Tuesday, November 11, 2008

The Road to Hell is Paved with Free Market Capitalism, Imperialism, and Psychopaths

By Simon Davies and Donald Hunt

From SOTT.net

Last week, Barack Obama was (we presume) elected president of the United States as the country fell deeper into recession. Nearly 300,000 jobs were lost in October in the United States as the official unemployment rate rose almost a half percent since September to 6.5%. The Dow fell 4% last week despite all the good feelings. When he takes office in January 2009 the new president will surely face an economic situation as dire as Franklin Roosevelt faced in 1933 Not only the United States, but the rest of the world, is looking to him to find a way out of economic disaster. Will he deliver?

Obama appears to be as gifted as any U.S. president in a long time. In addition, he seems far more balanced and lacking in personal demons than most presidents. Like Franklin Roosevelt, Obama's talents fit the times well: he appears calm, intelligent, and compassionate, and projects a sense of competence and being in control. Finally, he has, in these hopeless times, given many people, especially young people, hope. Even one of our darkest, most pessimistic poets, Bob Dylan, was moved to remark at a performance in Minnesota that "I was born in 1941, the year they bombed Pearl Harbor. I've been living in darkness ever since. But it looks like things are going to change now." Then he danced a jig. Yes, Bob Dylan danced onstage. Maybe Obama really can work miracles.

But can a president, even the most gifted, really change things? Not by himself, of course, only the people can, and only if they and their leaders have a clear and accurate understanding of the situation, especially the role of Israel in the world today. They also need a clear and accurate understanding of human nature, both the nature of normal humanity and of the intra-species predators, the psychopaths (more on that later). In that regard, one wishes Obama would read more Andrzej Lobaczewski and less Reinhold Niebuhr.

It is easy, and not a bad thing, to be cynical of all the talk of hope and change. Many in the "foreign policy establishment" (American Imperialists in other words) see Obama as a "rebranding" of the U.S. internationally. Obama's talk about "winning" the war in Afghanistan is particularly repellant. Obama's pick of the rabid Zionist (and rabid generally) Rahm Emanuel as Chief of Staff, was a stomach punch to many. One hopes that Obama is following the principle of keeping your friends close and your enemies closer. Even if the ideal president was trying to move away from Zionism, how could that president possibly do it given what the United States is now? You would only get one shot and it would have to be right between the eyes. The same goes for abandoning imperialism. If you miss, you're dead. Just have a seance and ask John Kennedy.

So the jury is out. Time will tell if Obama is just an eloquent front man for the same old death machine or if he is another naïve reformer in over his head in shark-infested waters. In any case, someone needs to get him a copy of Political Ponerology.

Troublingly, Timothy F. Geithner, president and chief executive officer of the Federal Reserve Bank of New York is being tipped as a possible candidate to succeed Paulson as Treasury Secretary.

In the news

More details emerged of the Bush gang's wholesale looting of the US Treasury via their 'bailout plan'. The terms on which the Treasury has injected fresh capital into the banks would be laughable if they were not so transparent, not to mention the purchase of worthless junk from the banks in exchange for valuable Treasury Securities. Naomi Klein calls it The New Trough. To compound matters it emerged that the Fed is refusing to disclose who it has lent the money to and against what collateral security.

The G20 met, in closed door talks, in Brazil this weekend ahead of the crisis meeting in Washington next weekend (November 15th). There are ever greater calls for coordinated action to address the real world effects of the 'financial crisis' and the global recession it is exacerbating. As hedge funds, banks and other investors in emerging market nations rapidly withdraw their funds, the markets in these countries plunge as do their domestic currencies, their banks have almost no access to external funding and their economies literally hit the wall. As always it is the poor who suffer most in these circumstances.

The US, UK, G20 and China have joined the clarion call for "fiscal stimulus"; China announcing a package worth $586 billion. Unsurprisingly, but troubling none the less, key policy framers in the US and UK are calling for tax cuts rather than public spending. Tax cuts benefit the rich, do not generate jobs and fail to provide any relief to the poor.

On the currency front, it looks like there may be moves to justify the US dollar as a reserve currency in a new currency system. European banks cut interest rates, the Bank of England by 1.5 percentage points, causing commentators to refer to a world of zero interest rates ahead.

Markets


The markets this week
Previous week's close This week's close Change% change
Gold ($) 718.20736.1017.902.49%
Gold (€)564.40578.7914.392.55%
Oil ($) 67.8161.046.779.98%
Oil (€)53.2947.885.4110.15%
Gold:Oil10.5912.061.4713.88%
$ / €0.7858 / 1.27250.7863 / 1.2718 0.0005 / 0.00070.06% / 0.06%
$ / ₤0.622 / 1.60770.6393 / 1.5642 0.0173 / 0.0435 2.78% / 2.71%
$ / ¥98.465 / 0.01016 98.235 / 0.01018 0.23 / 0.000020.23% / 0.23%
DOW9,3258,9443814.09%
FTSE4,3774,365120.28%
DAX4,9884,938500.99%
NIKKEI8,5778,58360.07%
BOVESPA37,25736,6655921.59%
HANG SENG 14,70914,2434653.16%
US Fed Funds 0.12%0.25%0.13108%
$ 3month 0.38%0.28%0.1026.32%
$ 10 year 3.96%3.79%0.2174.29%


It is very apparent from all we have written and said on Sott.net that we are in a very serious situation here on the Big Blue Marble. A situation devised by those in control of the affairs of man. In order to have any chance of extracting ourselves we have to take certain concrete steps, the first among them being that we have to face the truth however incredible and terrifying it may seem. This means that we have to face the truth about our predicament, our controllers and ultimately ourselves. Only then, armed with truth and surrounded with suitable allies and friends, can we formulate our survival and eventually our escape.

To better understand our economic predicament we have been exploring how the system that we know as 'Free Market Capitalism' works and how it manifests from week to week. Let's take a quick look at how this system originated, the role that we are expected to play in that system according to the masters of the system, how this came to be "the system" and what type of being dominates it.

Once we understand these we should be better equipped to explore alternatives on a macro and micro economic scale.

Free Market Capitalism

Hannah Arendt's Origins of Totalitarianism delineates the features of what started as the new mercantile social class of the 16th and 17th centuries and became the defining political class of the 20th and now 21st centuries, the bourgeoisie or financial/capitalist elite.

"As long as the mercantile class fulfilled the basic function of being producers and stimulators of production (ie. a community of producers), its wealth had an important function for the nation as a whole."[1] However, "the owners of superfluous capital were the first section of society to want profits without fulfilling some real social function - except that of exploitative producer - and whom no police could ever have saved from the wrath of the people." [2]

By the 19th century there arose in Europe the confluence of surplus labour and surplus capital; both originating from the social and economic changes brought about by the Industrial Revolution. At the same time the existing political and social structures of Europe were under considerable threat. This led to an imperialist alliance between the "mob" (the masses) and capital, often resisted by the governments in power at the time but supported by a large section of the educated classes; for imperialism, the expansion of capitalism beyond the borders of the nation state, seemed to be the universal panacea to sweep away all troubles.

Capital was invested abroad with large numbers of the mob similarly exported to extract resources from those foreign lands and protect and exploit the invested capital. Imperialism was and remains the export of free market capitalism in its most extreme form. It is also theft on a grand scale. This latter point should not be forgotten for while the people of the western capitalist economies sit at home raging about the dreadful economic times or the theft of billions from the public purse it seems opportune to resurrect a few home truths:-




* The comparative comfort of those in the 'West' is built on the theft of the resources of the nations which have been subject to our imperial rule and on the blood, sweat and tears of the inhabitants of those nations. No nation has, and never has had any right, divine or otherwise, to invade, occupy and pillage lands belonging to other peoples.

* The blood, sweat and tears currently being shed by our generation and that shed by those that came before us in the defense of 'freedom' were in fact shed in the defense of capitalism and for the principle benefit of those at the top of the capitalist/financial tree. (see writings of Douglas Reed who railed against what he saw in Britain).

* Your governments, run as they always have been for the benefit of the elite, whether aristocratic or financial/capitalist, have always been stealing from you to line their own pockets - they call it 'taxation' and 'regulation'.



