December 13, 2014 § Leave a comment
As I write this, the United States Senate is debating a measure that would weaken Dodd-Frank’s regulation of Wall Street banks, increase the amount of money a single donor can contribute to political parties and enable employers to reduce pension payments of retirees after they retire and have earned their pensions.
These outrages are attached to a budget bill whose passage is required to keep the government operating. None of these dishonest and unwise amendments have anything to do with the budget. They were attached to the budget bill by anonymous members of the House of Representatives at the behest of Citigroup. There was no committee hearing. There was no opportunity to vote on them separately.
In other words, they were so obviously the result of corruption that their sponsors would not own them. They could only be adopted as part of a legislative blackmail scheme.
This is not, however, the real scandal. The real scandal is that this dishonest scheme could only proceed with votes by Democratic Party members. The bill passed the House by a narrow margin, including aye votes by 57 Democrats.
[I note with some satisfaction that no Texas Democrat voted “aye”.]
No, that is really not the real scandal. The real scandal is that the only two elected officials who are personally identified with pressuring members of Congress to agree to these outrages are named Barack Obama and Joe Biden . Yep. Some things are too dishonest to make it, even given the present sorry state of our politics. So you have to bring out the Big Guns, the Prez and Vice (pun intended).
How did this happen? Well, we get the usual explanation. It was a compromise; the best deal we could get. If we don’t go along, the President won’t be able to work with Republicans on other matters.
Whoa! Say what? When has the President been able to work with Republicans on anything significant? What makes anyone think this will improve in a few weeks when the GOP majority will become filibuster proof? Just how stupid and naive are we suppose to be? Will this be an adequate explanation for the retirees whose pensions will be decimated? When the power of the Koch Brothers and others like them is used to gain even more control of our political parties, will we view the results and say, “Well, it’s bad, but it was worth it to avoid an ugly argument about the 2014 Budget Bill.”
The Perpetuation of “Too Big To Fail/Jail”
Dodd Frank addressed a problem that confronted us when the Wall Street Banks faced insolvency because of their fraudulent marketing of mortgage based derivatives. They used depositor money to finance those derivatives. If they became insolvent, the taxpayers would have to make the depositors whole because of the FDIC insurance program. That is, the taxpayers would belatedly finance the reckless greed of the Wall Street pirates.
Dodd Frank cured this by requiring that future trading strategies that depend on derivatives and Byzantine schemes involving sketchy tools like credit-default-swaps, that look like insurance but have no reserves, would have to be conducted by entities separate from FDIC insured deposits, with money other than depositor money.
In other words, the ones who profit from high-risk gambles would have to risk their own money, not FDIC-insured depositor money.
Predictably, this was regarded as a terrible idea by the high-risk gamblers. They have become addicted to the system of “If I win, I pocket the money. If I lose, you pay for the loss.” So, Citigroup, acting for the other pirates, just wrote a solution to their problem, forwarded it to some elected officials they owned, who transcribed it into an amendment to the budget bill. Their solution is part of the bill Obama and Biden have been frantically calling House and Senate members about, begging them to vote “aye”.
Thank God For the Women
Nancy Pelosi was left out of the negotiations that led to this piece of garbage. She did not join the cheer leaders who whooped it through the House. But the one who has filled a gaping chasm where the political soul and conscience of the Democratic Party once rested, is Elizabeth Warren. What a thrill to see a Senator who has not forgotten how to express moral outrage. And knows how to do it while exhibiting a razor sharp wit and a mind to match.
When she spoke on the floor of the Senate, looked squarely into the camera and addressed Citigroup, the sponsor and author of the Dodd-Frank gut job, and said, “I agree with you. Dodd-Frank is not perfect. It failed to break you up into small pieces.”, I just about fell in love again, despite 65 years of marriage. She is a wonder!
Which Side Are You On?
This episode reminded me of an old union song I taught my daughters to sing when they, and I, were young. It was written in 1931 by Florence Reese, the wife of a coal miner in Harlan County, Kentucky, during a bitter strike. The Harlan County Sheriff was J.H. Blair, an enforcer and strike breaker for the mine owners.
One night some of Blair’s thugs stormed into the Reese home, looking for Sam Reese. He had been tipped off and was not there. They terrorized his wife Florence and his children but didn’t get Sam.
After they left, Florence, angry and scared, wrote a song on the back of a calendar, expressing her devotion to the union and her contempt for those who failed to support the strike. Here is a link to Pete Seeger and his banjo, singing Florence’s song:
While watching CNN and MSNBC about this budget episode, I kept getting madder and madder and I remembered that old song. So I wrote my own version:
In our US Congress
There are no neutrals there
You either vote your consciences
Or whore for billionaires
Which side are you on?
Which side are you on?
Which side are you on?
Which side are you on?
Obama we’re in danger
The wolves are at our door
We don’t need reasoned argument
We need a two-by-four
Barack Hussein Obama
How dumb can you get?
A shepherd cannot safely try
To make a wolf a pet!
It’s time to rein in Wall Street
Our country’s not for sale
At ballot box and in the streets
We must fight and prevail.
Thank God for Betsy Warren
She speaks for us out loud
She does not hedge or compromise
To blend in with the crowd
No go along to get along,
She hews to moral rules
She tells it straight and tells the truth
She has no time for fools
I don’t yet know how this drama will end, but I’m not optimistic.
October 2, 2013 § Leave a comment
First, a Correction Notice
I have made some corrections to my last post (www.bobsremonstrance.com “A Mind Meld, a Grok and A Couple of Reactions”). The substance has not changed, but I have removed two or three “that”‘s that escaped my notice when I originally edited it. “That” is a word almost always as useless in a written piece as “you know” in a conversation. I ordinarily excise the “that”‘s that creep in but, this time, I missed some.
Also, in memory of my high school English teacher, I cleaned up a sentence in the part about “Crime and Punishment”. I originally wrote: “The novel is an engaging description of a part of Russian society, set in St. Petersburg.” My only excuse is an aging brain. The sentence now reads, “The novel, set in St. Petersburg, is an engaging description of a part of Russian society”
Finally, I removed the redundant word “mental” from my effort to describe Styron’s long window into the mind of Peyton. I wrote that he described her “mental musings”, as if “musings” could be other than “mental”. So “mental” is now gone.
Is There A Conspiracy?
I have long considered those who interpret current events as the product of conspiracies to be CooCooBirds. So, with great hesitation, I present my version of the present struggle over funding our government and paying our bills. I hope I am wrong, but the evidence seems persuasive that we have among us a cadre of powerful and wealthy individuals who want to convert the democratic republican government of the United States of America into a plutocratic corporate oligarchy.
American Business Community: Has It Been The Dog That Didn’t Bark?
I have a friend who never tires of rebuking his liberal comrades for claiming and assuming that the GOP is the party of business. He insists that the Tea Party insurgency within the Republican Party has separated it from the interests and policies of American capitalism. As he analyzes the issue it reminds me of the epic struggles within the labor movement in the 1930’s when factions allied with the Communist Party sought leadership roles. There were some unions in which they had some success but the newly organized CIO, notably the Steelworkers and the United Auto Workers, fought back in a series of epic convention battles. The Communists were effectively drummed out of the labor movement and never gained any significant power in unions. My friend contends that the relationship between the Tea Party and the GOP is similar to the Commies versus the CIO.
