Look Back in Anger: Wall St. Insiderism, Oligopoly and the threat to Democ.

LOOK BACK IN ANGER: WALL STREET INSIDERISM, OLIGOPOLY, & THE THREAT TO DEMOCRACY PART I

September 22, 2009

Dear Citizens and Elected Officials:

INTRODUCTION

It seems that since the last posting of August 8th, our nation has passed through a darkly revelatory passageway, illuminated only by the passions stirred up by the health care debate. It is my intent to take on the questions raised by this passage directly, but with, as always, an eye to the epochal economic crisis upon us, both to maintain perspective and to remind us all of what we still have to deal with collectively as a nation, no matter whether we fail or succeed with health-care reform.

On August 8th I wrote that the feel of this moment in American history reminded me of the 1850’s, that notion being posted one month before the symbolically powerful outburst by Rep. Joe Wilson of South Carolina. That moment, and subsequent worries, sent me scrambling back to a chapter in Henry Mayer’s brilliant biography of the abolitionist William Lloyd Garrison, All on Fire, the chapter which describes the impact that John Brown’s raid had on a society then slipping downhill towards 1861. The raid against the federal arsenal at Harper’s Ferry, West Virginia, which began on Sunday evening, October 16, 1859, will be witnessing its 150th anniversary next month. Brown’s failed raid and his execution on December 2, struck late antebellum America like a thunderstorm at midnight, casting an intense, if fleeting, light upon the respective camps of a polarized nation, and forcing everyone to grapple with the implications of the ghastly sights revealed. While rummaging through that foreboding chapter, I came across this remarkable passage, which describes the meaning behind a strange, unannounced visit paid to Garrison in March of 1858, at the Liberator’s offices in Boston, a visit paid by none other than William H. Herndon, the law partner of a rising political star in Illinois named Abraham Lincoln.

Herndon had not come to enlist Garrison in the nascent Lincoln campaign (years later he swore that his partner had not dispatched him east), but rather to signal the editor that the party not only remained susceptible to radical influence but required it. The visitor himself had not been radical for all that long, but the hard polarizing battle for Kansas had intensified his anti-slavery convictions and the Dred Scott decision had convinced him that the time had come ‘to cut through the Constitution’ and curb the slave power. Herndon had once likened the slaveholding oligarchy to a gigantic corporation with overwhelming lobbying power in the capital, and Garrison had found his essay so ‘spirited’ that he had excerpted it for The Liberator. It all came down to the Declaration of Independence, Herndon said; Southerners were now calling it ‘a lie,’ but if the founding document condemned slavery for one race, then it had to be wrong for all and the people had to get rid of it. Somehow. (My emphasis.)

At that point in time, the Republican Party was seen as a rising threat to the more established parties, and the abolitionist movement was the powerful progressive force pressing up against the faltering status-quo. Brown’s raid was particularly tormenting for pacifist Garrison, because he was opposed to Brown’s means, while supporting his ends. This visit from Herndon represented Garrison’s chance, at long last, to navigate closer to the main currents of politics, (after all, the Liberator had been published weekly since 1831) and Herndon made it clear that the current he needed to steer with was going to be the Republican Party.

And while the emotional forces let loose today might evoke a comparison to those of 1858-1859, as they have in me, there is no easy overlay to the political terrain. In one sense, today’s angry Right is a completely reactive movement, out to stop a vast imagined Progressive, government-led conspiracy. After all, they have no new program to offer since the Right has had a long run in power, and has given business nearly everything it wanted, with lots of Democratic help, and the American economy as a result is in a deep structural crisis. On Right Radio, the alternative to the Obama direction is to “unleash market forces” with a new wave of tax cuts – leaving this listener marveling at just what they think has happened over the past 30, and especially the last eight, years. We unleashed market forces alright, and now we’re all running for cover, with millions looking for shelter. We should pay close attention to the angry voices on the Right thought, because much of it is armed, and if stays true to its history, we can expect more futile, destructive violence, like that brought to us by Timothy McVeigh and accomplices.

On the Left, there is no corresponding issue or array of forces to match the abolitionists of the 1850’s, who were in the ascendancy, although some might make the case for global warming and environmentalists. As we will see later in George Lakoff’s take on President Obama, he rode a hopeful but amorphous desire for “change,” and what passion there is on the Left gets split among how many issue constituencies? I count at least 6-7 which don’t always agree on priorities, timing or vision. And, as Kim Phillips-Fein points out in her book Invisible Hands, the Right’s greatest success over their 30 year run has come not in the culture wars, but in the realm of political economy, which is the weakest link among this array of disparate Progressive “movements,” at precisely the moment when economic events have offered the greatest opportunity. As Tom Frank points out in The Wrecking Crew, the Right has great solidarity in their intense domination of the pejorative meanings evoked by the word “government,” and by effectively demonizing it they block the crucial institutional means through which any movement, from whatever part of the spectrum, has to move to enact its policies. How they themselves behaved in government and handled the contradictions between its demonization and the act of governing is the theme of Frank’s book. It’s not a pretty tale, and belies the President’s hopes for any co-operation.

Because environmentalism can also be seen as proposing to rework major portions of society, everything from what and how we consume to how we make and dispose of our “products,” it has always been very threatening to the Right, which is why Rush Limbaugh habitually prefaces the term with a nasty adjective. And since the dominant “cause” for this movement is Global Warming, rest assured that everything you’ve seen from the Right on health care will be replayed on the corresponding legislation. But environmentalism has always had a weak flank – its seeming indifference to jobs and justice for the poor, especially poor minorities and the lower middle class. And now our society has deep, deep structural economic problems as well. Enter “green jobs” and Van Jones in government: bridging the gaps and symbolically threatening to merge solutions for the environment and the economy in one powerful tide: so celebrated and so quickly cast aside…not a very good omen, from any way you look at it, except to say, as many have noted, that his talents would be better applied, like Garrison’s, from the outside. Yet if Jones was worth only a third of what his institutional supporters on the left trumpeted about him, his rapid demise without a proper defense can’t be so easily rationalized away.

What has been revealed in the health care debate, and it looms as well in the Global Warming legislation, as in so much else that matters, is that transformative change cannot make it through the current ideological stalemate. In this sense too, our situation reminds me of the 1850’s, which found that the compromises of earlier decades could not solve the stark realities, brought center stage by the Dred Scott decision, (will the pending Supreme Court case on corporate money in politics be our Dred Scott case?) the open battle for Kansas, and the intense electrical storm generated by John Brown’s raid.

In our present moment, however, it’s the Progressive side of the spectrum which still needs to generate the constructive forces of political passion, and persuasion, to either move enough minds inside a Democratic Party that is deeply afraid of such emotion, or to give birth to a new party, as in 1858-1860. But the historical problem is that on the Left, political passion has always come from the drive for greater equality, especially, but not limited to, greater economic equality, something the Democratic Party has steadily been drifting away from since the New Deal. And it’s tough to gain traction towards a greater egalitarianism when even mild gestures toward a home-grown version of social democracy can evoke labels and yes, near hysterical accusations, once meant to apply to left wing movements of the 19th and early 20th century, not the 21st. On the American Right, there is no distinguishing between socialism, social democracy and even mild versions of health care reform. We still teach history in the schools, don’t we? Some history.

Yet political passion is something that shouldn’t be taken lightly, and can’t be simply dialed-up like a take-out order. In its best and most powerful manifestations, it grows naturally out of events and the explanations offered for their cause - and cure. Some used to call that ideology, but now it’s “the frames which form ‘worldviews.’”

An intellectually mature country should be able to look around at the rest of the developed nations and say to itself: almost all are meeting their health care problems with a solution that delivers better care, and longer lives, at lower costs. Maybe they’re on to something “over there.” Because the systems do vary, but generally have moved away from pure “for profit” systems, or greatly tempered them, one might approach the whole question, as those nations have, in a non-ideological, pragmatic way. Indeed, a candid leadership in the US might ask its citizens: so what if one sector of the economy doesn’t adopt the Wall Street “shareholder primacy” model to solve this particular problem? After all, as the Right is so fond of saying, “one size doesn’t fit all,” so maybe the profit motive can’t be, shouldn’t be, applied to every last nook and corner of life, especially one which daily looks at matters of life and death. Now there’s a common sense notion, one that’s still bound, though, to send many on the Right through the roof. But, as we know, the American Right, and much of the private sector, which have a large overlap, is unable to take this approach, even after the flaws in the pure free-market model have been exposed for all to see over the past two years. And everywhere our nation needs to move forward: on a revitalized industrial sector, a modern rail system, on global warming and a new energy paradigm, we see a massive, rigid ideological roadblock to progress erected by the Right.

Therefore, in light of contemporary events, I now offer my readers this essay, which encompasses the review of a number of books, and consideration of a scorching magazine article about Goldman Sachs by Matt Taibbi in July, and, if you read nothing else, read it online at http://www.rollingstone.com/politics/story/28816321/the_great_american_b... . A lengthy posting on the “The Policyspeak Disaster for Health Care by “framing” guru George Lakoff, is also considered, and I then extend it to an analysis of the Democratic Party itself. I conclude that it’s difficult to frame effectively when one carpenter is left-handed, the other right, and the national carpenter’s union has recently gone wobbly in the arms of George W. Bush. Rather than being a referendum on the Wall Street values that have led our entire economy astray, the health care debate has managed to put government itself on trial, as if the great financial crisis never happened, and there’s no connection between them based on shared narrow values.

Logically then, readers will find a sustained commentary on the role of anger and passion in politics, and a look at the provocative question of whether “Democracy is Possible Here,” which also explores President Obama’s wish to achieve a reasonable dialogue if not with the Republican Right, then with those Republicans he hopes will distance themselves enough from that Right to at least begin one. (Based on Paul Starr’s review of Ronald Dworkin’s book of that title.) This writer believes President Obama missed a great opportunity, perhaps the best he will have, for a teaching moment on the economy, and to fight on better political terrain, and with a greater chance to build those bridges to libertarians and at least some conservatives, when he failed to harness the near universal anger over the bailout in February to deeper and broader purposes.

And what a teaching moment it might have been. He could have taken Thomas Frank’s insight (from The Wrecking Crew) that “The American version of the debt trick is the vast federal deficit that magically reappears whenever conservatives take the drivers seat” - all the better to crimp and cripple any creative and compassionate use of government that the Left might be planning - and linked it to Karen Ho’s treatment (in Liquidated) of the use of “The Discipline of Debt” in the long- running saga of Mergers and Acquisitions (formerly corporate raiding) in the private sector, where debt seems to play the same role as it does in Republican budget politics: a tool to exert fiscal discipline. That type of “discipline,” which is very hard to distinguish from an ideological agenda - against labor, against research and development and all other frilly long-term corporate planning – all was thrown out the window to meet the debt payments which have been astronomically run up to make the deals possible, and with nearly all borrowed money (“other people’s money”) , and which also allowed the architects of the deals – the investment banks - to rack up the giant fees – whether the deals went well or not. As Ms. Ho has reminded us, wasn’t it Goldman Sachs who did the advising for Daimler-Benz in that famous 1998 merger with none other than….Chrysler?

There is a also a close look at the role of speculation in the great oil price run-up of 2008 and the reform proposals to reign it in, along with other abuses in the financial marketplaces. By logical extension, worried looks are cast upon the nature of the carbon permit trading exchange (a crucial part of “cap and trade”), and who, in general, might be its owners, as well as who might own the other trading exchanges springing up around the world.