During this period the bedrock of the creed of free market capitalism became established; the equating of private interest with public interest; the rights and protections associated with private/individual property; the view that political institutions, including the police at home and the military abroad, exist exclusively as an instrument for the protection of individual property and the legalisation of theft, in the form of rampant exploitation, given an almost moral authority.

Business was transformed into a political issue and the narrow economic interests of a relatively small group became equated with national interests, where the common good became identified with the sum total of individual interests and expansion, that is imperialism, appeared to be a common interest of the nation as a whole. "Since the [financial and capitalist] classes had convinced everybody that economic interest and the passion for ownership are a sound basis for the [operation of the state], even non-imperialist statesmen were easily persuaded to yield when a common economic interest appeared on the horizon." [3]

Expansion became an end in and of itself and its protagonists became "nothing but functionaries of violence [who] could only think in terms of power politics. They were the first who, as a class and supported by their everyday experience, would claim that power is the essence of every political structure."[4]

The perpetual cycle of accumulation of property/capital begetting the accumulation of power begetting the accumulation of property, onwards forever, requires perpetual expansion. The great waves of change of the Industrial Revolution, the age of Imperialism and the age modern empire, whether under the guise of Cold War or War on Terror, have led to the ceding of all power to the financial/capitalist elite. Since the age of colonial imperialism this elite has succeeded, in complete accordance with its creed of perpetual accumulation of property and power, in gathering ever greater amounts of both.

Recall if you will two small parts of US history. The first, that part of the United States Declaration of Independence which declares that man has certain inalienable rights, "Life, liberty and the pursuit of happiness" may previously have read "...and the pursuit of property", although whether and when such a change was made is a matter of some debate. The second, that originally only property owners were eligible to vote as was the case in England.

Since power is normally a means to an end, a society based solely on power must decay in the calm of order and stability. Only by acquiring more power, by constantly extending its authority, and only through the process of power accumulation can it remain stable. Thus, such a society "must always provide itself with new props from outside [new avenues of expansion and ever more property] otherwise it will collapse overnight into the aimless, senseless chaos of the private interests from which it sprang." Hence the attributes of Free Market Capitalism that we see today. It is not that the system is necessarily collapsing but that it must continue to expand, to consume all, to survive. Should it run out of space in which to expand, or property and labour to consume, then it will implode. If we were to refuse to aid this system in its voracious consumption of peoples and nations and of our own wealth, if we were to stand firm and say "NO" and really mean it, be prepared to suffer together the consequences of starving the predator then it would indeed "collapse ... into the aimless, senseless chaos of the private interests from which it sprang".

Such an analysis certainly seems to fit geopolitical history and the current power struggles we see before us. The same can be said of the state of Israel and any other system governed by the same psychology as Free Market Capitalism.

The role of man

The English 17th century philosopher Thomas Hobbes depicts in his work Leviathan , a totalitarian state based on a certain structure of society in which 'Man' would have to attain certain attributes. Hauntingly, despite being published in 1651, Leviathan depicts our modern society and the view of normal people held by our ruling elite.

Normal people are viewed as being without reason, without the capacity for truth and without free will, that is without the capacity for responsibility. We are seen as essentially a function of society and judged therefore according to our value or worth, our price; that is to say "so much as would be given for the use of our power." This price is constantly evaluated and re-evaluated by society depending upon the law of supply and demand (and within the confines of our ability to act collectively, an ability severely restricted since the mid 1980s).

We are considered equal, not because of some inherent value of human life or our possessing a divine spark but because of our mutual ability to kill. The state exists as a result of our need for security from each other as we feel ourselves threatened by our fellow man. Exactly today's fractured societies where we accept unprecedented levels of state interference on the basis that we are being protected for the outcasts of our own societies, whether professional criminals or young thugs (a recurrent theme in European politics), or outsiders in the form of the ubiquitous 'terrorist' or 'immigrant'.

"The state is based on the delegation of our power and not of our rights. It acquires a monopoly on killing and provides in exchange a conditional guarantee against being killed. Security is provided by the law, which is a direct emanation from the power monopoly of the state (and not established according to human standards of right and wrong). As this law flows directly from absolute power, it represents absolute necessity in the eyes of the individual who lives under it. In regard to the law of the state - there is no question of right or wrong, but only absolute obedience, the blind conformism of [capitalist] society."[5]

The delegation of our political power to the state and the loss of real political rights means that we have lost our rightful places in society and our natural connections with each other. Bereft of political rights we are reduced to focus only upon ourselves and our private lives which we can only judge by comparison with others and thus we are driven to compete. We have been reduced to a society of individual competitors. For many even the notion, let alone the actuality of being part of a community, of something larger than ourselves in which we have rights and to which we are responsible is beyond comprehension. In our society those that 'fail' in this competition are barred from competition and thereby from society; one look at how we treat the disadvantaged, the poor and the weak confirms this. This has even become a virtue in current US and Western social models.

As well as assigning our political rights to the state, as individuals we have also delegated our social responsibilities to it; we have in effect asked the state to relieve us of our obligation to our fellow man just as we have asked the state for protection from our fellow man. This process of delegation of power and abdication of responsibility is ongoing. We are left in the position of having no responsibility for those things over which we have, or at least should have control while we are held responsible for matters outside our control - consider modern US and UK law relating to legal liability in contrast to our freedom to educate or vaccinate our children as we see fit.

For Hobbes, "power is the accumulated control that permits the individual to fix prices and regulate supply and demand in such a way that they contribute to his own advantage." "Man driven by his individual interests will have a passion for power."[6] Hobbes might just as well have been writing a first hand account of the situation we find ourselves in today.

As Arendt puts it, "It seems as though Hobbes's picture of man.....gives...a consistent pattern of attitudes through which every genuine community can easily be destroyed".

Imperialism

Imperialism, in the 19th century the new phase of free market capitalism, was to change not only the exploited colonies but also the nation states form which it sprang.

J.A. Hobson in Capitalism and Imperialism in South Africa (1900) and Imperialism (1902) called imperialism a perversion of nationalism "in which nations...transform the wholesome stimulative rivalry of various national types into the cut-throat struggle of competing empires". Again, an accurate depiction of the world today, in which the mob (or masses) are easily swayed into confusing the economic interests of their ruling elite with their own and their nation's interests. Hobson referred to the financial/capitalist elite as "Parasites upon Patriotism" 100 years before the flag waving jingoism of the present wars in Afghanistan and Iraq.

The coming to power through imperialism of the financial/capitalist elite had a debilitating effect upon the political institutions of the home nation. In Britain Hobson noted the shift in power away from Parliament to the Cabinet; "Imperialism was the chief cause ... which led to ... a growth of "power of the Cabinet as against the House of Commons". This is a process that has reached its current zenith in the US with the wholesale 'privatisation' of the US government and the accumulation of all power within the Executive.

As Arendt put it, "That the authority of the nation-state itself depended largely on the economic independence and political neutrality of its civil servants becomes obvious in our time; the decline of nations has invariably started with the corruption of its permanent administration and the general conviction that civil servants are in the pay, not of the state, but of the owning classes."[7] Interestingly, she also referred to "High society's admiration for the underworld....its step-by-step retreat on all questions of morality, and its growing taste for the anarchical cynicism of its offspring".

100 and 50 years ago respectively, Hobson and Arendt clearly saw the detrimental effects of imperialism and by definition free market capitalism. They foresaw where we are today; the private interests of the ruling elite, the arch capitalists, are being presented as the interests of us all upon which our very national survival depends. That none of this is for your benefit, none of it, did not escape them just as it should not escape you.

Keen readers of history understand that the vast majority of wars have been conjured, financed and facilitated by the financial/capitalist elite. This is entirely logical when looked at from the perspective of the need for perpetual expansion and perpetual violence to keep the financial/capitalist machine going. The wars in Afghanistan and Iraq, the occupation of Palestine and the subjugation of peoples from Latin America to Asia are no different.

Psychopaths

The system within which we find ourselves is the natural result of the evolutionary success of a sub-species of the human race. This sub-species is an inter-species predator, preying upon the bulk of humanity. This sub-species, the Psychopath, has been the subject of much recent research a good deal of which has been published on Sott.net.

