Hillary and the Banks

[For more analysis of Hillary and bankers, click here. For a recent post on the failed Doha oil meeting, click here.]

“Know thyself!” That was a motto of the ancient Greeks. After decades in politics, Hillary is still trying to know herself. “I’m not a natural politician,” she recently confessed, “in case you haven’t noticed.”

No, she’s not. Her instinctual and inveterate reaction to conflict is to triangulate, to find the middle ground. She smooths things over. She tries to see all sides. She acts like the mom with several fighting kids, who doesn’t have time to find out who hit whom first, and anyway doesn’t want to play favorites.

Sometimes that approach works well. It certainly does in the “identity wars” involving African-Americans, Hispanic immigrants and Muslims in America, including our own citizens. It would do no good to tar their antagonists as racists, xenophobes and bigots, although many of them self-evidently are. To call them out would only exacerbate their hatred and the victims’ grievances. It would give Fox more grist for its propaganda mill. And it might cost her votes.

So the best approach may be to soft pedal the conflict, tell soothing stories about American tolerance and our “melting pot,” and push for greater tolerance and equality behind the scenes. At least that’s what the President has always done, and he’s in a hated group himself. Although accused of racism himself innumerable times (for no good reason), he has never, to my knowledge, called anyone a racist.

But triangulation only goes so far. When it comes to public hatred that is nearly universal and well justified, it makes Hillary look weak. Worse yet, it can make her look bought.

There’s an interesting sidelight to Hillary’s solid victory yesterday in New York. According to the Washington Post, Hillary lost to Bernie by 12 points among voters who think Wall Street hurts more than helps our economy. Among voters who said it helps more, she won by more than 50 points. The only problem for Hillary was that Wall Street’s skeptics outnumbered its supporters by more than two to one. And that was in New York—a state whose economy depends heavily on Wall Street.

States far from Wall Street begged to differ. In states that sit on or West of the Rocky Mountains, Hillary lost every primary or caucus but two: Nevada and Arizona. Only in Arizona was her victory decisive. In other Western states, her losses were catastrophic. Here they are, in descending order of Bernie’s percentage margins: Alaska (63.2%), Utah (59%), Idaho (56.8%), Washington (45.6%), Hawaii (39.8%), Colorado (18.7%), and Wyoming (11.4%). (Note that these numbers are not Bernie’s percentages of the vote, but the percentage of total votes by which Bernie beat Hillary. Except for Wyoming’s, they are all far north of LBJ’s landslide victory over Goldwater in 1964.)

In addition, three of the six states next east (ND, SD, NE, KS, OK & TX) preferred Bernie by significant margins. They were: Kansas (35.4%), Nebraska (14.2%), and Oklahoma (10.4%). If states west of Texas’ eastern border (excluding Texas itself) were the measure, Bernie would be routing Hillary decisively.

There are several possible explanations for this phenomenon. Some of these states are solidly red, so the Dems there are small in number and perhaps more left-wing, in reaction to their environment. Some states had closed primaries, others did not; in open-primary states, independents could vote, and Bernie has won independents “by 62 percent to 36 percent across previous contests this year in which exit polls were conducted.”

But there’s another, simpler explanation that no one should discount. The farther you get from Wall Street, the more Hillary’s apparent coziness with it hurts her. Alaska, Hawaii and Washington are all solidly Democratic states, and Bernie buried Hillary in all of them. As for the red states, could Hillary’s stunning loss there be a portent of the general election?

You can argue whether Wall Street caused the Crash of 2008. You can argue whether our big banks and their executives wholly escaped the market discipline and the punishment that they richly deserved. You can argue whether Wall Street and its lobbyists whittled Dodd-Frank down to a dulled, single tooth’s worth of regulation. But you can’t deny that the vast majority of Americans think it did.

Both Bernie and The Donald have succeeded beyond anyone’s expectations at the outset of their campaigns. Although they represent vastly different parties and have incomparable character, their successes have stood on the same three pillars. They are: (1) exploding economic inequality, (2) the hollowing of American manufacturing and the consequent loss of good jobs, and (3) the Crash of 2008 and Wall Street’s role in it and its aftermath.

Of the three pillars, the last may be the strongest. Why? Because it’s the clearest. You can fuzz up inequality by calling the 1% “job creators” and touting the myth that every American who works hard can get rich. You can muddy the waters of manufacturing losses by talking about globalization and “free trade” (with which the offshoring of 60,000 American factories in fact has little to do). But it’s much harder to “spin” the Crash of 2008 and its aftermath, including the massive bank bailouts.

Sure, government regulation was lax. Why wouldn’t it have been, under a Republican administration? But the direct actors and causative factors were rogue bankers, who took enormous, highly leveraged risks, and should have known that the bad mortgages underlying them massively violated the issuing banks’ own credit standards. The culprits escaped not only without going to jail; they didn’t even lose much money, because the government bailed them out.

Much of the public senses how the banks and their lobbyists have watered down Dodd-Frank and the crucial regulations that enforce it. Many know that the only thing that stands between us and another crash is our Fed. And many have heard that the Fed, just recently, declared five of eight largest banks systemically risky and still too big to fail.

So Americans believe that the banks caused the Crash and have not only escaped punishment, but are still playing, with impunity, the very same games that caused the Crash. Is it any wonder that Bernie’s consistent, clear call to break them up strikes resonant chords?

Take me, for example. As a young lawyer I actually represented banks for a time. I worked for a big San Francisco firm (Morrison & Foerster), representing Crocker National Bank—then a regional powerhouse long since gobbled up by Wall Street. I even managed to work up some sympathy for its complaints about regulation. For example, two separate California statutes once required that two separate provisions in required disclosures had to be set in type two points larger than anything else—a requirement logically impossible to fulfill. But I also witnessed the federal elimination of state usury laws and the takeover of Congress by the banks, leading directly to the “let’s all get rich quick” party that eventually caused the Crash.

More to the point, as a law professor I know two dirty little secrets about punishing rogue bankers. First, it’s almost impossible to convict them of crimes because criminal charges require proof of mens rea (criminal intent) beyond a reasonable doubt. Even if banking executives weren’t circumspect in what they write down and whether they rat on each other—and they are!—it would be almost impossible to prove their bad intent. After all, none of them intended to defraud their customers or to crash the global economy; it just worked out that way. All they were intending was to make more money, albeit stupidly and greedily.

The second dirty little secret involves civil suits. For reasons buried in the history of Anglo-American law, there is no such thing as civil negligence for economic wrongs. You can be liable if your stupidity or carelessness kills or injures someone on the highway or in an industrial accident, but you can’t be liable for mere economic losses—even if your stupidity, negligence and carelessness destroy the global economy.

So, much more than the general public, I know how little chance there was, and still is, to punish individual bankers for their misdeeds and force a course correction. As a result, I firmly believe that regulation and breaking the banks up is all we’ve got to forestall the next crash. It’s the Fed or a breakup, or a good chance of another Great Depression.

Now the Fed is an independent agency. It must be, else the president, who is virtually never an economic expert, could jigger interest rates and tank our economy for political reasons. So the only way a president, by himself or herself, could forestall another Great Depression is to have independent authority to regulate or break up the banks. To my knowledge, the president doesn’t now, except (very indirectly) by appointing the Fed Chief.

What this means is that it’s all up the Fed. If another Great Depression threatens, the President can do nothing but watch and cheer from the sidelines.

But that’s still not all. I taught antitrust law for a number of years. While doing so, I read case after case teaching that, when economic concentration becomes too great, the only effective remedy is breakup. Trying to ride herd on clever, well-paid men (they are always men) who have accumulated enormous economic power, and whose motivations have devolved to self-interest alone, is a losing proposition. The only thing that really works, let alone has staying power, is breaking up their empires and reducing their power.

We did that over 100 years ago, when our Supreme Court broke up the Standard Oil combines. Under newer laws, our Justice Department, FTC and our courts have since prevented a number of anticompetitive mergers and acquisitions. But those same new laws have made our courts and antitrust enforcers reluctant to unwind menacing combines after they have formed.