And last, but not least, there is an examination of the moral issue of the treatment of blue collar workers and the middle class by the American economic elite, in business and academe, who have led this country to a grave structural crisis not just in economic matters, but in foreign policy as well. I’m referring to a provocative review by the impressive biographer of Keynes – Robert Skidelsky - who, in turn, is looking at the latest book by the world’s “most respected financial journalist,” Martin Wolf of the Financial Times. The article is entitled: “The World Finance Crisis & The American Mission.” If that sounds a bit stratospheric, just remember: floating above every line are the implied words - “Afghanistan” and “Decline of the Dollar.”

It’s a pretty heavy charge to lay at the foot of a nation’s policies: America’s financiers and businessmen have not been sharing their vast profits with the nation’s poor and middle class citizens. Radical sounding, almost. Yet, in keeping with President Obama’s hope to reach out to citizen’s of goodwill among all political persuasion’s, I list for you some biographical facts about Professor Skidelsky; or is it Baron Skidelsky, or is it Life Peer in the House of Lords, now “Cross-Bencher” Skidelsky, whichever you would prefer. He’s migrated in exactly the opposite direction that author Kevin Phillips has in America; starting out in the Labour Party, moving to the Social Democrats, and finally to the Conservatives, where he was “removed” to end up as a Cross-Bencher. That’s as close as I can find to touching “all political persuasions.” So maybe when he and Kevin Phillips end up in a roughly similar place on some of the largest questions of the day, we ought to pay some attention.

And, of course, it almost goes without saying, that my readers are owed, and certainly deserve, the latest economic update, and insights, on where we stand in our passage through the great economic storm. That follows immediately below.

Here is a “Table of Contents,” to speed you to the topic of your choice:

Economic Forecast: Partly Sunny, with Earthquakes in the Afternoon 6
Anger in August: Who You Gonna Blame? 10
Wall Street Dreams: Nightmare on Easter Island 13
Window on the Health Care Debate: Framed by the Right 20
Divided Democrats Don’t Demonize 24
Dead Souls: Lobbyists and “The City of Bought Men” 28
Democrats Build a Border Fence: Politics and Passion 32
Matt Taibbi: How Goldman Sacks Washington 36
When Markets Fail: The Price of Oil 38
Cap and Trade: Salvation, Scam or Scrum? 42
Trading’s Future: What Do You Get “in Exchange?” 44
Goldman: Taxing Our Limits? 47
Is Democracy Possible Here? 49
The Great China Trade: Your Job, Their Profit 51
Have a Nice Day 53

Editor’s Note: The title for this essay was a phrase long floating in my head, detached from specific moorings. But to be precise, it was the title of a 1956 English play written by John Osborne. When you look it up, it directs you to another listing: Angry Young Men.

The very best to all of you.

Bill Neil
Rockville, MD

Economic Forecast: Partly Sunny, with Earthquakes Possible in the Afternoon
Let’s get right to the question: where is the US economy now, in September, 2009, and where is it headed? Readers will recall the last major essay posting, dated June 15, which contained a sustained analysis headlined by the words Stagnation, Stagflation and Stalemate, with the last term meant to apply to both the politics and the economics. Attention was also called to the sharpening economic debates between the Left and the Right, and it was noted that the sounds of a revival of the Republican Right could be heard in the tones of the debates. The essay also stressed the fact that there were deep structural problems in the US economy, deeper than the surface fissures, gaping as they were, caused by the financial crisis. Those problems are rooted in the our great trade imbalance with the Asian economies, our debts and their saving surpluses, and the resulting threat to the US dollar as the world’s leading currency reserve.

There is no doubt that the financial system, and perhaps the economy too, divergent as they often can seem to be, have stabilized and begun a slow turn upwards from the depths of the crisis - September, 2008 through early March, 2009. This has been accompanied by tremendous cheerleading in the mainstream press, and a sustained rally in the stock markets, which has some skeptical observers asking whether the fundamentals exist to make it sustainable. I’ve come to the conclusion, after looking at the bubbles of the late 1990’s and the first decade of the 21st century, and changes in the very nature of “trading,” that it is very possible to sustain what we are seeing now in the stock market for several years, even in the absence of a genuine recovery in the overall economy, and by recovery I mean higher wages, low unemployment and a better distribution of income so that there is a broader base for future prosperity. Unfortunately for our democracy as well as our economy, we have such a maldistribution of wealth that there are tens of thousands of investors who have lost millions - but still have millions left; their appetite for risk-taking is recovering, they are double-digit-return hungry, and after having been on the sidelines for many months, they are itching to get back in the market game, which is a very different thing from saying that the game is going to be broadly beneficial. So read the mainstream accounts for the slight upturns in the housing market, industrial production, consumer and business optimism, and then factor in these discordant notes that I’ve come across. They don’t mean that there will not be some improvement overall, but they do temper the view that everything is going to be fine and a healthy economy’s just around the corner.

Let’s start with some reports that have not exactly been making the headlines, and they come from the Federal Reserve flow of funds accounts. My thanks to Doug Henwood, who puts out the Left Business Observer, for calling our attention to it in his fine newsletter #120 from August 25th. (by subscription at http://www.leftbusinessobserver.com/ ). One of the flows Doug is looking at in the massive Fed data releases is called the “new borrowing and lending,” exclusive of the federal government, and expressed as a percentage of Gross Domestic Product. The remarkable thing about the graph is the steadiness of the borrowing and lending, even through the bad recessions of the late 1950’s and the 1970’s, where the drops are quite visible but never fall into negative territory. The most drastic contraction in borrowing prior to the current one, came from about 1986 until 1992, where it falls from around 28% of GDP to about 3%. Even though that recession during Bush I didn’t seem severe in other ways, this graph shows why Bill Clinton registered with voters in 1992: there was something very askew in the economy and voters knew it. Borrowing resumes after 1992, climbs up to nearly 28% of GDP in 1999, drops to about 18% with the 2000-2001 recession, and then climbs up pretty steadily until late 2007, early 2008 when…it literally falls off the cliff, plunging for the first time in half a century to a minus 12-13% of GDP. And the graph does not show it coming back up.

This chart is supported by a Bloomberg.com article which appeared on September 9, 2009, drawing on similar sources, but more recent ones: “Record Plunge in U.S. Consumer Credit Signals Weakened Spending.” The article reports that there was a “record $21.6 billion drop in borrowing by Americans” in July of 2009, and that “consumer credit fell by 10 percent…more than five times larger than economists forecast. Credit fell for a sixth month, the longest series of declines since 1991.” (See the article by Bob Willis and Vincent Del Giudice at http://www.bloomberg.com/apps/news?pid=20601068&sid=avvF5aNtrCfc ).

On housing, we have reports like the one headed “Housing Starts Increase to a Nine-Month High (New York Times, Sept. 18th), which state that home construction is “24.8 percent above the record low hit in April.” Sounds pretty good, right, as far as construction goes? How about on the mortgage front? That’s where the lighting struck on August 5th, when Deutsche Bank released a report that announced that an astounding 48% of all mortgages will be underwater by 2011, up from an already horrible 26% in March, 2009. The new damage will be coming from the blow-up of “option adjustable-rate mortgages,” but more worrisome, from home price decline impacts “on prime ‘conforming’ loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac…” See the Reuters article “About Half of U.S. Mortgages Seen Underwater by 2011,” at http://www.reuters.com/article/newsOne/idUSTRE5745JP20090805 .

Supporting this alarming interpretation of coming trends are comments by the respected financial analyst Meredith Whitney, whom we have quoted for our readers many times during the past two years. She’s at her own firm now, having left Oppenheimer, and I had to dig a bit in an article which was headlined “Whitney Says Goldman Sachs Has ‘Gas in Its Tank’” from Bloomberg.com on September 10th. But the real news wasn’t just that Goldman Sachs was having another good earnings quarter. Or even that “‘the crisis situation’” in finance is over. The deeper news is that “‘the core earnings still is (sic) at question for the banks…the fundamentals haven’t improved. You just have some aspects that are helping the banks right now that just kick the can down the road. Fundamentally things have not gotten better.’” Well, that’s a bit different than the heading, isn’t it? But wait, there was more in this startling one-pager: “Home prices may fall an additional 25 percent, she said, citing high unemployment rates and loan resets that will push monthly payments higher. ‘There’s no doubt that home prices are going down dramatically from here or meaningfully from here,’ Whitney said. ‘It’s just a question of when.’” My readers can judge for themselves which information in this article merited the title lead. And I wonder if Deutsche Bank was consulting with Ms. Whitney. Here is Josh Fineman’s article at http://www.bloomberg.com/apps/news?pid=20603037&sid=aW8qB1zM8swg

In one of the last editions I received of my doorstep Washington Post before I cancelled it to get the NY Times instead , dated September 10, an article by Neil Irwin was entitled “Economy Still Fragile, Fed Reports,” which has been followed in subsequent weeks by Chairman Bernanke’s comments that he believed that the recession has technically ended. The article concludes with another insight from a Deutsche Bank official:

‘The beige book read like a pretty cautious assessment of the economic recovery to this point,’ said Peter Hooper, chief economist at Deutsche Bank Securities. The expansion that he and other economists believe is underway is driven more by temporary factors than hard evidence of the kind of underlying trends that will ‘ultimately be needed to sustain a recovery.’” (My emphasis.)

While I would like to tell my readers that I travel to the far ends of the globe to find you the best insights into the economy, I would be exaggerating slightly to put it that way. But I am trying, which is why I signed up to get the Railfax Rail Carloading Report from AST/Transmatch. It’s a weekly summary of what our major railroads have been “loading” compared to 2007 and 2008, for grain, chemicals, food, coal, other raw materials, and autos, and includes Intermodal data, meaning it counts the trucks that get piggy-backed onto the rail cars. So this should be a pretty good indicator on how we are doing, because if the economy is going to rebound, we’re going to see some signs here in raw materials and big finished goods. The good news is that the most recent four week rolling average is, in all but one category, higher than the quarterly data, so the trend for loadings is slightly up, but the powerful visual of their basic charts is that they are all still in the red, in negative territory compared to rail loadings from 2007 and 2008! It’s all red, for all the railroads, there is simply no positive data compared to 2007 and 2008. You can sign up to get the same data that I’m looking at; it’s basic and easy to read, and it doesn’t cost you $ at http://railfax.transmatch.com/

This report from the world of railroads is supported by the very recent account of how things are going at FedEx, UPS’s main rival, which reported a 53% drop in profits from the business quarter which ended August 31st. The article noted that the company, “an economic bellweather, said most of its markets were continuing to show signs of improvement…” What’s interesting about this report is that most companies have been able to hold their earnings’ heads above water by cutting costs and, unfortunately, shedding workers, even as their revenue has fallen. What the FedEx report tells us is that shipping volume has been reduced by the same forces which delivered those all red figures for the railroads, and that it hasn’t been overcome by all the other coping tools businesses have to meet those short-term “shareholder value” pressures. See the Reuters article carried by the New York Times on Sept. 17th at http://www.nytimes.com/2009/09/18/business/18fedex.html

Our final “footnote” qualifying the cheerleading, especially in the stock markets, is a commentary upon the nature of trading in the financial exchanges themselves, involving terms which you may or may not have heard discussed over the past two months: “high frequency trading,” “flash orders” and speculation in the oil markets. It was triggered by a September 4th article by Landon Thomas Jr., in the New York Times, “Inquiry Stokes Unease Over Trading Firms that Shape Markets.” Readers will come to see that the topics in it are picked up, in fuller flood, in later parts of the essay which follows. The charges made by the Commodity Futures Trading Commission (CFTC), center on a company called Optiver, which allowed its “commodity traders in Chicago…to put their orders first in line and subtly manipulate the price of oil to the company’s advantage…” Once again, we are finding math and software “geniuses” at work, being linked to high speed computers to not only make very fast and frequent trades, but to use that combination in “flash orders” to execute and then instantly cancel an “order” (“probe” would be a more accurate term) with the hope that it triggers market reactions that disclose profitable openings about competitors’ positions. On September 17th, the Securities and Exchange Commission announced that it was planning to ban “flash orders.”