In the last week the press has reported that agents of the Chamber of Commerce and some representatives of Wall Street’s financial community met privately with House Speaker Boehner and other GOP leaders. They expressed alarm at the prospect of a government default if the “debt ceiling” is not raised. In apparent response, Boehner stated he will not allow that to happen. The Tea Party members, led by Ted Cruz continues to threaten a default. It remains to be seen how this will play out. Boehner’s statement is interesting. He is not promising that his party will not threaten a default; just that they won’t allow a default. How kidnapping extortion works when there is no threat to shoot the hostage is a mystery.
Those who insist GOP policies no longer align with those of the capitalists point to these reports as confirmation of their argument. I see the matter somewhat differently. I perceive the Tea Party as the latest iteration of a movement, attitude and set of policies that have roots planted long before they acquired the clever “Tea Party label . They can be summarized with three words: Hate the Government.
This history can be traced through rhetorical artifacts. In 1978, Alan Greenspan told a Finance Committee, “”Let us remember that the basic purpose of any tax cut program in today’s environment is to reduce the momentum of expenditure growth by restraining the amount of revenue available and trust that there is a political limit to deficit spending.” A Wall Street Journal article quoted a Reagan staffer who summarized the idea with a bumper sticker quip, “Starve the Beast”. St Ronnie, in his 1981 inaugural address, said, “Government is not the solution to our problem; government is the problem.” Grover Norquist stated the goal plainly: “I simply want to reduce it [the govenment] to the size where I can drag it into the bathroom and drown it in the bath tub.” The Great Communicator told his adoring followers, “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help’.”
These ideas, repeated and elaborated over and over by hate radio hosts like Limbaugh, Hannity and dozens of others scattered throughout the country, embedded themselves in mainstream consciousness and had powerful effects. I believe they relate to the present political climate and the outsize influence of the “Tea Party” in the same way that the Taliban’s ideas related to the advent of Al Qaeda in Afghanistan. This “hate the government” policy is to our democracy as the dogmas of Sharia are to Muslim ideas of government. It is true that the Taliban does not represent the policies of the majority of Muslims. Most Muslims do not favor government run according to Sharia law.
Unlike the labor movement, however, the Muslim/Arab community, while some representatives have disclaimed allegiance to Al Qaeda, has mounted no vigorous public opposition to the growth of that extremism. Recent developments in Egypt reflect how timidly and ineffective such opposition has been.
And, also unlike the labor movement, the American business community, far from denouncing the growing political clout of these government haters, have favored, with generous financial support, candidates who have based their campaigns on these “hate the government” policies.
Why Did the Business Dog Not Bark?
I began by asking myself why the corporate business community would permit the Republican Party to threaten the stability of our financial system by failing to make timely interest payments on our debt. I assume the Koch brothers, the Club for Growth, the other controlling owners of Big Oil and the complex of Wall Street banks and hedge funds could exert a powerful influence on the policies of the GOP should they choose to do so. They have certainly paid handsomely for that kind of access. So, intimately involved as they are in the domestic and international financial markets, why would they allow a US default that would do immediate and long term damage to the reputation of U.S. bonds? To oversimplify, why would they want to damage the ability of the U.S. government to borrow money at low rates of interest?
When I stated the question in this simple way, I caught a glimpse of the answer: If their goal is to weaken and, if possible, destroy the ability of the U.S. government to create and maintain programs that protect ordinary working class citizens from the turbulence of unregulated capitalism, they would prefer that the funding of such programs be dependent on the power to tax, not the ability to borrow.
Government, like private enterprise, cannot grow if it lacks access to borrowed money at reasonable interest rates. Powerful corporate businesses are intuitively and invariably opposed to taxes and government regulation. The Supreme Court has enabled such interests to wield virtually unlimited power to favor obedient politicians and to punish disobedient ones. Thus armed, they probably are confident they can prevent large tax increases. And, if taxes must be raised, they have shown impressive ability to insure they are levied against the middle class, not the corporate ruling class.
I believe the silence and indifference of the business community to the growth of these ideas has resulted, in part, from changes in the nature and makeup of that community. The wealth and power of American capitalism has become more concentrated in the financial system. Engine Charley Wilson’s claim that “What’s good for General Motors is good for America” seems quaint in today’s America. General Motors owes its existence to a Democratic Party president and a financial life preserver tossed by the government. Wall Street banks have become so powerful and so capable of capsizing the American economy that the Attorney General has pronounced them “too big to fail and too big to jail”.
I believe the present conspiracy is the result of a very long train of events that were engineered by a relatively small group of people who were active in business, but who did not comprise the mainstream of business leaders. They created think tanks, institutes, foundation-funded university and college chairs and fellowships. They promoted candidates whose rhetoric identified the federal government as the enemy.
The complicity of the mainstream business community consists, I believe, in its enthusiastic embrace of the results of these political tactics. They have eagerly applauded the destruction of the labor movement. They have railed against fair taxes. They have bitterly opposed reasonable regulations. They have contributed large amounts of money in support of candidates who preached hostility toward the government in which they sought elective office . The business community has, like Dr. Frankenstein, created a fiend they did not fully understand or expect.
We will soon discover whether American capitalism will forswear its Faustian bargain with the Tea Party and force a return to rational politics. Regardless of the brash claims of independence by the Tea Party office holders, I believe if they were told that pursuit of their destructive policies would net them a few hundred million dollars worth of opposition when they run for re-election, their devotion to principle might wane. So long as the opposition of Wall Street is limited to “tut tut” and “shame on you”, I agree with the Tea Partiers: “These guys are not for real.”
Safe Havens for Domestic Political Terrorists
During the past ten years, using arcane political ploys, too complicated to attract the attention of ordinary voters, the corporate plutocrats and their client state office holders have created a network of what the British once called “rotten boroughs”, voting districts composed of like-minded constituents who would return representatives to Congress regardless of how dramatically their views differ from those of the majority of Americans. These were and are safe havens for the Tea Party caucus. They are the American Afghanistan. In Texas this was engineered by Tom Delay, a creation of corporate lobbyists.
Who Are These Terrorists? What Do They Want?
The carefully crafted political climate in those districts has enabled the election of a group of Congressmen who regard government as the enemy. They are not anarchists. They favor government policies that protect property rights, provide for an expanding military force and other services that facilitate business activities. So far as concerns such functions as the “safety net” and promoting the “general welfare”, they regard such expenditures as charity, inappropriate for taxpayer support.
The above described political strategy and policies have been accompanied by an effective media campaign powered by Fox News and talk radio. An echo chamber has been created in which a significant percentage of our citizens live and work. There they are relentlessly bombarded with reasons for hostility toward their government, especially the federal government. So-called “social issues” like abortion and gay marriage are featured. The Bill of Rights is interpreted to be important as protection of gun ownership and property rights, but as a hindrance to apprehension and punishment of suspected criminals. Above all, taxation to pay for relief from poverty is denounced as theft and an invitation to moochers and lazy loafers. Government regulation is blamed for interfering with the pursuit of profits and healthy competition.
Federal laws enabling workers to bargain through labor unions have been gutted. There is no “labor movement”; only a few vestigial survivors of the struggles that occurred during the first half of the twentieth century. The only effective organizations capable of exercising significant influence on national political policy are private corporations. Political party organizations are generally ineffective. Political candidates create ad hoc organizations that disappear after elections.
