Archive for the ‘Politics’ Category

  • 31 Mar

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    Crossing administrations

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    Wow, I haven’t touched politics for … what? Two days? So it must be time to delve into it again, right?

    You all know, by now, that I’m not an Obama fan. It’s not a case of being a McCain fan either. And I’m frankly surprised by the outpouring of wonderfulness that seems to follow Obama around. Looking from the outside, what I saw in the presidential elections were four high-profile, vehemently anti-war candidates (Ron Paul, Mike Gravel, Cynthia McKinney and Ralph Nader) and two vehemently pro-war candidates (Barack Obama and John McCain). And Americans, who said they were against war, voted overwhelmingly for a pro-war candidate. My own working hypothesis, then, is that the American people actually want someone to wage war on the rest of the world.

    [ASIDE: If you actually believe that Obama is an anti-war dude, then you haven't been paying attention to his own words. Obama, to his credit, never deceived anyone on this. He quite clearly stated, time and time again while running for President, that he was for withdrawing most (but not all) troops in Iraq (the "bad" war), only to shift them to Afghanistan (the "good" war). He made that very clear right from the start. Just a shift -- and not a total one, at that -- not a stop.]

    But I don’t want to talk about war today. I want to talk about something much more deadly. Finance. And it may be that, as an interested bystander, I can see the flow a little more clearly than those stuck in the partisan currents. I’ll try to be concise.

    After the Great Depression, the decision was made within the United States to put walls between commercial banks and investment banks, so their purposes remained separate. This occurred in 1933. Sure, it made life boring, but it meant that commercial banks could concentrate on the nuts-n-bolts business of lending money to borrowers and accumulating funds from depositors and making sure that the amount lent out never exceeded the capital reserves to cover. And investment banks could handle all the risk they wanted without having a huge pool of depositor cash to use as poker chips. All hail the Glass-Steagall Act II of 1933.

    When Democrat Bill Clinton was at the helm, the Gramm-Leach-Bliley Act of 1999 was passed. Under this Act (under the guise of “opening up competition”), the walls were broken down as this Act specifically repealed Glass-Steagall II. So, now, investment banks were able to use all that lovely deposited money of a commercial bank to go gamble on the financial primary and secondary markets to their hearts’ content. Nobody said “boo”.

    When George Bush, Jnr, came along, he protected the banks. Now, here’s where I disagree with people who say that “bad” borrowers should sink or swim on their own abilities. It’s very well documented that banks deliberately targetted certain segments of the population with bogus claims and outright lies when peddling their sub-prime scams. I saw the same mechanism at play with some Australian banks toying with 120% mortgages, where they would lend out 120% of the stated valuation of a home. Now, if that kind of thing isn’t predatory, I don’t know what is.

    But, back to the story, and to the USA. All fifty states of the Union saw these predatory loans as a bad idea. Every state regulatory body opposed them. But the Bush administration, invoking a dusty clause from a half-forgotten act, stopped every single state from enacting local consumer protection laws when it came to national banks. The consumers were unprotected, the banks deceived them, the ratings agencies colluded, and so here we are. In case you missed it, the upshot was, even if people complained, there was nothing anyone could do because the consumer protection laws were voided. Think upon that for a second and now try to blame the borrowers again.

    Thus, we have the situation of Clinton doing the set-up, and Bush following through.

    Now, Obama. He has let Geithner have his head over a ludicrous scheme, not to scrap all bogus securities (optimistic valuations have them worth 30 cents for every dollar of face value) and let free-market capitalism fall where it may, but to pimp these securities on the open market and subsidise buyers at the rate of 85:15. That is, if somebody wants to buy these securities (assuming they think they’ll appreciate in value anytime soon), for every $1 million they bid, the US government (i.e. the American taxpayer) will pay up $850,000, leaving the bidder with a risk of only $150,000 on a $1 million investment. What do you think will happen? Well, if you thought that that will make the loser banks even bolder, you’re right. Citi and Bank of America are buying up as many worthless securities as possible that they can flog at Geithner’s Bazaar, so they can offload them and pocket the profit. And the bidders will be emboldened to bid ever higher amounts for the securities because they’re only risking 15% of the price. Everybody wins … oh, except the taxpayer.