From The Psychopath - The Mask of Sanity




Imagine, if you can, not having a conscience, none at all, no feelings of guilt or remorse no matter what you do, no limiting sense of concern for the well-being of strangers, friends, or even family members. Imagine no struggles with shame, not a single one in your whole life, no matter what kind of selfish, lazy, harmful, or immoral action you had taken.

And pretend that the concept of responsibility is unknown to you, except as a burden others seem to accept without question, like gullible fools.

Now add to this strange fantasy the ability to conceal from other people that your psychological makeup is radically different from theirs. Since everyone simply assumes that conscience is universal among human beings, hiding the fact that you are conscience-free is nearly effortless.

You are not held back from any of your desires by guilt or shame, and you are never confronted by others for your cold-bloodedness. The ice water in your veins is so bizarre, so completely outside of their personal experience, that they seldom even guess at your condition.

In other words, you are completely free of internal restraints, and your unhampered liberty to do just as you please, with no pangs of conscience, is conveniently invisible to the world.

You can do anything at all, and still your strange advantage over the majority of people, who are kept in line by their consciences will most likely remain undiscovered.



We are told that as a political philosopher Hobbes was in theory not attempting a psychological portrait of man but merely setting out how man would need to be to meet the needs of his political form, the Leviathan. Leviathan, published in 1651, would seem then to be either the work of a psychopath or an extraordinary analysis of the traits of the psychopath that would make such a psychopath successful in the new world of the financial/capitalist society.

The 'Man' Hobbes describes is a psychopath. Whether he intended it or not he was describing how the world was to become when dominated by that particular breed of homo sapiens that excels in free market capitalism, itself the construct of psychopathy.

Andrzej M. Lobaczewski wrote the seminal work on the role of the psychopath in modern political structures - Political Ponerology: A science on the nature of evil adjusted for political purposes - which we highly recommend to readers together with the material here , here and here

What Lobaczewski explicates is the existence, among us, of psychopaths that are not "failed", in the sense of having committed a violent crime and been caught, so remain hidden from our obvious view. These beings are able to act entirely without conscience, are often charismatic and inspirational, with an almost preternatural cunning and depth of understanding of the psyche of normal people.

These features make them extraordinary manipulators of normal people. So much so that they infect many people who are not psychopaths with their callous and self-serving mindset, a process Lobaczewski calls 'Ponerogenesis'. A process that Michael Lewis captured in Liar's Poker, his account of his experiences as a bond salesman on Wall Street, and more particularly with Salomon Brothers (now part of Citigroup), in the 1980s. Salomon Brothers's Lewis Ranieri ran the mortgage department which essentially invented Mortgage Backed Securities leading ultimately to the creation of the sub-prime market. Mortgage Backed Securities and the sub-prime market became so over inflated that they precipitated the current 'financial crisis'. It is instructive to see how the psychopathic predatory nature operates on Wall Street and how the cancer spread outwards in an orgy of unmitigated greed.

People with an existing weakness in their psychological make up are easily infected by the psychopathic pathology, becoming sociopaths and characteropaths. These pathological types create socially influential groups ('ponerogenic associations') or infiltrate existing social groups, allowing them to further spread the underlying pathology and infect normal people. These 'ponerogenic associations' "..cunningly avoid collision with the law while seeking to gain their own advantage. Such [associations] frequently aspire to political power in order to impose their expedient legislation upon societies in the name of a suitably prepared ideology, deriving advantages in the form of disproportionate prosperity and the satisfaction of their cravings for power".[8] Does that not fit exactly with the description of free market capitalism set out above?

An additional part of this process of assimilation of the world of normal people to the world of the psychopath is the necessary conversion of people who are not psychopathic to the pathological creed through the creation of false morals or values ('paramoralisms) which are then used to justify what would otherwise be immoral behaviour. The doctrine of free market capitalism is full of such paramoralisms related to the fleecing of ordinary people, the "rightness" of greed, "might is right" and so on. In this way a false morality is built. Indoctrinated with this false morality, generation after generation has become the cannon fodder and slave labour of the world's financial elite and remains ripe for the picking whenever our master choose.

The entire fabric of Free Market Capitalist societies is governed by fear, an all pervading, overwhelming fear. A world where one is perpetually in competition, where what ever one has can be taken by the next man in his pursuit of property or through crime, where the fundamental basis of society is based upon the accumulation of unlimited capital and unlimited power for their own sakes, that is a world based on unlimited fear. A world entirely reflective of the psychopaths manipulation of the psyche of normal people.

It is essential to our mission or survival and escape that we face this reality - that we are subject to the predations of beings that appear human but are not. These beings have infected normal people and even our own minds to a greater or lesser degree. If we do not understand this then any attempts we make to change our situation will fall under the influence of the power of the psychopath and lead to "every genuine community" being destroyed. We have to face this fact and face that all pervading fear.

The 'financial crises', including 1906, 1920/21, 1929/33, 1997/98 and today's are simply the times chosen by the financial elite to gather ever greater property/capital and power in accordance with the laws governing the system that is modeled in their image. A system designed for periodic, engineered "failure". Despite what economists are inclined to believe, economies are not subject to 'natural laws' and therefore outside the control of man but rather to mechanical laws that are quite within the control of man if you happen to have the power and influence to pull and push the necessary levers.

Herman Daly

The US economist Herman Daly, delivered a paper to the Sustainable Development Commission in the UK in April this year in which he reiterated his idea of a Steady State Economy that can replace the "failed growth economy".

In this paper Daly was challenging the basis of free market capitalism as summarised by Arendt, the perpetual accumulation of property/capital. He implicitly acknowledges the fact that free market capitalism has to consume to grow and has to grow to survive. Logically this is not possible perpetually when one looks at the world as a finite system. He therefore proposes that a move away from the growth economy of the last 300 years to an economy that is stable, one that does not grow. On a global basis this would mean that the developed economies would have to use their resources more efficiently, allowing the developing economies a greater share of the world's resources until such time as they had achieved a reasonable quality of life amongst their citizens.

Daly proposes:-




A more equitable sharing of basic global resources

Reform of the tax systems to an ecologically based tax system

Limit the range of inequality in income distribution-a minimum income and a maximum income. Without aggregate growth poverty reduction requires redistribution. Complete equality is unfair; unlimited inequality is unfair. Seek fair limits to inequality.

Change the way we work so as to provide work for everybody rather than slavery for some and unemployment for others.

Re-regulate international trade. Limit the freedom of movement of capital, restrain globalisation.

Downgrade the IMF, the World Bank and the World Trade Organisation to a new model designed for equality amongst nations.

Abolish fractional reserve banking. Give the control of money back to governments and away from banks.

Put scarce resources under public control and remove the private control on knowledge and information. Stop treating the scarce as if it were non scarce, and the non scarce as if it were scarce.

Stabalise world population.

Change national accounting to reflect reality so as to be able to see when growth ceases to benefit a nation as a whole.



Whether all Daly ideas are good ones is not really the point. What they serve to illustrate is that serious economists, (Daly used to be at the World Bank), do have ideas as to how our world could be run differently. So when you hear the liars telling you that this and that 'reform' is necessary to keep the existing system running hopefully now you can see through their lies and can tell anybody else who'll listen.

Micro-economic matters

The first thing we all have to do is get over our fear because fear shackles us. It shackles our minds, our emotions and our actions. To break the shackles is much easier if approached with friends and allies. The society in which we have been conditioned to live, as described above, has made us competitor and not collaborators. This is the first thing to change; learn to collaborate, gather people around you who see the world in the same broad terms, see the same problems and see the need for change.

As you start to collaborate understand each others weaknesses and remember that among the things we need to learn are new ways of being based on open communication and greater comprehension. When you are with your 'friends and neighbours' observe how the discussion tends to devolve down to differences of opinion regarding details while the broad principles upon which you agree become forgotten. These differences in detail can derail many team efforts and can be easily exploited by the unscrupulous.