What If They Prevail?
The end result of these developments is easy to envision. If the policies they represent prevail, the decisions affecting the lives and fortunes of ordinary Americans will not be made in the halls of government in Washington D.C.. They will be made in the board rooms of a few corporations with enough power and money to control lower tiers of lesser corporations whose success depends on access to capital and favorable treatment by the tycoons of finance. The profit motive and free market capitalism will replace any thought of empathy, compassion or fairness as determinants of government policy. Workers with no bargaining power, facing fierce competition for jobs, will be forced to accept whatever employers choose to offer. The “Iron Law of Wages”, rejected as morally unacceptable by Ricardo, will become the hallmark of American labor policy.
We’ve Seen An Earler Version of This Movie
Our history offers a preview of how this looks. In the early 1900’s a few powerful business giants controlled the railroads, the coal, the iron and the Wall Street banks that, in turn, operated the United States as a corporate subsidiary. This was the age of the “Robber Barons”.
That earlier period of institutionalized selfishness and greed did not permanently change our country because its victims fled westward into the still sparsely populated frontier of our vast land. Also, in the 1920’s, the Wall Street casino, operating without any significant regulation, created a gigantic bubble of exuberant greed that finally popped. FDR and his brain trust cleared away the wreckage and established a new system based on a balance between capitalism and government. That effort was aided by the financial stimulus required by our mobilization to fight WWII.
How Did Domestic Political Terrorism Become a Political Strategy?
Fifty years later, led by Ronald Reagan, the government began dismantling the balance established by the New Deal. He began by attacking labor unions. He used his office to demean and discredit every government program designed to alleviate poverty and enable the underprivileged to enjoy a reasonably comfortable middle-class life. He used his skills as an actor to spin yarns about “Welfare Queens”. He inspired a generation of government haters to follow his example and design ways to foster distrust and hostility toward the United States government.
This effort, in the past five or six years, has emboldened a group of angry ideologues, calling themselves the “Tea Party”, to claim the right to set minimum standards of political purity for the Republican Party. Like Al Qaeda, they are so loosely organized that identifying their responsible spokesmen is difficult. They have an agenda, but no formally elected or appointed leaders. They operate like free-ranging enforcers of their ideology. They have demonstrated their ability to intimidate members of the GOP holding public office who, if they stray from the dictates of the Tea Party, find themselves opposed by primary candidates more aligned with its dogmas. Ted Cruz, a first-term Senator from Texas, is their Supreme Leader. His current fatwah requires a jihad against the Affordable Care Act.
In 2011, the President and the leadership of this terrorist group made a deal. It was in the form of a promise to make a deal. They promised to reduce the federal deficit by a stated amount by January 1, 2013, and, to insure that they would bargain in good faith on ways to achieve that goal, they agreed that, if they failed to keep that promise, a group of budget cuts would be imposed in ways thought to be so irrational as to be unacceptable to either political party.
The negotiations that followed revealed that, contrary to expectations, the domestic terrorist group declared they were agreeable to the irrational budget cuts and, hence, would not agree to any reasonable alternative. On January 1, 2013, an impasse occurred and the damaging budget cuts took effect in March, 2013. The domestic terrorists were emboldened by what they regard as their successful strategy aimed at weakening and crippling the federal government, thus fulfilling their promise to the electorate in their Afghanistan districts. They learned that, by focusing on sabotage rather than governance, they could not only survive, but exercise power.
The similarity of this recent history to the strategy of the Bolsheviks following the 1917 Russian revolution is remarkable.
What Happens Next?
I think, during the next few weeks, this domestic terrorist group will mount an assault on the financial system of the United States by forcing a default on our bonds. If they are successful, the economy may gradually slide into a new form of recession. This time, weakened by the debt default, the government may not have the ability to counter the faltering economy with financial stimulus money. Any chance of moving forward with gun safety laws or immigration reform will disappear. The wish list of America’s most powerful and ruthless corporate enemies of the federal government will become the agenda of the Tea Party’s next fatwahs.
If this happens, it is difficult for me to believe that it will occur by accident. It will convince me that there has, indeed, been a well thought out and deftly executed conspiracy to take over our government by a corporate plutocracy. I know this sounds like Joe McCarthy and the John Birch Society in the 1950’s railing about the “communist threat”. I only hope it proves to be as goofy as that.
June 16, 2013 § Leave a comment
The last four essays posted on this blog concerned different versions and elaborations of my objection to the targeted drone killings and broad surveillance by the Obama administration to locate and capture or kill people who seek to harm the United States. I have included a discussion of a friend’s disagreement with my objections. In the “Comments” section of the third essay, entitled “The Prism of Work”, I copied four sets of those objections and some supporting material related to them. I have also posted an essay by Sam Harris that emphasizes the seriousness of the threat posed by adherents to an extreme form of Islam that offers membership in paradise to any who wreak harm on America.
In the following essay I will contend that, although the threat of harm from terrorists is real, I nevertheless believe we should choose to maintain our safe haven from the dangerous intrusions of our government into our lives as well as its claim of authority to kill people, including American citizens living abroad, based on the secret judgment of a small committee composed of the President and a few of his advisers.
Some Historical Perspective
The Alien and Sedition Acts
Fear of harm from foreigners is a recurring theme in American history. In 1798, just nine years after adopting our Constitution and its Bill of Rights, the Federalist dominated Congress adopted the Alien and Sedition Acts. The Alien Act granted executive authority to the President to force the deportation of any foreign emigrant whom he regarded as “. . . dangerous to the peace and safety of the United States, or shall have reasonable grounds to suspect are concerned in any treasonable or secret machinations against the government thereof,. . . .” A companion act provided that a person would be guilty of “a high misdemeanor” if he should ” . . .unlawfully combine or conspire together, with intent to oppose any measure or measures of the government of the United States, which are or shall be directed by proper authority, or to impede the operation of any law of the United States, or to intimidate or prevent any person holding a place or office in or under the government of the United States, from undertaking, performing or executing his trust or duty, and if any person or persons, with intent as aforesaid, shall counsel, advise or attempt to procure any insurrection, riot, unlawful assembly, or combination, whether such conspiracy, threatening, counsel, advice, or attempt shall have the proposed effect or not. . . .”
President John Adams signed these legislative panic buttons into law.
Thomas Jefferson, the Vice President and opposition leader of the Democratic Party, and James Madison anonymously authored a written , criticism of this legislation, known as “The Virginia and Kentucky Resolutions”, but that did not prevent several people from being jailed pursuant to it. The ACLU would make short work of these laws today, but a court’s right to declare void a law authorizing actions prohibited by the Constitution was not established until 1803, when John Marshall rendered his decision in Marbury v. Madison.
Jefferson won the 1800 presidential election and, after taking office in 1801, he pardoned everyone who had been convicted pursuant to the Alien and Sedition Acts during the Adams administration. The laws were never repealed, however, and Jefferson used them to prosecute a few of his own critics. They have never been formally overruled but later Supreme Court decisions referred to them disparagingly and made clear that, if challenged, they would not survive.
