay. Too late, millions of innocent, mortgage-paying homeowners who probably thought Santelli was a genius learned that lesson the hard way.

Santelli represented the trader’s view of life, the Universe and everything. Someone has to lose so that someone else can win. There’s no middle ground. Life is hard; then you die. There’s no such thing as cooperation. There’s no such thing as mutual self-help. It’s always you or me.

That philosophy is why no nation that lets a place like Wall Street call the shots can ever rise to prosperity, let alone greatness. And that is why, ever since Wall Street took over effective control of our nation (1, 2, 3, and 4), we have been going straight to hell.

If that philosophy had ruled us in the last century, we would be just another struggling banana republic. The transcontinental railroads (which required government land grants) would never had been built. Ditto the Interstate Highway system. We would not have built the greatest educational system in human history. The Centers for Disease Control and National Institutes of Health would not exist. Nor would the WHO. Nations victim of pandemics would not look to us for rescue but would suffer and die with prayers and lamentations.

I could go on and on, but you get the drift. Santelli’s philosophy of life may work on the trading floor, but nowhere else. Even on the field of battle and in the sports arena, teamwork matters. You can’t build a nation, a state, a city, or a just society without it.

As it turned out—and as Klein carefully explains—the Obama Administration considered direct relief to struggling homeowners but was too timid in implementing it. There is also a crowning irony in Klein’s superb piece. Douglas Holtz-Eakin, who was John McCain’s economic advisor during the 2008 presidential campaign, also wanted to cure the housing crisis by helping the distressed homeowners who lay at its core. He even managed to convince McCain to adopt the idea. But no one else on the Republican side liked it. Klein quotes Holz-Eakin as saying, “[t]he politics on housing are hideous.”

Who’s responsible for the “hideous” politics that killed what could have rescued our national housing market cheaply and early? People like Rick Santelli. If we let them—and their like on Wall Street—continue to rule us, we are lost.

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07 October 2011

Us Against Them


[For information on the Occupy Wall Street movement, click here.]

People like me, who style themselves experts, are hard to rile and slow to boil. We want evidence, personally verifiable, before we go off half cocked.

For the last several months, I have been slowly accumulating evidence of our nation’s complete domination by Wall Street. I wrote a post on that subject back in June, when it first occurred to me that Wall Street’s domination is total.

Not only does Wall Street control our nation’s financial sector, which not too long ago accounted for 41% of all our nation’s business profits, including Apple’s and the oil companies’. Not only does it control Congress, to the point where a senator (Shelby) from one of our nation’s three most backward states reflexively supports Wall Street, ignoring the interests of his own largely poor constituents. Not only does our Supreme Court support Wall Street’s dominance of politics through such decisions as Citizens United. But Wall Street, which controls Manhattan, also controls our nation’s media.

That, for me, was the last point of critical inquiry. Is it true that nothing gets out in the mainstream media that Wall Street dislikes? The evidence now is overwhelming.

Back in June, my analysis was largely theoretical. Wall Street controls and feeds Manhattan, I reasoned. All the mainstream media, including PBS, are headquartered in Manhattan. Every lawyer, accountant, bank, department store, restaurant and bar there owes its living directly or indirectly to Wall Street. And therefore so do the media and their pundits. Cut Wall Street down to size, and the condo or cooperative apartment of every media analyst would plummet in value, as would their exorbitant salaries, which are based on “competition” in Manhattan (where else?).

But that was just theory. Now the evidence is in, including some very personal evidence.

Although a blogger myself, I still tend to get most of my news from the mainstream media. For reasons of quality that I explained recently, Bloomberg.com has replaced the WSJ as my primary financial/investment news source. The others mainstream sources that I read regularly are the New York Times, the Washington Post (primarily for politics) and—far less frequently—the Los Angeles Times and the San Jose Mercury-News.

With these as my sources, I was totally unaware of the Occupy Wall Street movement until this week. So, I think, were the vast majority of Americans, until NYT pundit Paul Krugman deigned to comment on it in his column today.

Here was a movement that has existed for about three weeks (probably much longer, in the planning stage) and has mounted protests coast to coast involving tens of thousands of people. And I knew nothing of it until the past few days. Not a word about it in Bloomberg.com, which greatly surpasses the WSJ in every measure of journalistic quality except coverage.

But that’s not all. For about a year I have been writing comments to online newspapers under various names. The comments have made various points and adduced various evidence. Economic themes predominated.

