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

28 July 2012

Genocide in Arabia

Have you ever wondered what would have happened in South Africa without Nelson Mandela? or without F.W. de Klerk, who saw Mandela’s wisdom and talent clearly enough to save his white minority and his country from an impending bloodbath?

Well, you don’t have to wonder any more. Just look at Syria. Or look at what may be starting to happen, again, in Iraq.

In all the evil that lurks in us, there is little uglier than oppressing and slaughtering a weak internal minority. That’s what we Yanks once did with our native Americans but have long ago stopped doing. That’s what the Nazis did with Germany’s Jews, who were just as “German,” linguistically and culturally, as anyone else.

The Holocaust was a near-genocide of an oppressed minority (actually, several of them). The Allied victory in World War II stopped it before its completion. It was the primary reason for the Nuremburg trials: the world had to expose hidden crimes so beastly that some don’t even believe them today, notwithstanding a full “confession” from a horrified modern Germany.

But as horrible as oppressing and slaughtering a minority can be, there is one thing still worse: a minority using modern technology to oppress and slaughter the majority.

That’s what was happening in South Africa before Nelson Mandela’s release from prison in 1990. Wise policy and inspired leadership (albeit at the last possible minute) prevented it from continuing, let alone reaching its natural conclusion.

But there’s no similar wisdom in Syria or in Iraq today. And so we have a tiny Syrian Alawite minority systematically slaughtering the majority in a self-evidently futile attempt to maintain its brutal rule. And so we have a resurgence of Al Qaeda in Iraq, seeking vainly to restore minority Sunni rule by re-igniting the sectarian civil war of 2006-2008, which American troops had arrested at a vast cost in lives and treasure.

The difference is not just a deficit of internal wisdom. External wisdom has failed, too. South Africa and its apartheid regime had borne well-coordinated external sanctions for decades before Mandela’s release from prison. Not so Syria or Iraq. The world stood idly by, hardly noticing the base ethnic and sectarian oppression, until Saddam took Kuwait’s oil fields in 1991, and until Assad began to push for sectarian genocide in earnest. We Yanks even let Saddam slaughter Iraq’s Shiite “Marsh Arabs” after our stunning victory in Gulf I.

Why the difference? Two factors stand out. First, it’s harder to see oppression and genocide based on religious sect or on ethnicity than on race. That’s partly why we let the Rwandan genocide happen. Second, oil—and the desire for political stability at any cost to extract it—clouded the West’s judgment.

How else can you explain France and Italy leading the charge to unseat Qaddafi while watching a sectarian genocide begin in Syria with apparent equanimity? How else can you explain our Yankee reluctance to provide more than communications gear to a struggling majority that, were it Christian and not Islamic, would have touched our hearts as much as did suffering blacks in South Africa?

There are other reasons for the difference, too. Israel has made a Faustian bargain with Assad, buying temporary stability at the cost of support for terrorism on its borders and vast human suffering inside Syria and Palestine.

Many Yankee Jews support Netanyahu’s self-evidently counterproductive policies as a necessary holding action in a losing war. They lack the imagination to conceive what might happen to Islam and to terrorism when ordinary Muslims can live, love and prosper as free men and women, just as Christians and Jews do nearly everywhere today.

They live in the past, re-enacting a bygone age of endless Biblical “smiting,” or re-imagining the Crusades. Many forget that it was Queen Isabella, not the Islamic Moors, who banished Jews from Spain.

Next there is Russia. No one wants to upset the West’s complicated relationship with Russia at a time when its cooperation in suppressing terrorism and supporting our war in Afghanistan is unprecedented [search for “paranoid”]. A renewal of the Cold War would do no one any good.

Last but not least, there’s a presidential election coming up. Have you noticed?

But it seems to me that the real source of the problem is a failure of humanity and imagination. Imagine the non-Alawite Muslims in Syria as majority blacks in South Africa or oppressed Jews or Gypsies in the Nazi Empire, and the world would leap to their defense.

That is precisely what the West should now do.

What good are the ideals of the Western Enlightenment if they apply only to Christians? Are we erecting barriers to global peace and stability that we have already struck down inside our own borders, with universal free exercise of religion, including Islam? Is our reluctance to aid the Syrian rebels—and our willingness to stand by and watch sectarian genocide—the last vestige of our own savage tribalism?

It should be obvious to all but Assad and his cronies that his acts and policies are unsustainable. The course he has chosen will result in his removal or death. The only questions are how long and how much bloodshed it will take.

So we can arm the rebels, lessen their suffering, curtail the sectarian genocide, and earn a bit of much-needed trust in the Islamic world. Or we can play the cautious bumbler and end up on the wrong side of history. Good intentions are not enough while the genocide rolls on.

I have no great love for John McCain, not after he squandered his Vietnam-era heroism on one of the filthiest, most racist campaigns after our own Civil War. But he’s right on this one. We should support and help arm the rebels, clandestinely (through Turkey) if we must, openly if we can.

I hope that we are doing so now, and that our help (like lend-lease before our entry into World War II) is secret. When America and France stop supporting liberty and fighting genocide, the world will be a much, much darker place.

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23 July 2012

“That Vision Thing”

In 1992, George Herbert Walker Bush (Dubya’s father) lost the presidency to Bill Clinton. Reporters asked him why. Among other things, he confessed that he lacked “that vision thing.”

Apparently his campaign team had warned him about “vision,” but he just couldn’t manage any. Wasn’t a president’s job to fight brush fires, wade into the swaps and bag a few crocodiles, and generally just stay afloat? Wasn’t it to play chess and checkmate the bad guys, as he had done as director of the CIA? The very phrase “that vision thing” suggests how remote vision was from GHWB’s psyche.

He wasn’t a bad president, especially when compared to his son. Unlike his son, he didn’t do any real harm. Unlike his son, he took Colin Powell’s sage and expert advice [search for “nickname”] and didn’t invade Baghdad. As a result, the Gulf I war, over which he presided, was probably the shortest, most brilliant and least costly major military victory in American history.

But vision wasn’t his style, and he hadn’t any.

Fast-forward now to 2004. At the age of 59, for the first time in my life, I spent both money and time in a presidential campaign. I just couldn’t stand the thought of what four more years of Dubya’s catastrophic stupidity would do to the country I love. When John Kerry lost, I was devastated and horrified, just like most Democrats and many independents.

But analysis is part of my DNA. So I asked myself why Bush won. The answer came unbidden. As stupid and incompetent as he was, Dubya had had the vision, and Kerry had had none.

It didn’t matter that Kerry is an honest, bright man. It didn’t matter that he had been a hero, both in fighting and getting wounded in the Vietnam War, and later in protesting it after he saw how mistaken it was.

It didn’t matter that Kerry is personally modest and admirable. In fact, his classic New England modesty actually hurt him, rendering him unable to defend himself when the Swift Boaters falsely maligned his service and his character. His plausible claim to be more competent than Duyba—a claim that almost any sentient college graduate could have made—fell on deaf ears.

What mattered was that Dubya had the vision. It didn’t matter that his vision of an Iraq and a Middle East reconfigured by war was contrary to all of history and common sense. It didn’t matter that his home “ownership society” was already under erosion by rogue banks and lax regulation. It didn’t matter that his attempt to privatize Social Security was retrograde to history and contrary to every poll of what ordinary people wanted. It didn’t matter that he has absolutely no diplomatic skill and could only preach to his choir.

What mattered, in the end, was that Dubya had a vision for the future that sounded attractive and plausible, and Kerry had none. Vision trumped a more-than-plausible claim of greater competence. It will (and probably should), every time. Things are moving too fast in our complex world to have a caretaker president, an affable but clueless accountant like Romney.

Now let’s look at vision today. From long before the beginning of his campaign in 2007, President Obama knew where he wanted to take the country. In his 2004 keynote speech, he prescribed a cure for the division of the Vietnam Era and the civil rights movement that still split us.

The good doctor’s prescription wasn’t “socialism,” redistribution of income, or any other of the lies Fox tells about him. It was simply working together, recognizing our common humanity and common interests as Americans living in the same land. Half-black and half-white, Obama was uniquely positioned to see both sides of our racial divide, as well as other divisions.

Obama’s candidacy, as later his policies, were based on insight, careful thought and nuance. He elaborated his vision for the country more thoroughly in his second book. Then he based his nascent presidential campaign on his vision that war is not the right way for a country like America to lead the world.

In his 2008 campaign, he sketched a detailed vision for combatting terrorism [search for “recent speech”], which he has now started to make real. He also sketched a detailed and complex plan for health care, admitting that a public option, although desirable, was and is politically impossible. Now, with the laudable judicial restraint of Chief Justice Roberts, that plan will remain law and go forward. (The only difference between the plan and the law is the so-called “mandate,” which I feared as politically risky when Hillary proposed it but Obama, with his superb political skill, managed to pull off.)