So, what caused the American Congress to cede such sweeping powers to President Adams and thence to President Jefferson? The French Revolution had begun with the assault on the Bastille in 1789. It continued for ten years, during which the French National Assembly adopted “The Rights of Man”, a list of rights that made uncomfortable the landed gentry who were running the fledgeling United States government. The radical French ideas were carried to America by French immigrants and, with support from Jefferson’s Democrats, the Federalists were fearful that some kind of revolution might ensue if these new trouble makers were not restrained. The Whisky Rebellion in Western Pennsylvania in 1792, and the execution of King Louis XVI in 1793 were unsettling to Federalists like Adams. They regarded the French revolutionists in ways similar to the way we fear Muslim terrorists: Foreigners hostile toward our institutions with a proven willingness to use violence to attain their goals.e
The Red Terror
There have been several perceived excuses for abandoning the limits on government. Anarchists mailed bombs to a lengthy list of politicians in 1919. The bombs did not succeed in killing any of the intended recipients, but they did kill some innocent staff members and friends as well as blowing off the hands of one housekeeper.
That, along with some strike violence (caused either by the strike-breaking cops and Piinkertons or by the union strikers, depending on your point of view) and the uneasy reaction to the Russian Revolution that began in 1917, gave Woodrow Wilson and his Attorney General A. Mitchell Palmer, an excuse for the infamous “Palmer Raids” between November 1919 and January 1920. 10,000 people were arrested and over 500 aliens were deported. Palmer authorized the raids but they were directed by J. Edgar Hoover, head of the Justice Department’s Bureau of Investigation’ s “Intelligence Division”.
Congress stoked these activities by adopting a new Espionage Act in 1917. The Act was amended and broadened in 1918. It provided a death penalty for anyone discouraging compliance with the draft. In a 1919 Supreme Court decision, Schenk v. U.S., Justice Holmes concurred in affirming a conviction of a Socialist who distributed pamphlets urging men to resist conscription. In his opinion Holmes coined the “clear and present danger” standard for government suppression of expression, often used by advocates of free speech to defend against censorship but, as stated, he voted to send the pamphleteer to jail. Later that same year, in Abrams v. U.S., he joined Justice Brandeis dissenting in a similar case because, he explained, the pamphlet in that case was “. . . a silly leaflet from an unknown man . . . .” Fortunately for the First Amendment, his “clear and present danger” statement is better known than the “silly leaflet” rule.
The Espionage Act, as amended in 1918, made it a crime for anyone to use “. . .”any disloyal, profane, scurrilous, or abusive language about the form of government of the United States … or the flag of the United States, or the uniform of the Army or Navy”. It authorized the Post Master to intercept any written material he regarded as containing anything prohibited by the Act.
Describing these laws, court decisions and even the out-of-control raids that they enabled do not truly give an adequate picture of the fear and panic that seems to have gripped the political leaders of our country in response to the threat of Bolshevism. The Russian Revolution, like the French Revolution 130 years earlier, was like a icicle stabbed in the heart of this country’s business class. They were concerned about unions and domestic socialists and anarchists but they were confident that those threats could be handled with the usual weapons of government suppression. The fact that a vast country in the world had been taken over by Bolsheviks in command of the Red Army was an entirely different kind of menace.
The Senate appointed Senator Lee Slater Overman to chair a special subcommittee to investigate Bolshevism. He heard testimony for months in 1918 and 1919. His committee finally issued its report in June, 1919. It was hair raising. The June 19, 1919 New York Times ran an eight column full-page spread on the report with the headline, “Senators Tell What Bolshevism in America Means”. The story made clear the fact that if Bolshevism came to America it would be the end of everything. The only evil thing the story failed to associate with Bolshevism was the Black Plague.
These Bolsheviks were not just rearranging the political furniture; they were tearing the government house down and were apparently willing and able to kill or jail the former occupants. This was by God SERIOUS!
I am not old enough to have lived in the decade or so between 1917 and 1929 but, from what I’ve read, the reaction of the corporate business class and the government it presided over to the Russian Revolution was far more fear driven and excessively geared toward government suppression than America’s reaction to 9/11, even with Bush continuously ringing giant alarm bells and Rudy Giuliani, in the words of Joe Biden, conducting a campaign for the Presidency with nothing but “a noun, a verb and nine eleven”.
It is one thing to face the threat of a bomb launched by a foreign enemy, but that does not equal the fearful possibility of an actual invasion and takeover by the bomb launchers. I do not know of any serious evidence that Al Qaeda wants to invade and occupy the United States. They do want us to get out of Saudi Arabia, stop invading their neighboring countries and stop arming their enemies. I do not agree with them. I regard them as murderous misguided zealots. But I don’t see any evidence that they aspire to invade our country.
Actually, of course, the Bolsheviks never tried to invade the United States. Their rhetoric, however, especially from Leon Trotsky, who never deviated from his “permanent revolution” doctrine, was perfectly tuned to produce a cold shiver along the spine of the denizens of Wall Street.
These historical references are my response to those who claim that the threat of harm from Muslim extremists is unique and, therefore, merits extraordinary remedies that have not been necessary in he past. My point is that the real threats we now face are no worse than those we have faced in the past. Our present enemies, as we perceive them, are no worse or fearful than our perceptions of our past enemies. And, while we have survived the foolish damage to our rights done by our past choices to relinquish our freedom in exchange for government’s promise of safety, I will argue that the kind of weapons that government will grasp if we docilely fail to stop this latest encroachment may be impossibly difficult to take back.
The Dangerous Nature of Governmental Metadata
Here is a link to a documentary video produced by Laura Poitras and published by the New York Times. Just wait through the Acura commercial. The ten minute video will give you an idea of the kind of dossier that Uncle Sam probably has on you and me and millions of other Americans. I hope you will then understand that we are not discussing databases containing only your telephone number and the telephone numbers of those with whom you have exchanged telephone calls.
I don’t claim to be an expert on the details of the surveillance programs we are discussing, but here is my understanding: The government for at least the last seven years has been obtaining from each of the suppliers of telephone service in America all of their recorded data consisting of every telephone call made by or to every one of their subscribers. That has been done because the FISA court has given a broad interpretation to a law that entitles government agencies to demand “business records” from any American business if those records are potentially useful to any proper function of the agency. The accumulated records of telephone calls are “business records”, ergo . . . .
Now, we are told by the government that, although they have all this information, they are not permitted to use it to identify any individual unless they have obtained from FISA an order entitling they to do so. And, they are required to have some “particularized suspicion” that the person whose records they access is somehow related to some matter pertinent to the “War on Terror” or whatever that metaphor is called in governmentspeak. My understanding is that they do not have to get a separate warrant for every individual whose records they look at. I understand that FISA’s orders set certain parameters for accessing those record and, within those parameters, the agencies or their contractor agents may use their judgment. And -listen up; this is important – all details of this process especially the parameters and the orders of the FISA court are top secret.
Now, we are not to worry about this secrecy because, as stated, a court [the top secret FISA court, that is] has oversight to prevent any abuses. Also, the Senate Intelligence Committee is also charged with oversight to see to it that this program is conducted according to the requirements of the Constitution and applicable law.