So the banks got too big too fail, but big enough to threaten our national and the global economy. The Fed says that’s still true. But no one except Bernie (and former Republican presidential candidate Jon Huntsman, Jr.) wants to do what we know will work and might solve the problem for the foreseeable future. Hillary just wants the Fed to do it under Dodd-Frank, when it’s highly likely that Fed won’t until it’s too late.

So now do you begin to understand what a huge political liability is Hillary’s refusal to disclose transcripts of the three speeches she gave to Goldman Sachs for $675,000? Most working people take a dozen years to earn that much money. They wants to know what she said, and whether they can trust her. But she stonewalls.

I know, I know. Hillary is a ‘fraidy cat. She fears the spinmeisters will go over every phrase of the transcript and find nefarious ways to put her in Wall Street’s pocket. But isn’t it better to know than not?

Whatever she said then, she can say she’s changed her mind now. She can actually change it. She’s already done that on Iraq. In so doing, she avoided Jeb’s fate. Why not do the same thing on Wall Street, if need be?

And if there’s really nothing incriminating in those speeches, why stonewall? Doing so just makes her seems haughty, aloof and imperial. Maybe she’s waiting until she’s beaten Bernie decisively, so she’s free of challenges from her left. The Donald is not going to beat her up with Wall Street after saying he loves it; nor is Cruz.

The thing that rankles almost everyone about Hillary—even people like me who will vote for her with enthusiasm against the likes of Trump and Cruz—is her tin ear. Her first instinct seems to be to hide and cower behind secrecy and unspecified “comprehensive plans.” At the moment, she leaves the impression that her presidency will be more secretive than most in memory. The public doesn’t want that at all, not after the Snowden disclosures, the Panama Papers, Emailgate, and the fading memory of an economic cataclysm caused by secret pools of financial derivatives.

If Hillary is really as politically awkward as she confesses and she seems, she’d better get some savvy advisers on her staff. She’d better get some folks who remember the Tylenol poisoning disaster and how the truth and prompt action fixed it.

If not, she may still become the first female president, but she will forfeit the chance to take the Senate and House with her. She will miss the chance to win by the landslide that her historic achievement and the abysmal quality of her likely GOP opponents deserve. And she may end up judged by history, just as she was after Hillarycare, as the “woman who tried.”

Why “we the people” hate some bankers

Hillary Clinton doesn’t like conflict. She shies away from it and tries to smooth it over. That’s her instinctual and inveterate approach.

It’s not always a bad approach. Many conflicts are unnecessary, pointless and downright stupid. The current conflict between Saudi Arabia and Iran is destroying the Middle East for no good reason that anyone but mullahs can discern. The Cold War between the US and Soviet Union nearly extinguished our species and accomplished nothing but piling up world-destroying weapons. The Little Cold War between the US and Iran has produced mindless enmity and near-war, but may soon burn itself out. The ideological and propaganda war between right and left among us Yanks has left our ship of state dead in the water for about a decade and counting.

But some conflicts are worth fighting. World War II was the most horrible conflict in human history, but our species had to stop the hyper-aggression and appalling atrocities of Nazi Germany and Imperial Japan. NATO’s 1990s bombing campaign in the Balkans killed a lot of people but stopped an incipient genocide. FDR’s campaign against the clueless plutocrats who had caused the Great Depression and were dragging their heels in fixing it was absolutely necessary. That’s what FDR meant to say when he said “I welcome their hatred.”

Hatred is seldom justified. Most of the time, it’s just a product of our species’ worst trait—tribalism—which we must overcome with social evolution. But sometimes it has a rational basis.

So what about bankers today? Many Yanks hate them for destroying the global economy eight years ago and getting off scot free, and for subjecting us to a continuing high risk of doing so again. How justified is that hatred?

To answer that question, we first must analyze what bankers do. In essence, they do three things. They store money, transfer money, and invest money, charging fees or interest for each service.

No one has much of a problem with the first two functions. Today’s banks do a good job of storing and transferring your money. They can do it all online, from your desk or a mobile device. Most of the time they can do it in less than a day. You can transfer money globally, across international boundaries, with currency conversions at reasonable market rates. And you can get your money back, 24/7/365, in cash in the local currency, at tens of thousands of automated teller machines (ATMs) worldwide.

There are a few small problems. Some central banks now have negative interest rates: in order to encourage money’s circulation, they charge you to park it. Some banks still charge $25 for a wire transfer, in the digital age yet. But so far negative interest rates affect only other banks, not consumers, and you can usually circumvent the wire-transfer fee by using other electronic means.

The reason why people hate bankers today has to do with their third, most sensitive and most important function: investing other people’s money.

No one hated bankers when they took deposits and lent them out so that people who could not otherwise afford homes could buy them. That business put more people in homes of their own and jump-started a booming construction industry.

No one hated bankers when they made commercial loans to businesses. They made short-term loans to meet payroll, medium-term loans to buy inventory (of parts and material to build or things to sell), and long-term loans to build plants and finance other big projects. They even made loans to start whole new businesses—a thing known as “capital formation.”

No one hated bankers even when they invested money in risky start-up ventures, providing so-called “venture capital.” No one hated bankers when they financed mergers and acquisitions, allowing businesses to buy and sell each other and keep markets and the deployment of capital fluid. People only started hating bankers when their “investing” went far off the reservation and roamed way beyond these sensible and often boring tasks.

Take Goldman Sachs (GS), for example. It’s emblematic of the big so-called “investment banks.” But what does it invest in? To my knowledge, it makes no home loans, or short- or medium-term business loans. It rarely invests even in equities directly, except temporarily, when it “floats an issue,” that is, finances an issue of stock or bonds and brings it to market so others can buy it.

Have you even seen those ubiquitous GS ads on PBS’ website? You have to run through them in order to see non-current news programs. They try convince you that Goldman Sachs is a venture capital firm and pillar of your community, funding new businesses and new projects of old ones.

Maybe GS actually does a little of that. But that’s not what has made GS and the other big banks infamous.

To paraphrase Lloyd Bentsen’s classic putdown of Dan Quayle, I know venture capital. I used to work in Silicon Valley, doing venture-capital deals from the legal side. I used to drive by Kleiner, Perkins, Caulfield & Byers—one of the foremost venture capital firms in California—on my way to work. And GS is no venture capital firm. It isn’t even a public venture-capital firm like like Blackstone and the half-dozen others that have gone public.

So how do GS and the other huge “too big to fail” banks make the vast majority of their money? They do it by speculating on future events. They do it by writing, buying and selling second- and third-order securities, including bundled mortgages, bundles of bonds and other securities, plus what amounts to financial insurance (although it’s not actually called by that name). They deal in put options, call options, futures, options on futures, collateralized debt obligations (CDOs), “swaps” and other complex financial derivatives.

Apart from bundled securities, nearly all of these “investments” have two things in common. First, they are entirely abstract. You can’t point to any piece of property, plant or business that they represent. They require pages of dense legal prose just to describe them accurately and fix their terms. Second, they are speculative. Their value depends on the course of unknown future events, such as defaults by mortgagors, businesses or nations, or the vagaries of fluctuations in prevailing interest rates or the relative values of foreign currencies. Their relationship to real commerce and industry is, at best, indirect and tangential; but they can make bankers a lot of money, or so it seems.

To put it simply, the big investment banks these days do a lot of gambling. They “invest” huge sums of money in high-level abstractions that never find their way down to the world that ordinary workers inhabit. And sometimes the bankers don’t just gamble: they also swindle. At least that was what GS was accused of doing before it settled the case and paid a big sum without admitting guilt.

To get a sense of the scale of this gambling, you only need to know one number: $600 trillion dollars. That’s the face amount of interlocking derivatives outstanding when the whole house of cards began to collapse in the Crash of 2008 and the government had to bail the “too big to fail” banks out. And the right-wing blowhards squeal about a national debt of $19 trillion!

Before leaving the subject of derivatives, let’s see what Warren Buffet thought of them. He’s getting on in years now. But he’s a consummate capitalist whose “keep it simple, stupid” approach to investing and to life has made him the world’s most successful and most beloved investor. He once called derivatives “weapons of mass destruction.” And here’s what he said about them in his annual newsletter after the Crash:

“Improved ‘transparency’—a favorite remedy of politicians, commentators and financial regulators for averting future train wrecks—won’t cure the problems that derivatives pose. I know of no reporting mechanism that would come close to describing and measuring the risks in a huge and complex portfolio of derivatives. Auditors can’t audit these contracts, and regulators can’t regulate them.”

