The Quiet Coup
Simon Johnson
The Atlantic
May/2009
Johnson's 7 page article stems from his experience as a
chief
economist for the International Monetary Fund, the loaner of last
resort to countries (usually developing) in need of a capital infusion
because of a common curse; the profligacy of the ruling oligarchs.
According to Johnson, many countries get into trouble when private
sector power players and insiders induce government officials to loosen
regulations and sometimes pressures banks to make unwise loans knowing
that the government will cover any loses. But overborrowing on any
level "always ends badly". Credit drys up. Banks fail. Capital flight,
brought about by instability and investor distrust, usually follow.
When economies are about to grind to a halt due to elite overreach,
excessive risk and unsupportable debt, the IMF is called upon to
provide a bailout even with the stringent, neoliberal conditions that
many have complained about, with frequent good reason.
"Yesterday's 'public-private partnerships' are relabeled 'crony
capitalism'". If the country in question cannot halt the implosion it
will have to default on its foreign debt as Argentina has done in
recent decades. To recover, the oligarchs will have to be squeezed
because they have the remaining capital. But Johnson asserts that they
are usually first in line for what governmental help is available. Wage
earners take the brunt until the riots get serious. So the contest is
to see which of the elite survives and which don't. IMF loan officers
wait to see when government ministers are really ready to hurt their
friends in high places in order to diffuse repetition.
Now Johnson looks at the current U.S. economic crisis in the same
light. The financial sector has come to dominate the American economy
in the last 3 decades and its control of our government, with
deregulation and private reward-public risk polices, parallels the
management of a typical banana republic. Bubbles and busts recurred
with the housing decline finally bringing down the whole structure.
An enlightening assertion is introduced. Primitive political systems
use physical force and intimidation to transmit power. In more advanced
nations, bribery is used to consolidate wealth. Now, along with
payoffs, whether campaign contributions, kickbacks, private sector jobs
etc., the last step has been to amass "cultural capital", a belief
system that favoring the connected few is the most efficacious form of
governing. America has slipped into that stage without much fanfare.
The Wall Street-Washing connection involves the free flow of back and
forth jobs and philosophies. And that is why the Obama administration
and the Democratic congress will likely settle for half measures that
will not clear out the financial rot (for instance: our banks will not
be nationalized, cleaned up, broken up and then resold).
This article is brilliantly insightful and is must reading for anyone
trying to understand how our macropolicies are affecting our main
street lives.
June 13, 2009
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Recovery not Austerity
The American Prospect
November 2010
There will be a huge political fight this spring over
how to
stimulate the economy and increase employment verses cutting federal
and state spending to reduce deficits. The 10 articles contained in
this "Special Report" shed much needed light on why the latter course
is self defeating.
Robert Kuttner sets the stage with a 2 page overview. "To break the
vicious circle of high unemployment, depressed consumer demand, weak
business investment, and damaged banks, government should be doing
more, not less." There is no forecast of inflation and people are
lending to us from around the world at low rates. It will be easier to
restore fiscal balance after recovery, not now. More ongoing investment
in our people is needed to stem decline. The rich are under taxed and a
transaction tax would produce a double benefit. Health system
inefficiencies need to be curtailed to lower Medicare costs. Social
Security is sound and no cuts are required. The financial hole has been
caused by excesses on Wall Street. Bringing pain in the name of budget
balance will just chain Democrats to mistaken Conservatives.
The second article denotes the shortfall in investment for the future.
Change is happening faster and if we want to stay in the running we
have to be more productive and efficiencies can only come with improved
infrastructure. We are losing ground in affordable early child care and
higher education. Civil engineers give our physical infrastructure a D
grade. 2.2t is needed there.
The next article describes why austerity won't reduce deficits and why
a declining dollar has advantages. "Just under half the current budget
deficit is attributable to legislation enacted during the George W.
Bush administration....." something Republicans only grudgingly admit.
Social Security myths are debunked.
Howard and Valelly describe what polls really show about government
stimulus spending and the anxiety about deficits. The latter concern
comes in a distant second. Are you listening McConnell and Boehner?