The GOP obstructionists want voters to believe that all Obama promised was “hope and change.” But that was just a slogan. For those who cared enough to turn off Fox and the other TV echo chambers and read, there were speeches and positions papers on Obama’s vision galore. His vision was as clear as an unpolluted fall day: less jingoism and more cooperation abroad, more reliable safety nets at home, a more human, more regulated form of capitalism (including health insurance), markets and free trade working better and more fairly, and jobs in this century’s industries, not those from the nineteenth and twentieth.

To anyone who took the time to look behind the headlines of feckless American media, the difference was clear. Obama had the vision, and irascible, economically illiterate but heroic fighter pilot John McCain had none. Guess who won?

Today the difference should be equally clear. Obama’s supporters, like me, can see his original vision shining through the fog and lies of what passes for democratic campaigning today. Anyone can see that Mitt Romney is an opportunist, with no coherent vision of what the country would look like under his leadership. He can’t even make up his mind about how many abortions should be legal, whether his own “Obamacare” in Massachusetts was the right approach, or whether the health-insurance “mandate” is a tax.

Romney is a weathervane, flapping every which way in every breeze. His pathetic attempt at “vision” consists of reciting the Gospel of Grover Norquist and promoting lower taxes for the rich and less regulation for business, including the banks that put us in the fix we’re in. In other words, he reads right out of the Little Red Book of ideology that dragged our nation from top of the world to “trying hard.”

His positions reflect no coherent world view, let alone original thought. Like Hillary Clinton before him, he’s a follower, not a leader. And it doesn’t take too much insight to understand whom this investment banker is following.

All we really know about Romney is that he’s very rich and wants to be president. That’s probably all we’ll ever know.

Good luck with that. Ask Meg Whitman and Carly Fiorina how they fared in trying to buy high office in California.

Of course the President should reply to lies and misleading charges, with all the power and skill of his superb campaign staff. He’s just as modest a man as Kerry, but he’s smart enough to learn from Kerry’s mistakes. He’s not going to take false charges lying down.

But there are many voters, including me, for whom the mud-wrestling match that passes for politics these days is not only nauseating but boring. According to a recent analysis in Time Magazine, highly educated professionals like me are an important and rapidly growing part of the electorate and donor base.

We don’t want frat-boy chops and counterchops. We’re not electing a fraternity president. We want policy and vision. We want to see some more of what we saw in the President the first time he ran, in 2008. We want to see plans and proposals for what the future should be like and how to get us there.

They don’t have to be long. Lincoln’s Gettysburg Address is still one of the most important speeches in American history, and it takes only a couple of minutes to read.

To say the President can provide that vision better than Romney is to state the obvious. Romney is no thinker or planner; he’s an egotist and an opportunist, with far more brass than skill.

Just like Kerry’s, Romney’s sole claim to the presidency is that he would be more competent than the incumbent. But in his case, the claim is implausible.

Obama is brilliant, not stupid like Dubya. And there’s nothing in Romney’s history to back his claim up. His experience at Bain is irrelevant at best. Even if he did create net jobs there, presidents don’t do anything like what he did at Bain. The don’t use other people’s money to refinance and turn around failing corporations—especially if they are Republicans. (Raising that kind of money might require raising taxes, and spending it might disturb the sanctity of markets.)

In dealing with Congress, Romney would have to start from scratch. His campaign so far has shown us only an affable flip-flopper with an unrealistic faith in himself and absolutely no concrete plans or vision for anything except his campaign, starting a trade war with China and maybe a real war with Iran.

Yet even we, who have every confidence in the President’s judgment and vision, haven’t seen that side of him emerge decisively yet. That’s a shame. If an idiot like Dubya can win over a good man like Kerry with an unrealistic vision and no realistic plans to get there, surely a man with the President’s brains can win over a man like Romney with a thoughtful, detailed and realistic vision for our future.

The President’s vision for our country in 2008 was a good one. It still is. Surely he can update, refine and clarify it after 3.5 years in office. Surely he can present it to the public even more clearly and succinctly this time. And surely he and his campaign staff are smart enough to walk the walk of countercharges and chew the gum of vision at the same time.

Maybe he’s just biding his time until after Labor Day, when the campaign really begins. I hope so. But rather than devoting all his time and money to proving that Romney is a skunk, the President might take a few moments, once in a while, to remind us who he is.

Coda: The Blame Game

During the Cold War, the Russians had a joke about why Brits have beautiful gardens. If Mr. Smith sees that Mr. Jones has a better garden, they said, Smith will stay up late at night for weeks, working on his own garden, to make it still more beautiful than Jones’. In contrast, if Mr. Toporov sees that Mr. Rostov has a better garden, Toporov will stay up even later at night—to trample Rostov’s flowers.

Blame is like that. You don’t create anything, build anything or propose any better vision. You just trample the other guy’s flowers.

Unfortunately, that’s what our elections have become. We have morphed into Russians’ caricature of their Soviet selves. We don’t build or propose anything admirable. We just tear the other guy down.

Paid consultants tell us we have to do this because it works. Really!!??? If so, we have more in common with the Mr. Toporovs of the Cold War than with the Roosevelts (both of them), Eisenhowers, Kennedys and even Reagans of our own past.

How we got this way is lost in the fog of cultural putrefaction. But the most recent culprit is clear as day. The GOP started the blame game’s most recent inning, just days after President Obama’s election. They never let up. Their goal is to blame the consequences of Dubya’s extreme incompetence on the incumbent, counting on the electorate not remembering much before their last Tweet.

What other choice did they have? Dubya started two unnecessary wars, which are still ongoing (one without our combat troops). He kept them off budget. He lowered taxes, most notably on the rich, creating huge deficits. And then he presided over the raucous finale of our deregulation party, allowing selfish bankers to destroy an otherwise smoothly functioning global industrial economy.

The GOP’s stale ideological dogma was responsible for our sudden decline. But they have not softened it one whit. Instead, they’ve made it even more extreme. They’ve demonized taxes, which Nixon and Reagan both raised. They’ve promoted coal and oil above all modern sources of energy. And they’ve rejected science, including evolution and climate change.

So all that’s left to them is a simple pitch: “Vote for us, even though our policies destroyed the country slowly, over the last thirty years, because the guy in charge now wasn’t good enough to set things right in three years, against our scorched-earth opposition.”

It’s a moronic, mendacious scoundrel’s pitch. But it’s their own, and it may be working. To do anything more would require reforming their party around true conservative principles of caution, prudence, thrift, conservation and a humbler foreign policy.

The GOP is not ready to do that yet. It probably won’t be until its next decisive electoral loss. So it blames.

This strategy is clever in only one small respect. There’s not much to blame Romney for because he hasn’t done anything yet. He’s only held electoral office for four years, as governor of Massachusetts, and he disclaims the most important thing he did there: “Obamacare” at the state level. If elected, he would be the least experienced president in American history.

So Romney is a blank slate, a ringer, a dark horse. He has no record of political accomplishment to blame. And voters today, having the attention span of gnats, don’t often think about what Dubya did to our country.

So the blame game has a playing field inherently tilted against the President. That’s why he needs to start talking about his vision and plans for our nation’s future. That’s where he excels, and that’s where this election will decide whether we’ve become like hapless Soviet slaves to failing ideology or are still competent, forward-looking Yanks.

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19 July 2012


[For a brief update on my latest post about the continuing risk of another global financial meltdown, click here.]

Yesterday a bomb blast killed Syria’s Defense Minister and Assad’s brother-in-law, also a high-ranking security official in Assad’s regime. It was the first highly visible break for the Syrian people in their civil war.

The two security men who died in the blast were probably the two most hated men in Syria. And rightly so. They were responsible for conceiving, planning and carrying out a vast butchery of their own people over the last year.

Their hands were bathed in fresh blood. If individual responsibility is the salvation of our species, as I believe, their deaths smacked of divine justice.

The bomb blast was undoubtedly an inside job. Who else but an insider could have penetrated the innermost sanctum of the regime’s security apparatus? If nothing else, the blast shows serious discord among the tiny ruling clan.

Even within the vilest regimes, there are limits to human bestiality. The recent string of high-level defections whispered that at least a few people inside Assad’s regime think enough pointless atrocities are enough. Yesterday’s bomb blast raised the volume of insider protest to a shout.

Why kill the planners and doers and not the leader? That’s the immediate question. The very targets suggest an Alawite insider—someone smart enough to see that South Africa without Nelson Mandela (or, perhaps, Egypt without Mohamed Mursi) is not a sustainable proposition. Even with modern weapons, a tiny minority cannot expect to continue oppressing and killing the vast majority forever and expect to survive. Modern technology makes it too easy to kill, even well-protected leaders.

But why keep Assad alive? If the bombers could kill the heads of the state security apparatus, surely they could have killed him, too. The fact that they didn’t suggests two things. First, they must be Alawites themselves. They must see Assad as their last hope for salvation. Second, they must hope that he alone can arrange some negotiated solution that will preserve a bit of their collective power, wealth and prestige, or at least save them from becoming victims of a gigantic pogrom.