But the broader worry here is the comment delivered at the conclusion of the article by Tim Quast of Modern IR, “a consulting firm that advises corporations on market structure issues.” It is about the basic purpose of markets, and whether they are helping society to invest wisely, or have become something far shallower and far more speculative: “‘The markets used to be about capital formation…Now 80 percent of trading is driven by some form of statistical arbitrage. We are buying into a statistical hose of cards that could unravel very quickly.’” (My emphasis; read the article at http://dealbook.blogs.nytimes.com/2009/09/04/inquiry-stokes-unease-over-... )

Remember that phrase: “‘The markets used to be about…’” In the essay which follows you’re going to read similar sentiments: corporations “used to be about…” more than just “shareholder value;” commodity exchanges “used to be about” more than pure speculation; and the airwaves “used to be about” more than repetitive propaganda… and government, which “used to be about” being the friend of the “little guy” in the 1930’s, but today, all it seems to be about, if you listen to the message of Right Radio, is trampling on the freedom of Mark Levin and all the righteous entrepreneurs.. (including big Pharma, we gather…). And finally, readers, our economy “used to be about” jobs, you know, the places we would go to every morning that helped give life some of its structure and meaning…and which paid off debts and kept roofs over our heads…well…this may be the toughest news of all: forget about jobs, they’re not at the center of the economy and human well-being any more, even if we still need them; oh, we’ll have some left over, but they’re quite incidental in current corporate thinking to “shareholder value” and “efficiency.” From a strictly profit point of view, jobs are pretty much obsolete…the truth is we can produce all the goods that folks around the world can afford to buy, at current income levels, with far, far fewer jobs than anyone once thought…In every major industrial sector you can think of, there’s “overcapacity…” So get over it, all this crying about lost jobs and 10-16% unemployment, depending on the definition…What’s that you say, you don’t like the trend line here, reading about this trend line in the cold print? Well, that’s all the more reason why you, my readers, ought to “Look Back in Anger” at what’s happened over the past 30 years.

Anger in August: Who You Gonna Blame?
One of the most striking features of the angry protests at the town hall hearings this August has been the steady demonization of government. This demonization is such a granite block of conservative foundational certitude that it manages to outweigh the economic realities of what has happened, 2007-2009: the collapse of the private financial sector and its interim stabilization by the federal government, the Federal Reserve, and the federal deficit which is sustaining consumption. So powerfully distorting is this anti-government ideology – surely it would bring a smile of satisfaction to the departed economist Milton Friedman, who worked so tirelessly in the 1970’s to propagate it – that some angry citizens were seemingly unaware that Medicare itself was a government program from LBJ’s Great Society days in the 1960’s.

Prominent Democrats have not been immune to the habit either. As Kim Phillips-Fein reminds us in her fine book on the role of American business in the conservative ascendancy, Invisible Hands (2009), President “Carter made it clear that his administration represented a new kind of Democratic Party. As he said in the 1978 State of the Union address: ‘Government cannot solve our problems. It cannot set our goals. It cannot define our vision. Government cannot eliminate poverty or provide a bountiful economy or reduce inflation or save our cities, or cure illiteracy or provide energy.’” (Page 198.) Thanks for that, Jimmy. Let’s see how your implicit assumption – that the private sector would take good care of us – has worked out as the next 30 years unfolded for the American working and middle classes – and our international economic standing. And let’s not forget Bill Clinton’s epitaph for big government: “…the era of big government is over…” - a confident assertion that incorrectly implied that the era of big problems was also over – or that the private sector could handle them all on its own.

One anguished woman at the town halls pleaded that “she wanted her country back” - the one, I guess, that existed before President Obama took office. Presumably, since these angry citizens have no faith in government, there is some other major force keeping civilization’s wheels from coming off, although it is not openly stated at these meetings: and that would be “the free, self-regulating markets” of the private sector. That presents some problems, in the heat of this moment, because it would also mean specifically praising the private health insurance industry’s track record over the past 15 years or so, so we don’t hear that side of it too often amidst the slashing attacks on proposals to reform the failed status quo. At least not from the angriest protesters. American citizens may not realize it, but since the collapse of the Bolshevik Party in the former Soviet Union in the late 1980’s, free market capitalism’s most fevered supporters in the Republican Right can lay fair claim to be world’s reigning champions of ideological intensity, intensity here being a very charitable term. And, although the Right has built the greenhouses, as we learned during the Carter and Clinton years, they can count on Democrats to nurture some of the plants, at a slightly lower temperature, for many major business initiatives such as deregulation and shipping jobs overseas. This ideological passion is a source of some of the anger at the meetings, but not all of it. Some of that anger is also surely generated, and transferred to other objects, by the painful results of that ideology coming home to roost after it’s nearly three decade run of lost jobs, lost savings and mortgage debts worth more than the property behind them.

So how does that “transfer mechanism work?” Well, I can give you a personal example. When I was a high school basketball player back at Ewing High near Trenton, New Jersey, we had a very demanding coach, who grew up in the bitter birthing grounds of the coal region of northeastern Pennsylvania. Although Ewing Township was no Chevy Chase, it had enough imagined suburban softness to activate his inner Bobby Knight – without Knight’s most infamous excesses, to be clear. He dished out a lot of criticism – “nice guys - always ready to shake hands” - he chided us, hoping to cultivate our allegedly missing killer instinct. There were compliments now and then, but the idea was to keep us basically deprived and angry, all the better to take it out on our foes. And in this portion of the 1960’s players still did not dare dish some of it back to coaches; they took that push-back somewhere else. After one particularly brutal practice, where a lot was thrown at the players, including me, I erupted in anger at home, during dinner, taking it all out on a family member, whose already hard life certainly didn’t deserve it. My outburst was so ridiculous as to the cause, and the target, that I was able to immediately apologize, and explain the connection to what happened that day at practice. As we will see below, that’s not such a different set-up than the relationship of today’s workforce to its management, or its more remote economic leadership, where because of everything that’s happened over the past thirty years, it’s much harder to negotiate troubles at work, with no intermediaries, than it was in 1955. Although few mention it today, the decades of massive de-industrialization, middle management shredding, corporate downsizing and stagnating minimum wages happen to coincide very nicely with the rise of the religious and Republican Right, where there is an awful lot of guidance offered to make sure that workplace-worker anger doesn’t get directed up the social scale. At the deepest level, the story is one of a national tragedy, as the American financial elite and its certifying politicians of both parties have written a one-sided contract for the rise of our Asian competition. The anger generated by the lopsided terms of this “deal,” and the subsequent economic fallout has not been directed at the architects of the policy, however; rather, it has been directed at the varying scapegoats singled out by the rabid Right. So who, in reality are the architects of our economic tribulations?

Yet in my own way, and with the help of the authors reviewed below, I intend to grant that angry town hall woman her wish: by providing a tour of some of the primary attitudes, values and practices that lie at the heart the private sector, and, more specifically, which grew since the 1970’s to be the essence of the “gold standard” of financial values set by Wall Street itself. It’s a look back, and a look behind the terms which have come to dominate public discussions of economics, such as “THE MARKET,” Shareholder Value/Primacy, Wall Street Smarts, Downsizing, Efficiency, Takeovers,, Market Discipline Through Debt, Global Finance…and some new ones: “Laddering,” “Bona Fide Hedging,” “Market Exchanges…” (Whether in carbon trading or to purchase health care plans…) Don’t let the terms frighten you. I’m going to bring them down to earth, from their lofty ideological perch up there next to Merrill Lynch’s bull market (or is that market bull?) statues, and give them practical meaning.

Take for example the term “Shareholder Value/Primacy,” which has become the guiding light of rationales for management fighting unions, liquidating its own middle managers, shipping blue-collar jobs to China, and skimping on health care for an increasing share of the remaining non-virtual work-force. It’s no empty abstraction. When Nicholas Kristof wrote his “Health Care Fit for Animals” in the New York Times on August 27th, he told the story of Wendell Potter, a former corporate communications executive for Humana and Cigna, who underwent a conversion experience after seeing Michael Moore’s Sicko in 2007 and watching poor people in Tennessee being tended to at a free health care clinic - in the animal stalls, that is, of a county fair grounds. (And reminding this writer of the one recently held in California). Potter informs us that his former industry colleagues “are not evil…but that they are removed from the consequences of their decisions…and are obsessed with sustaining the company’s stock price – which means paying fewer medical bills.” (At http://www.nytimes.com/2009/08/27/opinion/27kristof.html. Judge for yourself, but this might be one you could print out and give to your anti-health care reform neighbor.)

And now for the tour guides, starting with Matt Taibbi, the National Affairs editor at Rolling Stone magazine (Bill Greider’s old slot), who got the summer off to an angry progressive start in July with his blistering article on Goldman Sachs, The Great American Bubble Machine. At http://www.rollingstone.com/politics/story/28816321/inside_the_great_ame... .

Wall Street Dreams: Nightmare on Easter Island
Taibbi goes after Goldman with an axe, just the instrument you would expect him to use when grappling with a “great vampire squid wrapped around the face of humanity.” If you were hoping for suburban Potomac gentility from Taibbi, you should know he spent considerable time in Russia after the fall, in the 1990’s, with journalist Mark Ames, and has worked as a writer/editor for Bill Maher. Russia circa 1995 was not exactly the same circuit as the “Grand Tour” from the Victorian era, since Russia was undergoing what Stephen Cohen has called the “‘The Great Transition Depression’” – one perhaps more extreme than America in the 1930’s.” But I’m not just applying tentacle or testicular tests to my chosen economic writers; Taibbi told me things I hadn’t known about G. Sachs despite two years of intensive reading, especially on the topic of oil speculation. Goldman Sachs was blessed (actually we’re talking about its commodities trading arm, “J. Aron”), plus about a dozen other firms, with an exemption letter from 1991 giving it rights in commodity trading formerly reserved for direct physical hedgers, like trucking companies, farmers, or airlines. When this inadvertently came to light via a Congressional briefing in 2008, the Commodity Futures Trading Commission (CFTC) said they couldn’t release the letter without clearing it with GS first.

The discovery of the exemptions surprised some subsequent 1990’s leaders at the CFTC too, like Brooksley Born and Maryland’s own Michael Greenberger, who should have known about them, but hey, who’s running this show, the government or Wall Street? That’s one of the deeper subtexts of the article: what does this type of insider power mean for us schmucks out here in the voting booths? The structure of Taibbi’s work looks back to the Great Crash of 1929 and forward to the pending legislation on global warming, and blends seamlessly with the other writers we’ll be spending time with. To add more drama to the plot, and the fear factor of Goldman Sachs’ tentacles, real or imagined, many of his sources would not allow their names to be used in the article.

If it was gentility you were looking for from those “well bred” Wall Street traders, well get over it – that’s the take from Michael Lewis’ Liar’s Poker, published way back in 1989. Lewis, a Princeton University and London School of Economics grad who worked as a bond trader during the mid-1980’s at Salomon Brothers, and who found this job at a high comedy reception for the Queen of England, gave me some great summer reading. I don’t know if author Lewis had in mind the example of another young bond trader witnessing a fall - I’m thinking of Fitzgerald’s Nick Carraway in the Great Gatsby - but all I initially intended to do was brush up on my Wall Street “vernacular” by reading some of the classics. I was drawn to Lewis’ work because of his caustic comments on our very recent tribulations, and he didn’t disappoint.