Understand the weaknesses and foibles of your fellow humans and work with them to cover their backs. Do not make people afraid to fail, for without the ability to fail how will we learn to succeed? There is nothing wrong with failing. Learn to communicate - it's a lot harder than it sounds as we all mask what we really need behind our false personalities - allowing our real message to often be lost in the need to be right or in a flood of emotions.

Once you have the basis of a team then move on to practical matters. One big change that will help you through the tough times ahead will be to live together as a group. You will find that large properties are cheaper per bed than many small ones combined. You will be able to share the burdens, risks and expenses of life amongst yourselves. You might even consider setting up some sort of business in which some of you can work while others remain in paid employment, at least while there is employment.

A house with 15 adults might need 3 cars, a couple of washing machines, two fridges and so on - far less needed that 15 adults living separately. Sure, it will take some cooperation to work out schedules but that shouldn't be beyond you. You'll need just one broadband and/or phone connection for the entire house. The bills for a big place (barring property taxes which you will need to take into consideration) split among a group tend to be cheaper per head. This includes insurance should you have it.

You will find that there are people always around to help you, and you them. If you find yourself laughing at such an idea then ask why that is - it may well be that you, like most people, have been conditioned against the idea of people living in communities; either that or you don't know how serious the situation really is.

Next, take a long hard look at how you spend your money. Look at your food bill and consider a complete change in diet to a very simple, cheap and healthy approach. Stop buying processed foods, research about detoxifying your body and take the recommended steps as far as possible and start eating brown rice, beans and pulses, and green vegetables. No more supermarket juices, cheese or prepared foods of any sort.

Does that sound too radical? Perhaps but it would undoubtedly help you in a number of ways - you will be healthier and you will spend far less on food. As rice and beans are simple to cook, can be cooked in bulk and kept in the fridge you would also save a bunch of time. If you really understand what we have pointed out about the way the system works, ask yourself whether that same system is likely to have been encouraging you to eat good foods or profitable foods. You know the answer.

Beyond your living arrangements, if you have any savings think about this - if they are in a bank or a fund or anything of that nature - who has the benefit of that money, you or the people who hold it? They do of course, and if 'they' are a bank they are using your money to turn a profit. So how about taking most of that money away from them? What about getting together with friends and allies and seeing whether you can make that money work for yourselves - the world has endless possibilities. You might get together, buy a plot of land and turn it into a group vegetable garden - really making your money grow.

In due course the things of real value in society will be those things that have a function that people are willing to pay for. If you can operate some of those things then so much the better. Prepare yourself for being able to barter and trade. Obviously, this will be easier if you are working in a group but even if you are alone, find a skill and get good at it while you can. For example, it might be that you can fix things so make sure you have good tools.

Take a look at the system, understand how it works and learn how to work within it. You can refuse to be controlled by it, bit by bit, but that does not mean cutting loose. There are ample reports of the extent of surveillance and the consequences of standing out so research and learn how to keep below the radar while being able to take active steps to help yourselves. Clean up your credit history as best you can so as to ensure that you have access to credit should you need it. If you are in debt with high interest see what you can do to lower the interest payments.

Basically, take a good hard look at the realities of your life and think - what could I do if I had a group of friends and allies I could really work with to improve this situation?

We have been conditioned to be 'individuals' for our entire lives now is the time to become communities again. You'll find that you'll laugh a whole lot more too.

****

[1] Hannah Arendt, Origins of Totalitarianism (1951), Chapter 5
[2] Hannah Arendt, Op cit
[3] Hannah Arendt, Op cit
[4] Hannah Arendt, Op cit
[5] Hannah Arendt, Op cit
[6] Thomas Hobbes, Leviathan
[7] Hannah Arendt, Op cit
[8] Andrzej M. Lobaczewski, Political Ponerology

Labels: , , , , ,

Monday, February 18, 2008

Signs of the Economic Apocalypse, 2-18-08

From SOTT.net:

Gold closed at 905.40 dollars an ounce Friday, down 1.9% from $922.30 for the week. The dollar closed at 0.6813 euros Friday, down 1.2% from 0.6893 at the close of the previous Friday. That put the euro at 1.4678 dollars compared to 1.4507 the Friday before. Gold in euros would be 616.84 euros an ounce, down 3.1% from 635.76 at the close of the previous week. Oil closed at 95.67 dollars a barrel, up 4.2% from $91.77 for the week. Oil in euros would be 65.18 euros a barrel, up 3.0% from 63.26 at the close of the Friday before. The gold/oil ratio closed at 9.46 Friday, down 6.4% from 10.06 for the week. In U.S. stocks, the Dow closed at 12,348.21 Friday, up 1.4% from 12,182.13 at the close of the previous week. The NASDAQ closed at 2,321.80 Friday, up 0.7% from 2,304.85 at the end of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.77%, up 12 basis points from 3.65 for the week.

Gold dropped last week on recession fears and oil probably would have too if not for the unrealistic threat by Hugo Chavez to cut of oil exports to the United States. The threat worked like a charm, though, for both Exxon-Mobil and Venezuela, both of which benefit from higher oil prices. Something has to prop those prices up now that tensions between the U.S. and Iran have eased a bit. I’m not saying that Hugo Chavez is working for the oil companies or in the interests of the United States. Most of the evidence would argue against that. But it is curious how long-lived all of the very public enemies of the United States are: first Castro, then Khaddafi, then Bin Laden, who, isn’t even alive, but is kept alive in the virtual world of mainstream discourse because of his value as a public enemy. Such a status can even keep you alive when you are dead!

This kind of ambiguity never ends. Who was John Kennedy? A rabid anti-communist Cold Warrior who instituted counterinsurgency programs around the world? Or were those poses tactical feints concealing a fundamental radical reformism? The fact that he was assassinated gives weight to the latter. Similar questions can be asked about Barack Obama. Bill Van Auken wrote a piece last week detailing Obama’s economic populist rhetoric along with his base of support among the neoliberal super-elite. Is Obama courting these types because that’s what you have to do to get elected and to have any hope of reform, or is University of Chicago-style neoliberalism what he believes in? Or could he be naïve enough to think that neoliberalism is economic populism? That would be scary. The fact that he is being advised by Zbigniew Brzezynski, Paul Volcker and University of Chicago economist Austan Goolsbee is not a good sign.
The two faces of Barack Obama

Bill Van Auken
14 February 2008

Appearing before a packed auditorium at the University of Wisconsin Tuesday on the night of his victories in the “Potomac primaries,” held in Maryland, Virginia and Washington, D.C., Illinois senator and Democratic presidential candidate Barack Obama delivered a speech that was notable for its populist demagogy, not only on the war in Iraq but also social conditions in America.

The Wisconsin rally is the latest in a series of campaign events that have drawn large and predominantly younger crowds—20,000 at the University of Maryland and 17,000 in Virginia Beach on the eve of Tuesday’s primaries—and which have seen Obama adopt a more “left” public face.

The Illinois senator has the instincts of an agitator and seeks to give the crowds what he senses they want. In Wisconsin, he linked “record profits” for Exxon to the rising “price at the pump,” provoking enthusiastic applause. He spoke of trade agreements that “ship jobs overseas and force parents to compete with their teenagers for minimum wage at Wal-Mart.” And he pledged to be a “president who will listen to Main Street—not just Wall Street; a president who will stand with workers not just when it’s easy, but when it’s hard.”

Turning to the question of Iraq, he declared that “our troops are sent to fight tour after tour of duty in a war that should’ve never been authorized and should’ve never been waged,” and derided those who “use 9/11 to scare up votes.”

He continued by citing deteriorating social conditions facing average Americans: “the father who goes to work before dawn and then lies awake at night wondering how he’s going to pay the bills;” “the woman who told me she works the night shift after a full day at college and still can’t afford health care for a sister who’s ill;” the retiree “who lost his pension when the company he gave his life to went bankrupt;” and “the teacher who works at Dunkin Donuts after school just to make ends meet.”

He responded with promises of tax cuts for working people, health care reform, better pay and a government that would “protect pensions, not CEO bonuses.”

Echoing the rhetoric of Martin Luther King, he concluded his speech with the vow that “our dream will not be deferred, our future will not be denied, and our time for change has come.”