Here is a link to a Cspan video of Senator Ron Wyden of Oregon, a member of the Senate Intelligence Committee, speaking on the Senate floor in support of an amendment he wanted to append to the December 2012 extension of the FISA Amendment Act, which extended the life of FISA for another seven years. The Act was adopted a couple of days later. The chairwoman of the Intelligence Committee, Diane Feinstein of California succeeded in preventing Wyden’s amendment to be added to the bill. This is a long video (over an hour). I’ll tell you what the Senator was upset about: He and some other Congressmen had been trying for over a year to pry information out of NSA concerning the number of American citizens residing in the the United States whose records had been swept up in the metadata accumulation. NSA responded that information was unavailable. They then asked for a rough estimate, either based on the NSA’s records or on estimates made by some other source of information. The NSA refused to respond to that request.
Here is a link to a Mother Jones story about this Senate debate and its outcome.
[If you have time, you should listen to Wyden’s speech. He makes a perfect analogy between NSA’s dragnet approach to acquiring information and the “Writs of Assistance” used by the British to catch smugglers in the American colonies before the Revolution. There was much resistance to the British taxes on imports (“no taxation without representation”) so the Writs of Assistance allowed British agents to search the houses of citizens to see if they had imported goods for which no tax had been paid. Those writs were part of the reason for the Revolution.]
The official position of NSA is that records of domestic telephone users are not “intentionally” acquired, only incidentally or inadvertently acquired. Senator Wyden plainly regards that as nothing but BS and the refusal to grant his request for the facts only confirmed the results of his smell test.
So, given this information, my faith in the checks and balances and oversight that are claimed is equal to my belief in the Easter Bunny.
The “business records” authority, coupled with the AUMF authority, coupled with the Prism program exposed by whistleblower Snowden, means to me that the government already has the capability to know every detail about each of us: our telephone calls, our emails, our internet searches, our credit card purchases, our physical location at any time if we have a cell phone, our motor vehicle IDs . . . and God knows what else. They have this information in a digital database that is searchable and sortable based on algorithms designed by computer geniuses. They ask us to take their word that they will only use that information according to rules that we cannot know, based on court rulings that we cannot know, obtained without any adversarial process to insure that our privacy interests are protected.
This concerns me more than the threat of another 9/11 bomb for the following reason:
Horrific as the bomb will be, its effects will be temporary. We will die or grieve our dead and our country will survive. Digital data is not temporary and foolish misguided patriots, capable of using fear and intimidation to bully political constituencies are ever plentiful. I am not as fearful of the present misuse of this new compilation of information about all of us as I am of the various ways it will be there, like a ticking bomb, waiting for the next demagogue to choose a new target for government punishment or killing. Abortionists? Tax evaders? Political dissenters? Union agitators? Drug dealers? Drug pushers? Drug users?.
In the 60’s I represented two Lee High School kids here in Houston. They, without authorization, put some cans in the cafeteria to collect money for relief for Biafra. They wrote a little newspaper they named the Phlashlyte (I may have the spelling wrong. It was clever.) To get their paper printed they went to a friend at UofH who had access to a copy machine. Their friend was active in SDS (Students for a Democratic Society), then thought of by some as a radical group. They were suspended from school.
I was lucky enough to have my federal suit fall into Woodrow Seals’ Court and he gave me a trial. In the course of that trial I learned that the Houston Police Department had an “intelligence division” to keep track of “subversive” organizations. Houston ISD high school principals made weekly reports to these cops concerning any “suspicious” activity they observed. The Lee High School coach found the kids handing out copies of their newspaper, grabbed their papers and drove them away from the school grounds.
Woodrow granted an injunction designed to stop the harassment. The kids returned to school and, I suppose, went on with their lives. A couple of years later, another high school student was selling Space City News, a local underground newspaper, before school but near school grounds. The principal came out and told him he had to stop or the police would be called. He replied, “Fuck you and fuck the pigs!” He was suspended. I returned to Woodrow’s court to enforce his injunction. He ordered the kid back to school. He finished, got his diploma and went to A&M. HISD appealed Woodrow’s ruling to the Fifth Circuit. They ignored all my First Amendment arguments and ruled that, because of his disrespectful response to the Principal, he did not have “clean hands” and, hence, was not entitled to any relief.
My motion for rehearing was so disrespectful that my law partner required me to edit it severely before filing it. It did no good, of course. The Fifth Circuit left Woodrow’s injunction in force, so the only person left frustrated was me. My client, I suppose, got a degree at A&M and probably became a Republican.
The reason I mention this experience is that local law enforcement agencies already share federal databases [NCIS, e.g.] to assist them in apprehending criminals. It is an obvious next step for that kind of cooperation to include some or all of this new metadata treasure trove of information. It will occur, of course, after some especially horrific criminal episode involving dead children, raped women or similar outrage. When someone like me protests, he or she will be accused of lack of concern for the victims and their families. If the cooperation is disclosed by a whistle blower, he or she will be demonized. But the dossiers will be out there in the cloud, accessible to our vaunted “first responders”. Then, forget about the Fifth Amendment’s protection against self-incrimination. Everyone will have already “incriminated” themselves for every misdeed they ever committed or thought about.
When the government has this amount of information about everyone, the limits imposed by the Constitution don’t work.
There is only one solution to this problem: The databases must be destroyed under the close supervision of a federal court. The data must be erased and the medium containing it must be burned or crushed. There is no safe place for this kind of government metadata.
I know. That same data will still be in the digital vaults of private businesses. But private businesses do not have drones and guns and badges and military forces. They have only greed. I can live with greed. It comes with capitalism and dealing with that problem can await another day.
October 31, 2012 § Leave a comment
Here is an editorial from the July 27, 1935 issue of Saturday Evening Post, attacking FDR because he was not a “business man”.
THE SATURDAY EVENING POST
FOUNDED AD: 1728
PUBLSHED EVERY SATURDAY BY
W CURTIS PUBUSHINC COMPANY
PHILADELPHIA, PENNSYLVANIA, U.S.A.
GEORGE HORACE LORIMER. EDITOR
PHILADELPHIA. JULY 27, 1935
IF THE President’s “soak-the-rich” tax proposals
had been made for the purpose of balancing the
budget; if they had reached down to the lower income
brackets, so that everyone in proportion to his
means bore his share of the tax burden; and if they
had been accompanied by an expressed determination
to redeem his campaign pledges of drastic economies,
there could have been no just criticism of
these purposes. It is, therefore, with sincere regret
that we must conclude, on the evidence of both his
message and his “must” attitude toward Congress,
that his primary concern is with his political fortunes,
aa they are threatened on the left, and not
with the fortunes of America, as a whole.
The left should not be discouraged, even if they
feel that the proposed taxes will not soak the rich
enough. The objective, to adopt the President’s
football figure, the goal posts toward which the
Administration snake dance, with its wobbling from
right to left, has been heading from the first, should
now be perfectly plain to the gentlemen of the left,
as well as to those who, seeing, still could cot believe.
The New Dealers seem determined to uproot the
twin posts of constitutional government and the property
rights of the individual. And if they are leveled,
the crossbar of democracy, those other rights of the
individual, will fall to the ground and we shall find
ourselves members of a collectivist society.
Anyone with ordinary sense who has followed the
windings of this tortuous dance, one step to the
right and two to the left, can only conclude that
Professor Tugwell and the President are twins in
their determination to roll up their sleeves and make
over America. And what a mess they are making of
their making over !