    [ASIDE: As for the "regulator" that Obama has appointed (Schapiro), don't make me laugh. The woman hasn't yet met a question she couldn't wriggle out of answering. (See here (from the WSJ, for Chrissakes!) and comments here at the footnoted business blog.)]

    Can you see the trend? Regardless of whether they’re Democrat or Republican, the same strategy has been playing out for more than a decade. It doesn’t matter who is the President, or who has the majority in Congress. Don’t be fooled by the meaningless variations between parties. I’m seeing this in Australia as well, where Labor is implementing past-administration Liberal policies (the great firewall of Australia, being one highly visible example). And yet Kevin Rudd has a 60+% approval rating. For executing what Howard planned for. Obama has an equally stratospheric approval rating. For executing what Bush planned for. And I don’t even want to get into the swamp that is New Labour in the UK.

    When it comes to this — when, regardless of who’s in power, (bad) continuity remains — you have to realise that you don’t live in a democracy any more. Your country has morphed into something else.

  • 11 Mar

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    Why should we help?

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    In any other circumstance, I’m all for helping people. With regards to the people in the United States facing foreclosures, for example, there has been rabid criticism about why the average American taxpayer should bail them out? Besides the fact that it is really only the banks who are getting bailed out on ludicrously favourable terms that actually ignore the primary-source causes (the mortgagees), my reply has always been: Because it’s the decent thing to do for any society. (*)

    However….

    The IMF now tells us that we’re in a Grand Recession and the United States has appealed for joint action by nations against the crisis:

    In Washington, US Federal Reserve Chairman Ben Bernanke urged world governments to forge a common strategy to regulate the financial system in order to tackle the worst crisis since the Great Depression of the 1930s.

    “We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components,” he told the Council on Foreign Relations.

    As a child of the global South (besides goggling my eyes at a Fed Chairman using the dreaded word “regulate” in any statement AND the fact that he blamed the global South for this crisis in the first place only a couple of months ago), my response is: why? Why should we — maligned, primitive, immature, accented and other-hued post-imperialist natives — help the self-avowed Greatest Nation on Earth?

    It was the United States itself that precipitated this sad state of affairs. And now, with its military bombing everything that moves on almost every continent on Earth (only Antarctica and maybe Australia (*) are excepted), it now wants other nations to help it out? As John Gray from The Observer put it:

    Despite incessantly urging other countries to adopt its way of doing business, America has always had one economic policy for itself and another for the rest of the world.

    And he continues:

    The dire condition of America’s financial markets is the result of American banks operating in a free-for-all environment that these same American legislators created. It is America’s political class that, by embracing the dangerously simplistic ideology of deregulation, has responsibility for the present mess.

    And now, every other country in the world has to help the USA? I consider myself a charitable type of person but my charity does not extend to this egregious episode of unsupportable fundraising.

    Let’s put it another way. The country of Lesstopia has a solid economy but, over the decades, has been shutting down its own factories at the behest of corporate owners with politicians in their pockets. What’s more, these corporate owners have even used Lesstopia’s military in order to force small countries into unfair trading practices (United Fruit) and through coercion and massacres (the list is too long to even begin. Start with John Pilger and work your way out from there). But we can’t put the blame entirely on the corporate owners because Lesstopia itself loved to destabilise neighbouring economies, launching invasion after invasion of sovereign nations (the Philippines, to name a more obscure example) and even stooping to the assassination of leaders unsympathetic to Lesstopia’s world view (Salvador Allende).

    Pumped up with righteousness, Lesstopia stretched its dominance, maintaining more than one thousand military bases across the world, threatening every nation that thought differently to itself (all protestations of “free thought” to the contrary), and borrowing billions upon billions of dollars in transactions which were inherently unstable because there was nothing concrete Lesstopia had, to secure against such borrowings. Try that one at your local bank and see how far you get.