There is an element in these speeches that would seem to give pause to the Democratic Party establishment and the big business interests it represents. Obama’s rhetorical excursions could be seen as leading into dangerous territory. After all, the Democratic Party has served as an indispensable partner in the Bush administration’s policies of war abroad and social reaction at home.

But this populist primary rhetoric is only one face of Obama. There is another, and it is turned firmly towards the very corporate interests he publicly criticizes, which have poured tens of millions of dollars into his campaign.

On the day after the Potomac primaries, BusinessWeek ran a special report entitled, “Is Obama Good for Business?” While the piece provided no direct answer to this question, the attitude taken by the business magazine appeared to be a qualified “yes,” based in large part on the private discussions that the Illinois senator is holding with top Wall Street and corporate insiders even as he is delivering his public appeals for “change.”

Thus, BusinessWeek noted, last Sunday, after learning of his victory in the Maine Democratic caucuses, Obama sat down at his computer to exchange emails with Robert Wolf, CEO of UBS America, one of his major Wall Street “bundlers,” responsible for bringing in millions in donations from fellow multi-millionaires to finance what Obama refers to as his “movement.” According to estimates made by the Center for Responsive Politics, 80 percent of the money raised by the Obama campaign last year came from donors affiliated with business, with Wall Street leading the pack. More than half of the money came in the form of donations totaling $2,300 or more.

In addition to Wolf, Obama stays in regular touch with Warren Buffett, the second-wealthiest individual in America, with a net worth of some $52 billion. Among his leading economic advisors is Austan Goolsbee, a University of Chicago professor and prominent advocate of free market policies.

The Volcker endorsement

Perhaps most significant was last month’s little reported endorsement of Obama by Paul Volcker, who was appointed Federal Reserve Board chairman by Democratic President Jimmy Carter in 1979 and remained in charge of the US central bank for nearly seven years under the right-wing Republican administration of Ronald Reagan.

Volcker was responsible for inaugurating a high-interest-rate regime demanded by the dominant sections of finance capital in the name of the battle against inflation. His monetary policy was inextricably linked to the offensive against the working class begun with the firing of the air traffic controllers and the breaking of the PATCO strike and continued with the shutdown of large sections of basic industry and the unleashing of the worst economic downturn since the Great Depression of the 1930s. The ultimate effect of these policies was a vast transfer of wealth from the mass of working people to a narrow financial elite, a process that has continued to this day.

In a statement announcing his backing for Obama, Volcker noted that he had previously avoided involvement in partisan politics. He said that he was moved to intervene now not “by the current turmoil in markets,” but because of “the breadth and depth of challenges that face our nation at home and abroad.” He added, “Those challenges demand a new leadership and a fresh approach.” Obama’s leadership, he concluded, would be able to “restore needed confidence in our vision, our strength and our purposes right around the world.”

Larry Kudlow, the right-wing pundit and former Reagan administration economic advisor, commented on the endorsement earlier this month, noting that he had once worked as a speechwriter for Volcker and describing him as “a great American... a classic conservative... a man of fiscal and monetary rectitude.”

Volcker, Kudlow wrote, “would not have made this endorsement on a whim. Believe me. He never gets involved in these kinds of political decisions.” He concluded by asking: “Is Volcker the new Robert Rubin [the Wall Street insider who directed the Clinton administration’s economic policy]? Is it possible that Mr. Volcker is somehow tutoring Obama? Is it possible that Obama is more financially conservative than originally believed?”

These are the real relations that are being forged behind the scenes as Obama delivers left phrases from the podium. Those like Volcker see the Illinois senator as a useful vehicle for effecting major changes aimed not at ameliorating the conditions of life for masses of working people, but rather at securing the global interests of American finance capital.

No doubt, they believe Obama, who would be America’s first African-American president, is best suited to confront the dangers posed by continuing economic crisis and rising social tensions. Who better to demand even greater sacrifices from the working class, all in the name of national unity and “change?” At the same time, he would present a fresh face to the world, which they hope would help extricate US imperialism from the foreign policy debacles and growing global isolation that are the legacy of the Bush administration.

Given these big business ties, Obama’s campaign rhetoric about confronting poverty and social inequality involve a level of cynicism and demagogy that is truly staggering. His incessant promises of change are not tied to any radical economic program that fundamentally challenges the profit interests of the giant corporations and Wall Street.

On the contrary, Obama has advanced a conservative fiscal policy, pledging himself to a “pay as you go” approach and stressing the need to reduce debt and deficits. Given that he would take office with a near-record $400 billion deficit inherited from the Bush administration, this already determines an agenda of austerity measures.

On Wednesday, the candidate toured a General Motors plant in Janesville, Wisconsin and put forward a so-called jobs program involving investments in infrastructure and alternative energy that would total $210 billion over 10 years. In the face of the deep-going crisis confronting American capitalism, this is less than a drop in the bucket—and even this drop would quickly evaporate in the face of demands for deficit reduction.

Those who don’t want to talk about capitalism should by rights keep their mouths shut when it comes to poverty and unemployment. One cannot deal with either seriously without confronting the private ownership of society’s productive forces and the immense social inequality that it has created. The defense of jobs and living standards, the right to decent housing, health care and education for hundreds of millions of Americans can be advanced only through a far-reaching redistribution of wealth from the super rich to the broad mass of working people.

Clearly, the likes of Wolf, Buffett and Volcker are backing Obama because they know that he has no intention of going anywhere near such a policy.

As for the question of war, those looking to the Obama campaign as a means of ending American militarism will be sorely disappointed. The Illinois Senator has vowed not to reduce the ballooning US military budget—which consumes an estimated $700 billion annually—but rather to increase it. He has called for the recruitment of another 65,000 soldiers for the Army as well as 27,000 more Marines. He has vowed to put “more boots on the ground” in the “war on terror,” the pretext invented by the Bush administration to justify “preemptive war,” i.e., military aggression aimed at asserting US hegemony over the oil-rich regions of the Middle East and Central Asia.

As for Iraq itself, his promises to end the war are belied by his pledge to keep American forces in Iraq to defend “US interests” and conduct “counterterrorism operations,” a formula that would see tens of thousands of US soldiers and Marines continuing to occupy Iraq and repress its population for many years to come.

To the extent that Obama’s rhetoric arouses popular expectations—and there are indications that it does—these will inevitably be dashed. In all probability, this will happen once the primary season is over and Obama is confronted by the Republican right as well as elements within the Democratic Party itself with the demand that he clarify his program. Should he capture the White House in November, he will head an administration committed to defending the interests of the American oligarchy both at home and abroad.

Those turning towards the Obama campaign as a means of effecting progressive social change in the US and bringing an end to US militarism abroad will find that the Democratic Party and the corporate and financial interests it represents will allow neither.

These necessary goals can be achieved only through a decisive break with the Democrats and the entire two-party system and the independent mobilization of the working class through the building of a mass socialist movement.

In one sense, the fact that the Warren Buffets and the Paul Volckers of the world are putting their hopes on someone like Obama to keep the system intact instead of the usual right-wing Republicans indicates just how much they fear the present crisis might actually lead to real change. Much like how capitalism saved itself in the 1930s by the New Deal reforms of Roosevelt, reforms that were abhorrent to the captains of capitalism of the time.

The economic crisis the world is entering into now represents the end of an era that began in the 1970s, the neoliberal era. Here is Steve Kangas, writing in the late 1990s, on how it all started:

The Origins of the Overclass

Steve Kangas

The wealthy have always used many methods to accumulate wealth, but it was not until the mid-1970s that these methods coalesced into a superbly organized, cohesive and efficient machine. After 1975, it became greater than the sum of its parts, a smooth flowing organization of advocacy groups, lobbyists, think tanks, conservative foundations, and PR firms that hurtled the richest 1 percent into the stratosphere.

The origins of this machine, interestingly enough, can be traced back to the CIA. This is not to say the machine is a formal CIA operation, complete with code name and signed documents. (Although such evidence may yet surface — and previously unthinkable domestic operations such as MK-ULTRA, CHAOS and MOCKINGBIRD show this to be a distinct possibility.) But what we do know already indicts the CIA strongly enough. Its principle creators were Irving Kristol, Paul Weyrich, William Simon, Richard Mellon Scaife, Frank Shakespeare, William F. Buckley, Jr., the Rockefeller family, and more. Almost all the machine's creators had CIA backgrounds.