Put simply, Buffet is saying that some banks are “too big to fail” because the huge portfolios of derivatives they hold is too complex and risky to exist.

If bankers want to bet their own money on this junk, that’s their business. It’s still a free country, and a consummately capitalist one. But don’t delude yourself that their doing so does the rest of us any good. The truth is quite the contrary: this junk destroyed our own and the global economy less than eight years ago. And it still threatens us today. Less than two weeks ago, the Fed informed us that five of the top eight banks are still “too big to fail” and present a systemic economic risk.

We still have two more points, which are often overlooked. “Investing” money in this junk drains big resources from real investment that might actually improve people’s lives and advance our species. It also drains the brains, attention, know-how and experience of sophisticated financial professionals that could be applied to real investment in real businesses.

No one knows exactly, because much trading in derivatives is still secret, in so-called “dark pools.” The total face value today is probably north of $700 trillion. Of course that number represents risk, not real money. But that’s just the point. Even if the real money behind it is only 5%, think about how much $35 trillion could help us convert to sustainable energy, repair our dilapidated infrastructure, pay down our national debt, start new businesses, do needed medical and scientific research, or simply make our poor less miserable.

The second overlooked point is how tiny a clique of men (they are nearly all men) engages in this useless gambling and occasional swindling. Excluding the peons and underlings, the principal bankers—the ones who got and stay obscenely rich by playing with this stuff—probably number no more than 250 worldwide. That’s a pretty small special-interest group, isn’t it? Almost any real industry, such as beef or fossil fuels, utterly dwarfs that number.

So there you have it, and there you have the enigma of Hillary. There’s a tiny special-interest group that destroyed the global economy less than eight years ago and still threatens to do so again. It engages in obscure, highly risky activity that does the rest of us little or no good, and its members get obscenely rich in so doing. Because they are rich and live in a rich man’s bubble, they get self-righteous to boot. Lloyd Blankfein, the CEO of GS, once referred to the junk that brought down the global economy down as “God’s work.”

Whatever else these folks may be, they are a pol’s dream. They are worthy objects of derision and hate. That’s why FDR said of their 1930s predecessors, “I welcome their hatred.” They constitute a tiny tribe that threatens the rest of us, wastes enormous resources, and accumulates obscene wealth and power while doing so.

If Hillary would just call them out, recite what they’ve done, and place blame where it belongs, her standing among Bernie’s supporters, independents and people who’ve lost their homes, jobs and/or self-respect since the Crash would skyrocket. But she hasn’t yet.

Why? The notion that she’s in their pocket is much too facile. Hillary is not consciously corrupt. But sometimes it seems that she still considers bankers—even the worst of the lot—part of her family’s children. Whether and if she changes her mind on that point may yet fix the fate of the Democratic party, the progressive left, and our nation.

Footnote: Goldman Sachs has been having trouble lately. Its profits are down, and it’s laying people off. The main problem seems to be market volatility. The enormous overhang of derivatives and high-frequency trading that firms like GS helped create are making markets chronically unstable. China, too, is growing increasingly unstable, and its authoritarian government and reflexive secrecy makes it hard to see how and when.

As the Yogi Berra once said, “The future is one thing that is hard to predict.” If bankers want to gamble on it with their own money, that’s their business. But they shouldn’t hold the rest of us hostage as they do, and they shouldn’t come to us for help when they lose. Only their obscene riches and power have let them and have animated the insurgencies of Bernie and The Donald. If anyone on Hillary’s staff has any savvy, she should be able to tap into this angst as the two insurgents have done.

Endnote on insuring the future. In bare theory, the idea of insuring the future against every risk might seem a good one. We all have home and car insurance, and (thanks to Obama) nearly all of us now have health insurance. So why not insure against every conceivable financial risk, such as the collapse of Greece’s economy, major-power involvement in Syria’s civil war, a US default (caused by Congress), a “hard landing” in China, or an abrupt devaluation of the yuan or yen?

The primary answer is Occam’s razor: simpler is better. Some risks are too complex to evaluate and insure against.

For example, when the financial jocks created their derivative house of cards in the runup to the Crash of 2008, they thought they could get a handle on the individual risk of a single firm’s default. But they had no way to evaluate the risk of a “domino effect,” in which one firm’s default triggers another’s. They probably had no way even in theory, because derivatives were secret and there was no central data base. So the government had to bail them all out collectively.

A second answer is experience. Insurance companies have decades of experience on which to base statistical estimates of the likelihood of your car crashing, your home burning, or you getting lung cancer. But how much experience is there of a Greek default impairing the Euro, China letting the yuan float, or China melting down just as it’s on track to become the world’s largest economy? No actuary or database can help predict these things. “Quants” who think they can predict these things are just kidding themselves and scamming their bosses with mumbo jumbo.

The final rap against trying to insure every risk is practical. If you run an airline, what’s the smartest thing to do to protect yourself against rising jet-fuel prices? hedge against them, keep your own pricing flexible, buy more efficient airplanes, or invest in renewable and therefore more price-stable fuels? Hedging just promotes short-term thinking and putting your head in the sand. It also takes your eye off the ball: the relationship between your pricing and your costs.

Of course drawing the line between insurable and uninsurable risks is always a matter of judgment. There is no formula, computer program or economic model that can draw that line for you. But if nothing else, the Crash of 2008 has proved convincingly that how much money you can make in the short term by writing complex insurance is not a particularly good criterion for evaluating its medium- and long-term risks.

permalink

Doha Oil, Nerve Gas, and Iran’s Nukes: Trusting your Rivals, and Russia’s Role

[For a short update on the failed Doha talks, click here. For an endnote on the long game, click here. For a recent post on the Dems’ Brooklyn debate, click here. ]

This weekend the petrostates are meeting at Doha, sans Iran. An intelligent alien watching them would be puzzled. Will they reach agreement to freeze oil production? And if not, why not? More important, why hadn’t they reached agreement long ago, so that the oil price slump they’ve been suffering for over a year never happened?

To any rational beings in their positions, agreement would be a no-brainer. They would just have to understand a basic principle of economics. It’s taught in every basic course in college and even in high schools. It’s called the “elasticity” of supply and demand.

As I’ve explained in detail elsewhere, oil is one of the most inelastic commodities known to economics. For most motor vehicles, it’s essential and has no real substitutes. At least the two closest things to substitutes—natural gas and electricity—are not yet widely used for that purpose. So, as for all inelastic commodities, small changes in global supply or demand produce nonlinear and outsized effects on price.

It’s not hard to do the numbers, at least with crude accuracy. Since its peak in 2013, oil has plunged from $111 a barrel to under $30, recovering to its present price of near $43. That’s a drop to present pricing of 61%. What caused it? A supply glut of less than 2 million barrels per day worldwide. That’s about 2% of the 93 million barrels consumed globally every day.

So a supply excess of less than 2% has caused a price drop of 61%, or over 70% at the trough. That’s inelasticity!

To have avoided their respective fiscal catastrophes, all the petrostates would have had to do was each decrease its own production by 2%. Then the oil income would have fallen by only 2%, due to the decrease in volume. Instead, by continuing to pump in manic rivalry, they created the surplus, collectively, and let prices fall enough to cut their income 61%.

Rational? Hardly. So why did they do something that, on its face and on the numbers, seems incredibly stupid? Why are they unable to do something easy and simple to enrich themselves?

Not surprisingly, the answer lies in the things that have made the difference between barbarity and civilization throughout human history: enmity and trust. The Saudis and Iranians hate each other, and the rest of the petrostates don’t trust each other. If they did, oil prices would again be at the highest level that the developed world could bear, just as they were when the Saudi Oil Ministry, through its control of OPEC, set oil prices to maximize their benefit to OPEC.

The Doha parties could easily circumvent the millennial Saudi-Persian, Sunni-Shiite hatred, at least in theory. No one thinks Iran can increase its production by much more than 0.8 million barrels per day, at least in the next year. So if the Saudis could repress their hate for Iran, just for a moment, they and the other petrostates could take up the slack—less than 1% of global demand—and raise prices back up to erase most or all of the 61% drop.