This shouldn't be surprising as we can see what high unemployment is
doing to us now as opposed to some misty figures in the future.
Shrinking discretionary spending won't provide enough revenue to
significantly reduce the deficits writes John Irons. The military
budget is where savings could come from but would Conservatives stand
for that?
James K. Galbraith writes that the optimistic CBO projections are
"highly unrealistic". Private sector de-leveraging for some time to
come will mean continued weak demand. Active verses passive deficits
are explained.
The next article describes how the Fed became less accountable to the
public and more subservient to corporate America. That needs to be
reversed.
Algernon Austin discussed the effect of austerity on children. Now
child poverty is close to 20%. That alone insures long term decline.
Dean Baker takes on the Medicare problem and the final article goes
into the solvency of Social Security.
This whole section of the magazine should not only be read carefully,
it should be copied and saved for future reference when combating the
Tea Party/Conservative arguments for unnecessary, self defeating
austerity and the hardship it will impose.
November 5, 2010
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The Lies the Government Told You
Andrew P. Napolitano
2010
Cyber War
Richard A. Clark & Robert K. Knake
2010
Well, here's something else to worry about. Clark and
Knake make
a convincing case that America is most vulnerable to cyber attack, not
only from a country that wants to weaken us without being distinctly
identified but by criminal hackers or some terrorist organization. In a
nutshell, we have way too much computer code accessibility in the
civilian sector and hackers could shut down our power grids, bolix our
aircraft, disrupt train routing, cripple hospital organization and/or
blow up chemical plants and so on. Imagine what any extended blackout
would do to the residents of an afflicted region. Imagine no air
conditioning or pumped water in the South during a heat wave.
"Logic bombs" have probably been already planted in key positions,
ready to go off for any number of reasons. "Trap doors" for access to
computer codes in the future lie in wait. Even our military hardware
could be screwed up and reduced in capability. And an attack could
easily provoke an unspecifically targeted response which could escalate
quickly into a major conventional, multinational war--with nuclear
weapons. This is dangerous stuff.
No other country is more dependent on open Internet communication for
its vital functions. Long overdue regulation to "harden" against
penetration has been successfully resisted by corporations who don't
want to spend the money for security. Our congressmen take their bribes
and comply, even though their inaction weakens our national defense.
Given that such defense and trackdown of cyber worriers and criminals
is so difficult and the cyber "arms" race (offensive and defensive) so
intense, it is not difficult to understand why so much secrecy is
involved. And given that relatively little military buildup is
necessary to hurt any adversary, even developing nations can render a
superpower impotent. Unless a respectable defensive system is in place
we have to be cautious with our foreign policy even if that is
detrimental.
The authors list 5 aspects of any cyber conflict: it is real, it can be
instantaneous, it is global, it skips the battlefield and it has
already begun. They go on to assert that we are disorganized, with too
many agencies rather than one Cyber Defense Administration directed
directly by the president. After all, if we are going to plant logic
bombs, which is considered a hostile act but perhaps a necessary aspect
of defense, the top man should be responsible.
The 1st 3 goals should be "deep packet inspection of Tier 1 ISPs,
disconnecting power grid operations from the Internet with only special
access and DoD security upgrades. Some of this will cause concern about
legitimate accessibility and maintaining privacy. Those objections may
have to be compromised.
The authors go through a hypothetical war game with China, a likely
enemy who is already involved in intellectual property espionage, and
they discuss some international cooperation agreement possibilities to
hold countries accountable for their hackers and provide expertise in
proper attribution, defense and repair work.
This book is loaded with information which will be new to many and it
is a subject we should all be aware of. Clark and Knake deserve our
gratitude for this work. Incidently, the PBS News Hour did a 3
part segment (11-13/8) on cyber assault.
August 18, 2010
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Financial Shock
Mark Zandi
revised 2009
This updated edition concentrates on the housing bubble
and burst
and the financial meltdown near the end of the GW Bush administration.