    Meanwhile, the Lesstopians continued to think that they were the greatest nation on Earth. Lulled into stupor, they became — and still are — moribund vessels accepting the biased media sound bites without a single democratically-inclined neuron firing (*). Iraq was responsible for 9/11. Afghanistan is the “good war”. We’ll find Osama bin Laden. We believe in democracy in every country in the world. All patent lies, easily refuted by every other person in the world … except the Lesstopians. Through domestic surveillance programs, witch hunts, electoral rigging and planned assassinations, the Lesstopians continue to think all countries should be modelled on theirs. It’s the kind of stuff that would have given Joseph Goebbels wet dreams. While he was still awake.

    But, as must happen eventually, the house of cards that is Lesstopia began to crumble. Its pals, those corporate owners, turned out to be speculators rather than patriots. The same, unfortunately, could be said of its politicians (*). After decade upon decade of giving in to the corporate owners, of ignoring — if not gutting — its own citizenry, Lesstopia now finds it owes gazillions … with nothing backing it. Parts of it are even reduced to handing out IOUs, much as Germany and Austria were doing (notgeld) during the hyperinflation of the 1920s.

    Now, imagine you are someone completely disinterested. You come across Lesstopia while it’s whining about its predicament. What do you do? If you’re a more charitable person than myself (i.e. someone who has either not lived on planet Earth, or a human who has never read anything in her/his life), you would probably say the following: You’re living beyond your means. Why don’t you cut out all the fat from your budget and then reassess from there? That means all the wars have to go. All the bases have to go. All the black ops money being poured into destabilising people you don’t like … gone! It’s a luxury you can no longer afford. Move some of that cut-down defence budget to building up your manufacturing sector again. Your foreign aid is tiny enough as it is but, if you must, start with cutting down on the largest recipients.

    If you’re a capitalist, you say: You’ve been building a bubble economy for decades now and, congratulations, we’re finally here when it pops. This means a sharp and painful correction, but it must be done. Call us when you think you’re almost through it and let’s see what you got. If you have some inkling of history, you may even say: Look, you’re not the first and you won’t be the last to go through this kind of madness. It happens to all empires, just that yours didn’t last as long as you were probably expecting. My advice is to just act with dignity, take it on the chin, look after your own citizens first and call us when you’re stable again.

    What you DON’T say is: Oh man, you’re too big to fail so how about we beat up everyone else until they hand over their wallets and then we give you the money. Consider it a gift rather than a loan, ‘cos we know you can’t ever repay it, right? :: wink wink :: nudge nudge :: Don’t worry about the military budgets. They look just dandy. Instead, cut out ways to make your citizens more productive and hit them with more economic obligations. And, while you’re at it, print more money. Yeah yeah, just fling it out there. I mean it’s not like anyone else will notice. In fact :: laugh :: it may even raise the value of your dollar! Bet Argentina wished they’d thought of that one. It’s called the “Superpower Defies Reality” theory of economics. Then we’ll all pretend that an economy that has no assets whatsoever can actually recover due to several judicious muggings and overtime at the printing press. Problem solved!

    So again, after a most long-winded parable, I ask you: why should any country help bail out Lesstopia, er, the USA? The country that lives by free-market capitalism should die by free-market capitalism. If the epithet holds true for formerly Communist bloc countries, then it should hold true for their capitalist counterparts as well. No convenient little forays into interventionism, protectionism, covert speculation and testicle-grabbing of other nations. (I say “testicle-grabbing” not to be sexist but grabbing breasts just doesn’t seem so painful in comparison.) Neither the World Bank nor the IMF gave such dispensations to other nations, so why should the United States get any more than any other country in the world? Send the IMF in there, I say. Do unto the USA as the Chicago School of Economics has done unto the rest of the world. Anything less is just not justice.

    (*) An interesting thought for another blog post.

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