That brings us to a consideration of our two billionaires:
President Roosevelt and Henry Ford—
President Roosevelt because he is the only man in
the world who has billions to spend as he sees fit,
and Henry Ford, a newspaper-reputed billionaire,
though his actual fortune is probably less than half a
billion. Rockefeller, or any one of a hundred other
men, would do as well for purposes of comparison,
but we have chosen Ford because he ie the best advertised
rich industrialist in the world.
Henry Ford started life as a humble mechanic,
without any special social or educational advantages.
but as he progressed step by atep, hia education
progressed along sound, if not academic, lines, and
he acquired an intimate knowledge of social problems
by personal contacts with both the higher and
the lower strata of society. No college, no professor
and no theorist formed his philosophy of life. No
banker, no trust, no financial skulduggery helped to
found and increase his fortune. He built it step by
step with his hands and his brains, and in building it
he was a member of many classes of society, and
gained an insight into their needs. His matured belief
is that to give work with good pay and an opportunity
to rise according to ability is the first and
soundest thing that can be done for any man. In
carrying out that idea he has been on firm ground.
From our own observation, his is the philosophy of
almost every successful businessman, but their objective
is always to make work, not ” made work.” It
is one of the strong points of the American System
that the men at the head of a business, starting with
tbeir bare hands, almost always create an industry
out of an idea’ and their willingness to stake their
lives on it; or if they have had some advantages, they
have been thrown into the hopper and have climbed
out because of special abilities. Men who inherit a
business, and without foundation training try to run
it, almost always make a mess of it.
As the rich industrialists made their wealth, only a
small part of it was spent on themselves. The major
part of it went into the creation of new wealth, more
jobs and more opportunities for others. Of course,
there are many exceptions—men who have achieved
wealth in devious ways and by sweating labor; men
who have disregarded the obligations and duties of
their position and spent wastefully and selfishly
on vain and vainglorious show, but they are not
representative of the American System, and their
number is steadily decreasing.
President Roosevelt is not, of course, a billionaire
m his own right, but he is by decree of Congress,
Born to inherited wealth, he was educated in select
schools, at Harvard and by travel. In his youth his
was the environment of the rich, and the rich with
social position. He tried business; practiced law;
went into politics and graduated to the position of
an Assistant Secretary of the Navy and a vicepresidential
candidate on the badly defeated Cox
and Roosevelt ticket. It was due to the persuasion
of Al Smith that he ran for governor of New York,
was elected and, under the tutelage of Louis Howe
and his Tammany friend, Jim Farley, became a
presidential candidate. ‘
President Roosevelt is wise politically, but qot
economically. His real experience is largely political.
His environment and inherited position cheated him
out of an opportunity to engage as a private in the
battle of business and to win his stars on the field as
a constructive economist. He is aa theoretical as any
of his professors. His whole course as President shows
that he is willing and ready to tackle almost any
experiment that listens well in the telling, regardless
of the counsels of experience. That, of course, is the
defect of his early environment and later training,
for he never was a real cog in the machine that
makes the economic wheels go round. That, too, is
the defect of his closest advisers.
Young men with brains—and there are many of
them in the field of inherited wealth—if they have
dormant ambition gradually tire of a round of
dinners, balls, hunts, Newport in summer and Palm
Beach in winter, with travel de luxe over and around
the world. Their names and pictures in the Bociety
column no longer give them a thrill and a sense of
importance. They yearn to move over to the news
columns. The deference that is paid to inherited
wealth and social position in America gives them a
sense of superiority and a feeling that they are thoroughly
qualified to iron out all other human inequalities
while keeping their own status on a higher
level, and to mold the rest of us in accordance with
their own impractical social theories. These young
men and women, with many professors and young
radical lawyers, have naturally floeked to the New
As we have already said, the President is not a
billionaire in his own right, but materially he is as
fortunately and as pleasantly placed as the richest.
Aside from his salary of seventy-five thousand dollars
a year, he occupies rent-free the most desirable
house in the United States, with greenhouses and
pleasant grounds, and by all accounts he is determined
to occupy it until 1941, at least. When he
wants to travel, there is a special train at his command;
when he wants to go to sea, there is a Navy
ship at his disposal or the luxurious Astor yacht.
With salary, house, allowances and perquisites, he
probably has what amounts to better than three
hundred thousand dollars a year. This is as it should
be. No one want-s the President to be stinted or to
live beneath the dignity of the office, but his is not
exactly a share-the-wealth background.
Then, as Mr. Garrett has pointed out in a recent
article, he has not one billion, but many billions
to spend and employ in the way that he thinks
best. No one doubts that he expects to spend for
what he believes to be the common good, though
a little personal political increment must necessarily
accrue to one who can dictate the place, time and
manner of such enormous expenditures.
We doubt whether any man in the country is big
enough or experienced enough to employ and expend
this vast sum wisely. If we may judge from
past utterances and the present tax program of the
President and his advisers, they would not trust
any other man in the United States to spend even a
small fraction of this sum. As a matter of fact,
both the sum and the grant of power vested in it
are fantastic and quite beyond the grasp of the
average man, including the average member of
Congress. But let nobody imagine that he will
escape lightly. Even more than the rich, the poor
and the middle-class will be ground between the
upper and the nether millstones of higher prices and
heavier, though indirect, taxation. The essential
difference between our two billionaires is that Henry
Ford creates and adds to the wealth of America,
and President Roosevelt taxes and takes from it.
This is not a nation of peasants and parasites.
There is still a lot of independence and fight left in it.
Farmers may temporarily be tempted by easy money,
but it is hard money for the rest of the country that
is taxed on its bread and meat for their benefit; labor
may be dazzled by the prospect of always-mounting
wages and the domination of industry, but neither
means anything when there is little work and less
industry; business may be beguiled by fair promises,
but when every face-to-face smile is followed by a
kick from behind, fair words soon lose their meaning.
The truth is that not only have we an unbalanced
budget but we have thoroughly unbalanced legisla-
tion, even to achieve the clearly avowed, and some
not so clearly stated, ends of the Administration.
Those who have sharp ears can already hear the
distant popping of the first minor Administration
experiments, punctuated from time to time by a
major explosion, though, so far as possible, the sound
of these blowups is being carefully muffled and the
effects discounted by new bombshells.
The real making over of America will come when
the country as a whole wakes up to what has been
done to it in the name of reform and the more abundant
life by the President and his subservient, though
not quite so subservient as it was, . Congress s0oner
or later, the return to sanity, to common sense and
to the possible, must come, and the foundations on
which America grew to its foremost position will he
rebuilt. They will be stronger foundations, bouud
together by a finer and cleaner cement, instead of
the jerry-built courses that are now being laid in a
professed attempt to build to high heaven.
The amazing thing about this diatribe is that it is so cookie-cutter similar to the Chamber of Commerce/Tea Party line today. The dismissal of college-educated people; the “built it with his bare hands” rhetoric; the equation of taxation with theft; . l. . it’s all there. These guys never change their tune. And even more amazing: Even when they are almost literally standing in the ashes of the latest financial or economic disaster brought on by those “built it with their bare hands” heroes, a substantial percentage of the listeners lap it up.