But lately my comments have struck new themes. It is becoming increasingly evident (1 and 2) that our economy will continue to hobble until we stop bailing out bankers and start helping their innocent depositors, creditors and foreclosed homeowners, just as we did successfully in the 1930s. Right now, we are like medieval “doctors,” bleeding a patient with leeches, rather than feeding the patient to restore her strength and health. And I don’t have to tell you who the leeches are.

Furthermore, we are right now at a critical point in modern history with respect to this precise point. Here in the US, we have decided to cast our lot with bailouts for bankers and austerity for the people. But Europe is still undecided. In the slow process of bringing the EU’s seventeen member states to consensus, there are still powerful forces in Europe that want the bankers who took bad sovereign bonds to accept more of a “haircut.” That’s the primary reason why the “fix” in the EU is taking so long.

Europe’s indecision is the best thing to happen to the global economy since 2008 (though not necessarily for stock markets in the short term). There are people in power in Europe, albeit in a minority, who realize that continuing to feed the banks and starve the people is not a sustainable proposition, let alone a solution to the continuing global economic crisis that the banks themselves created. If Europe goes for our successful 1929-35 solution, rather than Tim Geithner’s “save the plutocrats” fix, the Western world might just be able to turn this thing around. Why knows? We might be next.

But here’s the rub. As the critical decision time in Europe approaches (we’re still in it!), I found it harder and harder to get my comments published. There were strange technical errors that never occurred before. Some comments just didn’t make it on screen for unexplained reasons.

Recently key online commented journals, including Bloomberg.com and the NYT, began to post warnings that they would not explain their comment-moderation decisions. I presume those warnings were responding to more people than just me. Apparently many more people than I wanted to know why their views were not getting published in a supposedly open, public forum.

Based on this circumstantial evidence, I conclude that Wall Street and its minions are simply exercising their power over the media to consolidate their power over finance and the global economy.

It bears repeating that this is a critical time. If Europe follows our abysmal lead, it will take the better part of a decade (if ever) to restore the so-called “Western” economies of the US, the EU and Japan. The West will be irrevocably committed to the wrong solution, one that bails out bankers, starves the people and their governments with “austerity,” and concentrates economic power in the hands of fewer and fewer people who have done nothing but abuse it for three decades.

In that circumstance, China will rise to economic pre-eminence much faster than anyone has yet predicted, not entirely on its own merits, but based largely on the West’s default. Your children will have nowhere to go but the BRIC nations, or Down Under, to find good jobs (outside finance) and a decent economic future, let alone good health care. So there’s a lot at stake here, much more than just the next few years of unemployment numbers.

Make no mistake about it. This is class warfare, us against them. But I think Warren Buffet was wrong when he said his class already has won. (I also think he was wrong to include himself with the bankers. There ought to be room for smart and honest investors in any capitalist economy. But that’s another whole story.)

The plutocrats have gained a lot of ground. But much like terrorists, they have been working largely by stealth and surprise. Until recently, the vast bulk of the world’s middle class had no idea they were under constant, sustained and deliberate attack. Now they are beginning to wake up.

So the battle is not yet fully joined. Occupy Wall Street is just a raw beginning. That movement will grow, and others will follow. People will have to shun the mainstream media—even the best of it—to build those movements and fight back.

This will be long struggle. It may take decades. But does anyone doubt it is a war worth waging? At stake is the future of capitalism, democracy, and the Western Enlightenment now half a millennium old. After five hundred years of struggle, we don’t want to replace the old titled aristocracies with new ones based on inherited wealth and educational and social advantage.

So it’s us against them now. There are hundreds of million of us and only, at most, a few thousand of them. Just like the Arab Spring, the outcome is foreordained, as long as we can get organized.

So let’s get started. You can begin by paying serious attention to Occupy Wall Street, no matter how much the mainstream media try to demonize and ridicule it. And you can start doing that by reading the comments in the NYT of actual participants and direct observers, who describe how badly the mainstream media have twisted public perception of this genuine popular movement.

This is not the Tea Party—an ignorant front group brainwashed by Fox and financed by the Koch Brothers. This is the real thing.

Correction: 9/7/11 5:00 pm

I stand corrected. There is at least one person in the mainstream media (besides Paul Krugman, who is just a columnist) who has treated Occupy Wall Street with the serious attention that it deserves. He is Keith Olbermann, formerly of MSNBC and now with Current TV, a cable channel. On Wednesday, he reported the police action (including mounted police) against the movement and read, on camera, the movement’s indictment of all that our plutocrats have wrought.