So why don’t Russia and the other petrostates gang up on the Saudis and make it happen? Here the answer shifts from enmity to trust. In order to agree, the Saudis and all the others have to trust each other to perform their parts of the production-limiting bargain. Self-evidently, they don’t.

Unlike the Saudi-Iranian enmity, the lack of trust among petrostates is not entirely irrational. The history of cartels is rife with cheating, and there’s really no good way to determine whether other petrostates are cheating.

Think about it. Recently the international community decided to restrict shipments of nuclear-useful material into North Korea. The only way they could do so (they apparently thought) was to allow stops and searches of ships going to North Korea. Otherwise, they didn’t think they could tell what’s a nuclear-useful cargo and what’s not.

Now oil tankers have a special profile, which satellites can see. A good satellite, along with good computers, can probably tell a tanker’s capacity, at least within 10% or so.

But a satellite can’t tell how full the tanker is. Nor can a single satellite tell where every tanker it sees is coming from or going to. It would take a whole-Earth-covering network of satellites, watching 24/7/365, to monitor global oil shipments effectively. The only nations that have that capacity are the EU, Russia and the US, plus maybe China.

All but Russia are non-petrostates, unlikely to slit their own price throats by monitoring a cartel for the petrostates. In addition, any state capable of such monitoring probably would have to divert significant spy-satellite capacity from more sensitive and important military operations.

So Russia holds the key, as it has in two other recent international accords. Russia avoided US direct involvement in Syria’s civil war by agreeing to force its client and vassal Assad to divest himself of nerve gas, and by monitoring the divestment. Later, Russia helped forge the Iranian nuclear accord by leaning on its client state Iran and agreeing to extract Iran’s nuclear material, transparently and verifiably, according to the accord. In other words, Russia used its might, technology and influence to allow the US and international community to trust and verify compliance with diplomatic agreements.

The results were notable. First, nerve gas left Syria without deeper US involvement in the Syrian civil war, without risking direct military confrontation between the US and Russia, and without possible inadvertent dispersion of nerve gas in air or drone strikes. Second, our species avoided, for the moment, another possible war in Iran, in which super-nuclear powers Russia and the US could also have come into direct conflict.

Say what you will about Vladimir Putin. He is a dangerous man, willing to press every advantage and risk chaos and vast suffering to do so. But he’s far from stupid. He appears to be cleverer at diplomacy than he is at awkward military action, as in Eastern Ukraine and Syria now. Likely he understands the “art of the deal” far better than pathetic Donald Trump.

So will Putin make the difference at Doha? Will he commit Russia’s spy satellites and intelligence apparatus to verifying compliance with a production-limiting agreement, so that petrostates can balance supply and demand and raise prices?

There are lots of unknowns. We don’t know whether Russia’s spy satellites can do the job, at least without diverting themselves from military applications. We don’t know whether Russian intelligence can do the job, which requires global 24/7/365 monitoring. We don’t know whether Russia will be willing to devote the necessary resources or, even if it will, whether the Saudis and other petrostates will trust Russia. After all, the Saudis mistrust Russia (as Iran’s adamant backer) almost as much as they hate Iran.

But if Putin can bridge the trust gap and enforce an agreement at Doha, we will be back in the pre-Crash oil regime. Then Saudi Arabia, as leader of OPEC, cleverly set global oil prices just high enough to squeeze the developed world hard without strangling it. If the developed world wants to avoid economic subjection to petrostates, it’s going to have to start working harder on fracking for oil and using fracked gas as a substitute for oil in light vehicles. And it’s going to have to get much more serious about electric cars and making nuclear power safe.

Endnote on the long game

The foregoing analysis applies in the short-to-medium term. Whenever (if ever) the petrostates get their act together, the price of oil will rise to the point at which the economies of developed-nation buyers begin to stagnate or decline. Then it will stay there.

It could begin this weekend at Doha. It could happen next year. Or it could fail to happen until oil starts to run out.

Based on 2013 global reserve and consumption figures, global oil will run out anywhere from 2031 to 2056. That would be in the lifetimes of children living today. Universal fracking might extend oil reserves another twenty or thirty years. But today’s children’s children will almost certainly see the global exhaustion of oil. There are only so many liquified, ten-million-year-old dead trees in the Earth’s crust where we can reach them.

After a short period of extraordinary revenue (from exorbitant low-supply prices pre-exhaustion), the petrostates’ economic power will evaporate. The whole world will be proud owner of a gigantic stranded and obsolete infrastructure: oil wells, derricks, refineries, tankers, and cars, trucks, buses, trains, planes and construction equipment that run on oil. Our successors will convert some of it to other energy sources—such as natural gas, before it runs out, likely a generation later. But much of that infrastructure will get abandoned or recycled as scrap.

During this interim period, as oil production begins to decline irrevocably, the multinationals and nations that provide substitutes for oil (and oil-burning vehicles and equipment) will control the world’s economy. They will invent, make and sell such things as renewable-energy sources, smart grids (including localized ones), storage batteries, and safe nuclear power plants. They will own the industries of the late twenty-first century and beyond.

The whole developed world is joining the electric-car craze today. So it’s unlikely that any single nation or vendor will “corner the market,” except perhaps with a breakthrough unforeseeable today.

The opposite is true of safe nuclear power plants. As far as I can tell, no one is seriously trying to develop them. Everyone is just trying to extend the life of the current unsafe designs and maybe make them marginally safer, with quick and dirty retrofits.

“Quick and dirty” are not words you ever want to hear about anything associated with nuclear power. Unfortunately, no one is seriously working on entirely new meltdown-proof designs, let alone liquid fluoride thorium reactors. So the nation, multinational or consortium that first invests the money to develop any of these will have a global monopoly, perhaps for the foreseeable future.

Wind, solar, tide, biomass and other renewable-energy sources, and the grids to accommodate them, will have a free-for-all, with Germany and its Energiewende enjoying a strong head start. These things will be the bases of late-twenty-first-century industry, along with nanotechnology, 3D printing, personalized medicine, private space travel, and “designer genes.”

So the search for alternative sources of energy and ways to use them is not just a passing fad. It’s not just about climate change, although it may help reduce the already-baked-in (pardon the pun) catastrophic change in the Planet on which we evolved. It’s a part of the global competition and progress that will take our species from burning exhaustible stuff (and polluting our thin atmosphere) into a sustainable future.

In that competition, those who continue to focus on exhaustible fossil fuels, with all their uncertain pricing, will realize the Prophecy of the Bible and Bob Dylan: “Those who are first now will later be last.” To avoid that sad fate, the Saudis are planning to sell part of Aramco and finance a “Public Investment Fund” to invest in this future. They may hate Iran enough to cut off their noses despite their faces on near-term oil pricing, but they are not stupid.

Update: Doha Talks Failed

By 3 pm Sunday (EST), April 17, the Doha oil talks had failed.

The Saudis stuck to their initial position, insisting they would not freeze their production unless all major oil producers involved did, including Iran. Iran had refused even to attend the talks, deeming any production freeze by it a “ridiculous” self-imposed renewal of sanctions.

So there was no basis for discussion. As it turned out, my suggestion that Russia might smooth the way by providing intelligence to enforce any agreement was sheer speculation. The talks never got to a stage where an offer of that sort might have been helpful.

It’s interesting to calculate the Saudis’ price for hating Iran. The talks’ failure is highly likely to drive oil prices still lower. But let’s start with the pre-talks price, $43 per barrel. (Since Iran produces only about 3 million barrels per day, its share of the cut would have been 3/93 = 3% of the whole cut. Saudi Arabia’s share of taking up Iran’s slack would have been about a tenth of that, or less than 1% of the cut.)

Saudi Arabia was looking to freeze its own production at about 10.4 million barrels per day. Let’s suppose that a 2% production cut by everyone would raise the price of oil back to $111, as at its peak in 2013. That’s ($111 - $43) x 10.4 million = $707 million per day—or nearly three quarters of a billion dollars per day worth of hate.