It touches on our previous recessions and the part banking played in
them. It includes definitions of various financial instruments, gives
details about the sub-prime mortgages and securitization that led to
the loss of trust throughout the lending system and the ultimate
freeze-up of bank lending. The disdain for adequate regulation,
generated by Republican led antigovernment philosophy and policies, is
explained. Several books have been written about our financial mess but
this one notably presents a clear exposition for the general reader.
That is its best quality.
Part of that clarity stems from the chronological layout; how the
housing boom was created (in part by Fed chairman Greenspan's dropping
interest rates too far too long) after the dot com bust and 9/11, how
the complexity of financial instruments in the ignored "shadow" banking
industry escaped regulation and how the overleveraged system began to
unravel. Too much money was made in the boom upsweep to generate
adequate concern.
"Everyone" expected that housing prices would never fall back, at worst
they would level off some day. Until then, mortgages which would reset
interest rates in a couple of years could be refinanced from added
equity in the property. CMO and CDO (Collateralized Debt
Obligations--the general term for packaged loans) were touted by
collusive rating agencies as sound investments when they weren't. As
the "toxic waste", the most risky tranches, often bought up by hedge
funds looking for maximum returns in a cut throat business, piled up,
skittish banks stopped lending even to other banks.
Bush, in a stunning reversal of agenda, proposed, through Treasury
Secretary Paulson, that the taxpayers provide a $700b bailout and since
then we have seen a succession of government infusions into the
financial system, in effect nationalizing parts (think insurer of these
deals, AIG) and even buying up GM which was caught up in the down turn.
With the Federal guarantees thrown in, more than $2t have been pumped
into the economy and there will be much more to come and Zandi believes
that much more should come even while he recognizes that the U.S.
government is putting its financial credibility at risk.
At the end, Zandi offers 10 prescriptions to avoid a replay of this
disaster in the future. Some are a bit technical but they are aimed to
open up, examine and regulate the new world of global finance and
manipulation. Countrywide regulation of foreclosure proceedings bears
directly on housing. Finally, generating financial literacy offers the
most sound solution to market investing. Many didn't even know the
essentials of the mortgages they took out. We all need to be more
knowledgeable about finances.
June 6, 2009
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Garbage Land
Elizabeth Royte
2005
and
Good Genes Gone Bad
Pete Myers
The American Prospect
April 2006
The Gringo's Hawk
"Jon Maranon"
2001
Ever wonder about Costa Rica? The central American
country that
was a relatively unspoiled tropical paradise? No army, no civil wars,
untamed natural settings and wild species? No over population and cheap
living costs?
The author had an early interest in biology but couldn't take the
formal college classes necessary for professional training and in his
sophomore year opted for field trip credit to the southern Pacific
coast of that country. Having insufficient interest in pursuing regular
courses after that and with little else better to do he used savings
and family help to buy an acreage there and started a herd of cattle on
pasture formed from over cut forrest. Gradually he expanded his
holdings at "Cantarana", west of San Cristobal. Maranon (or whatever
his real name is) describes his elations and sorrows in managing the
wild life, peasants who worked for him and the economies of various
pursuits to break even.
All along he observed the degradation of the natural world there as
neighbors were convinced to try and grow export crops using pesticides
and fertilizers, which didn't work, and the decimation of native plants
and animals, including the hawk he finally shot because it was taking
chickens. A, or the, turning point came when after the loss of a close
friend he became attached to a woman (with 2 kids) who came to work for
him. After a 3 month solo trip around the southern hemisphere which
gave him more perspective, they married and had 3 daughters of their
own. This civilizing process resulted in his purchasing a place in San
Cristobal and becoming even more of an activist on behalf of the life
that was disappearing. Many more relationships developed as his
reputation spread.
Relative to more serious work, there is little "heavy lifting" in this
book. But unlike other autobiographies which leave us with nothing
useful, Maranon's insights from the perspective of the "Indian" or
native being besieged by developers, over population and corrupt,
enriched politicians is instructive. Those with no reverence for the
natural biosphere; those who overfished, who would destroy the reefs,
who kill the animals and cut the trees for quick profit, who litter and
promulgate hazards cultural waste have invaded and brought despair over
the last 30 years. It is little wonder that our natives turned to
alcohol when faced with similar circumstances.