During the 1970s, these men would take the propaganda and operational techniques they had learned in the Cold War and apply them to the Class War. Therefore it is no surprise that the American version of the machine bears an uncanny resemblance to the foreign versions designed to fight communism. The CIA's expert and comprehensive organization of the business class would succeed beyond their wildest dreams. In 1975, the richest 1 percent owned 22 percent of America’s wealth. By 1992, they would nearly double that, to 42 percent — the highest level of inequality in the 20th century.

…Historically, the CIA and society’s elite have been one and the same people. This means that their interests and goals are one and the same as well. Perhaps the most frequent description of the intelligence community is the "old boy network," where members socialize, talk shop, conduct business and tap each other for favors well outside the formal halls of government.

Many common traits made it inevitable that the CIA and Corporate America would become allies. Both share an intense dislike of democracy, and feel they should be liberated from democratic regulations and oversight. Both share a culture of secrecy, either hiding their actions from the American public or lying about them to present the best public image. And both are in a perfect position to help each other.

How? International businesses give CIA agents cover, secret funding, top-quality resources and important contacts in foreign lands. In return, the CIA gives corporations billion-dollar federal contracts (for spy planes, satellites and other hi-tech spycraft). Businessmen also enjoy the romantic thrill of participating in spy operations. The CIA also gives businesses a certain amount of protection and privacy from the media and government watchdogs, under the guise of "national security." Finally, the CIA helps American corporations remain dominant in foreign markets, by overthrowing governments hostile to unregulated capitalism and installing puppet regimes whose policies favor American corporations at the expense of their people…

The Business Origins of CIA Crimes

Although many people think that the CIA’s primary mission during the Cold War was to "deter communism," Noam Chomksy correctly points out that its real mission was "deterring democracy." From corrupting elections to overthrowing democratic governments, from assassinating elected leaders to installing murderous dictators, the CIA has virtually always replaced democracy with dictatorship. It didn’t help that the CIA was run by businessmen, whose hostility towards democracy is legendary. The reason they overthrew so many democracies is because the people usually voted for policies that multi-national corporations didn't like: land reform, strong labor unions, nationalization of their industries, and greater regulation protecting workers, consumers and the environment.


So the CIA’s greatest "successes" were usually more pro-corporate than anti-communist. Citing a communist threat, the CIA helped overthrow the democratically elected Mohammed Mussadegh government in Iran in 1953. But there was no communist threat — the Soviets stood back and watched the coup from afar. What really happened was that Mussadegh threatened to nationalize British and American oil companies in Iran. Consequently, the CIA and MI6 toppled Mussadegh and replaced him with a puppet government, headed by the Shah of Iran and his murderous secret police, SAVAK. The reason why the Ayatollah Khomeini and his revolutionaries took 52 Americans hostage in Tehran in 1979 was because the CIA had helped SAVAK torture and murder their people.

Another "success" was the CIA’s overthrow of the democratically elected government of Jacabo Arbenz in Guatemala in 1954. Again, there was no communist threat. The real threat was to Guatemala’s United Fruit Company, a Rockefeller-owned firm whose stockholders included CIA Director Allen Dulles. Arbenz threatened to nationalize the company, albeit with generous compensation. In response, the CIA initiated a coup that overthrew Arbenz and installed the murderous dictator Castillo Armas. For four decades, CIA-backed dicatators would torture and murder hundreds of thousands of leftists, union members and others who would fight for a more equitable distribution of the country’s resources.

Another "success" story was Chile. In 1973, the country’s democratically elected leader, Salvadore Allende, nationalized foreign-owned interests, like Chile’s lucrative copper mines and telephone system. International Telephone & Telegraph (ITT) offered the CIA $1 million to overthrow Allende — which the CIA allegedly refused — but paid $350,000 to his political opponents. The CIA responded with a coup that murdered Allende and replaced him with a brutal tyrant, General Augusto Pinochet. Pinochet tortured and murdered thousands of leftists, union members and political opponents as economists trained at the University of Chicago under Milton Friedman installed a "free market" economy. Since then, income inequality has soared higher in Chile than anywhere else in Latin America.

Even when the communist threat was real, the CIA first and foremost took care of the elite. In testimony before Congress in the early 50s, it artificially inflated Soviet military capabilities. A notorious example was the "bomber gap" that later turned out to be grossly exaggerated. Another was "Team B," a group of hawkish CIA analysts who seriously distorted Soviet military data. These scare tactics worked. Congress awarded giant defense contracts to the U.S. military-industrial complex…


By the early seventies, economic inequality was at its lowest in the United States, the right-wing movement was at its weakest and the CIA faced congressional hearings that exposed its crimes for the first time.
The CIA wasn’t the only conservative institution that found itself embattled in the early 70s. This was a bad time for conservatives everywhere. America had lost the war in Vietnam. U.S. corporations had to cope with the rise of OPEC. The anti-poverty programs of Roosevelt’s New Deal and Johnson’s Great Society were causing a major redistribution of wealth. And Nixon was making things worse with his own anti-poverty and regulatory programs. Between 1960 and 1973, these efforts cut poverty in half, from 22 to 11 percent. Meanwhile, between 1965 and 1976, the richest 1 percent had gone from owning 37 percent of America’s wealth to only 22 percent.

At a 1973 Conference Board meeting of top American business leaders, executives declared: "We are fighting for our lives," "We are fighting a delaying action," and "If we don’t take action now, we will see our own demise. We will evolve into another social democracy."

The CIA to the rescue


In the mid-1970s, at this historic low point in American conservatism, the CIA began a major campaign to turn corporate fortunes around.

They did this in several ways. First, they helped create numerous foundations to finance their domestic operations. Even before 1973, the CIA had co-opted the most famous ones, like the Ford, Rockefeller and Carnegie Foundations. But after 1973, they created more. One of their most notorious recruits was billionaire Richard Mellon Scaife. During World War II, Scaife's father served in the OSS, the forerunner of the CIA. By his mid-twenties, both of Scaife's parents had died, and he inherited a fortune under four foundations: the Carthage Foundation, the Sarah Scaife Foundation, the Scaife Family Foundations and the Allegheny Foundation. In the early 1970s, Scaife was encouraged by CIA agent Frank Barnett to begin investing his fortune to fight the "Soviet menace." From 1973 to 1975, Scaife ran Forum World Features, a foreign news service used as a front to disseminate CIA propaganda around the world. Shortly afterwards he began donating millions to fund the New Right.

…The political machine they built is broad and comprehensive, covering every aspect of the political fight. It includes right-wing departments and chairs in the nation’s top universities, think tanks, public relations firms, media companies, fake grassroots organizations that pressure Congress (irreverently known as "Astroturf" movements), "Roll-out-the-vote" machines, pollsters, fax networks, lobbyist organizations, economic seminars for the nation’s judges, and more. And because corporations are the richest sector of society, their greater financing overwhelms similar efforts by Democrats.

Besides creating foundations, the CIA helped organize the business community. There have always been special interest groups representing business, like the U.S. Chamber of Commerce and the National Association of Manufacturers, and the CIA has long been involved with them. However, after 1973, a spate of powerful new groups would come into existence, like the Business Roundtable and the Trilateral Commission. These organizations quickly became powerhouses in promoting the business agenda.

Their efforts clearly succeeded. With the 1975 SUN-PAC decision, corporations persuaded government to legalize corporate Political Action Committees (the lobbyist organizations that bribe our government). By 1992, corporations formed 67 percent of all PACs, and they donated 79 percent of all campaign contributions to political parties. In two landmark elections — 1980 and 1994 — corporations gave heavily and one-sidedly to Republicans, turning one or both houses of Congress over to the GOP. Democratic incumbents were shocked by the threat of being rolled completely out of power, so they quietly shifted to the right on economic issues, even though they continued a public façade of liberalism. Corporations went ahead and donated to Democratic incumbents in all other elections, but only as long as they abandoned the interests of workers, consumers, minorities and the poor. As expected, the new pro-corporate Congress passed laws favoring the rich: between 1975 and 1992, the amount of national household wealth owned by the richest 1 percent soared from 22 to 42 percent.