Of course, the Saudis might say it was all to uphold discipline among the cartel. And there’s some truth in that. The dominant player in a cartel often “disciplines” other members by temporarily lowering prices until they fall in line. But three-quarters of a billion dollars a day is a lot to pay for discipline, especially by a royal (and totalitarian) economy bleeding red ink.

The Saudis refusal to bargain potentially cost the Iranians $111 - $43 = $68 per barrel times their production of about 3 million barrels per day, or $204 million per day. The difference between what the Saudis failed to gain and what Iran failed to gain is $503 million, or half a billion dollars a day.

Iran’s recalcitrant position made as little economic sense. Had it acceded to a 2% production cut, it would have gotten 98% of the $204 million per day, or just about a clean $200 million per day. As the talks failed, its daily oil take will probably go down with the price of oil, which might drop all the way back to $30 per barrel. If that happens, Iran will not only forego about a $200 million increase, but will suffer a $39 million per day actual loss.

So there, my gentle readers, is the price of hate in the Middle East: nearly three-quarters of a billion dollars a day for Saudis and almost a quarter billion dollars a day for Iran. Neither seems so exorbitant a price when you compare Syria’s utter destruction. But I wonder what ordinary Saudi citizens, especially Shiites, and ordinary Iranians would think of it.

permalink

The Dems’ Brooklyn Debate

Was it the abysmal quality of the GOP candidates and their debates? Or was it Bernie’s and Hillary’s stellar quality? Whatever it was, it worked. Last night’s Democratic debate in Brooklyn was not just the best Dems’ debate. It was the best of the whole campaign season so far.

Over two decades, Fox has made us Yanks comfortable feeling slimy. We slime ourselves with teenage male taunts about the relative size of penises or whose wife is sexier. We slime ourselves with open and unrestrained baiting on race, religion and ethnicity. We slime ourselves in bashing the poor—something that Jesus and every great leader of every great religion told us not to do.

If anyone had written a story in which serious presidential candidates acted this way, a reader would have called it not just fiction, but unbelievable, unrealistic fiction. Until this year. Until it actually happened.

Last night the Dems’ Brooklyn debate reminded us what democracy means. It means taking serious issues seriously. It means hitting hard but hitting fair. It means focusing on issues and approaches that affect real people who must suffer the results. It means illuminating the differences between two candidates without demeaning either.

The Dems’ debate last night did all that. Furthermore, it avoided what all the slathering media baboons tried to foment this week. It avoided a Bernie-Hillary mud wrestle.

Instead, it made both Dems seem larger and better than they had seemed before. Both looked presidential, ready to take on the Republicans and govern the country if they win. Last night’s debate did not just invite—it compelled—serious Dems to unite behind the eventual nominee.

The chief difference between Bernie and Hillary has been apparent for some time. But last night’s debate brought it out and highlighted it.

The most important difference, by far, is reach. It suffuses all the important specific issues, from economic policy and health care, through climate change, to foreign policy.

On all these, Hillary did her best to wrap herself in the mantle of “realism” and the flag of President Obama. She pledged to follow his lead in preserving and extending Social Security and health care. She lauded his achievement of a global agreement to fight climate change. She pledged to preserve and extend NATO, while trying to get our allies to pay a fairer share of its expenses.

On more controversial issues of foreign policy, such as Libya and our relationship with Israel, Hillary straddled, twice putting credit or blame on the President, while keeping her own approach flexible and indistinct. Hillary, it seemed, is eager to head the President’s third term.

Bernie, on the other hand, continued to express the dissatisfaction that many progressives and others feel. Why, he asked, do we Yanks lack the universal health care, free or nearly free college, and paid family and parental leave that virtually all our advanced allies have? Why do we have economics and politics on which billionaires call all the shots? On climate change, why don’t we Yanks, who have the world’s most advanced technology and lots of money, lead the conversion to clean energy with a carbon tax? Unlike Hillary, Bernie played the part of a candidate unhappy with the status quo.

By wrapping herself in the President’s garb, Hillary sought several advantages. First, she continued her so-far-successful appeal to African-Americans, who understandably want the President to get the credit and the respect that—in a time of seemingly ubiquitous racism—his brilliant leadership deserves. Second, Hillary made a play for party loyalty and continuity. Third, she touted successful incrementalism as more “practical” than reaching for the stars. Finally, by reiterating her experience and her style, which matches the president’s cautious realism, she sought to don the mantle of his successes as well.

The problem, of course, is that the President has not achieved nearly as much as he and his supporters hoped for seven years ago. Along the way, he met a Berlin Wall of blind and racist opposition, which rose far higher than what normal politics and our Constitution allow. Razor wire blocking any Supreme Court nominee now tops that wall.

Under these unprecedented circumstances, Barack Obama achieved as much or more than any pol could. With political jujitsu, he turned opponents’ extremist momentum against them.

It was all glorious to watch. In spite of the Berlin Wall—or maybe because of it—the President achieved a number of small miracles and a few big ones, including “Obamacare.” But the fact still remains: we progressives did not get nearly as much hope or change as we voted for in 2008.

Sometimes big walls seem absolutely impenetrable until they fall. That’s precisely what happened to the real Berlin Wall in 1989. Two years later, the Soviet Union that had built it was history.

Could the same thing happen to the Berlin Wall built by Limbaugh, Rove and McConnell? At the moment, that seems not only possible, but likely.

For about a decade, the GOP has doubled down on a lame strategy. It threw its lot in with the Old South. It built its wall out of lies, blame and racism. The more it was challenged, the more it doubled down.

Our South can go to extremes. It once supported slavery; it even tried to justify slavery as a Christian virtue. But the rest of the country has no history of extremism. And whether you measure by population or by GDP, the South is only about a third of us. So betting on the South rising again and ruling the rest of us was not a particularly brilliant move, although it may have been the best the Party of Bosses could conceive at the time.

Today the tide of American politics is changing. The left is rising again. It’s rising precisely because the GOP outliers have made the rookiest error in politics. They tried to come from behind not by moving toward the center, but by moving toward the extreme.

The President did his part, too. He did it superbly. He maneuvered the GOP and its moronic leaders, especially McConnell, into doing the dumbest things and bragging about them—things like shutting the government down, risking a national default, and taking all the big money they could find, and from the most publicly obnoxious men willing to give it. In the public mind, Donald Trump is just the epitome of GOP donor-kings.

So the Dems who haven’t voted or caucused yet now have a real choice. Should they vote for a would-be successor to Obama, a candidate who believes in incrementalism but lacks President Obama’s extraordinary political skill? Or should they “build” on Obama’s successes, including his painting the GOP into a corner, by setting a whole new direction for us Yanks?

No one who’s been around for a while believes that Bernie can reach all his goals, let alone in a single term. If he becomes president, he’ll be 78 when his first term ends.

But that’s not the question. The question in this election is whether Obama has so effectively and brilliantly outfoxed the GOP as to prepare the groundwork for the real sea change in American politics that his supporters hoped for in 2008. If you believe that Obama has just held back the GOP tide temporarily, and that more middle-seeking is the best response against GOP extremism, then Hillary is your natural choice. If you believe that Obama and even larger forces of history have reversed the tide, and that the GOP just hasn’t gotten the memo yet, then Bernie is your man.

“A man’s reach,” the old proverb goes, “should exceed his grasp, or what’s a heaven for?” Barack Obama has spent seven hard years cutting the branches of bigotry and obstruction so that we can all reach higher. Experience does matter, but Bernie has over 25 years in Congress. Maybe bold goals matter most now.

The rest of the differences between Hillary and Bernie don’t amount to a hill of beans. Both are plenty progressive. Both know a lot. Both would be infinitely better than any possible GOP alternative, let alone one of the two (Trump or Cruz) who now seem most likely.

Both also share New York values—Bernie because he was born in Brooklyn, and Hillary because she served the state as senator for two terms. That means both can speak in complete sentences and complete paragraphs, even when not reading from a script. It means that neither mistakes insults for reasoning. It means that both try not to offend anyone, let along a major voting group like Hispanics, immigrants, or women. It means that both know how to make a point subtly or ambiguously—a skill vital in both politics and diplomacy.