American consumers give little thought to what they are doing to
peoples of the third world. We just want it all, good and cheap.
Maranon gave up bucking nature there and eventually planted native
trees and hardwoods for a small furniture business. The Trans Pacific
highway building project was still stalled at the end of the book and
the seedlings were growing back up around it. But the old days are
gone.
25/November/2002
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13 Bankers
Simon Johnson & James Kwak
2010
There have been several books written about the Wall
Street
meltdown of 2008-09 and this one is pretty mainstream. The title refers
to the 13 CEOs of the largest financial institutions who, in 3/09, were
called in to the White House to work together to save the system and
stave off depression. In tracing the history of how we got to that
point, the authors go all the way back to the Jefferson vs. Hamilton,
Andrew Jackson days and their outlooks on big (private or public) banks
who were thought necessary or dangerous to the economy. Inadequate
regulation led to boom and bust cycles up to the trust busting days of
Teddy Roosevelt and on to the 1920s exuberance before the collapse and
Great Depression, out of which new controls on the financial sector
paved the way to 50 years of steady growth. But starting with the
President Reagan years those regulations and controls were stripped
away by the reigning cut government mantra of the Conservatives. As the
Wall Street knows best philosophy took hold of the Washington-NY
corridor, even the Clinton administration joined in and ended the
separation between insured deposit-conventional lending banks and the
proprietary investments and derivative trading of financial houses.
Subsequently, newfangled, fee generating instruments, used to conceal
real value, proliferated.
This free-for-all attitude by finance and government allowed massive
over leveraging as the housing bubble inflated, fed by unduly low
interest rates following 9/11 and securitized mortgages of dubious
quality once sub-prime lending accelerated. Lots of fraud was involved
although few call it that. When the bubble burst lots of insurers of
rotten paper could not pay off counter parties here and in Europe.
Liquidity froze and $700b of US government bailout money was required
(who knows how much more was committed) to gain stabilization. But the
lingering effects can still be seen on main street: high unemployment,
mortgage defaults, underwater properties, empty commercial space,
insufficient lending etc.. Middle class consumption, which fueled the
economy for so long, is slack.
What happened is well known. How to restore prosperity and insure
against future financial debacles is controversial. The current
financial reform plan doesn't go far enough in the author's eyes. The
result of the meltdown has been even greater consolidation of the
banking industry which comes on top of the mergers and acquisitions of
the '90s. Now 6 megabanks have become too bigger to fail. Not only is
congressional action frequently determined by Wall Street bribers who
want full freedom to maximize profits and government to insure loses;
President Obama, surrounded by advisors and officials who were largely
responsible for the collapse in the first place (Robert Rubin, Alan
Greenspan, Bernanke, Summers and Geithner, among others, are named),
has not required that these megabanks be broken down into small parts.
This, according to Johnson and Kwak, is the only way to insure that
another crisis won't soon recur. Regulation can be surmounted or
evaded. Even if not, the megabanks will have the unfair advantage of
lower borrowing costs because the government will insure losses (that
will be the perceptual expectation at least), even of the riskier
investments which prudent, smaller banks can't afford to make. A cap of
4% of GDP for commercial banks and 2% of GDP for investment banks is
proposed. The WTO could crack down on too big banks around the world,
citing implicit government subsidies skewing fair competition. Nuggets
like these make this sensible, 220 page book a good choice.
May 24, 2010
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Empire of Illusion
Chris Hedges
2009
The 5 chapter titles in this smallish, 193 page book
are The Illusion of Literacy, Love, Wisdom, Happiness and America. In
each, Hedges tries to make his case that little is what it seems on the
decorated surface. America is in decline and decay, headed for
dissolution and dystopia and as the process unfolds the discomforted
cling ever tighter to distraction and illusion. The author starts off
by an overly long description of professional wrestling to illustrate
crowd pliability and then extends the phenomena to the entertainment
culture in general. "[This culture] tell[s] us that existence is to be
centered on the practices and desires of the self rather than the
common good." "This cult has within it the classic traits of
psychopaths: superficial charm,...a need for constant stimulation, a
penchant for lying, deception, and manipulation, and the inability to
feel remorse or guilt. This is,...the ethic promoted by corporations."