The CIA also helped create the conservative think tank movement. Prior to the 70s, think tanks spanned the political spectrum, with moderate think tanks receiving three times as much funding as conservative ones. At these early think tanks, scholars typically brainstormed for creative solutions to policy problems. This would all change after the rise of conservative foundations in the early 70s. The Heritage Foundation opened its doors in 1973, the recipient of $250,000 in seed money from the Coors Foundation. A flood of conservative think tanks followed shortly thereafter, and by 1980 they overwhelmed the scene. The new think tanks turned out to be little more than propaganda mills, rigging studies to "prove" that their corporate sponsors needed tax breaks, deregulation and other favors from government.

Of course, think-tank studies are useless without publicity, and here the CIA proved especially valuable. Using propaganda techniques it had perfected at the Voice of America and Radio Free Europe, the CIA and its allies turned American AM radio into a haven for conservative talk show hosts. Yes — Rush Limbaugh uses the same propaganda techniques that Muscovites once heard from Voice of America. The CIA has also developed countless other media outlets, like Capital Cities (which eventually bought ABC), major PR firms like Hill & Knowlton, and of course, all the Agency’s connections in the national news media.

The following is a typical example of how the "New Media" operates. As most political observers know, the Republicans suffer from a "gender gap," in which women prefer Democrats by huge majorities. This is, in fact, why Clinton has twice won the presidency. But, curiously enough, as the 90s progressed, conservative female pundits began popping up everywhere in the media. Hard-right pundits like Ann Coulter, Kellyanne Fitzpatrick, Laura Ingraham, Barbara Olson, Melinda Sidak, Anita Blair and Whitney Adams conditioned us to the idea of the conservative woman. This phenomenon was no accident. It turns out that Richard Mellon Scaife donated $450,000 over three years to the Independent Women's Forum, a booking agency that heavily seeds such female conservative pundits into the media.

Conclusion

The most obvious criticism of the New Overclass is that their political machine is undemocratic. Using subversive techniques once aimed at communists, and with all the money they ever need to succeed, the Overclass undemocratically controls our government, our media, and even a growing part of academia. These institutions in turn allow the Overclass to control the supposedly "free" market. It doesn't win all the time, of course — witness Bill Clinton's impeachment trial — but it does score an endless string of other victories elsewhere, all to the detriment of workers, consumers, women, minorities and the poor. We need to fight it with everything we've got.

Radical, undemocratic neoliberalism by the late 1990s had gotten nearly everything it wanted. It was then ready to go into hyperdrive, thanks to Alan Greenspan, Bill Clinton and the 1999 repeal of the Glass-Steagall Act. This may be what finally brings the whole thing down.
Financial Crisis: Asset Securitization-- The Last Tango
Endgame: Unregulated Private Money Creation

F. William Engdahl

What had emerged going into the new millennium after the 1999 repeal of Glass-Steagall was an awesome transformation of American credit markets into what was soon to become the world’s greatest unregulated private money creation machine.

The New Finance was built on an incestuous, interlocking, if informal, cartel of players, all reading from the script written by Alan Greenspan and his friends at J.P. Morgan, Citigroup, Goldman Sachs, and the other major financial houses of New York. Securitization was going to secure a "new" American Century and its financial domination, as its creators clearly believed on the eve of the millennium.

Key to the revolution in finance in addition to the unabashed backing of the Greenspan Fed, was the complicity of the Executive, Legislative and Judicial branches of the US Government right to the Supreme Court. In addition, to make the game work seamlessly, it required the active complicity of the two leading credit agencies in the world—Moody’s and Standard & Poors.

It required a Congress and Executive branch that would repeatedly reject rational appeals to regulate over-the-counter financial derivatives, bank-owned or financed hedge funds or any of the myriad steps to remove supervision, control, transparency that had been painstakingly built up over the previous century or more. It required that the major government-certified rating agencies give their credit AAA imprimatur to a tiny handful of poorly regulated insurance companies called Monolines, all based in New York. The monolines were another essential part of the New Finance.

The interlinks and consensus behind the massive expansion of securitization among all these institutional players was so clear and pervasive it might have been incorporated as America New Finance Inc. and its shares sold over NASDAQ.

Alan Greenspan anticipated and encouraged the process of asset securitization for years before his actual nurturing of the phenomenal real estate bubble in the beginning of the first decade of the new Century. In a pathetic attempt to deny his central role after the fall, Greenspan last year claimed that the problem was not mortgage lending to sub-prime customers but the securitization of the sub-prime credits. In April 2005, he sung a quite different hymn to sub-prime securitization. Addressing the Federal Reserve System’s Fourth Annual Community Affairs Research Conference, the Fed chairman declared,

"Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country. With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers…The mortgage-backed security helped create a national and even an international market for mortgages, and market support for a wider variety of home mortgage loan products became commonplace. This led to securitization of a variety of other consumer loan products, such as auto and credit card loans."

That 2005 speech was about the time he later claimed to have suddenly realized securitization was getting out of hand. In September 2007 once the crisis was full force, CBS’ Leslie Stahl asked why he did nothing to stop "illegal or shady practices you knew were taking place in sub-prime lending." Greenspan replied, "Err, I had no notion of how significant these practices had become until very late. I didn’t really get it until late 2005 and 2006." (emphasis added-w.e.)

As far back as November 1998, only weeks after the near-meltdown of the global financial system through the collapse of the LTCM hedge fund, Greenspan had told an annual meeting of the US Securities Industry Association, "Dramatic advances in computer and telecommunications technologies in recent years have enabled a broad unbundling of risks through innovative financial engineering. The financial instruments of a bygone era, common stocks and debt obligations, have been augmented by a vast array of complex hybrid financial products, which allow risks to be isolated, but which, in many cases, seemingly challenge human understanding."

That speech was the clear signal to Wall Street to move into asset-backed securitization in a big way. After all, hadn’t Greenspan just demonstrated through the harrowing Asia crises of 1997-98 and the systemic crisis triggered by the August 1998 sovereign debt default that the Federal Reserve and its liquidity spigot stood more than ready to bailout the banks in event of any major mishap? The big banks were, after all, clearly now, Too Big To Fail—TBTF.

The Federal Reserve, the world’s largest and most powerful central bank with what was arguably the world’s most liberal market-friendly Chairman, Greenspan, would back its major banks in the bold new securitization undertaking. When Greenspan said risks "which seemingly challenge human understanding," he signaled that he understood at least in a crude way that this was a whole new domain of financial obfuscation and complication. Central bankers traditionally were known for their pursuit of transparency among banks and conservative lending and risk management practices by member banks.

Not ‘ole Alan Greenspan.

Most significantly, Greenspan reassured his Wall Street securities underwriting friends in the Securities Industry Association audience that November of 1998 that he would do all possible to ensure that in the New Finance, the securitization of assets would remain for the banks alone to self-regulate.

Under the Greenspan Fed, the foxes would be trusted to guard the henhouse. He stated:

"The consequence (of the banks’ innovative financial engineering-w.e.) doubtless has been a far more efficient financial system…The new international financial system that has evolved as a consequence has been, despite recent setbacks, a major factor in the marked increase in living standards for those economies that have chosen to participate in it.

“It is important to remember--when we contemplate the regulatory interface with the new international financial system--the system that is relevant is not solely the one we confront today. There is no evidence of which I am aware that suggests that the transition to the new advanced technology-based international financial system is now complete. Doubtless, tomorrow's complexities will dwarf even today's.

“It is, thus, all the more important to recognize that twenty-first century financial regulation is going to increasingly have to rely on private counterparty surveillance to achieve safety and soundness. There is no credible way to envision most government financial regulation being other than oversight of process. As the complexity of financial intermediation on a worldwide scale continues to increase, the conventional regulatory examination process will become progressively obsolescent--at least for the more complex banking systems.” (emphasis added-w.e.)