(Connie Bruck’s The Predators’ Ball, 1988; James B. Stewart’s Den of Thieves, 1991; and Frank Partnoy’s Fiasco, 1997, arrived too late from the Amazon discounters to get included in this posting, but brace yourselves. My readers are perfectly welcome, indeed invited, to read all they want into the cumulative commentary on the state of our markets implied in those titles.)

Not knowing quite what I was getting into, Liar’s Poker remarkably foreshadowed, twenty years ago, what has unfolded 2007-2009. Lewis’ chapter on the mortgage bond operation run by prole-risen-through-the-ranks Lewie Ranieri, called “The Fat Men and Their Marvelous Money Machine,” has a crystal ball quality, everything from the first CMO’s (collateralized mortgage obligations) to customized products for the troubled savings thrifts that could escape 1980’s regulations by being placed “off balance sheet.” Reading this chapter made me angry. After all, it was, in its time, 1989-1990, a best seller. It was, and still is, entertaining and well written. For crying out-loud: for the Federal Reserve, elected officials, especially Congressional oversight committees, think tanks, economic writers, this book put the hand writing on the wall in big, bold letters: there is something very wrong with the Wall Street business model. It’s all here, as the bond traders at Salomon stumble into the economic catastrophe engulfing the savings and loans. They make hundreds of millions, but the basic problem engulfing the thrifts they don’t cure: savings and loans had millions of 30 year mortgages lent out at 5%; interest rates on deposits and new borrowing were in the teens.

A federal tax break sets off a wild scramble (you don’t hear too much about this tax cut from the Right), millions are made in trading the underperforming mortgage loans; Ranieri races off to Congress to lobby to get the federal stamp of approval from newly created Freddie Mac and Fannie Mae, making the whole operation shift into high gear. The gamble makes lots of money for Salomon, but can’t save the Savings and Loan industry from disaster, or the taxpayer from picking up the $200 billion clean-up tab later in the 1990’s. Lewis’s running commentary on the values is what should have brought down the culture: “Bond traders tend to treat each day of trading as if it were their last. This short-term outlook enables them to exploit the weakness of their customers without worrying about the long-term effects on customer relations.” In this case it was the savings thrifts. (Page 104.) “The shakier the loans (mortgage loans), the larger the fee a thrift had to pay to get its mortgages stamped by one of the (federal) agencies. Once they were stamped, however, nobody cared about the quality of the loans. Defaulting homeowners became the government’s problem… The wonderfully spontaneous mortgage department was the place to be if your philosophy of life was: Ready, fire, aim. The payoff to the swashbuckling traders, by the standards of the time, was shockingly large.”

Adding to the contemporary irony, Ranieri, whom Lewis calls “perhaps the first populist in the history of Wall Street,” had his loyalty to the firm cemented early, when as a poor 19 year old working the Salomon mail room night shift, his wife’s $10,000 medical bill is taken care of in an instant by a senior Salomon partner. The year of caring was 1968, but Lewis chisels away, chapter by chapter, at the “band of brothers” implied covenant for employees – to give us a very different take on where the firm ended up by the late 1980’s under the once legendary, now fallen, John Gutfreund. Lewis called it Liar’s Poker, but it could have as well been called “Watch Your Back,” as Ranieri later finds out. Perhaps that’s why, on the very first page, he tells us that Gutfreund’s name is ironically pronounced “good friend.”

Lewis has written recently, in commenting upon today’s events, that he truly wrote this book not just to be entertaining, which surely it is, but also to be a cautionary tale about Wall Street values. And he’s right: he’s not just protecting himself from the fallout from today’s events, he really was not recommending this profession to other young people – or to the nation. Yet that’s not how it was taken out on “Main Street,” or in the hands of eager young undergraduates at the Big Ten. They wrote to him for advice on how to break in, entranced by what they’ve read. (One has to pity their literature teachers.) It would seem Lewis is not alone in pleading “that’s not what I meant.” Oliver Stone the great filmmaker, marvels over what his 1987 film Wall Street triggered in others: “ ‘I can’t tell you how many young people have come up to me in these years and said, ‘I went to Wall Street because of that movie…’” . The same for Michael Douglas who won a best actor Oscar for playing the role of Gordon Gekko: “To this day, Mr. Douglas said, it is a usual occurrence to finish dinner out and have ‘a well-lubricated Wall Street businessman come up to me and say, ‘You’re the man.’” See the NY Times article by Tim Arango “Greed is Bad, Gekko. So is a Meltdown” at http://www.nytimes.com/2009/09/08/movies/08stone.html

It seems like everyone spends a considerable amount of time on Wall Street “watching their backs,” because the place is ripe with job and bonus anxiety – and insecurity. That’s part of the fascinating story told by anthropologist Karen Ho in her book Liquidated: An Ethnography of Wall Street (2009). Don’t let the terminology in the title put you off: ethnography is just the term for the summary that comes out of “the fieldwork.” This is one I stumbled across, and I wasn’t sure how it would go after I finished the 38 page Introduction entitled, appropriately, “Anthropology Goes to Wall Street.” But Ms. Ho, a Stanford and Princeton grad who worked at Bankers Trust in 1996-1997 and did her field work from 1996-1999 after she got “liquidated” herself, really won me over; I couldn’t put the book down. At first it was a battle between her upfront stance – the first sentence of the Acknowledgment reads “An intellectual commitment to social and economic justice first galvanized this book’s journey”- and the awkward terminology (some borrowed from the English Department narrative wars of the 1990’s?). That’s where “privilege” becomes a verb and we learn about the Wall Street Habitus (“‘a system of dispositions’”) and she goes about “decentering privileged models” - but that was about it. I found the few really alien terms quickly explained themselves from the context. And what a context it is, the missing one from the “other side of the world” – that the angry anti-government protesters from this August never mentioned.

Ho first caught the Wall Street itch in September of 1995 when she read about the break-up of AT&T which led to “77,800 managers receiving ‘buy-out offers’” and the down-sizing of 48,500 workers – which coincided with its stock going up by 10.6% of its total value. She reminds us that those golden 1990’s from the Clinton years were full of employment churning and poor tradeoffs: lots of Starbucks and Wal-Mart’s and IPOs (Initial Public Stock Offerings) and dot.com profitless wonder jobs created, but also incredible corporate downsizings: according to one outplacement firm: 1994 - 516,000; 1995 - 440,000; 1996 - 447,000; 1997 - 434,000…another source says downsizing averaged 3 million people per year. Readers who lived through the era may recall, that quite often, the bigger the downsizings, the more Wall Street cheered, and the more the stock rose.

(And Floyd Norris of the New York Times tells us we haven’t shaken the bad habit: “For the first time since the Depression, the American economy has added virtually no jobs in the private sector over a 10-year period.” That’s from July 1999 to July, 2009. Now wasn’t one of the charges to the Federal Reserve, from the Humphrey-Hawkins legislation, to tend to the nation’s employment needs, as well as to control inflation? I don’t recall this article being waved around at those government-castigating hearings. At http://www.nytimes.com/2009/08/08/business/economy/08charts.html )

I like the way Ho went about her work, a field study of the “new exotic,” the resurrection of Wall Street and its practices which would become the “epitome” and the guidance for “a sea change occurring in American business practices during the past three decades…” - a new type of capitalism. As I thought about her work, and that anthropological approach, and the fantastic universe of exotic derivatives which have led the US and indeed, most of the financial world, nearly over the cliff and into the sea, I couldn’t help but summoning up images of those mysterious moai, the giant stone heads of Easter Island, averaging 13 feet and 14 tons in size, most facing out to sea, forever haunting that desolate and isolated 63 square mile island in the Pacific Ocean. The collapse of the ecology of the island, and its civilization, and how its leaders persuaded its people to invest so much of their wealth and energy in sculpting and hauling 887 of these giant statues, has left archeologists, anthropologists and engineers scratching their heads. Those leaders must have had some mystique about them, and some persuasive powers. A mystique surely as powerful as that which has surrounded that abstraction called “The Market” over the past 30 years, and the high priests on Wall Street which interpreted it for us.

Now we don’t know whether the Easter Island leaders led their people, lemming like, over the cliff and into the sea after their exhausting labors, but for those readers who think I am being unfair with this analogy, I ask your forbearance for a moment while I recollect for you a barometer of Market fever I had almost entirely forgotten:
retired Admiral John Poindexter’s proposal to blend the magic of the market to the contemporary (summer of 2003) worries about future 9/11’s, by creating a futures market in terrorism, which was institutionally sponsored by the Defense Advanced Research Projects Agency. I defer here to the description provided by Steve Fraser in his wonderful book, Every Man A Speculator: A History of Wall Street in American Life (2005), that the idea was a “coming together of free-market utopianism and imperial hubris.” Here is more from Fraser’s peerless rendering of our own little excursion to an Easter Island dreamscape:

People would be invited to speculate on the likelihood of death and destruction around the globe. In its original incarnation, it was to be open to the first thousand members of the public who applied to participate. This Populist version of el casino macabre was soon modified so that only insiders, recognized ‘experts’ from government, business, and academia, would be allowed to place their bets on what mayhem seemed most likely and where…Business Week found the notion… ‘intriguing.’ Almost no one else did…Congressmen were appalled, and the Pentagon did a quick about-face…Belief in the market as the supreme conveyer of the truth had gone so far that an idea like this one could wend its way through the bureaucracy of a central government institution without anyone bothering to challenge its moral insanity. Coming as it did on the heels of the most gargantuan financial frauds ever witnessed on the Street, it is an even more remarkable happening. No one worried about the possibility of ‘insider trading’ or, even more frightening, of schemes to foment terrorism where none had existed before precisely to reap a speculative windfall…(Pages 573-575.)

So that’s some terrain here - the power of The Market and the siren call of the Street - to sink one’s anthropologic teeth into. Karen Ho’s gift is to ground grand abstractions in the actual practices of Wall Street and to examine carefully its own representations about hiring the brightest from the best schools, working harder and more hours than anyone else, paying the royal bonuses, and justifying it all under the all-forgiving shareholder value halo, an idea which has driven out more balanced, long term – and, dare we say, more humane values – that corporate management formerly took into consideration back in the mid-1960’s: such as impacts on workers, communities, consumers, the long term good of the firm, even of the nation itself - perish the thought.

We’ll take a more detailed look at Ho’s work later in this essay, but for now, summon up the values that so many responsible financial advisors have been preaching for years to customers like me and my readers: don’t try to time the market, and invest patiently for the long term. Compare that to Ho’s field work finding, announced in her Introduction:

The very particular cultural system that Wall Street has constructed and nurtured - one that promotes the volatile combination of unplanned risk-taking with the search for record profits, constant identification with the financial markets and short-term stock prices, and continual corporate downsizing – has not only been imposed on corporate America but also fundamentally characterizes and affects Wall Street itself.

It’s time to ask, in more than just a rhetorical sense: what would be the impact when these scary Wall Street values and practices were carried over into a very sensitive area of human need, health care, one that also was a substantial portion of the economy, and one where rising costs to citizens (and businesses) were simultaneously the profits of health related firms? And how, after thirty years of reliance on the private sector to solve these problems, is the burden of proof being thrust upon government rather than the failures of the private sector? At one time, before the election of Reagan, someone had the nerve to ask the following questions: “‘Who on earth wants to live in a society in which all – or even a majority - of one’s fellow citizens are fully engaged in the hot pursuit of money, the single-minded pursuit of self-interest…who wants to live in a society in which selfishness and self-seeking are celebrated as primary virtues?’”