Assad’s survival also suggests something else. Perhaps, at his core, he wasn’t the real villain. Maybe he had bad advice. Maybe he was outnumbered and outvoted within his own clan. Maybe he was just a figurehead. He was, after all, a medical doctor, sworn to the Hippocratic Oath: “Do No Harm.” Maybe he was forced to become a butcher by ruthless people who convinced everyone around him that more killing was the only way to survive.

If so, then the bombers likely hoped he would be able to arrange his own exit in a manner that allows them to remain in Syria, alive and well.

Is that hope realistic? The best analogy is the bombing that failed to kill Adolf Hitler in the spring of 1944, depicted in the movie “Valkyrie.” If it had succeeded, could rational, more skilled and less bloodthirsty German Army officers have stabilized Germany and made a European peace?

Probably not. By that time, the rest of the world was unconditionally committed to unconditional surrender. The Nazi regime had become too vile and bestial for anyone else to deal with. The point of no return had passed long ago.

Probably the same is true in Syria today. You cannot murder tens of thousands of innocent civilians, including many intellectuals and natural leaders, and expect the population just to shake hands and “make up.” Any negotiated settlement now would have to tilt strongly in favor of the rebels.

The Alawites do have one thing in their favor. They’ve been ruling Syria for about forty years. In contrast, the rebels have no experience in governing. Nor do they have an attractive, sober leader like Nelson Mandela or Mohamed Mursi to follow. If they are going to rule Syria, they are going to have to learn at lightning speed. They are going to have to drink from a fire hose just to get the type of settlement that their patience and their people’s suffering deserves.

One last question needs an answer. How much, if at all, did we Yanks help? Did advanced technology help the insider assassins succeed?

There were certainly motive and opportunity. Getting rid of Assad’s pathological regime was (and is) a primary goal of Turkey, the United States and also Israel. Our helping Turkey achieve that end would have made a giant step in repairing our strained relations after the Israeli killings on the Turkish supply ship, which Turkey patiently ignored. If we did indeed help, yesterday would have marked a diplomatic and military triumph for all three nations. Even Lebanon will benefit from a weakening of Syrian hegemony.

Of course, such cooperation would have to be and remain top secret. And so it may have been. Unlike his idiot predecessor, our President knows how to keep a secret. He also knows the value of secrecy in our shadow war with terrorists and Islamic extremists.

Osama bin Laden was chief propagandist and figurehead for the Butchery of Innocents. So his death had to be announced. Part of the means and method had also to be announced for the sake of credibility. But you can be sure the methods, manner and means of disposing with other butchers will remain secret for both tactical and political reasons.

Politics abounds with ironies. The same raving dolts who wanted to press our fights in both Iraq and Afghanistan to “victory”—whatever that means, and against a still undefined enemy—protested mightily against our involvement in Libya and Syria. They wanted us to bloody our noses and destroy our credibility and prestige by making needless and endless war in the Islamic and Arabian worlds. But they didn’t want us to help the Arab Spring, which might end terrorism finally if it succeeds.

The President and his advisers are smarter. They know that liberty and self-determination in Arabia will take the wind out of extremism’s sails. Libya’s recent free elections show how. As far as Westerners can tell, they produced a largely secular government. It isn’t even Islamist, let alone extremist, let alone terrorist. Left to their own devices, Arabs and Muslims want to be free to live their lives, just like you and me.

Assad’s departure from power seems much closer today than two days ago. It may be the toughest nut to crack. But once he goes—or once he is killed like Qaddafi in a futile last stand—the Arab Spring will be unstoppable. The wind of change and progress that it brings will disperse terrorism, slowly, like smoke after a bomb blast. And with our President’s wise leadership, we Yanks will have been on the right side of history in the Arabian and Islamic worlds, for the first time in a long, long time.

Confirmation of Continuing Risks of Financial Meltdown

When you’re a lone blogger, it’s easy to feel insecure. “Have I got it right?” “Am I exaggerating?” “Have I become the same type of extremist that I accuse others of being?”

These are questions that every honest blogger, along with every honest journalist, has to ask daily. You especially have to ask yourself these questions when commenting on real events and cultural trends that themselves seem so extreme as to evade all rational explanation.

But today I got confirmation that my most recent, lengthy post on banks and bankers had it just right. The confirmation came in the form of lengthy interviews with two men who were present and active just before the Fall. One was John S. Reed, former CEO of Citbank, before it became Citigroup. The other is Byron Dorgan, former Democratic Senator from North Dakota.

Both men are unique, but in different ways. Reed participated in the orgy of banking deregulation that led to the Crash of 2008, including the merger of Citibank with Traveler’s Insurance to form Citigroup. Yet nearly alone among the partygoers, especially on Wall Street, he now regrets what happened and sees it as a big mistake. More important, he describes in detail how Wall Street’s control of Congress and even the White House led to the Crash, and how nothing much has changed in Wall Street’s culture, control of politics, or ability to cause the next crash.

Dorgan was almost alone among senators in voting against repeal of Glass-Steagall in 1999. Not only did he vote against it; he predicting the Crash as a consequence of it, down to the rough time frame. While still in the Senate, he tried to beef up Dodd-Frank with means to break the big banks up and with an “insurable interest” requirement for derivatives—both of which I have argued for here [in the linked posts]. Dorgan failed. Because of his failure, he now sees Dodd-Frank as “timid” and unlikely to forestall the next crash.

It’s all there in these interviews, everything I’ve noted in my posts: the orgy of group-think, the initiative from Wall Street, the legions of lobbyists, the corruption of pols, the change in banking culture from serving customers to getting rich quick, and the utter disregard for consequences.

The interviewer is Bill Moyers, a distinguished TV journalist who used to have his own weekly show on PBS. Now retired (no doubt for political reasons), he has the means to run his own professional website.

If my “diatribes” on banking have piqued your interest and you want to know more, there is little better you can do than spend an hour watching these interviews. What you will see is careful, calm, soft-spoken and highly intelligent experts—both of whom were key players in the drama that destroyed the future of our youth and middle class—explaining from personal experience how it happened and what it means.

And of course you should add Bill Moyers’ website to my list of credible news sources not in Wall Street’s thrall.

I regret omitting his website from that list, especially as The Economist, which I appear to have praised too much, now reads as if in the pocket of international banking, not in Wall Street, but in The City of London. In a recent favorable book review, The Economist had the temerity to argue that there is no way to test financial “innovations” (for example, in limited markets) before rolling them out globally, just as we did with securities backed by liars’ mortgage loans, derivatives of them, and credit-default swaps in the years before 2008. Jamie Dimon could not have written a more absurd and wrongheaded review.

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11 July 2012

Breaking Bankers’ Death Grip on Our Global Economy

How it all began: unprecedented bailouts
How it continued for four years and still does
The under-appreciated consequences
The global dimension
Will bankers rule the world?
How bankers control global media
How to stop them
Conclusion: the stakes if we don’t

How it all began: unprecedented bailouts

Just four years ago this October, then Treasury Secretary Hank Paulson took an unprecedented step. He wanted to save a rapidly collapsing American financial sector. So, in a widely reported single meeting, he handed out over $120 billion of the people’s money to CEOs of America’s eight top banks.

The step was unprecedented for two reasons. First, in the Great Depression, government had taken control of failing banks in order to save the innocent victims of their collapse. FDR first declared a “bank holiday” to stop the runs on banks. Later, he and Congress created the Federal Deposit Insurance Corporation (FDIC) to make their depositors secure and obviate the motivation for runs. Failing banks were put in receivership and sold off or liquidated. Their managers were put out on the street, and their shareholders lost everything.

The objectives of FDR’s intervention is banking were simple. First, save the depositors and other innocent parties. Second, by saving them, save the economy.

The terms and effects of Paulson’s bailout could not have been more different. Although Paulson got equity for the people in return for their contribution, he agreed not to vote it. Thus a condition of Paulson’s bailout, from the very beginning, was abdication, not assertion, of government control. Fox and the rest of the right wing created a vast smokescreen with charges of “socialism,” but the simple facts of the “investment” belied any government control.

The second reason Paulson’s step was unprecedented was that Congress was not involved. Paulson handed out the $120 billion to private companies on his own initiative, using weak legislative authority, relying on fear of a universal collapse.

The fear was real and realistic. But whether Paulson (a banker himself) exaggerated the risk is still unknown. It may never be known with any confidence. You can’t replay history as an experiment in economics.

Most of the bankers didn’t really want the money. With arrogance typical of their insular culture, they thought, “What happened to Lehman Brothers couldn’t happen to me.” But how could they refuse the offer of free money with no strings attached? They kept control of their firms, their jobs, their private planes, and their bonuses, none of which they would have had in the 1930s.