Unjust and unaccountable "junk politics" result.
Chapter 2 is a surprisingly graphic account of the
porn industry (40m regular web site viewers) which uses up and throws
away women and girls. In one interview the woman says she is excited to
be banging 50 guys and Hedges notes the upsurge in torture videos on
the web. Callousness and sadism now dominate the culture. The Adult
Video News expo awards ceremony emulates the Oscars, red carpet and
all.
But the book picks up from there when Hedges starts
describing the centers of higher job training (formally higher
learning) and the subservience to corporate dictates. Pentagon money
increasingly funds militarized research projects, including population
control, in our universities. "The moral nihilism [therein]...[does]
not transmit transcendent values or nurture the capacity for individual
conscience." "[Our] bankruptcy...can be traced directly to the assault
against the humanities." Empathy is weakness.
Specialization breeds arrogance even as the
"informed" do not question higher authority. The more prestigious the
university the more likely that graduates will be out of touch with the
consequences of their actions. The big questions go unasked.
Hedges spends time debunking positive psychology and
other feel good efforts to blame the individual for the sins of the
powerful. The goal of "social harmony" masks the pressure to conform to
the demands of authority. Self-censorship leads to tyranny. SERE
techniques can now be applied to the resistant.
The last chapter devastates the illusion between the
promoted and the real America. "Our nation has been hijacked by...a
small and privileged group..." Inverted totalitarianism, the rule by
the anonymous corporate state has evolved. Making things has been
converted into manipulating borrowed money. Corps own Washington.
Inflation is hidden behind false numbers. Instability increases around
the world as the failures of unregulated capitalism and globalization
impoverish evermore. Short term, stop gap solutions wear out more
quickly. Climate change advances. All the while our socially literate
minority is increasingly marginalized.
After all that, brightly exposing as it is, Hedges
meekly offers the power of love and hope to deal with the horrors to
come. Hardly encouraging. But despite its shortness and excesses, the
characterizations are starkly illuminating, especially for those who
haven't been paying attention to the underlying, structural rot that
threatens a slow, if not sudden, collapse into nightmare territory.
Lots of excerpts are worthwhile in this otherwise flawed work.
May 6, 2010
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A Problem From Hell
Samantha Power
2002
This 516 page book is a downer on 2 counts: it
describes in some detail the genocides in Iraq, Cambodia, the former
Yugoslavia and Rawanda and details America's indifference to the
atrocities after stating "never again" following the WWII Holocaust. A
few figures stand out in the fight to get the world to pay attention
and do something about so-called ethnic cleansing. Raphael Lemkin
devoted his life to that cause. He finally got the term "genocide"
coined then watched our administrations run away from indicting nations
and tyrants with that charge. But slowly and surely the UN and world
leaders were dragged to supporting a world court without US
ratification.
One problem with naming mass killing with the term
and doing something about it was definitional. How many must be killed
to qualify? How many deported? How many raped? Was the killing the
result of a civil war? How does one justify getting involved in the
internal affairs of another sovereign country? Why should we get
involved if our conventionally understood national interest isn't at
stake?
Besides finding a justification line for
involvement, several rationalizations and deceptions have been employed
for ignoring the phenomena. One has been just believing the lies told
by the perps combined with wishful thinking. Another has been a
supposed absence of sufficient knowledge of atrocities. Another has
been a purported counter productive consequence(s). Another has been
political risk if American military personnel are killed for no
material gain. In each case of these crimes against humanity it was
those closest to the tragedy who were most disturbed and frustrated
when their pleas were diffused and avoided on the way up the chain of
command.