These questions, which may seem rather naïve to today’s ears, attuned as they are after 30 years of free market ideology to interpret the growling emitted by universal selfishness as an inspirational symphony, were not, however, when they were posed in the 1970’s. They were not uttered by Michael Harrington or John Kenneth Galbraith on the left, though, but rather by one of the godfather’s of the conservative revival, none other than Irving Kristol himself. (That’s Bill Kristol’s father.) As the former Trotskyite from the 1930’s shifted to the right, he used those questions to try to shame American business into putting its greed aside just long enough to “secure their economic position…” by giving “…their support to other social institutions – the family, the church – that could preserve moral and social values and that had the emotional weight to command true allegiance.”

(Editor’s Note: Irving Kristol passed away on Friday, September 18, 2009, in Arlington, Virginia at the age of 89. His obituary can be found in the New York Times of Saturday, September 19th at http://www.nytimes.com/2009/09/19/us/politics/19kristol.html?hpw).

That’s just a small portion of the fascinating story told by Kim Phillips-Fein’s Invisible Hands (Pages 163-165) which focuses on the growth of conservative politics within the American business community and the attempts to connect it with other societal conservative forces. If you hear echoes of the culture wars in those now “charged” terms “the family, the church” used by Kristol, you would be correct, and in Chapter Ten, “Making the Moral Majority, Phillips-Fein explains how Jerry Falwell’s founding of the Moral Majority in Lynchburg, Virginia in the spring of 1979 helped build the bridges between conservative evangelicals and the growing conservatism of American business. Aside from the standard moral issues of the religious Right – pro-family, anti-abortion, anti-pornography, anti-homosexuality - Falwell’s 1980 book Listen America! “also included passages criticizing excessive ‘government intervention in business,’ mourning the sad fact…that government is the major source of our economic instability in this country’ and praising Milton Friedman’s Capitalism and Freedom.’” (Pages 230-231). Earlier in the book, Phillips-Fein had quoted businesses as complaining in the 1940’s and 50’s that they always seemed to have the liberal ministers of the mainstream churches against them during labor strife; but “by the 1970’s this was no longer the case. The churches had become the natural allies of the businessmen.”

And yet…and yet…as you might have suspected from the way I have put my selections together, isn’t there something amiss between the conservative religious foundations hinted at here, and the growing market crises, uncertainty by design, and the short- run values embraced by Wall Street capitalism (and which intensified during the very years marking the growth of the Religious Right, especially since 1980) and spread by The Street to a growing portion of American business, and indeed, the world? Phillips-Klein sees the “dissonance” too, and reminds us that the “…communal values of family and tradition they claimed to uphold were inevitably undermined by the logic of laissez-faire and the turbulence of commercial society.”(Page 235).

It was a fault line in conservatism that was not unanticipated, even by the very founding economists of the “conservative” revival, Friedrich Von Hayek and Ludwig von Mises. As we learn early in Invisible Hands, “Hayek and Mises espoused an idea of the world quite different from the classically conservative one. They admired the entrepreneur’s capacity for innovation, and they believed in a vision of a society always in flux.” (Page 38). Well, they certainly have gotten their wish. Flux would be a polite euphemism to describe the world of contemporary Wall Street as portrayed by Michael Lewis and Karen Ho.

And author Tom Frank reminds us of just what The Right got (along with the rest of us) in this grand bargain, essentially by issuing a very large blank check to American business practices while ignoring the realm of social ethics, at the same time religious conservatives ratcheted down very tightly, focused on personal conduct - a perspective I suspect isn’t heard from too many pulpits in Lynchburg, VA. In brief, the Social Gospel of the Progressive Era (and its carry over in a more secularized version into the New Deal) was out, personal piety and Social Darwinism was in. With his book, The Wrecking Crew: How Conservatives Rule, Frank explains that it was not stability that business gurus were after, at least not in the realm of economic life. Consider, Frank writes, “the titles of management books for the last few decades: Disruption, Thriving on Chaos, Surfing the Edge of Chaos, Leading the Revolution…The Age of Unreason, Change is the Rule…the Dance of Change…” (Page 267).

Of course, the chaotic “dance of change” recommended so highly for the business realm cannot be walled off so neatly from social and family life, something the Limbaughs, Levins and Hannitys don’t seem to take much note of. One of the other virtues of Karen Ho’s Liquidated is its close look at the impact of the “hard work” ethic of the Street, where the first and second year “analysts” can grind up to 110 hours per week. It cancels out any hope for a normal personal or family life, and they know it; some don’t even try to go home, they sleep in their cars. Yet the absurd thing, in addition to the unnecessary damage inflicted on their health and potential or actual family lives, is that the rationales offered for such extreme demands don’t hold water. The driver for the crazy hours is usually the merger and acquisition briefing books and deal proposals that have to be on the desks of the VPs by 7:00 AM the next morning – because the deals are set up under such artificially tight deadlines and the work demands aren’t made known until 4:00 in the afternoon. Those self-generated timeframes as well as the power hierarchies inside the firms mean that – in a age where there are always vastly more job seekers than job openings – and in a field where the US turned out 76,000 MBA’s in 1984-85, 112,000 in 1999-2000 (compare that to the number of doctors graduating from US medical schools each year – about 15,000-16,000…) there is no thought given to hiring more from the huge pool of candidates and spreading the work out, or even shifting the deadlines from mere hours to more reasonable days. We have a societal culture that has always advocated, and admired, hard work, and there is nothing wrong with that. But what we’re talking about in Ho’s findings is a totemic obsession, like those giant heads on Easter Island, which in turn gets wrapped up in the self-justifications for the enormous monetary rewards – a total of $149.3 billion in 2007. That’s just for the nine Wall Street firms which ended up receiving US government aid in 2008-2009, according to Andrew Cuomo’s (NY State Attorney General) report covered in the Wall Street Journal on July 31, 2009 (“Bank Bonus Tab: $33 Billion,” by Suzanne Craig and Deborah Solomon). Matt Taibbi’s article on Goldman Sachs caught the spirit of this cycle of self-justification when he asked for the justification for the average compensation paid in 2006 of $622,000 per employee: “‘We work very hard here,’” came the reply.

Nor can the chaotic “dance of change” urged upon businesses be walled off so neatly from the issue of health care/health insurance reform, for the firm, the family, or individuals. We know that the leading cause of bankruptcy for individuals is the fallout cost of catastrophic emergency health care, and personal bankruptcies are on the rise. I witnessed the chaos, even when I had health insurance in the 1990’s, provided by my then employer, NJ Audubon Society (NJAS), a 401(c)3 non-profit. NJAS didn’t always have health insurance, and our very competent Executive Director, Tom Gilmore, was proud to be able to finally offer the 40-50 employees coverage. Yet no sooner did we have coverage, than the provider would drop us, usually in a time-frame of 12-18 months. This became such a ritual that employees would keep boxes handy for the ½ to 1 inch thick coverage plans, the current ones and the ones you needed to resolve the “disputed coverage” claims from the last one. We never did know what triggered this game of musical health chairs, whether it was the health firms’ failure to realize we were a bad insurance risk until the claims flooded in (were we? I have no idea), or, as some folks I talked with just recently have suggested, that it was all about the insurance brokers getting fees or bonuses to write new coverage, whatever the problems 15 months later brought…but we never heard a clear explanation, and by the fourth or fifth staff meeting for the “latest” plan I was commenting on our tribulations as a window on the national health care disaster.

Window of the Health Care Debate: Framed by the Right
And that’s what I intend to do just now, in an even broader sense. August 2009 and the national health care debate are a window into the soul of our national political economy, and a measuring rod for how much we have moved out of the conservative era, or, as I have called it in other forums, The Era of Market Utopianism. It is also a telling moment of measurement for the Democratic Party, President Obama, and their relationship to the Progressive or Liberal wing of the party. Because the angriest protesters have “framed” this debate to cast government-led change as the villain, and very implicitly the private sector (especially the health insurance industry) as the safe shore of the status quo, this debate is also a left/right “passion” meter for other debates to come, including the cap and trade bill.

The Ur document for this moment of high political drama comes from George Lakoff’s The PolicySpeak Disaster for Health Care which appeared online at the Huffington Post on August 20 at http://www.huffingtonpost.com/george-lakoff/the-policyspeak-disaster_b_2... (My thanks to Mark Woodard of the Silver Spring Democratic Club who sent me this one and who, along with Lora Meisner out in Oregon make sure I don’t miss anything important out there in the Ethernet).

If by chance you don’t know about George Lakoff , he is the cognitive scientist and linguist whose book don’t think of an elephant (2004) brought the term “framing” to the forefront of political discourse. Framing stresses the importance of carefully chosen metaphors to set off intended emotional/political responses from deeper patterns in the brain. Lakoff’s earlier, and much longer book, Moral Politics (2002, 2nd edition) taught us “how liberals and conservatives think.” I’ve tackled both, and believe they are important works, well worth the time and effort to help you see “behind” the language of the polarized politics of the past 30 years or so. However, I’ve got some serious reservations about where framing eventually takes us and I’ll discuss them shortly. But for the purposes of his health care article and the August thunderstorms, here’s the condensed version of the Lakoff rap from the article:

…neuroscience and cognitive science have shown that most reason is unconscious…Emotion is necessary for rational thought…as much as self-interest, empathy lies behind reason…Ideas are physical, part of brain circuitry. Ideas are constituted by brain structures called ‘frames’ and ‘metaphors,’ and reason uses them. Frames form systems, called worldviews…Words activate frame-and-metaphor circuits, which in turn activate worldview circuits. Whenever brain circuitry is activated, the synapses get stronger, and the circuits are easier to activate again.

In other words, if you will forgive me, as in advertising, saying it over and over again works. And yes, something that he didn’t say quite as succinctly in this article, but did in don’t think of an elephant: “When the facts don’t fit the frames, the frames are kept and the facts ignored.” (Page 73).

Now some cynics might say, “well, isn’t this just some fresh academic gloss over what we used to call ‘propaganda and ideology,’” and I think there is something to be said for that. And the stress upon emotion - “most reason being unconscious” - couldn’t but help recall for me H. Stuart Hughes’ sparkling Consciousness and Society, The Reorientation of European Social Thought, 1890-1930 (1958) with its sections headed “The Revolt against Positivism” and “The Recovery of the Unconscious.” And indeed, Lakoff says we old liberals and progressives have fallen behind the new science, we’re still stuck in the 17th century, the era of the Scientific Revolution, and believe that by stating the facts, and the policies, we’ll get the people, especially those conflicted ones in the middle – Lakoff’s “bi-conceptuals” - to side with us.

Lakoff bemoans the Obama Administration’s descent from its lofty “framing” success in the presidential campaign where he pledged to “unify the country…calling for empathy, social responsibility, making the nation better,” thus “activate(ing) the progressive values in the many millions of Americans who have some conservative values and some progressive values.” From there, we’ve descended into the current confusing debacle, where the only thing that’s clear is the lack of a unifying idea: instead of the “boring” public option, Lakoff says we should have called it “The American Plan.” Given the explicitly moral nature of the health care debate, which Lakoff wants to stress, maybe we should have called it “The American Plan’s Sermon on the Mount” – but he didn’t go quite that far. Instead he got Obama advisor David Axelrod’s “viral” email with 24 policy points in 3 sets of eight – sans “public option” unifier. Lakoff laments: “Ask yourself which is more memorable: ‘Government takeover, socialized medicine, and death panels’ – or Axelrod’s 24 points?” Game, set and match to the conservatives, for now at least. But he says the struggle is not over.

Lakoff suggests an alternative narrative. Here are some of the key metaphors he tosses out: It’s a “Health Care Emergency. Americans are suffering and dying because of the failure of insurance company health care…Doctors care; insurance companies don’t…Deny you care…use the words. That’s what all the paperwork and administrative costs of insurance companies are about – denying you care…Insurance company bureaucrats. Obama mentions them, but there is no consistent uproar about them. The term needs to come into common parlance…Insurance companies ration care…the health care failure is an insurance company failure. Why keep a failing system…?”