The suddenness and magnitude of the financial crisis took everyone by surprise, including Dubya and his non-banking advisers. No one outside the tiny circle of Masters of the Universe had any idea what was going on. None understood how derivatives, other banking “innovations,” lax regulation and a putrid, corrupt banking culture had built a huge house of cards that was about to fall, threatening a second Great Depression in an otherwise smoothly functioning real economy.

But Paulson, a usually calm and supremely self-confident arbiter of destinies, was running around like Chicken Little, crying “The sky is falling!” So the rest of the Executive, Congress, and the American people followed him meekly, fearing a total collapse. I did, too.

But most people, including me, expected a second chapter to the story. We expected a full, thorough and public investigation of the causes of the near-collapse. We expected an accounting, in which responsible individuals went to jail, lost their jobs, or lost a little money. At the very least, we expected the perpetrators of America’s second-worst-ever financial catastrophe to confess error and apologize. Most of all, we expected fundamental systemic reform, so that such a thing would never happen again, at least not until the next Gilded Age.

Except for Lehman Brothers’ bankruptcy, none of that ever happened.

How it continued for four years and still does

Nearly four years have passed since that fateful meeting of October 13, 2008, in which Hank Paulson set the precedent of “too big to fail.” But no second chapter has really begun.

Goldman Sachs settled a securities fraud claim for a minuscule hit to its balance sheet, but without admitting guilt. Bank stocks and bonuses went down for a while, and there was a brief, failing spasm of effort to contain outlandish financial executive pay and bonuses. Congress passed the Dodd-Frank bill to reform the system, but its practical effect is still tied up in vital regulations, which bankers have delayed and watered down. That is all.

Bernie Madoff went to jail. But his was a different story altogether. His was a classic Ponzi scheme, designed to bilk individuals and a few institutional investors. It had nothing to do with the much more sophisticated (and poorly understood) Ponzi scheme of $700 trillion of derivatives now outstanding.

And it had nothing to do with the Crash of 2008. Madoff went to jail because he brought the lax morals, lax regulation and abysmal economics of our present Gilded Age to their logical conclusion before they got there naturally. But they will in due time.

This same scenario has repeated itself, over and over again, ever since October 2008. First there was TARP—the Troubled Assets Relief Program—which “invested” $700 billion of the people’s money in bad financial institutions and toxic financial instruments.

That second unprecedented step was hard for the people to swallow. Congress balked at first and refused to pass TARP. The markets tanked. Paulson redoubled his Chicken Little imitation. Congress caved. The people bailed the bankers out, without any accounting or systemic reform, just a vague promise of future action.

The bankers and their fifth column inside government learned a lesson from Congress’ brief near-revolt. They went underground. While giving lip service to transparency and accountability, they continued the bailouts in increasingly opaque ways.

The instrument of this underground effort was the Federal Reserve System. First it opened the “Fed window,” buying toxic financial instruments and giving essentially free loans to all banks, not just those in trouble. Before President Obama ever took office, the federal government had appropriated, spent or committed over 6.6 trillion dollars in the name of economic recovery.

When that wasn’t enough to revive a broken economy, the Fed went to “quantitative easing”—essentially printing more money to buy government bonds. Creating more demand for bonds drove their prices (yields) down, reducing general interest rates for everyone, including banks.

When the public raised a hue and cry, fearing inflation, the Fed came up with an even more obscure expedient: so-called “Operation Twist.” It sells short-term bonds and buys long-term bonds, thereby artificially increasing demand for the latter and driving long-term interest rates down. (Most financial instruments, including mortgages, derive their interest rates from long-term benchmarks. That’s not a bad thing because short-term interest rates are now as close to zero as they have ever been, or negative in real terms, i.e. adjusted for inflation.)

To recite this history is not unduly to criticize the Fed. The Fed is a creature of Congress with limited authority. It works under constant suspicion from ignorant people whose knowledge of economics is primitive or nonexistent. Most legislators and virtually all the general public have no real understanding of what it does. Yet it is an expert body, highly skilled at correcting problems that Congress and bankers have created and that virtually no one outside the banking community understands.

That said, the Fed fell right into bankers’ hands. Charged with the responsibility of cleaning up their mess, it took the path of least resistance: continuing the bailouts in increasingly obscure and opaque forms.

And rightly fearing the modern equivalent of the last century’s bank runs, the Fed worked largely in the dark. The exact amount of “toxic assets” it has bought and holds (let alone from whom), the precise results of “stress tests” of financial institutions, and the extent of bank-by-bank compliance with stricter reserve requirements—all these things are tightly held secrets. Their general magnitudes, let alone their details, are known only to the Fed, the bankers themselves, and perhaps a few select members of Congress smart and diligent enough to wade into the swamp of dreary numbers and unfamiliar economic concepts.

The under-appreciated consequences

The Fed has bragging rights in one respect. It met its primary goal: avoiding a second Great Depression. The American economy is still limping along and even healing. Unemployment is around 8%, far from the 25% of the Great Depression.

But under the surface, all is not well. The Great Bailout will soon enter its fifth year. Every single step in it has had the same effects as Paulson’s path-breaking handout of $120 billion on October 13, 2008.

The effects are four. First, whether directly or indirectly, the government gave banks enormous amounts of free (or nearly free) money. All together, the sum is now somewhere between five and ten trillion dollars. No one knows exactly because of the Fed’s opaqueness and secrecy.

In an ideal society, all this information would be available worldwide on the Internet. But in an ideal society, we wouldn’t have bank runs or financial panics. The risks of those catastrophes give the Fed a plausible excuse for secrecy in what is supposed to be an open society.

So not only don’t we know the precise numbers and the precise recipients of this government largesse, nearly all of whom are private businesses. We don’t even know how much of this secrecy is really necessary, and how much is a cover-up for government mismanagement and handouts to undeserving private bankers. This is government in the dark.

There is nothing intrinsically wrong with bailouts. FDR’s program saved banks (at least those worthy of saving) by bailing out depositors. What’s wrong is bailing out the wrong party and avoiding any real accountability for stupidity, greed and just plain wrongdoing.

Intentionally or not, that’s what the Fed did. It bailed out malefactors, rather than their innocent victims, and did little to hold the malefactors accountable. The proof of the pudding is in the eating: the malefactors are still doing wrong and getting rich by doing it.

Second, largely to avoid spurious charges of “socialism,” the government abjured any direct control over banks. So bankers have continued their business as usual—the very business that produced this four-year (so far) “crisis.” Their management style and culture continue without significant hindrance, restraint or noticeable change. They are the very same style and culture that caused the Crash of 2008.

Third, there has been virtually no effective, let alone decisive, institutional or systemic reform. There have been some preliminary steps, including the Dodd-Frank law and an attempt by the EU to corral the $700 trillion of derivatives now outstanding.

But the American statute requires detailed regulations to work, and so-called “legislation” by the EU Parliament and Commission doesn’t operate automatically. It has to be implemented by national legislation in each member state. So bankers are fighting, delaying and diluting effective law with lobbying and obfuscation. If they don’t get their way, they will undoubtedly add litigation to their arsenal. Already four years have passed since our own generation’s “1929 moment,” and nothing yet is certain except watering down and delay.

Fourth—and perhaps most crucial—there has been no general individual or institutional accountability. Not one single individual responsible for our generation’s financial catastrophe has gone to jail. Except for Lehman Brothers, no first-tier bank has gone bankrupt or been liquidated, though some second-tier financial institutions (like Countrywide) have. Wasn’t that the whole idea of bailouts: bail the banks out and let the people and real business cope as well as they can?

No major bank has admitted fault in any suit brought by the SEC or another government regulator. Shareholders have lost a little money but have gained most of it back. Executive perks are off the front pages and are now back in Guilded Age territory. The same foxes, or their successors in business ethics, are in charge of the henhouse as were in charge in early 2008. Nothing significant has changed in four years.

In finance, as in war, individual responsibility is the salvation of our species. There is an iron law of life: if you fail to hold people accountable—let alone reward them—for doing antisocial things, they will do them again. And again. And again.

That’s why we now have $700 trillion of derivatives outstanding. Most of them are written and controlled by a small coterie of investment bankers, without effective oversight by anyone, and without the “sunlight” of a regulated exchange.

That’s why Jamie Dimon, JP Morgan’s CEO, had the gall to travel the world, declaiming that banks are over-regulated. He did so until he presided over a $2 billion unexplained and possibly illegal trading loss. Now he’s quieter.

That’s why Barclays bank just paid a huge fine for manipulating the “LIBOR” (London Interbank Offered Rate) in its own interest, distorting financial markets in England, throughout Europe, and indirectly worldwide. That’s why reporters and investigators suspect that Barclays was just the tip of the iceberg, and that LIBOR manipulation was and is universal. (Why regulators ever accepted a key interest-rate index based on the financial sector’s self-interested self-reporting is a mystery yet to be probed.)