During the “Roaring Twenties”, the Wall Street geniuses flew the entire American economy into a total collapse and, in 1935, when FDR and the Democrats were desperately trying to resurrect the barely breathing corpse, this jackass was denouncing him for his lack of business skills. Sound familiar?
I have a theory about why this keeps happening: No one ever goes to jail for doing it. Lying, cheating and defrauding seems to be acceptable behavior so that we can retain our “freedom”. It would be too “divisive”, even “class warfare” if the perpetrators of these dishonest schemes paid for their crimes. Bernie Madoff went to jail because he caused a lot of losses among some wealthy “investors”; but the guys at AIG, who made gazillons of dollars peddling phony credit insurance (mis-labeled credit-default-swaps, as a result of a deliberate loophole in the applicable regulations), not only paid no penalty; they were bailed out with taxpayer money. So why not keep doing it? The brokers on Wall Street who sold billions of dollars worth of mortgage-backed derivatives, knowing full well that they were falsely stamped “AAA”; not to mention the dishonest evaluation companies who supplied the stamps –all those guys walked away with their fat bonuses and swanky vacation homes in the Greek Isles and the South of France. So why shouldn’t they keep doing it?
We need to stop this nonsense the only way it can be stopped: Perp walks and prison cells, and I don’t mean minimum security country clubs. Those guys need to get to know the non-violent black kids in prison for possession of a handful of grass or a crack pipe.
I know. It aint gonna happen. But it should.
October 5, 2011 § 1 Comment
I have just finished reading a book, published last year, that changed my understanding of and reaction to the financial debacle in the U.S. that precipitated the present worldwide recession: “13 Bankers”; subtitled, “The Wall Street Takeover and the Next Financial Meltdown” The authors are Simon Johnson, a professor of “Entrepreneurship” at MIT’s Sloan School of Management and a Senior Fellow at the Peterson Institute of International Economics; and James Kwak, described as having “had a successful career as a consultant for McKinsey & Company and as a software entrepreneur”.
This carefully documented and well written book has convinced me that the United States government is more blameworthy than Wall Street for the poverty, pain and financial calamity that has occurred as a result of the debacle that began in 2008.
I don’t mean to excuse or ignore the reckless greed of the Wall Street banks. They behaved as creatures of capitalism are designed to behave. They marketed and sold trillions of dollars worth of risky and grossly overpriced securities, mislabeled as safe investments by complicit corrupt rating agencies. They made tons of money betting against the securities they were marketing. And, when their schemes imploded and they were facing insolvency, they successfully bargained with agents of the federal government for billions of dollars worth of taxpayer money to bail themselves out. They kept all their winnings, suffered no consequences for their fraud and, after a few months, returned to their previous practices, lobbied hard to prevent any serious regulatory reaction designed to prevent a repetition of the financial train wreck they caused and are rewarding themselves with multimillion dollar bonuses for their success.
After reading this book, I have had to ask myself: “When harm results from market practices, which is more blameworthy, corporate pirates whose business is outsmarting others in the market in order to reap profits; or agents of the government, whose obligation is to guard and protect the welfare of citizens, who have re-written the rules to allow the harmful practices?” If cars collide at a busy intersection, who is to blame? The motorists or the government that repealed the speed limits and ordered the traffic signals removed?
The title of this effort is based on Mary Shelley’s novel, “Frankenstein”. She did not call of Victor Frankenstein’s creation a “monster”. She referred to him as a “fiend”, a term borrowed from Coleridge’s Ancient Mariner:
“Like one who, on a lonely road,
Doth walk in fear and dread;
And, having once turned round, walks on,
And turns no more his head;
Because he knows a frightful fiend
Doth close behind him tread.”
I have become convinced that our government, like Frankenstein, created a frightful fiend.
A Brief History
“13 Bankers” opens with a history of American banking and American equity markets. It begins with George Washington’s efforts to handle the fledgling nation’s debts, a description of Hamilton’s support of a federal bank and Jefferson’s bitter opposition it. The story moves on to Andy Jackson’s epic battle with the Second National bank. Both Jefferson and Jackson perceived federal banks as threats to democracy because of their ability to control wealth and influence government.
Between 1890 and 1920, the rapid growth of industry, led by the railroads, was financed by huge and powerful financial trusts that attracted both domestic and European investment. These were the days of the “Robber Barons” like J.P. Morgan, Andrew Carnegie and Jacob Astor, whose power evoked the “trust busting” efforts of Teddy Roosevelt and the warnings of Louis Brandeis, whose phrase “the curse of bigness” presciently anticipated “too big to fail”, used to explain federal policy decades later.
Widespread bank failures precipitated the Great Depression and the New Deal reacted with the Glass-Steagall Act which required the separation of commercial and investment banking. Commercial banks accepted money from ordinary depositors and small businesses, paid interest on savings accounts at rates fixed by the government and lent money at higher rates, also based on decisions by federal regulatory agencies. The safety of deposits in commercial banks was guaranteed by the FDIC, which was able to regulate strictly the practices of the insured banks.
Investment banks provided money for companies and traded securities. They used shareholder money and investor money, not deposits from ordinary households and businesses.
American banking became safe and quiet, described by the authors as “boring banking”. “Regulation Q”, part of the Banking Act of 1933, limited the interest rate commercial banks could offer on savings accounts. This prevented any spirited and reckless competition between banks for depositor money. A “3-6-3 rule” prevailed: Borrow money at 3%; lend it at 6%; and get to the golf course by 3 pm. Bankers did not allow employees to work overtime because they did not want anyone to notice the lights on after hours and become nervous about problems at the bank. Memories of bank closings were fresh and no one wanted an encore.
Wall Street’s Fifty-Year coup d’etat
This “boring banking” period began to unravel in 1970, when economists at American universities began to use mathematical models to find maximal debt/equity ratios and ways to evaluate complicated relationships between different classes of assets, thus enabling arbitrage investing. [Traders could identify small price discrepancies based on theoretical “true” values, then bet that the market would “correct” the discrepancy resulting (theoretically) in no-risk investing.] Several Nobel Prizes were awarded for this work and it influenced investor behavior in America and throughout the world. A trio of economists designed a formula for valuing a derivative security thereby enabling vast marketing of derivatives that later capsized the financial system. [Derivatives are securities whose value is based on combinations of, or comparative values of, other securities or commodities. Derivatives can be designed to be extremely complex.] This work was facilitated by the advent of computer technology that made possible access to real-time information about millions of individual trades being made electronically and programing powerful computers to react instantly without any human intervention to slow things down.
Most of this research and analysis was based on the the “Efficient Market Hypothesis”. There were three flavors of this theory: “Weak”, “Semi-strong” and “Strong”. The weak hypothesis taught that future prices cannot be predicted from past prices. The semi-strong hypothesis taught that prices adjust quickly to all available public information. The strong flavor taught that no one ever has information that can predict market prices, so the price set by the market is always the right price. Eugene Fama, an economist, described these theories in an article in 1970. His research established that the semi-strong hypothesis was most often true.
The ideologues in politics and government ignored Fama’s research and seized on the “market is always right” to justify their opposition to any government interference with the market. By the time Reagan became President in 1981, this had become gospel for anti-government politics.