Whoever wins the nomination, the party will unite behind her or him, for five good reasons. First, the alternative, a possible GOP win, will be unthinkable, just for the nation, let alone Dems. Second, both are presidential and would be strong leaders. Third, a huge prize dangles before progressive voters this time: possible control of all three branches of government. Fourth, there will be no Ralph Nader to split the progressive vote.

Finally, the tides that President Obama worked so hard to shift in Dems’ favor will not stay out forever. Progressives must strike—and strike hard—while the GOP remains split and confused.

So rejoice, progressives! Play the tape of last night’s debates over and over. And let it sink in. Bernie and Hillary—not clueless adolescents braying and insulting each other—are what presidents look like. Barring things that no one can foresee, Bernie or Hillary will be our president next January. Then our national renewal can begin in earnest.

permalink

The “Panama Papers”

[For a note on how the President of Panama just validated this analysis, click here. For a recent post comparing prices and policies of the “Paywall Three” of online print journalism, click here.]

With customary narcissism, Vladimir Putin thinks it’s all about him. It’s all a plot by the US to discredit him and his cronies with big-time money laundering. The main crony is, of all things, a humble cello player, heretofore unknown outside Russia, who just happens to be Putin’s best friend.

But no, Vladimir. It’s not about you. It’s only partly about you, a too, too clever man who appears to have hidden your own corruption far better than most. After last year’s exposé on Frontline—one of the world’s hardest-hitting programs of investigative journalism on global TV—no one but the gullible and blind Russian patriots believes you are squeaky clean.

But you are definitely not alone. A daunting fraction of the world’s leaders have stashed away large sums of money and property behind shell corporations.

It’s not just Putin. It’s the King of Saudi Arabia. It’s Najib of Malaysia, who just happens to be both the prime minister and finance minister of the nation he rules. It’s the prime minister of Iceland, whose name no one outside that tiny nation had heard before this week. It’s even David Cameron, whose “blind trust” is small enough to be laughable were it not for its suspicious secrecy.

Why should a democratic leader’s blind trust be secret from the world? You couldn’t even buy a Tesla Model S with what Cameron stashed away, in secret, in Panama. Most pols want their people to know about blind trusts, which are designed to avoid conflicts of interest in governing. Does anyone really think that David Cameron would subvert his nation—the longest-lived democracy on Planet Earth—for $52,000?

There, if generalized, is the key question. Why should leaders of nations stash money away in secret, outside the nations they govern, let alone in or through a place like Panama? Why, in particular, would David Cameron? Everyone knows he comes from a wealthy family. What had he to hide?

There are only three reasons why a pol would want to hide money. The first is that the source of the money is questionable. The second is fear that someone or something will take it away, including possible “regime change.” The third is a possible use of the money about which the public ought not to know. None of these reasons ought to inspire trust and confidence from the pol’s own people.

In general, there is nothing wrong with pols having money, as long as it comes from honest sources. If it does, it makes them incorruptible, as least in theory. When a pol is rich, he or she can still be blackmailed for unrelated reasons. But it’s unlikely that the mere temptation of yet more lucre would be a factor in his or her governance.

Take our Yankee election of 2008, for example. Barack Obama had, and disclosed, almost $4 million—all from honest sources such as royalties on his books and speaking fees. John McCain had much more, almost all from his wife’s rich family. Those facts—well known by the public—made both men incorruptible, as I noted at the time.

Pols don’t need to hide their wealth unless they fear disclosure of its source or someone taking it away, or unless they may have to use it for shady purposes. So why are so many pols around the world hiding money?

That’s the immediate question raised by the “Panama Papers” and the story on which investigative reporters will and should be chewing for years to come. “Follow the money” has been the mantra of political reporting since modern journalism began. Secret stashes just make that harder.

For the moment, the really interesting thing about the “Panama Papers” is how they came to light. Someone leaked, or someone hacked a computer system. The dam of secrecy was breached.

Mossack and Fonseca are the two now-famous Panamanian lawyers who got rich by setting up an international practice to hide richer people’s money. Leaks like this were not how they intended that practice to work. As a result of the breach, their lucrative money-hiding practice will likely come to an abrupt and painful end. No doubt the two have enough money of their own stashed away in secret to keep their families in the manner to which they have become accustomed.

But Panama?!?! Reliable secrecy requires strong laws, strong institutions, disciplined people with obsessive attention to detail, and strong, independent courts. Are these things for which Panama is noted?

Hardly. No, only the global rubes stashed their big bucks in Panama. Undoubtedly Kind Abdullah and Validimir Putin did so because, having no real democracy or rule of law at home, they did not trust the reliability of laws or banks in the US or England. They likely believe that Yankee and British pols can blast through any secrecy and seize any bank account they wish because they themselves can do so at home.

But, unfortunately for the rest of us and for clean government everywhere, that’s simply not so. The country with the strongest and most reliable path to hiding money is not Panama. Now that we Yanks have prevailed on the Swiss to breach their once-legendary secrecy, at least to catch our own tax evaders, it’s no longer even Switzerland. It’s the United States.

We Yanks have several states, including Delware, Nevada, South Dakota and Wyoming, in which shell companies are legal and fees from them provide a significant source of state revenue. We have a huge cadre of highly disciplined lawyers and accountants who would rather slit their wrists than disclose clients’ secrets, if only because they would be subject to professional discipline and even lawsuits if they did, and their businesses would evaporate. Finally, we Yanks probably have the best computer security in the world, at least outside of government (where the best-paid Chinese and Russian hackers probably work).

So, if you really want to hide ill-gotten gains, evade taxes or keep stashes of cash for nefarious purposes, the good ol’ USA is the best place in the world to do it. Even if you are caught, you can probably get some shadowy gambling financier to loan you pennies on the dollar while the lengthy legal proceedings required to seize your dark cash unfold.

Today we Yanks are making progress in outing and seizing accounts used to evade taxes or to finance terrorism. But if your stash is for other purposes, however nefarious, about the best you could do to insure its secrecy would be incorporate a shell company in Delaware, Nevada, South Dakota or Wyoming and use it to stash the money in a reliable foreign bank outside the United States’ jurisdiction. Then your secrecy would be protected by the strongest nation, with the strongest legal system, on the face of the Earth, and you would have to rely only on the integrity of the foreign bank.

So the Panama Papers are not really surprising at all. What is suprising is that people as smart and well advised as Vladimir Putin and King Abdullah were such tyros in hiding money. If they didn’t believe their own propaganda and knew how the world actually works, they would have incorporated their shell companies right here in one of our “better” states and used those shells to stash their money in a bank outside US jurisdiction.

Why they and others did what they did is an interesting question, which will no doubt occupy international journalism for at least a couple of years. But the much more vital question is why we Yanks maintain a nearly impenetrable system that shields corrupt pols, criminals, tax evaders and even terrorists from ready discovery, and what we plan to do about it.

Without knowing it now, the “populist” insurgencies of Bernie and The Donald may have something to say about that. In a world where personal privacy is fast succumbing to an avalanche of Big Data, can financial privacy that shields and encourages scoundrels and malefactors be far behind?

Footnote 1. It’s an amusing sidelight to this story that Putin picked an unknown musician as his front man. Putin certainly made the most of that odd choice in his speech of attempted exoneration. But I recall well that, while on Fulbright Fellowship in Moscow in 1993, I attended a first-rate classical-music concert in Moscow’s Tchaikovsky Hall for the equivalent of ten US cents. No doubt ticket prices and musician’s salaries have risen since then. But it’s still hard to believe that a humble Russian cellist, all on his own, could have accumulated a sum of money worth stashing in an offshore tax haven.

Footnote 2. A fourth possible reason is self-interested, inexperienced, beguiled or just stupid legal or personal advisers. They may have been part of the problem, at least in Cameron’s case.

Footnote 3. Reporting both in the New York Times and on Washington Week [set timer to 19:20] has recognized that Panama is just the tip of the iceberg, and that it’s easier to hide money in or through the United States.

Panama’s President’s Instant Confirmation

Sometimes events or important people confirm a post on this blog shortly after its publication. Two days after the foregoing post’s publication, Panama’s President Juan Carlos Varela did just that.