Finance may be complicated. Human nature is not. Reward or fail to penalize selfish and antisocial behavior, and you will get more. With the possible exception of death and taxes, no law of life is more reliable than that.

The Great Bailout, now in its fifth year, may be our species longest-lasting, biggest and yet most catastrophic practical demonstration of that law. In essence, it has rewarded social and economic malefactors with ever more of the people’s money so they can continue to gamble and cheat. The Fed and other central banks have so far staved off financial collapse, but they have failed to consider an essential human truth: gambling with other people’s money can be habit-forming.

The global dimension

It would be one thing if the Great Bailout were confined to America. Despite our self-regard and self-anointed “exceptionalism,” we Yanks comprise only a little over four percent of the world’s population.

But the Great Bailout is not confined to us. Outside the so-called “emerging economies,” it appears to be in the process of spreading like an economic plague. The current exponent is Europe. Perhaps “victim” would be a better term.

I have written about Europe’s own struggles with banking malefactors several times. [1, 2, 3, and 4] I won’t repeat that analysis here. But two points are worth making.

First, with one exception, Europe has followed and is following the same path that we Yanks set. (The sole exception is Chancellor Merkel’s hard bargaining, which forced private holders of bad Greek bonds to take a 50% “haircut.”) It is bailing out the banks and private investors at the center of its financial crisis. It is giving them free money, without imposing any penalties or economically significant conditions on its bailouts. In allowing bankers to continue business as usual, it is rewarding bad behavior and therefore encouraging more of it.

Second, like the US, Europe so far has devoted nearly all its systemic reform efforts to government, not private-sector banking. So the very corrupt and tottering private edifice that precipitated the crisis is, on both sides of the Atlantic, virtually unchanged since 2007. If nothing else, the Barclays LIBOR-manipulation scandal proves that conclusively.

When Europe imposes any conditions at all, it imposes them on the governments and their people. It asks the people of Greece, Ireland, Spain (and maybe Italy) to tighten their belts and increase their retirement age. It asks the people of Germany to pay up in taxes to keep the whole rotten system afloat. And it asks sovereign European nations (rightly, in my view) to surrender some of their sovereignty to create a powerful and resilient commonwealth able to ward off future financial panics.

The point is not whether these reforms are good or bad. Some of them are good, and some are long overdue. The point here is that all the action is on the government side, and nearly all of it is restrictive. Nothing much is happening in the private sector, let alone anything restrictive enough to curtail bad behavior.

Perhaps various governments have been negligent in this four-year-and-ongoing global financial catastrophe. Certainly regulation has been lax, on both sides of the Atlantic. The Crash of 2008 might not have happened if the Fed, Fannie and Freddie had been a little more careful about the types of mortgages private parties were taking, the terms of their loans, and they way they were packaged in securities to pass off the risk to unsuspecting buyers like hot potatoes. Similarly, the crisis in Europe might not exist if governments, including the EU itself, had been more diligent in enforcing sovereign deficit and debt limits. But isn’t the solution to this governmental negligence more, not less, regulation?

Even if governments were partly at fault, the crisis could not have happened without the eager participation of bankers who profited vastly from it and are still doing so. Without effective systemic reform of the private sector, and without an end to rewarding bad behavior, the “crisis” will never end. It will become a cancer on the real economy, sucking away the world’s financial lifeblood until it causes a universal, global second Great Depression.

Will bankers rule the world?

The need to rein in bankers is not exactly esoteric or counterintuitive. Everyone understands it. It motivated Dodd-Frank, as well as so-far mostly desultory attempts to set up derivatives exchanges. It motivates “stress tests” and increasing capital-reserve requirements, which are now becoming global.

But these are pallid measures. None of them addresses the root cause of the crisis: a global banking culture of utter impunity, driven by repeatedly rewarding improvident risk taking and other antisocial behavior and killing market discipine.

Why is this so? Not all politicians and non-financial business leaders are stupid. Surely if the dolts in the Tea Party recognize continuing bailouts as unsustainable, many of their “betters” do, too. So why, in four years, have there been no effective steps to rein private bankers in?

The answer may surprise you. Although we claim to live in a modern, unsuperstitious, monotheistic, rational world, we still believe in gods. Perhaps our most important god today is “The Markets.”

When the government sued Goldman Sachs for securities fraud in selling the very sort of derivatives that precipitated the Crash of 2008, The Markets went down. As I have written, they should have gone up, because that suit, if properly concluded, could have been the end of the beginning. But The Markets went down, impliedly disapproving even a slap-the-wrist suit that ultimately extracted no confession of wrongdoing.

Since 2007, Chancellor Merkel is the only political leader, worldwide, ever to have forced the bankers to pay a penny for their sins. When she first proposed, and tried to insist on, improvident bankers taking a “haircut” on their shaky Greek bonds, The Markets again went down. Only much later, when the deal with 50% haircut was finalized and the only realistic alternative was massive, immediate default, did The Markets go up. More recently, The Markets went up when Merkel and her fellow EU leaders abandoned a proposal to give EU bailout bonds (i.e., taxpayers’ investments in bailing out private bankers) priority over other debt.

In each of these three instances, rational markets should have gone one way—because politicians and governments were beginning to succeed in getting rogue bankers under control. Yet they went the other way. The Markets represented bankers’ interests as reliably as their lawyers, perhaps more so.

Through his character James Bond, Ian Fleming once wrote a marvelous aphorism: “Once is coincidence. Twice is happenstance. Three times is enemy action.” How many more times will it take before the West’s taxpayers, people and pols wake up to the fact that The Markets are not some neutral, celestrial arbiter, but rogue bankers’ means of asserting economic power?

As this recent history suggests, the Market God doesn’t like anything resembling accountability for losses on the part of private bankers, or taxpayers seeking measures to get their bailout money back. When anything restrains private bankers’ free use of other people’s money for their own benefit, the Market God gets angry.

But who is this Market God, anyway? Adam Smith spoke of the “invisible hand” of markets, and that’s probably what most people have in mind.

But when Adam Smith invented that phrase, he conceived of vast markets for commodities, with thousands of producers, sellers and buyers, all competing for sales independently, without collusion or even communication. That’s a “market” in classical economics. Adam Smith never could have imagined the collusion, self-dealing, cooperation and concentration of economic power that goes on in modern, global finance. (Smiths’s great work came out the same year our country was founded, in 1776. In those days there was no national bank, let alone a central one, and big private banking houses regularly failed. There was no such thing as “too big to fail.” And anyway, Smith’s work was all about commodities and manufacturing, not banking. Banking was even more obscure back then than it is now.)

The last few years have given us brief glimpses into how “The Markets” in finance really work. Goldman Sachs settled, for peanuts, an allegation of selling a housing-upside deal designed by a major client to go south. In the recent Barclays LIBOR scandal, a major global bank’s management and traders manipulated a key index to the private advantage of favored traders, supposed to be acting at arm’s length.

If this behavior is just the tip of the iceberg—and it probably is—the international banking community is less like a market and more like an isolated, sociopathic culture seeking to enrich itself by playing games of chance with our money.

It would be quite instructive if investigative reporters could determine the precise number of individuals actually involved in these so-called “markets.” I have made a crude estimate that no more than 250 people caused the Crash of 2008. I would be astonished if the $700 trillion derivatives “market” involves more than 250 decisionmakers and key traders. Ditto the “market” for sovereign bonds in Europe. If so, banking malefactors comprise one out of a million people in America, and one out of twenty million of our species.

Of course this small a group of people can communicate daily, if not by phone and e-mail, through the common media of their computer screens and trading algorithms. They know each other; they attend the same conferences; they work and play together. Nearly all of them live in one of four cities: New York, London, Hong Kong and Shanghai. And they live there divorced from the general population, in gated communities or guarded high-rises of whose opulence the hoi palloi (and most pols) can only dream.

So a minuscule fraction of our population, let alone global population, determine our collective economic fate. Their “market” is not so much a conspiracy as a gentlemen’s clique. (The number of women involved in international high-stakes banking operations is minuscule. Those few females that work there are generally the first to blow the whistle.)

Bankers and traders don’t have to conspire or collude because they all think alike. They just do what comes naturally. Without colluding or even consulting, traders like Rick Santelli killed any political chance to stop the housing market from crashing.

Bankers and traders do compete; some win and some lose. But they are all in the same game: gambling with other people’s money, and protecting their prerogatives by corrupting politicians and manipulating markets. Once the pols gave them free taxpayers’ money with which to gamble for their own benefit, they naturally never wanted to let go. Conspiracy or not, their self-interesting path was clear: keep the people’s money flowing.

When their common interests are threatened, bankers all know what to do. They make The Markets tank. So in the end, the Market God works through fallible, collusive and self-interested individuals, just like all other gods in human history.