Other figures cited that stand out in the efforts to
turn back the genocides were Peter Galbraith, congressman McClosky and
Senators Pell, Proxmire and Dole. Romeo Dallaire was subjected to
witnessing the murderous rage in Rawanda close up and was scarred for
the rest of his life when nothing was done to stop it. On the other
hand, Presidents Reagan, Bush 41, Clinton and Bush 43 stand out as
enablers if not facilitators of massive murder. It was Clinton who set
the green light stage for repression when he ran out of Somalia. Then,
after overwhelming evidence threatened his presidency he had to act
against Milosevic but opened the door wide for Hutu killers.
Power describes what could have been done sooner to
curtail such needless loss of life short of sending our troops into
harm's way. The bad guys could have been identified early on with
threats of coming justice. The nations involved could have gotten
pariah treatment by closing embassies, expulsion from international
institutions, cutting trade, freezing bank accounts, destroying
inciting media outlets as well as setting up safe zones for refugees.
But little of that was done and what was done was
late. And since then we have witnessed the slow, rolling genocide in
Darfur under GW Bush's watch. What does all this say about American
moral values? We condemn those who look away when an individual
stranger is attacked and/or injured, why do we excuse our political and
religious leaders and media heads given their silence when atrocities
occur? How do we live with ourselves while claiming to be moral
persons? How do we avoid the charge of being overly callous? This book
provokes that discussion.
March 29, 2010
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Hollowing Out the Middle
Patrick J. Carr & Maria J. Kefalas 2009
This book is devoted to alerting the reader to a
growing world wide crime wave in counterfeit goods. Phillips tells us
about regions, countries and organizations whose economies depend in
large part on swindling the public, from high end designer clothes and
accessories to computer software to illegal copies of music and movies
to reprocessed and substandard airline parts to fake prescription and
recreational drugs.
But the picture is complicated. Globalization means
that trafficking in counterfeits is easier than ever. Distribution and
chains of transactions which make tracing sources is more difficult.
Anything that can travel the Internet can be sent from and to almost
anywhere in the world. Bribing officials and police is just a cost of
doing business--and that cost is low in some places. Overpricing goods
in the still developing world invites counterfeiting.
The costs are high. From the public's cynicism that
develops from being frequently victimized to the discouraging aspect of
invention and development of a product to the increased dangers of
traveling to the suffering and premature deaths due to substandard or
poisonous medications to the gangster criminal offshoots and the
funding of terrorists, this lawlessness takes countless lives and
increases untold suffering.
We learn about "The Scene", an untraceable pyramid
of operatives (suppliers, crackers, testers and packagers) and servers
which grab pre-release prints of movies, music videos and computer
games and distribute them peer to peer over the Internet. Hackers and
distributors work for bragging rights. Digital technology means that
the copies are virtually, if not actually, perfect. The industries are
being devastated. Between 1/2 and 2/3s of the Internet is being devoted
to the knockoff economy.
Although Phillips goes into the counterfeiting going
on in the industrialized west, he also describes the situation in semi
and underdeveloped nations. Russia has it's own knockoff economy going,
as well as India and China. In the deprived nations he describes
Nigeria which is known for its criminality but he says that it is
slowly but surely policing its counterfeit economy.
Complications arise from Big Pharma which tries to
lump generics (the only affordable medications in the 3rd world) with
counterfeits and substandard drugs. The big drug companies don't want
to prosecute the perps because of the fear of bad publicity curtailing
their sales. Business cooperation is insufficient.
Four remedies need enhancement: governments the
world over must respect intellectual property more than they do and
become more intolerant of domestic and foreign fakes; international
policing; stiffer penalties for the big fish and a profound education
of the consuming public looking for a bargain. None of this is on the
horizon.
The increasing tolerance of unethical behavior and
outright criminality should be a concern to all. The burgeoning field
of counterfeiting is undermining the intolerance that still remains.
This book is easily read and well laid out. It's contents should be
present in the well rounded mind.
09/April/2006
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Just How Stupid Are We?
Rick Shenkman
2008