Now you might conclude from this that Lakoff is out to “demonize” the insurance companies, and you would be quite correct: “…the villainizing of real insurance company villains should have begun from the beginning.” (George may want to work on the exact language here a bit, but you get the idea.) He also, in this long article (long for a Huffington Post, that is) tosses out the intriguing idea that to pay for the expanded health care, we should consider an excursion into “causal economics.” By that he means taking funds “from sources of health problems,” like big agriculture and the food industry. Since high health care costs helped “do in” the auto industry, maybe health insurers should have been tapped for some of the auto bailout costs.

Lakoff also blasts the Democrats’ abandonment of the single payer supporters, and for shutting them out of the debate. Instead, he says the “doctors, nurses and unions advocating for such a plan could have done a lot of the work of villainizing the health care industry and would have drawn fire from the Right. An alternative on the left would have made the President’s plan a compromise. Besides, there is so much to be said in favor of single payer, that there might have been fewer actual compromises with the right.” Since Lakoff’s framing has been accused of being “manipulative” in its mechanics, I have to say that his script for single payers sure strikes me as being quite sacrificially manipulative. Manipulative or not, one thing is certain: by cutting out single payers, President Obama and the Democratic establishment benched the most passionate reform advocates.

As you can see from the above, especially the core ideas of framing, a system of message shaping and control, and constant repetition, are what Lakoff finds key in the battle of ideas. The Right already has such a set up and a nearly 30 year head start; Democrats and Progressives have not only failed to consult Dr. Lakoff on health care, they have not built anything comparable, capable of reaching into every Congressional District (just ask Congressman Van Hollen about the Right’s message machine reaching into Leisure World), Howard Dean’s tenure at the DNC being an exception. This goes back to Lakoff’s observation (plea?) in his 2001 Preface to Moral Politics: “Conservatives support their intellectuals; progressives tend not to. Conservatives build infrastructure and invest in the careers of their best thinkers and writers; progressives have enough money to do the same, but they don’t spend it effectively.” (Page xi.)
Readers who want more information on the formidable formal machinery the Right has built can get a quick take on it from Don Hazen’s 2005 article called “The Right Wing Express” at http://www.alternet.org/media/21192

Now here’s my take on the provocative analysis and ideas put out in Lakoff’s article. Democrats should consult him, and maybe even hire him, but that won’t solve all their problems, especially their deeper ideological ones. As someone who has taken Lakoff seriously, and been to framing workshops, I find his work a wonderful tool to understand and deconstruct what the Right is saying, but the creative side of me chaffs at the deliberate and carefully calibrated “construction” side implied by the “system.” (That and the importance of repetition are bound to summon up the word, and feeling, of “manipulation.”) And since the frames are constructed, at the deepest levels, on moral systems that reach back into the emotional structures of families (“strict father” versus “nurturing parents,” something not mentioned in this Lakoff article but a central part of Moral Politics) and even well framed policies and speeches won’t be effective without the “groundwork” already being laid, and so much dependents on constant repetition, then we well might ask: doesn’t that throw the contest into a money battle to build the infrastructure, and the ability to saturate the public with the same metaphors? Lakoff counters that our progressive frames and metaphors will be built out of the truth, but as I told him in a brief hallway conversation several years ago, it appears to me that the winner will be not be based on who tells the most truths (after all, facts don’t matter much, it’s the deep frame) but the one who can stir the deepest emotions with the most money, and the winning framers in Weimar Germany were not the progressives of the day. And thinking of Weimar reminds us not only of the family emotional sources (talk about strict fathers in German culture) but also something else conspicuously missing in Lakoff’s work: historical context. In Weimar we are talking about a lost war/stabbed in the back, two revolutions (1918, 1919), runaway inflation, Great Depression…history was supplying abundant gasoline to fuel the emotions stirred up by you-know-whose framing…Of course George didn’t like that take, but I didn’t hear a convincing rebuttal.

When Lakoff says “frames form worldviews,” I want to reply: so do historical eras, but more slowly and organically. Out of the potent economic facts on the ground of the Great Depression, FDR and the New Deal managed to do quite well, without a vast formal network, framing workshops and repetitive propaganda, forging a lasting legacy, a 40 year one, and a pragmatic one, without a sharply focused ideological message (mediating as it did between the laissez-faire, hands-off Right of the Republicans 1920’s, and the intense ideology of the communist and socialist left of the 1930’s) although one could make the case it was pretty sharp in the election of 1936. If I could boil the New Deal’s lasting legacy down to one sentence, it might be that “millions of unemployed citizens found they had a new job, and new voice, thanks to the compassionate and effective friend they found in their own government, in contrast to the ‘icy’ indifference and divisive greed they saw in Wall Street and much of the private sector.”

With the Great Depression, the Republican Frame of the 1920’s, Warren Harding’s “More business in government, less government in business” (Frank, The Wrecking Crew, page 29) died, starved of confirmation by the daily news, and long lines of hungry men. Starting with the Liberty League in the 1930’s, the Republican Right struggled to get a coherent and comprehensive alternative philosophy together, and arguably it was not until Barry Goldwater’s ghostwritten Conscience of a Conservative (1960 by L. Brent Bozell, Wm. F. Buckley’s brother-in-law) that they really had something to mobilize around. And then it took them 20 more years to get the Presidency. My question to Mr. Lakoff would be: was it poor framing, or great prosperity from 1945-1971, that kept a coherent opposition from forming? Sept. 11, 2001 delivered overwhelming physical and symbolic material that played right into the most powerful aspects of the deep conservative frame – as Lakoff recognizes in Elephant. The greatest economic crisis since the Great Depression was a, if not the crucial factor in electing Barack Obama, but skillful emergency room operations by the Federal Reserve and other central banks and governments around the world have prevented anything close to the 1930’s, and it remains very much in doubt if our current economic crisis will provide the powerful facts to override the still dominant conservative frames, which Lakoff summarizes in just ten words in Elephant, and which I place in the order which supports the thrust of this essay: Free Markets, Smaller Government, Lower Taxes, Family Values and Strong Defense.

His comparables for Progressives, it almost goes without saying, don’t have the same resonance, and I note for future reference that they don’t include the word “equality,” not even qualified down to “greater” equality (Democratic pollsters say it doesn’t poll as well as fairness and other substitutes), nor the term “full employment,” which doubtless Lakoff would say is a damned “policy,” not a value, so in place of full employment and greater equality we get “broad prosperity.”

Divided Democrats Don’t Demonize
So why aren’t Democrats better at framing, and why don’t our “ten words” seem to match the Right’s in power and comprehensiveness, not to mention comprehension? Could it be that framing is much easier in the mind of an individual fully on the left, as I take Lakoff to be, than for a party with a major ideological fault line running through it, dividing its left from its private market/business centrists? Let’s take another look at Lakoff’s piece on the health care debate, this time through this lense. First, the Dems cut out the passion of the single payers, as being too upsetting to the current private business dominated health care sector. Second, let’s refresh some memories here. Back in May, there was a Mother’s Day, Blackberry delivered heads-up for a “telephonic press conference” that very Sunday, to preview the formal announcement which wouldn’t happen until Monday. The big news was: “a coalition of heath insurance, hospital, pharmaceutical, and physician trade groups, plus a major union, will promise the President Monday that they will reduce the rate of future growth in the cost of healthcare by 1.5% per year for the next decade.” (From M.S. Bellows, Jr.’s: “Is Obama Naïve About the For-Profit Health Industry’s Commitment to Real Reform?” May 11, 2009 on the Huffington Post at http://www.huffingtonpost.com/m.s.-bellows/is-the-administration-bei_b_2... ). Bellows got the last question in the conference call, and asked about the President’s commitment to the public option, and the title tells you how unhappy he was with the answer. He wonders openly in the article about an unspoken quid-pro-quo with the powers here; unenforceable pledges on health care rates rising more slowly – and for taking the public option off the table.

So my answer to George Lakoff is that it’s pretty tough to demonize the same private insurance industry you’re working this type of deal with…(oops, I forgot, let the single-payers do the demonizing…)…now lets turn to big Pharma (PhRMA), to see what’s going on in the pre-final bill deal making with them. For an answer, let’s turn to Bill Greider’s August 6th article in The Nation: “A Rancid Deal with Big Pharma.”

The sequence here was that the infamous former legislator Billy Tauzin, now lobbyist for big Pharma, spilled the beans on the deal struck with White House Chief of Staff Rahm Emanuel, to head off the Pelosi House Bill, which calls for “the government’s right to bargain for lower prices.” Here’s Greider’s take on what happened:

So now we know why the president wants everyone to make nice in the healthcare debate. His White House has cut a deal with Big Pharma that smells like the same old rotten politics that candidate Obama regularly denounced and promised to end. The drug industry agrees to deliver $80 billion in future savings and the president promises the government will not use its awesome purchasing power to negotiate lower drug prices.

Now let’s update ourselves just a bit on our “new partners” in health care cost control, Big Pharma. Let’s go to Gardiner Harris’s New York Times article of September 3, 2009: “Pfizer Pays $2.3 Billion to Settle Marketing Case.” (At http://www.nytimes.com/2009/09/03/business/03health.html ) This was some settlement, “the largest health care fraud settlement and the largest criminal fine of any kind ever.” Well, that kind of gets your attention, even if you have never heard of the drug involved, Bextra. But there’s more: “It was Pfizer’s fourth settlement over illegal marketing activities since 2002.” According to the US attorney, it was Pfizer’s “recidivism” that was responsible for the huge fine. I would think, having been “schooled” by Mr. Lakoff, that the proper phrasing here should have been “serial offender.” (Gets the strict father, “law and order” frame all stirred up.) But wait, there’s even more about our new partners in reform. From the same article:

Almost every major drug maker has been accused in recent years of giving kickbacks to doctors or shortchanging federal programs. Prosecutors said that they had become so alarmed by the growing criminality in the industry that they had begun increasing fines into the billions of dollars and would more vigorously prosecute doctors as well.

No wonder the President and our Democratic leaders didn’t want the single-payers hanging around that policy making table. Who wants to treat with passionate advocates for the patients and uninsured when you can break bread, and make deals, with the refined white collar criminal element? (And keep the campaign funds flowing too.)

So I think we can safely guess why George Lakoff isn’t in a basement office at the White House framing the talking points: his would never get beyond Chief of Staff Emanuel’s red pen – and that big fault line that runs through the Democratic Party.

The nature of that great fault line will insure trouble in the attempted Democratic frames no matter how skillful the framer, as well in the policies we can expect, because its runs along the bad government/good private sector “axis,” the great demarcation line which Reagan followed in 1980, and the Right ever since. So far it is powerful enough to repel all the nasty facts about private sector health care providers, and the repeat offenders at Big Pharma – just as Lakoff has taught us good frames can do.

It is interesting to see how Tom Frank handles this ground in Chapter Two of The Wrecking Crew, entitled “Their Enemy, The State.” Speaking of conservatism’s deepest attachment, to laissez-faire and the free-market, Frank also notes its greatest weakness: it “would be discredited should the business system ever suffer a catastrophic breakdown.” Which is exactly what happened in 1929; but not so far, in 2007-2009, although we came very close.

Frank points out that the Right deliberately “mutated” to survive another such debacle, so that their public presentation in the 1970’s and 1980’s did not dwell on their core business base. They would instead emphasize their movement as one

…of outsiders, of rebels, of freedom fighters, even. It would recruit and mobilize the embittered and the aggrieved – blue-collar patriots…born-again Christians watching their culture fall apart – and form them into a vast grassroots insurgency. It would wallow in preposterous theories about the secret treason of the ruling liberals and encourage the darkest imaginable interpretation of the government’s every deed. This was a movement defined by what it was against. And the main thing it was against…was Big Government.” (Page 31-32).