The indictment is just that: a catalogue of ills wrought by unchecked banks and corporate power. It is well written, articulate, and absolutely accurate. It offers no solutions, but serves as an invitation to join the movement and help devise them.

Occupy Wall Street’s indictment resembles the preamble of our Declaration of Independence, with its list of grievances against King George III. And it paraphrases, in modern language, the following excerpt from our Declaration: “whenever any Form of Government becomes destructive of [democratic] ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”

Don’t be fooled by nattering naysayers. These young people are smart, articulate and fully conscious of the long and glorious democratic tradition that they follow, from Magna Carta on. If with our help and God’s they succeed, they may well be among the Founders of something new and better.

[For more video information on the movement, click here.]

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05 October 2011

Party of Extremists





Steve Jobs, An American Original
R.I.P.

We have so few heroes today. That’s what makes Steve’s passing so sad.

We have our “routine” heroes. You know, the ones in Iraq and Afghanistan. Nobody likes to think about them because, deep down, we sense that they’re fighting unnecessary wars in unnecessary ways. But they’re fighting for us, and they’re risking their lives every day. And that makes them heroes. Who knows their names?

Then we have our the domestic heroes—the policemen, firemen, and medical first responders who save our lives and property every day, without asking who we are or whether we have insurance. You know, the ones who are being laid off in droves because we can’t seem to find the money to support heroes any more.

Today celebrities have replaced heroes. We’ve got Sarah Palin, a world-class gold digger, who just announced she’s not running for president, after everybody stopped caring. We’ve got raging bull Rick Perry, who’s great at fund raising and rabble rousing and not much else.

We’ve go so many whose names everybody knows because their antics entertain us. Yet ancient Greece or Rome would have ignored or ostracized them because they don’t have an ounce of the skill, finesse or learning that makes a leader.

So when a man like Steve Jobs falls, it’s a big deal.

Steve wasn’t quite the same kind of hands-on inventor as Thomas Edison. But no one since Edison has been anything like Steve. No one had the same single-minded passion for innovation and excellence. No one so honored the single credo “let’s make it better!” Steve lived that credo until the month before he died.

It’s invidious to compare national icons. But fifty years from now, historians will probably conclude that Steve changed our world—and for the better—as much as did Edison, who invented the electric light, phonograph, and motion pictures and started the first electric power company.

We all know about the iPod, the iPhone, and the iPad. Most of us value the fact that anyone can use and enjoy these devices, without extensive training in hardware, software or electronics. But some of us forget that Steve Jobs, alongside Apple’s co-founder Steve Wozniak, invented the personal computer, long before Bill Gates and the hardware MBAs took it away from them.

And the vast majority of us still don’t know how superior Jobs’ computer operating system is for everything except justifying a whole industry to fix, update, repair and maintain its more popular rival. Gates created a gigantic industry around mediocre and poorly-performing software. Steve gave us products that made most of those jobs unnecessary.

Steve was no angel. He could throw tantrums. He could be a tyrant. And the corporate course he set just before he died began to resemble Gates’—a monopolist’s exercise in turf protection.

But laid against what Steve gave us, those things are peccadillo. He was not just a visionary, but a true hero. He wasn’t particularly good looking. He wasn’t the world’ smoothest personality. He had no ideology but excellence. He never complained about taxes, regulations, or “uncertainty.” He knew that the future is always uncertain, but he never lost faith that he could make it better.

Steve didn’t complain even when the MBAs banished him from the company he had founded. Instead he worked hard, invented, came back, saved his old firm from rigor mortis, and built several new industries in the process. As he did so, he taught us that an innovator with imagination can out-compete a passel of MBAs.

Steve never stopped envisioning new products to make consumers’ lives easier, richer and more fun. And his final battle—with cancer—he waged with consummate elegance and grace. He stayed on to fulfill his role, never mentioning his malady until it ripped him from the work he loved.

Steve ruled the empire he had created absolutely. He wanted things done his way. But for hundreds of millions of ordinary people, his way turned out to be better, more elegant, and more fun than all that had come before.

We will miss him. Our future, too, is uncertain. And now we have no one left with Steve’s unquenchable confidence that he could make it better for us.


Many people are still wondering why New Jersey Governor Chris Christie reaffirmed his decision not to run for president.