One might naively ask, why then surrender all those powers like Glass-Steagall to the private banks far beyond possible official regulatory purview?

Again in October 1999, amid the frenzy of the dot.com IT stock market bubble mania, a bubble which Greenspan repeatedly and stubbornly insisted he could not confirm as a bubble, he once again praised the role of financial derivatives and "new financial instruments…reallocating risk in a manner that makes risk more tolerable. Insurance, of course, is the purest form of this service. All the new financial products that have been created in recent years, financial derivatives being in the forefront, contribute economic value by unbundling risks and reallocating them in a highly calibrated manner.” He was speaking of securitization on the eve of the all-but certain repeal of the Glass-Steagall Act.

The Fed’s "private counterparty surveillance" brought the entire international inter-bank trading system to a screeching halt in August 2007, as panic spread over the value of the trillions of dollars in securitized Asset Backed Commercial Paper and in fact most securitized bonds. The effects of the shock have only begun, as banks and investors slash values across the US and international financial system. But that’s getting ahead of our story…

Financial Alchemy: Where the fly hits the soup

Securitization, thus, converted illiquid assets into liquid assets. It did this, in theory, by pooling, underwriting and selling the ownership claims to the payment flows, as asset-backed securities (ABS). Mortgage-backed securities were one form of ABS, the largest by far since 2001.

Here’s where the fly hit the soup.

With the US housing market beginning back in 2006 in sharp downturn and rates on Adjustable Rate Mortgages (ARMs) moving sharply higher across the United States, hundreds of thousands of homeowners were being forced to simply "walk away" from their now un-payable mortgages, or be foreclosed on by one or another party in the complex securitization chain, very often illegally, as an Ohio judge recently ruled. Home foreclosures for 2007 were 75% higher than in 2006 and the process is just beginning, in what will be a real estate disaster to rival or likely exceed that of the Great Depression. In California foreclosures were up an eye-popping 421% over the year before.

That growing process of mortgage defaults in turn left gaping holes in the underlying cash payment stream intended to back up the newly issued Mortgage Backed Securities. Because the entire system was totally opaque, no one, least of all the banks holding this paper, knew what was really the case, what asset backed security was good, or what bad. As nature abhors a vacuum, bankers and investors, especially global investors, abhor uncertainty in financial assets they hold. They treat it like toxic waste.

The architects of this New Finance, based on the securitization of home mortgages, however, found that bundling hundreds of disparate mortgages of varying credit quality from across the USA into a big MBS bond wasn’t enough. If the Wall Street MBS underwriters were to be able to sell their new MBS bonds to the well-endowed pension funds of the world, they needed some extra juice. Most pension funds are restricted to buying only bonds rated AAA, highest quality.

But how could a rating agency rate a bond which was composed of a putative spream of mortgage payments from 1,000 different home mortgages across the USA? They couldn’t send an examiner into every city to look at the home and interview its occupant. Who could stand behind the bond? Not the mortgage issuing bank. They sold the mortgage immediately, at a discount, to get it off their books. Not the Special Purpose Vehicle, they were just there to keep the transactions separate from the mortgage underwriting bank.No something else was needed. Deux Maxima! in stepped the dauntless Big Three (actually Big Two) Credit Raters, the rating agencies.

The ABS Rating Game

Never ones to despair when confronted by new obstacles, clever minds at J.P. Morgan, Morgan Stanley, Goldman Sachs, Citigroup, Merrill Lynch, Bear Stearns and a myriad of others in the game of securitizing the exploding volumes of home mortgages after 2002, turned to the Big Three rating agencies to get their prized AAA. This was necessary because, unlike issuance of a traditional corporate bond, say by GE or Ford, where a known, physical bricks ‘n mortar blue-chip company with a long-term credit history stood behind the bond, with Asset Backed Securities no corporation stood behind an ABS. Just a lot of promises on mortgage contracts across America.

The ABS or bond was, if you will, a "stand alone" artificial creation, whose legality under US law has been called into question. That meant a rating by a credit rating agency was essential to make the bond credible, or at least give it the "appearance of credibility," as we now realize from the unraveling of the present securitization debacle.

At the very heart of the new financial architecture that was facilitated by the Greenspan Fed and successive US Administrations over the past two decades and more, was a semi-monopoly held by three de facto unregulated private companies who operated to provide credit ratings for all securitized assets, of course for very nice fees.

Three rating agencies dominated the global business of credit ratings, the largest in the world being Moody’s Investors Service. In the boom years of securitization, Moody’s regularly reported well over a 50% profit on gross rating revenues. The other two in the global rating cartel were Standard & Poor's and Fitch Ratings. All three were American companies intimately tied into the financial sinews of Wall Street and US finance. The fact that the world’s rating business was a de facto US monopoly was no accident. It was planned that way, as a main pillar of the financial domination of New York. The control of the credit rating world was for the US global power projection almost tantamount to US domination in nuclear weapons as a power factor.

Former Secretary of Labor, economist Robert Reich, identified a core issue of the raters, their built-in conflict of interest. Reich noted, "Credit-rating agencies are paid by the same institutions that package and sell the securities the agencies are rating. If an investment bank doesn't like the rating, it doesn't have to pay for it. And even if it likes the rating, it pays only after the security is sold. Get it? It's as if movie studios hired film critics to review their movies, and paid them only if the reviews were positive enough to get lots of people to see the movie."

Reich went on, "Until the collapse, the result was great for credit-rating agencies. Profits at Moody's more than doubled between 2002 and 2006. And it was a great ride for the issuers of mortgage-backed securities. Demand soared because the high ratings had expanded the market. Traders didn't examine anything except the ratings…a multibillion-dollar game of musical chairs. And then the music stopped."

...Off the books

The entire securitization revolution allowed banks to move assets off their books into unregulated opaque vehicles. They sold the mortgages at a discount to underwriters such as Merrill Lynch, Bear Stearns, Citigroup, and similar financial securitizers. They then in turn sold the mortgage collateral to their own separate Special Investment Vehicle or SIV as they were known. The attraction of a stand-alone SIV was that they and their potential losses were theoretically at least, isolated from the main underwriting bank. Should things ever, God forbid, run amok with the various Asset Backed Securities held by the SIV, only the SIV would suffer, not Citigroup or Merrill Lynch.

The dubious revenue streams from sub-prime mortgages and similar low quality loans, once bundled into the new Collateralized Mortgage Obligations or similar securities, then often got an injection of Monoline insurance, a kind of financial Viagra for junk quality mortgages such as the NINA (No Income, No Assets) or "Liars’ Loans," or so-called stated-income loans, that were commonplace during the colossal Greenspan Real Estate economy up until July 2007.

According to the Mortgage Brokers’ Association for Responsible Lending, a consumer protection group, by 2006 Liars’ Loans were a staggering 62% of all USA mortgage originations. In one independent sampling audit of stated-income mortgage loans in Virginia in 2006, the auditors found, based on IRS records that almost 60% of the stated-income loans were exaggerated by more than 50%. Those stated-income chickens are now coming home to roost or far worse. The default rates on those Liars’ Loans, which is now sweeping across the entire US real estate market, makes the waste problems of Tyson Foods factory chicken farms look like a wonderland.

None of that would have been possible without securitization, without the full backing of the Greenspan Fed, without the repeal of Glass-Steagall, without monoline insurance, without the collusion of the major rating agencies, and the selling on of that risk by the mortgage-originating banks to underwriters who bundled them, rated and insured them as all AAA.

In fact the Greenspan New Finance revolution literally opened the floodgates to fraud on every level from home mortgage brokers to lending agencies to Wall Street and London securitization banks to the credit rating agencies. Leaving oversight of the new securitized assets, hundreds of billions of dollars worth of them, to private "self-regulation" between issuing banks like Bear Stearns, Merrill Lynch or Citigroup and their rating agencies, was tantamount to pouring water on a drowning man

Just like it took incompetence and hubris of the level of George W. Bush to (most likely) end the U.S. empire, it looks like the hubris of Alan Greenspan may bring the neoliberal age to an end. What will replace it? Unless the public wises up to the true nature of the pathocracy, the new system will be nothing more than a different style of pathocracy.

Labels: , , , ,