Reagan waged war on government. He appointed the CEO o f Merrill Lynch, Donald Regan, to be treasury secretary. Regan announced that his priority would be “the deregulation of financial institutions. . . .” The first target was S&L’s. The Garn-St. Germain Act enabled S&L’s to invest in bonds, including junk bonds. It removed restrictions on banks’ offering adjustable rate mortgages. It allowed interstate mergers of S&L’s and banks. This was followed by the Secondary Mortgage Enhancement Act of 1984, that allowed the marketing of mortgage-backed securities by private investment firms. The Tax Reform Act of 1986 created the Real Estate Mortgage Investment Conduit which offered tax advantages for mortgage-backed securities.
All of this deregulation was done in the name of “home ownership”. The fraud it facilitated resulted in the failure of over 2,000 banks between 1985 and 1992. Over 1,000 people were indicted for fraud. The bill to the taxpayers was over 54 billion dollars.
That was only the beginning. Alan Greenspan, chairman of the federal reserve from 1987 to 2006, relentlessly preached the free market philosophy of Ayn Rand and he was elevated to guru status. He believed that the market needed little regulation because the market would regulate itself through the choices made by the participants. He told Congress that complicated securities like derivatives needed no legal supervision because “. . . these derivative transactions are transactions amongst professionals. . . ”
It would unduly lengthen this essay to list the step-by-step process by which the Reagan, Daddy Bush and Clinton administrations presided over Wall Street’s takeover of the United States Government. Part of it was done through legislation. Part was accomplished by establishing a revolving door between Wall Street and the half-dozen or so federal agencies that were supposed to regulate banks and protect the rest of us from economic ruin. Part of it involved old-fashioned bribery in the form of blank-check campaign finance money. We have two examples of how difficult it is for government to control an enterprise with unlimited money: Wall Street and illegal drug traffic.
I will cite a couple of examples of how it was done.
The regulatory agencies responsible for controlling financial practices are funded by the fees they charge the objects of their supervision. Their jurisdictions overlap. The financial entities are allowed to choose which agency by which they prefer to be regulated. So, there is desperate competition between agencies to attract financial entities. If an agency is reputed to be “tough” on banks, the banks avoid that agency in favor of another agency whose staff is more “friendly”. The net result is that the agency that tries to do its job is starved for money and the one that nods and winks is bloated with money.
Our home-grown Texas Wall Street advocate, Phil Gramm is an egregious example of the partnership between Congress and Wall Street. His pockets were stuffed with New York campaign money and he waged a campaign to dismantle what was left of the New Deal’s regulation of Wall Street. He succeeded by securing the enactment of the Gramm-Leach-Bliley Act, signed by Bill Clinton, that removed all of the New Deal restrictions and distinctions between commercial and investment banking. His wife, Wendy Gramm, the head of the Commodity Futures Trading Commission, in 1993, issued an order exempting most over-the-counter derivatives from federal regulation. That same year, she was named to Enron’s board of directors, a major beneficiary of that regulation.
As the New Deal regulatory system was dismantled, there was one dissenter: Brooksley Born, the head of the Commodity Futures Trading Commission. She was appointed by Bill Clinton in 1996. She sharply disagreed with Wendy Gramm’s deregulation of derivative securities. She proposed to issue a “concept paper” stating her reasons for strengthening federal regulation of derivative securities. Treasury Secretary Robert Rubin (former chair of Goldman Sachs), Larry Summers, Deputy Treasury Secretary and Alan Greenspan, Federal Reserve chair, all reacted with alarm. Summers called Born and said, “I have thirteen bankers in my office, and they say if you go forward with this you will cause the worst financial crisis since World War II.”
Ms. Born did issue her paper. It did not cause a financial crisis, probably because it was roundly denounced by Rubin, Summers and Greenspan. Just to be sure that it would have no effect, the Clinton administration promoted and secured the enactment of the Commodity Futures Modernization Act, signed by Clinton in December 2000. It exempted all derivatives from federal regulation.
The Debacle and Government Capitulation
The book describes in detail the events leading to the freezing of credit and consequent threatened collapse of the domestic financial system. When the government allowed Lehman Brothers to become insolvent and investors throughout the world, in effect, threatened a “run on the banking system”, the surviving Wall Street banks, like unruly children holding their breaths to get their way, refused to accept any financial losses. They demanded a “blank check” bail out. At that point, the government could have called their bluff, taken them over, fired the CEO’s, wiped out their stockholders and instituted a new set of rules guaranteeing no repetition of their reckless irresponsibility.
The book describes several examples of that kind of reaction by the IMF when other, mostly third-world countries, experienced similar melt-downs. Larry Summers, when he was an IMF official, strongly supported that kind of harsh reaction.
Instead, led by Summers and other financial leaders of, first the Bush Junior administration and, later, of the Obama administration, the government refused even to consider nationalization of the banks. They handed the U.S,. Treasury over to the banks and said, “Take anything you need. We trust you to do the right thing. We need you to make credit available to our struggling businesses.”
The banks took the money, complained bitterly at any suggestion that they cut back on bonuses, imposed harsh restrictions on credit, and accumulated huge piles of sideline cash. They spent lavishly on lobbying opposition to any return to meaningful regulation. They returned to the same kind of marketing practices that caused the debacle.
The banks are stronger than ever. Mergers and acquisitions have created bigger banks than the ones who capsized the financial markets. Their bonuses are larger than before. They successfully prevented any congressional action that called for systemic changes. The minor changes that were included in the regulatory legislation are yet to be implemented with administrative rules and the outcome of that process probably depends on the result of the presidential election, although past history seems predictive of choices between bad and worse, so far as concerns conflicts between bank profits and citizen protection.
We do have one hint of what we can expect: Elizabeth Warren, a woman who led the fight for an agency to protect consumers of financial services, has been declared ineligible to head the new agency. Obama did not even bother to propose her. She is now engaged in a political effort to become a Senator from Massachusetts.
Is There a Solution?
Johnson and Kwak contend that the only practical solution is to return to Teddy Roosevelt’s trust-busting strategy. If “too big to fail” is the problem, then no financial entity should be allowed to become “too big to fail”. The present Wall Street financial behemoths should be required to segment themselves into separate, competing entities small enough to fail without threatening the financial system.
There would be hysterical opposition to this idea because, at present, Wall Street is free to make giant profits from short-term risky marketing, secure in the knowledge that the taxpayers will have to bail them out when their irresponsible behavior implodes. Everyone would play roulette if the casino reimbursed their losses, but allowed them to keep their winnings.
This, of course, is not the publicly claimed basis for opposition to downsizing the investment banks. They claim that they will not be able to compete globally if they are too small to serve the needs of large, multinational corporations. Johnson and Kwak have a simple answer to this one: Large companies now use multiple investment banks when they engage in huge financial transactions. Smaller banks could work together in those situations, just as they do now.
I don’t know enough about these matters to appreciate all of the nuances, but it is plain that the present situation is so untenable as to border on insanity. In the Mexico of 1910-1920, the answer would be “Al paredon!”And the problem would be solved. [I haven’t figured out how to put the accent mark on the last syllable. The effect is lost if not shouted “Al PAreDON!] After reading this book, if that solution were available, I would have a hard time deciding which group to send to the wall first: The financial pirates who created the problems or the politicians who empowered and enabled them. I’m leaning toward the latter. One thing is clear: Our government has created a frightful fiend and it is still on the loose.