This is, of course, a remarkably accurate description of what unfolded in the Republican Right’s game plan at the August congressional forums, right down to the darkest interpretations of government plans.

So the Right hasn’t changed much. The recent economic earthquake did not shift its attitude towards positive government along that great axis. How about K Street and what Bill Greider has just suggested is “the same old rotten politics?” After all, it is the high standing that the Democrats give the private corporate sector and its lobbyists on K Street that has had such an influence on their policy choices. Well, maybe not quite as high as the last eight years, but high enough. Here’s how Tom Frank sees their relationship after the 2006 elections: “…for the party’s more entrepreneurial leaders the victory was merely an opportunity to accelerate their own courtship of K Street, complete with parties on the tenth story of 101 Con.” (Page 270). That would be the structure at 101 Constitution Avenue, with the Charlie Palmer Steak House on the ground floor, the building serving as the “command center of corporate lobbying…the closest commercial property to the Capitol building…” and which has 15 custom elevators serving “‘…as the first stage in the journey toward the creation of new laws.’” (Pages 176-178). At first, this elevator elbow thrown by Frank seems like just another one of his smart-alecky, but well-deserved jabs at K Street pretensions; but on re-reading it a month later, I recalled another reference to elevator status in Karen Ho’s Liquidated, and went scrambling to find it amidst her 324 page book. It’s in a chapter called “Wall Street Orientation,” in a section called “Tiered Elevators: Investment Banks at a Glance.” Basically, the back office, middle office and front office (the last composed of “investment banking, sales and trading, and asset management - the main action) all ride their separate ways – and at Bankers Trust where she worked, she couldn’t get from middle floors to the leadership – from the 22nd to the 45th floor – without riding all the way back down to the lobby to get on the proper elevator track. Later, doing her “fieldwork,” she realizes that

I found every investment bank in New York City organized its elevators in a similar way, with the lower floors occupied by less prestigious departments, the upper floors by the most elite workers. These domains are rigidly segregated by race, gender and class, as well as work schedule and style of dress. In many buildings, the CEO uses his own private elevator. (Pages 77-78.)

So it’s no wonder the laws of the past thirty years have helped to distribute wealth the way they have.

Maryland Congressman Steny Hoyer is mentioned in Frank’s book as having a party thrown for him on the tenth floor of that 101 Constitutional Ave. Building – after his victory in 2006 over John Murtha for the House Majority Leader position. It’s only a footnote in Frank’s last chapter, “Reaching for the Pillars,” but I wanted my readers to know that it says that Hoyer “…is K Street’s reigning favorite among the Democratic leadership, although his appeals to lobby-land have fallen far short of Tom Delay’s.” (Footnote #22 on Page 347).

Dead Souls: Lobbyists and the City of Bought Men
There is nothing more corrosive to the health of a democracy than the belief on the part of citizens that organized lobbies, and their lobbyists, especially those representing private economic interests, have an inside track to those making the national laws, both the elected congressional officials and the regulatory agencies. So the growth in the numbers of lobbyists during this period, noted by Tom Frank in his compelling chapter called “The City of Bought Men,” is bound to add more and more salt to the wound of a public that feels Congress is out of touch with the lives of average citizens. The growth in numbers, noted in 1986, is alleged to have been doubling roughly ever ten years, with the highest number of 91,000 given in 1993 by a political scientist to the entire range of staffs and actual registered lobbyists for the whole spectrum of pursued interests; the actual number of formally registered ones is 35,000 – plenty large enough. (Page 180).

For a glimpse into the anger this generates, let’s go to the words and the numerous videotapes of one Craig Anthony Miller, age 59, the protester who got right in Senator Arlen Specter’s face on August 10th at the Lebanon, PA “town hall” meeting on health care. As best I’ve been able to piece together from tapes and quotes from a variety of sources, here’s what the very angry Mr. Miller said. The context first: he was promised by Specter staffers, over the phone, 5 minutes, then the format was changed to 30 or so written question cards, but not his, and then he gets physically “yanked” when he starts to speak from the floor:

You are trampling our Constitution. You and your cronies in government do this kind of stuff all the time…I’m not a lobbyist with all kinds of money to stuff in your pockets…One day…God is going to stand before you, and he’s going to judge you and the rest of your dam cronies up on the Hill. And then you will get your just desserts. I’ll leave so you can do whatever the hell you do. (My emphasis).

Well, there you have a pretty good translation of the growing gap. I’ve done my best to learn more about this citizen. Just two bits of information were out there: that he has a lung problem and is on disability payments of some type, whether public or private wasn’t clear. But no religious, vocational, political background, or even a “long time resident of…” He later appeared on MSNBC, a tape of about 8 minutes, an appearance which lends support to the theory of connecting him to the Right, because he said that President Obama has already violated his oath to the Constitution with his appointment of so many “Czars,” all 31 of them; Speaker Pelosi, Senator Reid, Chairman Barney Frank are denounced (without the titles), along with the Federal Reserve, and “government is crooked, most of our politicians are criminal…” But it was a hesitant and troubled speaker which appeared. As some commentators noted, he was not going to be the next “Joe the Plumber.”

But wherever he might be on the political spectrum, let’s take his views seriously. He’s got some of the problem down just right. After all, if anyone knows Washington, it’s Kevin Phillips, who wrote Arrogant Capital in 1994, and signed the Preface to the Paperback on May 1, 1995 giving a Bethesda, Maryland address. He’s since moved to Connecticut. And let’s not forget the subtitle, which doesn’t appear on my paperback addition’s cover: Washington, Wall Street, and the Frustration of American Politics.
He’s was hoping that the 1994 Republican “Revolution,” the one that brought us the Contract with America, would be one of those peaceful watersheds of American politics, like the ones in 1800, 1828, 1860, and 1932 (the one in 1896 not succeeding). But the 1994 Congressional elections did not “break up the fifty-year stranglehold that lobbyists and special interests have gained over Washington. If anything, the role of the lobbyists has strengthened. This central malfunction – and critical challenge – of American politics remains.” (Page xiii.)

I was also curious about the bio of our angry Pennsylvanian, if indeed he is from there, because that was a state which was absolutely hammered by the great de-industrialization of the past 30 years, and which has a militia movement, and which sent former Senator Rick Santorum to Congress. Does Mr. Craig Miller ever get to hear from or read a page of former Republican star Kevin Phillips’, now a political independent? I thought we had heard some of this call to change the way Washington works in Barack Obama’s campaign, but, then again, we thought we heard that too from Jimmy Carter and Bill Clinton. Here’s a paragraph, not a page, from Phillips, but it will do quite well:

Any blueprint for a twenty-first century American must shrink the role of interest groups, just as was done a century ago…Once again, economic renewal demands it. The last thirty years have produced a national-capital influence structure that represents the multinational corporations who move jobs from Wisconsin to Taiwan, not the anonymous Americans who suffer, that protects the financial giants who run the bond markets and mutual funds, not the ordinary folk who are at their mercy, and that favors the professionals – the lawyers, lobbyists, accountants, stockbrokers, trade consultants, and communicators –who enjoy record incomes from the same globalization and polarization that has brought Middle America two decades of decline in real manufacturing wages…It is foolish to expect the biases to change until the power structures of Washington are themselves transformed. (Page 223; My emphasis.)

One of the fascinating things to me is that from the theories of “interest-group liberalism,” one would have expected a steady flourishing of professional lobbyists in the seat of federal power. And under Bill Clinton, they did flourish, only the “old New Deal Democratic lobbies – labor, minority, and urban – found themselves decreasingly relevant,” abandoned “for a new ‘interest-group centrism’ of collaboration with the capital’s new business-financial-international power axis.” (Phillips, page xxii.) The Clinton Presidency, however, was just a subtext to the broader conservative ascendancy since 1980, giving in more than it pushed back or altered the Right’s course. And we have yet to hear, at the theoretical level, how under a conservative movement that worships the “free and self-correcting” markets and loathes the federal government, lobbying, especially corporate lobbying, should take off like a rocket since 1980. Of course there was lot of dismantling of regulation that had to, in conservative theory, take place, and that happened all through the 1990’s under Clinton too, culminating in those all too familiar, and disastrous late 1990’s banking and financial market regulatory changes. But after that, couldn’t 75% of the lobbyists go home, with the government “safely” in the hands of President Bush? Hardly; and that’s the story that Tom Frank tells best in The Wrecking Crew as he explains how “earmarking” and other “refined” tactics leave the humble laws of supply and demand in about the same place as supply and demand left oil prices between Jan. of 2007 and January of 2009: behaving irrationally from the viewpoint of market theory. (We’ll see later there’s a method behind the madness.)

So citizen Miller, where does this leave us? You’re angry and disappointed in government, but, as we’re finding out, this is government under lobbyists’ vetoes, and to be more precise, under specific classes of lobbyists’ vetoes. Bill Greider put it succinctly and right on target for our current moment, with the following passage from his book Come Home America, in the chapter called “Machine Politics:”

Whether the reform issue is health care or pensions or global warming, deferring to corporate preferences puts a noose around reform ambitions. Corporate strategists get to insist on a solution that is acceptable to them, or else they mobilize to kill it. The result repeatedly is a safe solution that does not disturb the corporate world, but also does not solve the problem. This confronts politicians with a cruel choice – support a solution that actually may work, or keep the business interests pacified by enacting halfway measures that are sure to fail. (Page 231).

Curbing the influence of Washington-based lobbying, especially corporate/business lobbying, is no easy task. Because of the size and power of American government, and the role of Washington, institutions of all types, not just businesses, have to be there physically. But the difficult problems posed by this perennial thorn of insider economic power is intensified by the nature of the epoch we have passed through over the past 30 years, and which we are still not quite out of. Private economic power, in all its many varied forms, has been magnified, and it shows up especially here. Part of it is the worship of the market over other forms of countervailing power, be they unions or “public interest” non-profits; part of it is the era’s prominent inequality of wealth and income. We know that the wealthy vote in disproportionately higher numbers than the poor, and also contribute more money. Personal wealth is also directly translating into a greater ability to run for office, given the high cost of campaigns. Then there is the growing infrastructure of modern politics, of TV Networks, newspapers and think tanks, all with an ideological slant; nothing new, but the Right has been much better than the left, despite some large and prominent piles of money from liberal leaning sources, like Soros. When I’ve talked to people whom I thought were in the political middle (perhaps I was mistaken), it was the Right’s frames on government and health care, I heard, not the tropes from the left, or even the center.

But as Lakoff is fond of lamenting, progressive-leaning money sources have apparently declined to build anything comparable to what the Right has constructed. Could that be because the money sources for Progressives are far less trustful of the progressive intellectuals whom they would sponsor than the Right is of its own? Perhaps they are influenced by the Democratic Party’s fear of building a competing power center, more fearful than the Republican Party is of having someone, or some institutional center emerge, with the national “bargaining” power of a Rush Limbaugh, for example. The argument over who speaks for the Republican Right is instructive here, with Democrats in the back of my mind. I would ask Progressives to also ponder the case of John Podesta and the Center for American Progress and its seeming unwillingness to take on the deeper roots and implications of the financial crisis in its public offerings. Is it idiosyncratic, or indicative of the broader problem of Progressive money sources, that they are so close to the Clintonian world view that they are reluctant to help set in motion forces that would alter the Wall Street-Democratic alignment that so stamped the 1992-2000 years?