The difference is that bankers and traders are far smaller in number and far more explicitly self-interested than the medieval Catholic (or any modern) clergy. Relative to population, even the Vestal Virgins and operators of ancient Roman oracles vastly outnumbered them. They are a minuscule minority holding the global financial system and (through it) the real economy hostage.

But just like all high priests in human history, they have ways of making laypeople toe the line. When governments do something they don’t like, they sell. Or they bet against The Markets with options, futures or more powerful derivatives. Since they control, directly or indirectly, hundreds of millions or trillions of dollars, these modern oracles have far more power than any ancient high priest. And their market-tanking warnings have far more persuasive power than any ancient omen or oracle.

Many people (including untutored politicians) believe that their oracular entrails come from the Economic God, because they think the Scripture of John Adams so states. This belief derives not from any close analysis of that Scripture, let alone real understanding of modern economics. It comes from misunderstanding of a single memorable phrase: “the invisible hand,” which even sounds godlike.

How bankers control global media

The final linchpin in bankers’ control of our modern world is the media. Partly for historical reasons, and partly because good media require money, the globe’s media centers are roughly the same as its financial centers: New York, London, Hong Kong and Shanghai. In those cities, the bankers call the shots because they have the money and support the rest of the community.

To see how this dynamic works, you need only read The Economist’s latest issue (June 30 — July 6). Its cover story is a fourteen-page “Special Report” on the revival of the city of London as an international banking center and magnet of security and comfort for the world’s super-rich.

Not only is this “report” the most triumphalist and self-congratulatory thing I have yet to read in a supposedly objective British journal. It also presents the clearest advice to kowtow to one’s “betters” since the days of Charles Dickens. Here, verbatim, is the most succinct statement of its message, highlighted in large type on page 16:
”The three groups of people who are particularly unpopular in Britain—the rich, bankers and immigrants—are those on whom London [and its recent success] depends.”

The subliminal message is even more powerful. If a publication with the traditional independence, irreverence, and quantitative insight of The Economist can kowtow to bankers just like Fox, the Wall Street Journal and now the New York Times, the rest of us had better kowtow, too. There is no better explanation I can conceive for how bankers, worldwide, have avoided real accountability for the financial catastrophe they caused four years ago and counting.

In my mind there is also no better explanation for Britain’s rejecting the Euro, the financial transactions tax, EU-wide financial integration, and EU-wide regulation of the finance sector than the facts disclosed in The Economist’s special report on London. Bankers are just as smart as Caesar once was; they know how to divide and conquer. All that remains of Britain’s once-grand global empire is its London banks; a plea to save them at any cost falls on willing ears, even of those who will pay.

So, unbeknownst to pols and unremarked by captive media, the tiny clique of global bankers has become the single most concentrated power in our modern world. They no longer control just finance, in the West at least. They control the media as well. Through influence, subtle blackmail (unfavorable publicity) and soft corruption (campaign contributions), in increasingly dysfunctional and expensive democracies, they control public policy, at least insofar as it affects their interests.

Anyway, Western Governments today have little decisive power beyond taxing and making war. Nuclear weapons make war unattractive, and there is a universal, global distaste for taxation. So, little by little, not just our Yankee government, but all Western governments, are slowly drowning in a bathtub. (For numerical evidence that the Yankee private sector has more clout than the US federal government or the government of California—the world’s eighth largest economy—click here.) The sole important exception might be the EU as a whole, but its success at resisting the tide of financialization remains to be seen.

That’s not entirely bad. Traditionally, national governments have been seats of nationalism, racism, religious intolerance and jingoism. There is some evidence that even China might be tending in that direction as it grows more powerful. At least it tolerates internal voices that its leadership would do better to repudiate, if not silence.

But while bankers have the advantage of being truly global and generally blind to nationality and race, they have some decided disadvantages. They are amoral, if not immoral, and entirely self-interested. Therefore the words “psychopath” and “sociopath” fit their culture well, if not all individuals in it. More important, little of their work ever creates wealth as do farmers, miners, manufacturers, inventors, and scientists. All they do is shuffle wealth around, with a decided trend toward putting it increasingly in their own hands.

Today the notion that political power flows from the barrel of a gun is passé, especially in the nuclear age. Bashar al-Assad may be the last person on Earth to understand why, but it is so. Today, political power flows from money. If we let bankers continue to corner all the money, and control and manipulate it for their own private benefit, all real power that matters will fall into their hands.

Years before the Crash of 2008, the finance sector’s share of all US business profits reached the pathological level of 41%. That number reflects a society in clear decline. So does the Supreme Court’s decision in Citizens United, which allows bankers to use those profits to propagandize our people and corrupt their leaders. As bankers stretch their power to make their profits and influence global, any chance of a global Golden Age of real capitalism will be lost. You cannot run a vibrant real economy when nearly half of its profits go into shuffling paper and increasing the power of self-dealers without a trace of social conscience.

How to stop them

Bankers’ power is all the more dangerous for its insidiousness and indirection. It’s hard to understand how much power they have until you try to rein them in. Only if you analyze the painfully slow progress of reform, even four years after the Crash of 2008, can you begin to fathom the boundless real power that the minuscule clique of bankers has over the rest of us.

It’s also hard to rein them in because the last century’s “solutions” are just as passé as Bashar al-Assad’s travesty of “politics.” Nationalizing banks by decree only works in places like Venezuela or Argentina, in large measure due to the last century’s failure of Communism.

But temporary, market-based nationalization is a different story. Without it, bankers’ power will continue to grow indefinitely. Rich people’s gambling with other people’s money to enrich themselves will become a way of life. So-called democracies will become desiccated husks, with all real power concentrated in a self-perpetuating title-less financial aristocracy. And that perversion of human culture may yet become global, subverting even authoritarian societies like China and Russia.

If you think that’s not already happening, ask yourself why—with global concern and an infinitely better-informed public—it has already taken nearly four years to do anything to curtail bankers’ excesses or bring any of them to account. Back in the 1930s real reform was well under way within four years of the Crash of 1929.

The mechanism for reform could be simple. Just wait for each big bank to make a misstep. (You won’t have to wait long.) Then buy control, on the free market, at bargain prices, through government or a special independent commission. Finally, split the big banks up and make them compete again, reducing their wealth and power. Sell off the pieces to private investors separately, or liquidate the banks and sell them branch by branch and asset by asset. In most cases, the cost of buying control will be far less than the amounts realized from a sale of assets.

In theory, there may be other ways of breaking bankers’ stranglehold on the global economy. But other means, such as regulation and criminal sanctions, haven’t worked and aren’t likely to. In the regulatory or political arena, or in the courtroom, bankers have every advantage over even well-meaning pols, let alone non-banking businesses and ordinary citizens. They have the knowledge and expertise of their obscure operations. They have patience and perseverance, born of strong, individual self-interest. They have the money to hire legions of the best lobbyists, lawyers and accountants, not to mention PR hacks to get the ignorant public on their side. And their wealth gives them economic power to influence or corrupt the entire process, whether directly by bribes or political contributions or indirectly by demagoguery.

The only way to handle rogue banking now is Colin Powell’s prescription for Saddam’s elite tank force in Gulf I: cut off its head and kill it. I’m not suggesting violence or revolution; there’s no need for them. All we need to do is exploit markets to buy control of banks when their managers’ failures reduce their market value to a fraction of the value of the assets they control. Then sell off those assets to make banks small enough to fail again, and to bring some semblance of real competition and market discipline back to this lazy, corrupt and collusive “industry.”

Even bankers remain sufficiently good capitalists to understand the logic of control. When their boards dismiss them, they can flee to their private islands and rest on their riches. Or they can reform themselves and start new careers, as must millions of people whom their malfeasance has cost jobs. Just buy the banks, split them up, dismiss the malefactors, and sell off the pieces to youngsters who believe in risk taking and personal responsibility and want to give banking a try.

The removed managers won’t suffer much, and few will cry for them. But our society, our economy, and capitalism itself will be much better for their departure.

Doing this will involve some expense and some political controversy. But it will be much cheaper than the sum of all global bailouts so far. It will be infinitely cheaper than continuing those bailouts, in the EU and elsewhere, for the foreseeable future.

Conclusion: the stakes if we don’t

It is now possible to foresee how the decline of the United States might mirror the decline of ancient Rome. In Rome, Caesar’s “bread and circuses” distracted ordinary people from their personal plight and from Rome’s degeneration into empire. In America today, the sham of democracy is itself the bread and circuses.

How else can you explain the travesty of the Republican primaries, in which self-evidently unqualified candidates tried to outdo each other in sounding more doctrinaire and extreme? How else can you explain the national media’s marginalization of the single Republican candidate—Jon Huntsman, Jr.—qualified to be president? And is his marginalization a coincidence when he, alone among the candidates of both parties, suggested breaking up the big banks?