In an op-ed piece in the New York Times’ editorial section (Mon., April 11, 2016, at A19), he made two key points. First, “the problem of tax evasion is a global one” for which “Panama does not deserve to be singled out.” Second, through treaties and domestic legislation, Panama is making big strides toward greater financial transparency and toward international cooperation in exposing and discouraging tax evasion and money laundering.

President Varela’s op-ed advanced both those causes ipso facto. It’s a statement by Panama’s democratic leader saying, in effect, “if you want to evade taxes or hide dirty money, don’t come to Panama. We don’t want that kind of money, and we will help international authorities track you down.”

There’s not much more he could have done—let alone with so little effort—to discourage new dirty money and encourage the exodus of old. Mossack and Fonseca are probably already strategizing how to transform their legal practice and/or move it out of Panama to some still-undiscovered tax haven.

A third and partly unstated subtheme of Varela’s op-ed should be obvious by now. Panama is a bit player in the vast, global business of evading taxes and laundering money. It’s just the little fish that got caught.

Estimates of the amount of dark money globally exceed $7 trillion, but no one really knows. Think what that kind of money could do in converting from fossil fuels to clean energy, protecting global cities’ coast lines against rising seas, or simply making the world’s poor less miserable. Instead, the money is languishing in scoundrels’ bank accounts, just to evade lawful taxes and make the scoundrels and their various children, cousins, cronies and brothers-in-law feel more secure.

This situation is not just a moral outrage. It’s a mis-investment of massive capital that our species needs to avoid environmental catastrophe, to continue alleviating poverty, and to insure our collective future.

Marx and Engels were wrong. Communism has failed miserably everywhere it has been tried. Capitalism and free markets are our species’ future.

But capitalism has gone rogue at the same time it has gone global. The Crash of 2008 was just the most catastrophic of many consequences. The loss of 60,000 American factories to poor countries was another.

We as a species must make global capitalism transparent, bring it into the sunshine, and disinfect it. As we do that, we must find hidden and useless money and put it to work on the enormous tasks that face us. Panama’s scapegoating and the demise or transformation of Mossak Fonseca are just the opening battles in our new millennium’s great moral war: transforming capitalism into a system that works better for all of us, worldwide and species-wide.

The campaigns of Bernie Sanders and the less-disciplined Donald Trump are not just some aimless spasm of popular discontent. They are the first serious attempt of the American people—the most well informed (despite Fox!) and quick to react worldwide—to mount a coherent political response to the recent roguery and recklessness of global capitalism. The sooner the people of other advanced nations wake up, stop focusing on the symptoms (such as hapless refugees) and start focusing on the causes of their discontent, they sooner “we, the people” globally can start to win.

Marx and Engels were wrong about almost everything they wrote. But they were right about one thing. To be successful, any effort to reform and improve capitalism must come, first of all, from the most advanced capitalist nations. And it must be global.

The sooner foreigners stop thinking about Sanders and Trump as freaks and start seriously to analyze, improve and replicate the movements they are leading, the sooner a global movement can begin. The EU may be in the vanguard in succoring hapless refugees, but we Yanks are in the vanguard in reforming our global capitalist system as it begins to supplant government worldwide.

permalink

Access to National “Print” Journalism in the Digital Age

Introduction
For-profit “link rot”
Free access to headlines and leads
Comparison table
Conclusion
Endnote on Reader-Commenting Policies

Introduction

Over a year ago, I promised an accurate review and comparison of the digital-access and pricing strategies of our national online newspapers. This is it, a bit late but better than never.

At the moment, there are four mainstream, national, online print media. In alphabetical order, they are: Bloomberg.com, the New York Times, the Wall Street Journal (or WSJ) and the Washington Post. The overall leader in accessibility is Bloomberg.com, whose online newspaper (as distinguished from its detailed financial analysis) is still entirely free in all respects.

But I’m pleased to report that all three once-print-only national newspapers—the New York Times, the Wall Street Journal, and the Washington Post—have made substantial progress in giving online readers fairly priced and easy access to their work. All now provide free, unrestricted access to headlines and story leads. All try to avoid, in some way, the frustration of pre-subscription-model hyperlinks that no longer work without payment.

Among the “Paywall Three,” the Washington Post and the New York Times, in that order, are the clear occasional-reader favorites. Each offers free access to twenty or ten entire stories or op-eds, respectively, per month. (The Washington Post’s more recent and more detailed subscription FAQ page has no specific number, suggesting that the number twenty is subject to change.) In addition, the New York Times offers a free daily headline-and-lead newsletter, delivered by e-mail.

Yet there is still wide variation in subscription fees for unrestricted access, as well as in the clarity and transparency with which newspapers explain their pricing and access policies. The Washington Post leads in affordable subscription fees, while the New York Times and Washington Post lead in transparency.

For profit “link rot””

In past posts (1 and 2), I complained of two disadvantages of our national online newspapers’ early paid-subscription models for digital access. The first I call “for-profit link rot.”

After the transition to a paid subscription model, previously-created links to articles often became inoperative for nonsubscribers. Links that used to work led to subscription-marketing pages, not to the original articles, even ones that had been free for access when originally published. Or links led to subscription-marketing pages obscuring the original articles.

This phenomenon took “link rot” to a whole new level, not due to technical difficulties or changes in Websites, but for profit. Clueless users encountering a nonfunctioning hyperlink felt as if history had been clawed back from access and locked behind a paywall.

My own problem as a blogger was particularly acute. I had over a decade of blog posts with links to old articles in the three national newspapers that might no longer work for nonsubscribing readers. There was no way I could take the time to find equivalent free articles and replace hundreds of older links.

Now all the Paywall Three appear have solved this problem to one degree or another. At least my limited random testing suggests that old links (from first decade of this century) to old articles now work without pay. (Given my limited testing, I couldn’t be entirely sure that fluid linking access to old stories in the NYT and WashPost reflected anything more than my not having exhausted my allotment of n free pieces a month.) The sole clear exception is for links to the New York Times’ op-ed pieces, including ones by its own editorial board. They remain behind the paywall, apparently no matter how old. (Sadly, the Times’ explanation page, while otherwise good, does not make this point clear.)

Free access to headlines and leads

The second major problem I identified earlier concerned occasional access to news for free, or nearly so. In the old days of news on dead trees, a news-seeker could read major headlines (and usually story leads as well) through the glass windows of newspaper vending machines. If a story sparked enough interest, s/he could buy the whole issue for a dime or a quarter, depending on the era. That vending strategy put important, current news within everyone’s easy economic grasp.

The digital age, I argued, should give occasional readers at least similar access and pricing. Otherwise, the Internet age would provide them no economic benefit. It would only increase mobility while making access more expensive. That would be a good strategy for our Second Gilded Age, but a bad one for democracy.

I’m now pleased to report that all the Paywall Three now offer substantial solutions to this problem. All provide free and unrestricted access to their online “front pages,” which contain major headlines and at least one-sentence story leads. In addition, all main front pages offer apparently free links to the “front pages” of every single section of each newspaper, with headlines and story leads like those on the main front page. If a reader wants more than the Washington Post’s twenty or the New York Times’ ten pieces per month, s/he will have to pay, at least for a trial subscription.

So each national online newspaper now offers far more and more detailed access to news (and opinion) than readers ever could get through the glass windows of mechanical vending machines. A generation after Bill Clinton’s administration released the Internet for general commercial use (in 1996), the average Joe’s or Mary’s free access to news has vastly increased, in both scope and mobility. This is progress.

Comparison table

There is still room for improvement. Pricing, pricing strategies and access rules are difficult to compare and sometimes not as transparent as they ought to be be. The same is true of access rules for past links.

More important, the price of general access is no great bargain. Yearly subscription rates for Web and phone access range from $99 for the Washington Post to $347.88 for the Wall Street Journal. On a weekday-only basis (52 x 5 = 260 issues per year), that translates to between 38 cents and $1.34 per week-daily newspaper. Undoubtedly these prices reflect the loss of newspaper advertising revenue to digital search engines like Google and social media like Facebook and Twitter.

As for transparency, every national newspaper should have clearly stated and scrupulously followed policies with regard to payment (if any) for access to online stories (including opinion pieces) through past links. Rules for paid and free access to current news and opinion ought not be as confusing, or as confusingly presented, as cell-phone plans.