There are lots of plausible reasons. He has no national experience, let alone experience in foreign, security or military policy. In a society trying to forget its morbid obesity, he’s much too fat. And the very things that seem to make him so attractive—his frankness and “authenticity”—can be time bombs in this era of “Gotcha!” politics. Just ask Joe Biden or Rick Perry.

There’s also another possible reason that no one dares to name. Am I the only one who’s noticed how effeminate are his mannerisms and style of speech? Is he a closet gay?

If I had any inclination to vote for a Republican for any office for the rest of my life, I wouldn’t care. I strongly support civil rights for homosexuals, including marriage, and I’m a fan of Barney Frank. But could a gay man ever get by the GOP’s huge homophobic wing?

Which brings me to the main point of this short essay. Today the Grand Old Party is “grand” in only one respect. It has built a “big tent” for extremists.

In a desperate try to maintain a party with nineteenth-century values in the twenty-first-century, the Republicans have invited in kooks of every stripe. They’ve collected racists, xenophobes, homophobes, gun nuts, anti-abortion crazies, Christian Taliban, extreme libertarians, immigrant bashers, and free-market fundamentalists and made them their own. They have built their party and their platform around the fanciful and reality-free propaganda of Limbaugh, Beck and Reilly. No view has been too extreme for them to endorse, as long as it promised votes for lower taxes, less regulation, and more power to their plutocratic masters.

From all appearances, Christie is honest, reasonably smart, personally modest, and (for the GOP today) relatively moderate. So how could he ever run the gauntlet of crazies in his party and win the nomination? And if he pandered to the kooks enough to win the nomination, how could he ever win the general election?

Ay, there’s the rub—the central dilemma of the GOP today.

We Americans are many things, not all good. But in the final analysis we tend to shun extremism. That’s why we rejected Communism even at the height of the labor movement in the last century, when the plutocrats were literally beating up working folk and shooting them down. That’s why we (so far) have rejected fascism. That’s why we so abhor the Taliban.

Can you overcome that basic cultural repugnance by collecting a whole lot of extremists of different stripes and calling them a political party? I think not.

In this era of YouTube, Twitter, Facebook and ubiquitous cell-phone cams, electronic eyes are always watching. To win his party’s nomination, any Republican will have to say things that the general electorate won’t want to hear. And all those things will be recorded in full-color video, to be played back during the general campaign, over and over again.

Exhibit A in the general election will be every GOP candidate (including Romney) raising his or her hand to oppose any deficit reduction with so much as a one-in-ten ratio of tax hikes to spending cuts. This from the party that has demagogued the deficit as its only real issue for nearly two years! How do you think that video will play when our economy is one year sicker and one year more indebted, and after one more year of mindless cutting has put tens of thousands more teachers, police, fire fighters and other public servants out in the streets?

Romney is willing to run on that record because his ego is bigger than his brain. Why Jon Huntsman is running is anyone’s guess. Maybe he was in China too long and deluded himself that what had become of his party was mere foreign propaganda.

Romney is also an arrogant jerk, and therefore unelectable. That’s just one more reason why the GOP, like a trapped animal, is searching for any way out of his nomination.

But Romney is now the inevitable nominee and inevitable loser. It’s not his fault. He’s the best the Party of Extremists can produce, and the only semi-reasonable person willing to run on a Taliban platform.

But he can’t win.

No candidate of the Party of Extremists can win in a nation of cultural moderation and common sense, let alone against a centrist president known for his moderation, modesty and understatement. That’s why Christie wisely decided to bide his time to 2016, when he will have more experience and his party may have begun to reform itself.


P.S. I have to confess that I already have broken my vow to sit on my wallet. I’ve contributed to the campaigns of the President, Elizabeth Warren (as I had promised, and even more!) and Claire McCaskill in Missouri.

What made me change my mind? The simple realization that money—in the form of campaign contributions—has virtually replaced voting in our so-called democratic process. Early reports of contributions to candidates now serve as a “pre-primary primary,” attracting media attention, what passes for respect in our twisted society, and still further contributions to leading candidates.

We no longer have anything like a representative democracy. Money talks. And since I’m relatively comfortable financially, I’m in a position to have more influence than most of the crazies (but certainly not the Koch Brothers!). So I would be remiss if I failed to exercise my true “franchise” to the best of my ability, in an attempt to save the country I love from extremism and continued decline.

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