How else can you explain Sheldon Adelson—an über-rich owner of casinos in Macao—single handedly keeping alive the candidacy of trailer-trash Newt for weeks after sensible Republicans had seen Newt for what he is? And aren’t casinos in Macao just one step removed from the gigantic casino that our $700 trillion derivatives market has become?

How else can you explain the continued emphasis of all national media (even PBS) on the “horse race” and candidates’ slips of the tongue? How else can you explain our nation’s television “news” (and, as a result, our candidates) devoting virtually no attention to any real plans for addressing vital national issues like energy, jobs, immigration and the steady erosion of Congress’ competence and power?

Democracy is dying in America for two reasons. First, our Constitution, which we treat as scripture, has given us dysfunctional government, the more so the more time goes on. Second, it is not in bankers’ interest to have functional government. So they are doing everything they can to belittle it, diminish it, and eventually drown it in a bathtub. The gridlock that our Constitution imposes on us helps them at every turn, so they are winning.

What is going on in America and Europe is far from an exercise in theoretical economics. Nor is it business in any ordinary sense. It’s a power struggle. It’s a power struggle in which The Markets are not some neutral, celestial arbiter, but the most powerful weapon bankers have.

With the exception of Dimon, bankers are often subtle and smooth. They’ve learned PR from our species’s best professional liars. Their line is that they want to help us, doing “God’s work,” in Lloyd Blankfein’s words. (Funny how people laugh when pols say things like that, but not when bankers do.) They tell us that their financial “innovation” will make capitalism work better. But they ignore the fact that financial “innovation”—in the form of speculation (gambling) and manipulation (cheating)—has been the source of every financial panic and crisis in human history.

Have you ever heard of a financial panic or crash caused by real industry? If so, please let me know, and cc financial historians.

A great, global power struggle is going on right under our noses. Some people can’t see it because it doesn’t involve the usual players. It doesn’t involve right or left, except indirectly. It’s not a replay of the Cold War. It’s above and beyond nation-states. And it doesn’t involve terrorism or Islam, extreme or otherwise. It’s a struggle between international bankers, on the one hand, and governments, non-financial businesses, politicians and ordinary people (aka “taxpayers”) on the other.

Who wins will determine whether Western democracies remain wealthy, democratic, and even capitalist in any meaningful sense. In light of what has already happened here in America, who wins may also determine whether leading-edge science and engineering continue in the Americas or pass to Asia and Germany.

Research takes money. When all of it goes to bail out private bankers, there’s none left over for ordinary people’s human needs, let alone research.

America is in the “vanguard” in this regard. Europe is next. If the trend continues Japan will lead Asia. Authoritarian China is likely to be last.

If this process is allowed to continue, the end result may be a virtual takeover of the West by a tiny group of arrogant and self-interested people. Our promising Third Millennium then may resemble the Second, during most of which a similarly minuscule clique (the isolated clergy of a single Church) dominated Europe through the exercise of true belief and raw economic power. But this time, the dominant institution will be international banking, and the true belief will be that its present operations and reliance on bailouts reflect capitalism and free markets.

You can always tell what institutions dominate a society by the height of the buildings they command. In the Second Millennium, they were cathedrals. Go look and see whose buildings dominate your city’s skyline today.

If, on the other hand, Asia is able to resist and Europe and the Americas are not, the bankers winning will accelerate the West’s decline. In that event Asia may lead the world, unambiguously, long before the middle of this century. The West will lag for failure to control its bankers, coupled with a naïve belief that The Markets will save it from the self interest of sociopaths and their raw economic and political power.

In this struggle, the widespread belief that the instruments of bankers’ control are godlike, neutral arbiters may be their most potent weapon ever. And lest you think it will be a short struggle or its effects short-lived, recall that the Church’s “soft power” dominated the West for most of a millennium, until the Protestant Reformation and the Renaissance.

The word “Renaissance” is telling. It’s French for “rebirth.” Wouldn’t it be nice if real capitalism—which requires failure, individual accountability, and responsibility—could begin a rebirth right now?

Birth is painful. Ask any mother. So is rebirth. But the alternative increasingly appears to be subjugation to a tiny self-interested minority and consequent economic stagnation (or worse) for a long, long time.

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05 July 2012

Good Media: Where to Go for Real News

Bad Journalism and Bias in Manhattan Media
The New York Times: Truth and History for Sale
My SolutionsConclusions

This blog tries to offer solutions to problems, instead of just complaints and lamentation. But sometimes good solutions take a little trial and error.

So it is with reliable, available news media. In previous essays, I’ve explained why I’ve abandoned two long-time Manhattan media mainstays, the New York Times and the Wall Street Journal.

The Problems: Bad Journalism and Bias in Manhattan Media

I had (and have) my reasons. The strongest was bad journalism. I lost count of instances of inaccurate basic “facts,” poor English, abysmal organization of stories, burying the real lead, and headlines that don’t match the text.

Then there is sycophancy toward “celebrities” and those who make the loudest noise. This sycophancy is a symptom of a deeper disease: declining skepticism toward public figures and conventional wisdom and increasing laziness in reporting—all under the transparent pretense of maintaining “access” to celebrity sources. (Why reporters have to coddle self-evident self-promoters has always puzzled me. Don’t self-promoters need them more than vice versa? Maybe today’s reporters lack self-esteem.)

Next on my list of importance is math. Reporters from the two Manhattan media warhorses apparently can’t understand and apply simple arithmetic, let alone higher math, to issues of economics and public policy.

I can’t tell how sick I am of reporters who ought to know better making ”news“ out of some numerically insignificant blip in government expense or the price of something, just because a political self-promoter or Fox moron blathers on about it.

That’s not reporting. It’s allowing oneself to be used by demagogues. Even accountants know that 5% (or less) of anything is not “material.”

Part of the problem is that most reporters had liberal-arts educations because they don’t like math. They have insufficient general knowledge, let alone mathematical training and intuition, to recognize when something is numerically insignificant.

Often they don’t even report the denominator, giving readers no clue how big a numerical “problem” is. Thus, for example, they allow demagogues to get away with supporting hundreds of billions in obsolete and useless Cold-War armaments (often to keep war-materiel plants in their districts), while scoring political points for decrying a mere few million spent on poor people or on local art and culture.

Together, these increasingly prevalent flaws of Manhattan’s so-called “elite” journals made me look elsewhere for reliable news, let alone anything resembling enlightenment.

There is also a cultural reason for my apostasy. Manhattan has become an arrogant, self-important and self-appointed arbiter of our culture. It’s a big echo chamber, a magnifier and aggrandizer of conventional wisdom and mindless celebrity.

Think Rush Limbaugh, Sarah Palin and Donald Trump. Where would they be without Manhattan and its media?

Think also George Stephanopoulos, whose utterly incompetent work in the first New Hampshire debate irrevocably tainted this presidential campaign and our democracy. Then think of the virtual news blackout surrounding Jon Huntsman, Jr., the only qualified Republican candidate for president. Could it be that our Manhattan media failed to do their homework on him because he hails from Utah and spent most of the last three years in China as our ambassador?

Manhattan’s unofficial but nevertheless complete control over our nation’s media has putrified our culture. It has also ignored or neglected the vast majority of our people, regions and economic productivity. And coming from a culture largely divorced from science, engineering and any quantitative understanding of anything, Manhattan’s reporters and pundits are woefully ignorant of history, even recent history.

Manhattan’s media monopoly puts all 307 million of us in thrall to a single city that can’t keep its streets free of potholes or its bedbugs under control. But for me, the last straw was bias toward Wall Street.

You would think that sort of bias would infect only the eponymous Wall Street Journal, which Rupert Murdoch has made the Pravda, or house organ, of mindless extreme capitalism. But if you thought so, you would be wrong. Wall Street supports Manhattan, including all the lawyers, accountants and lesser professionals who serve it. The only other industries of significance there are restaurants, retail, entertainment, fashion and property development. All depend for their above-national-market pricing on Wall Street’s wealth. About the only really independent forces in Manhattan are the teamsters and the medical profession. (I have my doubts about the government and city police.)

Because Wall Street rules the island, the New York Times, too, subtly beats its drum. Why else bury news of EU leaders “scrapping a pledge to make private investors absorb losses in any future bailout” in the middle of a long story? Why else use a double negative—a cardinal sin of journalistic English—to make that news seem positive? You don’t have to be a genius to understand that ongoing taxpayer bailouts of improvident risk-taking by banks are neither capitalism nor sustainable.

That story, for me, was the last straw. Shortly after it ran, the New York Times stopped my free trial subscription and started asking me for money. The price is a pittance. But I don’t want to support an institution that uses its considerable power and prestige to make the perpetrators of my generation’s biggest (and most gratuitous) financial catastrophe look good.

The New York Times: Truth and History for Sale

There is still another, deeper problem. When it went to a subscription business model, the New York Times put all its legacy stories “behind the counter.” That means the hundreds of links to its reporting on this blog—all inserted when the newspaper was free and of better quality—now require a subscription.