Only the New York Times approaches this ideal now. But it, too, is not perfect. It reports that links from blogs and other online pages will work, while those from search engines like Google won’t work without pay. Fair enough. But it doesn’t make clear that links to op-ed pieces, including those by the Times’ own editorial board, don’t work without payment.

The Washington Post also has an unusual but limited free feature: an entire free six-month trial subscription, followed by another six months for only $1, but only for owners of Kindle Fires—mobile devices offered by Amazon.com, Jeff Bezos’ other company. This “tie-in” raises some interesting antitrust issues but apparently is still in place.

Following is a short table comparing the Paywall Three newspapers’ policies for access, linking and pricing, as best I could determine by reading online disclosures and by doing my own minimal testing as of the date of publication of this post:

Online Access and Pricing Policies of Major For-Pay National Online Newspapers

Policy	NYT	WSJ	WashPost
Focus of coverage	Eclectic	Business & Finance	Politics & World Affairs
Free access to main and section front pages	Yes	Yes	Yes
Free linking to old stories (except by search engines)	Yes, except op-eds	Yes	Yes
Number of free stories or op-eds per month	10	None	20
Free daily newsletter w/selected headlines, leads	Yes	No	No
Trial pricing and period	99 cents for four weeks	$1 per week for 12 weeks	99 cents for 4 weeks
Basic annual pricing for online subscription	$195 (Web & phone) $260 (Web & tablet)	$347.88 (digital only)	$2.50/week or $99/year (Web & phone) $3.75/week or $149/year (Regular plus D.C. news)
Cancellation policy	End of 4-week billing cycle	End of 4-week or monthly cycle, or prorated for yearly (except last month)	End of billing cycle

[Cautionary note: This table does not include student or other special or promotional subscriptions, or special offers that may be made to previous subscribers. The URLs in my browser suggest that all three papers somehow track inquiries. So some day, if not now, they may vary subscription pricing with applicants’ demographics, or even guesstimated incomes, just as airlines now vary fares depending on when you buy. Therefore readers especially concerned about pricing or policies should follow the links and not depend on this table.]

Conclusion

As the foregoing table shows, the adaptation of formerly “dead trees” national newspapers to the online environment is proceeding nicely. Every one of the Paywall Three now provides free access to more headlines and more leads than glass-windowed vending machines ever did. The Washington Post and New York Times offer twenty or ten (respectively) complete stories or op-eds per month for free. All three newspapers also provide at least partial solutions to the problem of past hyperlinks going dead without payment.

But problems and potential problems still remain. I could not find clear and accurate explanations of linking policies for any of the Paywall Three. Bloggers and others want to know this stuff.

The New York Times and Washington Post provide helpful lists of FAQs for digital subscribers. I could not find a similar list for the Wall Street Journal, which apparently relies on live chat. In my experience—with other companies, not the WSJ—live chat is about as useful as telephone queues. Its only salient advantage is having a written record of personalized (if often useless) attention, at least if the vendor offers that option, or if you have enough presence of mind to copy and paste before exiting. It’s hard for me to believe that the questionable customer benefits of online chat justify their additional cost as compared to well-presented FAQs and marketing pages. Isn’t the WSJ supposed to be a business newspaper?

Far more important is the question of future access to online journalism, as the first draft of history. What happens if an online newspaper drastically changes its format or coverage or drops a whole section? Do its archives survive intact, and for free? And how do future readers find out how and when things changed and what to look for when researching earlier months and years?

What happens if one of our privately owned national newspapers goes out of business? Will the Library of Congress acquire its digital archives, perhaps with some statutory payment to its creditors in bankruptcy, and maintain the archives online? Or will the newspaper’s light go dark forever, not only for future news, but for past news back to its founding in centuries past? In another generation, won’t microfilm and microfiche become obsolete?

These are questions for those who preserve our history and culture for future generations, including the Library of Congress. In the meantime, it remains to be seen how more transparent digital-access policies will affect the gathering and transmission of news. Will pricing differences affect online “circulation,” or will news-seekers value coverage, reputation and accuracy more?

Will the high prices of yearly subscriptions lock many subscribers into a single source of news? Will Fox be able to compete with real journalists who offer a dynamic and modern pricing and access model? Will print—the cooler, more rational and more thoughtful news medium—maintain at least rough parity with video, or will cultural distraction, impulsiveness and thoughtlessness increase?

Stay tuned. The Internet’s impact on news and journalism is only just beginning. But this first chapter of the story of print newspapers’ adaptation to the digital age suggests that their early demise, like Mark Twain’s, has been greatly exaggerated.

Endnote on Reader-Commenting Policies. When I promised a deeper and more accurate report on online print journalism, I had hoped to analyze and compare national online newspapers’ policies and procedures regarding unsolicited online commenting by readers. But researching this aspect of editorial policy turned out to be more difficult than researching the pricing of and access to news and solicited opinion.

All four national online newspapers (including Bloomberg.com) do have pages that describe their reader commenting policies. But those pages are mostly legal boilerplate, forbidding such things as spam, threats, bullying, four-letter-words, and other abuse. Some policies also prohibit or discourage repetition, name calling, flaming and blaming. Most, however, omit or are vague about more important things, such as comment-moderating policies and which pieces invite reader comment and which do not.

So I got the general impression that online reader-commenting policies are still works in progress. None of the four national newspapers (including Bloomberg.com) seems ready to commit to stating its entire comment policy clearly and succinctly in writing, let alone to offering any sort of permanence. Bloomberg.com, for example, has eliminated reader comments for all but selected stories and op-eds, but I couldn’t find any explanation of its new rules of selection. Perhaps the farthest advanced is the New York Times, which claims to moderate, but not to edit, all reader comments in an attempt to maintain a high level of discussion.

To judge from the very small sample of commented stories and comments I have read, the NYT’s reader-comment and moderation policy has achieved a much higher level of discussion than my similarly limited perusal of other newspapers’ comments has revealed. (Or maybe the Times just has a higher-quality reader base.) But at what cost? The Washington Post, perhaps because of Jeff Bezos’ ownership, appears to rely on machine intelligence to moderate comments, if only to eliminate obvious vulgarity and abuse. At least my few comments have appeared with a delay long enough for machine intelligence to operate, but too short for human moderation. As a result, the Post’s comments appear to include more of the usual chest-beating and braying one-liners than those of the New York Times.

Allowing reader comments undoubtedly attracts some readers, for the simple reason that all of us like to have our say and tell our stories. Once in a while, a reader’s comment may correct an error in or misimpression from a story, or add an interesting angle, nuance or bit of information. It’s not a bad thing (although relatively rare) when readers can improve the quality of reporting or add useful information without imposing additional marginal cost on the publisher.

Allowing readers to comment also exploits two historically unique and vital features of the Internet as a communications medium: interactivity and many-to-many communications. But allowing reader comments—let alone assuring their quality—also raises obvious issues of resource allocation, namely, how much human and computer resources to devote to keeping comments civilized, civil and relevant, if not also informative and erudite.

My general impression is that all four national online newspapers are still pondering these issues and have made no permanent editorial decisions. They are still weighing the pros and cons and the costs and benefits of various policies and various commenting technology. One or two may even be contemplating acquiring Disqus, the apparently independent commenting-technology provider. Such an acquisition by a single newspaper might raise antirust issues.

On the contrary, some newspapers may be contemplating developing their own online technology to streamline moderation of comments and maintain high quality automatically, as I’ve suggested previously [search for “can also find”]. Bloomberg.com’s limitation of comments based on the type of article hints at this approach. On the other hand, the New York Times—with its general apotheosis of the liberal arts and apparent distrust for science and technology (except on Wall Street)—is in my view unlikely to follow this path. The resulting “John Henry” competition between human minds and intelligently programmed machines in moderating unsolicited online comments might provide an interesting diversion in the history of journalism.

So I’m going to withhold a post on reader-commenting policies until the dust settles a bit more. At least I’ll withhold it until all four national online newspapers take the public more into their confidence and publish more complete descriptions of their reader-commenting policies and technologies, preferably on the digital equivalents of their mastheads. I hope that journalists, not lawyers, will write these descriptions.

permalink