So now my readers have three choices. Confronted with a link to pre-subscription NYT authority, they can take my word for facts and remain ignorant of useful background. Or they can take a trial subscription and avoid expense, but only for a limited time. Or they can pay up and support a medium and point of view that they may not want to endorse.

I can’t easily convert all those hundreds of links to free media. To do so would take months. So I’m stuck with, in effect, asking readers to subscribe to a medium that I no longer respect and personally decline to support in order to get access to basic facts with some authority behind them. That sucks.

Good journalism is expensive, especially in Manhattan. Subscription business models can help good news media survive and publish for another day. I had a paid subscription to the Wall Street Journal for over thirty years before Rupert ruined it.

So I can understand requiring customers to pay for regular access to recent, “hot news.” But requiring customers to pay for old news—for what wise folk have called “the first draft of history”—has three undesirable effects. First, it leaves the poor and uneducated at the mercy of Fox, which is “in their faces” everywhere, for free. Second, it raises the price of “fact-checking” for everyone from bloggers like me, through government, to future investigative reporters looking for historical background. Putting the facts off limits is not generally a characteristic of free societies. Finally, raising the price of something (a pre-subscription-model free story) retroactively is a bit of a bait and switch. All this, too, sucks.

Maybe the Times’ managers are desperate enough to use their century-and-a-half of archives as a bludgeon to beat revenue out of the public. And of course maintaining all those archives takes cash, let alone in Web-available digital form. But I would hope the Times might consider making medium-term news (say, from sixty days to a year old) available for free. What good is a high-priced medium that styles itself a keeper of truth if the hoi polloi have to rely on Fox?

My Solutions

Those, in a nutshell, are the problems. Here are the solutions I’ve found so far:


Bloomberg.com is now my chief source of day-to-day business and financial news on America. It’s authoritative. It’s still a Manhattan medium, but its writing is better, briefer and more accurate than that of the other two.

And it’s free. I hope and expect that the links I now make to Bloomberg.com will continue to provide and verify basic facts without my readers having to pay for them. (My chief source of this hope is Michael Bloomberg’s deep pockets.)

Most of all, Bloomberg.com has reporters who seem to understand arithmetic and, on occasion, can accurately report even higher math [search for “high wire”]. They don’t use math as much as The Economist, but they manage to report the most important figures, and to make them cohere with other relevant numbers far more often than any other general American news medium I know. (For an example with laudable brevity, see this story.)

The Economist

For understanding and analysis of current events in economics, business and politics from a quantitative perspective, I have found no better medium than this British publication. Its quantitative analysis is consistently superior to that of rival general media, with graphs, charts and numbers galore. It editors and reporters seem to understand that, in a world with over seven billion people and going on two hundred separate sovereign nations, the only way to keep things in perspective is to make liberal use of numbers.

But numbers aren’t The Economist’s only comparative advantage. Its writing is excellent, with simple sentences, sprightly language and good organization. Its prose is irreverent (sometimes too much so), and its headlines are often too punny or cutesy. But they rarely mislead; they usually serve just to identify the topic and attract interest. (And anyway, no one reads The Economist for its headlines.)

The Economist also performs a uniquely valuable service. Its stories regularly digest leading-edge quantitative academic research, making it accessible to an audience of non-specialists. Bloomberg.com sometimes does the same, but no general publication of which I am aware does it as well, as thoroughly and as often as The Economist.

The Economist also benefits from a British perspective. Having lost their empire decades ago, the Brits no longer feel they have to prove their “exceptionalism” to the outside world. Their writing lacks the mindless triumphalism that has become an increasingly depressing feature of so-called “mainsteam” American media (those recommended in this post excepted).

The Brits are skeptical of everyone and generally fair to every point of view. And their long history of globe-straddling involvement in every field, for good or for ill, gives them historical perspective, which also informs their stories.

Sometimes The Economist’s skepticism of conventional economic wisdom, too, is insufficiently robust. But compared to the two Manhattan media warhorses, it is a paragon of what journalism ought to be.

The Economist’s final comparative advantage is its publication schedule. It’s a weekly. So its reporters and editors have time to think about what they are writing. Its recent effort to publish nearly weekly special reports on important topics apparently gives their creators even more time. In a Twitter world with obsessive focus on whatever happened in the last thirty seconds—but largely complete ignorance of history—time to think and do a modicum of online research may be the rarest and most important commodity in journalism today.


I have largely despaired of getting useful information, let alone analysis, from commercial television.

After watching the professional journalism of Walter Cronkite and his rivals degenerate into the transparent propaganda of Fox and the celebrity sycophancy of other TV “news,” I have come to a reluctant conclusion. The medium of television itself, due largely to business and economic factors that dictate its modern operations, is almost completely incapable of coherent thought, let alone depth. It’s a “Gee, whiz!” medium, with sensationalism and lack of perspective built in.

So I don’t watch TV for news anymore. I watch it for entertainment, which is what most news “shows” have become. The sole exceptions are PBS’ News Hour, which I watch irregularly (largely for important breaking stories) and the BBC’s World News, which has some of the same advantages of dispassion that characterize The Economist, and which immediately precedes the News Hour on PBS.

Even PBS today has some of the same flaws as other American media. Too often, it chooses stories based on their immediate interest, even titillation, rather than their real importance, let alone long-term impact. Its political “horse race” coverage is an egregious example. With so many underreported stories occurring worldwide, it ought to leave to its news summary (or to lesser media) day-to-day coverage of the candidates’ routine charges and countercharges, the contribution wars, and transient poll numbers.

Very few of these things have any lasting significance. They serve only to distract the public’s attention from what really matters. Unfortunately, PBS devotes nearly as much of its resources to this background noise as do less able media.

But PBS still has advantages in objectivity, quality of commentators, and analysis over any other television news source headquartered in America. So I watch it, just not as much as I used to.

Time Magazine

Like The Economist, this venerable American medium benefits from being a weekly. That time frame gives its authors and editors time to think, verify their facts, and write coherent English with good organization. Although it contains a lot of fluff about cultural irrelevancies and current news, its lead stories are usually comprehensive, balanced and well written. When I want something resembling good analysis of current news, I look for a feature or lead story in Time.


That’s about it. I had wanted to add Al Jazzeera—English (for unbiased news of Greater Arabia and the Islamic world) and Russia’s business newspaper Kommersant (I read Russian) to this list. But I can’t yet. Based on spotty past experience, I have no reason not to recommend them. I just haven’t had the time to give them a proper vetting.

As for the Internet, it is an open sewer. So is Twitter. On them you can find whatever thoughtless or invented bullshit pleases your prejudices. You can read that space aliens have taken over our planet, that the President is one of them (or just a mere foreign human), or that he is a Muslim, communist, socialist, fascist—or all of these things at the same time. Then you can e-mail or Tweet your friends to let them know it’s all true.

The problem is not variety. The problem is accuracy and reliability.

My generation had Walter Cronkite and his now-forgotten rivals (Huntley and Brinkley) to rely on. They spent their professional lives trying to get things right and make them simple. Today’s Internet generation has only themselves and their online “friends” to sift the garbage for rare nuggets of truth.

The opportunities for demagoguery and cultural perversion today are infinitely greater than ever before in human history. Unfortunately, most commercial media, including the NYT and WSJ, are complicit in exploiting those opportunities.

But somewhere out there, I trust, are youth who are just as interested in what is happening in the real world beyond their computer screens as I was at their age. It is to them this post is dedicated. No matter how earnest they are or how much debt they incur for their education, they will not succeed if what they “know” is lies.

Erratum: An earlier version of this post stated that the Wall Street Journal, unlike the New York Times, does not require a subscription to older stories. That statement is only partially true. The WSJ does not require a subscription to read editorials and essays, like this post, from which I gleaned Daniel Yergin’s generous estimate of “fracked” and other US natural-gas reserves. It does, however, require a subscription to read more than the lead of news stories like this one, which reports the crucial meeting in October 2008 in which Hank Paulson gave out $120 billion of the people’s money to bail out shaky banks.

The difference appears to be that the WSJ considers free availability of its editorials an opportunity to promote its party line of laissez-faire capitalism. In contrast, the NYT seems to consider its columnists as important assets and attractions to subscribers. I regret the error.

Footnote 1: As of July 3, 2012, the United Nations General Assembly had 193 member nations. We live in a big and complex world.

Footnote 2: I wrote this sentence before reading the “Special Report” on London in The Economist’s June 3 — July 6 issue. It’s hard to read that report without detecting exaggerated claims for the city, including the claim that it surpasses all others in Europe. In fact, the report goes far toward refuting the notion that any human culture is immune to triumphalism.

Perhaps it would be more accurate to say that Brits who write for The Economist confine their triumphalism to their relatively small country with a relatively small global footprint. Anyway, that small bit of British triumphalism is a relief from the steady stream of domestic triumphalism in a time of self-evident domestic decline.

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