The deeper problem in not a new one. The last 30 years, the Age of Market Utopianism, have brought back another version of Gilded Age of the 1880’s -1910, and the Roaring 1920’s. Frank quotes Justice Louis Brandeis from that first period: “‘We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.’” It is a bitter lesson that we will have to re-learn all over again.” (Page 271).

Kevin Phillips is particularly daunted by the challenge of changing the dynamics in Washington, DC. He cites the failures of other declining empires in “directly purging bloated great power capitals – from Rome and Constantinople to Madrid and The Hague…Congress, in particular, is barely credible on proposals to restrain lobbying and clean up federal campaign finance.” (Page 245). Phillips is vexed also by the revolving door between former congressional members (and their staffs) and the powerful private interests who they will represent when they come back to lobby their former colleagues. He notes the correlation, one I don’t hear from others, between the tremendous growths in congressional staffs from just 1,425 in 1930 to 20,000 at the time he wrote in 1994, and those 90,000 lobbyists: “Five or six times as large as the support structures of other major national legislatures, a large part of this huge staff spends much of its time interfacing with the capital’s huge corps of lobbyists and preparing for its own vocational graduation into that corps.” (My emphasis, page 248).

He adds another twist to this story, one with disturbing historical precedents for declining economic powers: “Lobbying for foreign governments and interests, in particular, has reached a magnitude never before seen in a capital city.” Here’s the sharp edge that Phillip’s unique historical depth adds to his critique in Arrogant Capital:

The economic patriotism of London circa 1910 was not very high, and investors sent their money to every part of the world but the decaying parts of the United Kingdom. And the eighteenth-century Dutch were worse; their merchants and traders would sell to anybody, even nations at war with the Netherlands. In the current-day United States, the hundreds of former senior officials helping foreign governments and economic interests outmaneuver domestic industries or shut down factories in California or Ohio rarely seem embarrassed either. (My emphasis, pages 246-247.)

Democrats Build a Border Fence: Politics and Passion
My most attentive readers will recall that for several postings now, I’ve been working up to the topic of Progressive “passion,” or the lack of it, certainly in comparison to the Republican Right over the past 30 years, now brought home for all to see directly in the August town hall meetings. Back in 2005, I was working on an essay called “The Party: Persona, Policy and Passion” but never felt it was ready for prime time. So I’ve done some ground work on these themes, here now more broadly addressed, beyond just the Democratic Party. And our current President is raising them again as well. My research on the topic led me to Michael Walzer’s book and its suggestive title: Politics and Passion: Towards a More Egalitarian Liberalism (2004). Initially, when I first read it and didn’t get to the word “passion” (aside from the Introduction) until page 73, I was disappointed, but going back over it now, four years later, I’m warming up to what he says, even if the style reminds us of the difficulty Liberalism has in approaching the topic. And I have to laugh, after what I’ve just written above, about corporations, and looking at the author on the jacket flap, I see that in 2004 he was the “UPS Foundation Professor of Social Science at the Institute for Advanced Studies in Princeton.” (He retired in 2007). But that’s just an aside; Walzer is one of the finest and most subtle thinkers we have on the Left, and he doesn’t approach his tasks in sledgehammer fashion, but rather by looking at the paradoxes and dangers surrounding a concept like this from nearly every conceivable angle, theoretical and historical. Let’s ease into his deeper themes by looking at his take on lobbying, which meshes with, and compliments what Frank and Phillips have been saying.

…lobbying at its most effective involves the forging of close personal relationships; it depends on individual friendships and social networks (which is why lobbying makes for inequality and has to be balanced by popular mobilization). Good lobbyists make up in charm, access, and insider knowledge whatever they lack in arguments. And the arguments they make often have less to do with the issue at hand than with the political future of the official they are lobbying. (My emphasis, page 98.)

I imagine that both Frank and Phillips, upon reading this, would immediately add “and the financial future” to the political future of that official being lobbied. That’s how things have evolved with the revolving door. A little bit later in the same chapter, Walzer brings up the issue of inequality again, and bumps up the level of generalization:

Political history, when its telling isn’t governed by ideology, is mostly the story of the slow creation or consolidation of hierarchies of wealth and power. People fight their way to the top of these hierarchies and then contrive to maintain their position…Similarly, the associations of civil society are ruled by elites of various sorts, who also aim at permanence…Popular organization, mass mobilization, and group solidarity are the only ways to oppose this aim. (Page 104).

Walzer is searching and open about the possible risks from this pathway, but is more optimistic than many others in the liberal camp that a good balance can be struck between passion and reason:

No political party that sets itself against the established hierarchies of power and wealth, no movement for equality…will ever succeed unless it arouses the affiliative and combative passions of the people at the lower end of the hierarchies. The passions that it arouses are certain to include envy, resentment, and hatred, since these are the common consequences of hierarchical domination. They are also the emotional demons of political life…there is no way to join the parties and movements that struggling for greater equality and to support the good passions and convictions against the bad ones, except to do so…passionately. (Page 130).

Walzer’s gift to Progressives here is to show the historical reasons why liberalism has great difficulty in dealing with passion, in theory and practice. In its classic 19th century form, liberalism was centered in the archetype of the “good burgher,” (that would be, in some ideological circles, the good old bourgeoisie; in America, see Sinclair Lewis and Babbitt), whose passion is for profit, and a peaceful society to make it in, and thus his passion becomes “an interest,” and we’re off to the races with the good old theory of liberal interest group “lobbying.” It should be added that the liberalism of the good burgher in the middle is flanked by the fading military passions of the aristocrats (soon to take the lead in peaceful diplomacy) on the right, and the obvious threats posed by the passionate proletarians and their dangerous theoreticians on the left. Yet Walzer gives a twist to the history of the passions on the Left: “Class consciousness was and is a rational discipline; Marxists, and leftists and liberals generally, argued that it would be proof against the forms of unreasoning passion that they identified with religion and nationalism.” (My emphasis, page 124). Indeed, in Germany in the late 19th century, the union based Social Democratic Party, with early Marxist roots, and which became the largest party in the Weimar Republic, became so “rationally disciplined” in its pursuit of bread and butter demands, and its assigned role in the minimal democracy of young Kaiser Wilhelm, that the formulator of this reasonable strategy, Eduard Bernstein (1850-1932), would later unwillingly lend his name to the taunt from the less compromising left of “rotten Bernstein revisionist.” It is interesting that the case, and fate of Weimar Germany is not mentioned, much less discussed in Walzer’s book.

It is also very interesting that the book completely avoids grounding its theoretical discussions of politics and passion in the dynamics of the two parties in America since 1980, although readers are going to clearly do what I have done: read that into it, and rightly so.

Of course, here in America, that’s not how the term “class” plays out as the Right’s “you’re playing the class hatred card” charge is continually dragged out to fend off more egalitarian income and taxation measures, and accusations of socialism dog the health care debate, and indeed, any policy proposal to the right of Calvin Coolidge, which covers a lot of ground. As if this was not enough for our dispassionate Democratic centrists, they also must contend with the potential passions raised by race, “identity politics,” sexual equality and gender identities.

For the American Right in its current state, there is no ideological distinction made, in theory or policies, between liberals, social democrats and socialists. Do I need to remind my readers that the Republican Right also reserves, through a formal patent, the right to use political “passion” for its own designated purposes? They wouldn’t, couldn’t possibly, as good reasonable “burghers,” stir the passion pond where nationalism and religion float, could they? Of course not, those culture war “diversions” only exist in the heads of confused ex-Kansans, like Tom Frank, although the Republican Right will admit to a little snacking from time to time over there with the “animal spirits” on Wall Street – at least up until 2007. Seriously now: that’s why it’s so wonderful to have Right wing talk radio: all the benefits of political passion, and then some, but with official party deniability.

Back to Michael Walzer. Apparently, as he tells it in the Introduction, “Liberalism and Inequality,” he set out to write one book, focused more on an exploration of identity politics based on the groups an individual is born into, and the implications of “Communitarianism” for liberalism, but he ended up with the title and substance I’m emphasizing because he realized that “liberalism in its standard contemporary versions is an inadequate theory and a disabled political practice.” (Page xi.) But wait, it is worse than that for liberalism: it “…is inadequate because the social structures and political orders that sustain inequality cannot be actively opposed without a passionate intensity that liberals do not (for good reasons) want to acknowledge or accommodate.” (Page xii).

Well, I’ve given you the boldest statements made by Michael Walzer, in his attempt to diagnose what’s wrong with Liberalism. But let me reframe his argument a bit, and put it in terms of American domestic politics. It is egalitarianism, in its many forms: economic, racial (civil rights) , gender (again, equal treatment under law) that has generated the passion which Progressives have harnessed to their politics when they have been successful, whether in the Progressive era, the New Deal, the Civil Rights era…As we have moved away in time from the union upsurge during the New Deal in the 1930’s, on economic issues the Democratic Party has become less and less egalitarian, to the point where it was more intensely for “globalization” than the Republican party in the 1990’s and at least the equal of the Republicans in the de-regulatory zeal which has led to financial disaster for millions of American citizens. And the less egalitarian the Democratic Party has become, the less passion it generates, and this at a time of the greatest economic inequality and suffering since the 1930’s! In American politics, 1975-2009, it has been the Republican Right that has taken the risks with passion, especially in the culture wars, a “safe” setting which removes the emotions from the egalitarian economic issues, which is good for the corporate portion of the Republican base. It also dares the Democratic Party to choose those economic issues at the risk of alienating their Wall Street and globalization allies in the corporate world.

It is fair to ask, however, that given our current disastrous economic state, shouldn’t there be sparks of passion being ignited on their own, independent of the party? And doesn’t that volunteer army President Obama assembled during his campaign represent such sparks, indeed, maybe even some hot coals to cook with? I intend to address the second question in detail later in this essay, but for now, and the first question, let me stress that we have probably, although not certainly, left one historical era, the conservative one, the one of Market Utopia, but it is not clear that the theoretical framework, even the very practical pieces of a new one have yet been assembled, much less set in motion. You can see the pieces out there, and I’ve suggested and reviewed the books that are talking about them, especially James Speth’s The Bridge at the Edge of the World and Bill Greider’s Come Home America, and their earlier works, which share a good many common references to other “pontoon bridge” works, especially by Herman Daly and Paul Hawken. The common denominator is a capitalism which operates on a broader and more humane range of values than the current dominant one of “maximizing shareholder value.” (and I will talking more about those values in a longer and more detailed review of Karen Ho’s Liquidated in Part II of this essay.) Taking another look at Cass Sunstein’s The Second Bill of Rights: FDR’s Unfinished Revolution and Why We Need it More than Ever, in light of events since its 2004 publication, certainly would put Progressives in a more focused frame of mind. (It’s my understanding that footage of FDR’s address on that “Second Bill of Rights,” rare footage, has made it into Michael Moore’s new film: Capitalism, A Love Story.) Now if Cass can only learn to say, “Full Employment, including public jobs” especially since the private sector seems like it is going to continue down the speculation road, most recently on a new class of derivatives betting on when insurance policy holders will die. Yes, Wall Street has caught the spirit of the imagined “death panels...” by focusing their eyes on the “ill and elderly.” See Jenny Anderson’s shocking Sept. 6th New York Times article (“New Exotic Investments Emerging on Wall Street,” at http://www.nytimes.com/2009/09/06/business/06insurance.html So maybe we have still have a way to go to get out of the old era. Maybe a long way.

This past summer, a noted Maryland State Senator, a Progressive one, remarked at the Silver Spring Democratic Club picnic that there was nothing close to a comprehensive economic alternative vision to lead us out of our complex financial troubles. I think that is quite right, although I tend to think, as noted above, the bare outlines of something new is taking shape from the different pieces. But certainly not yet anything remotely like a clear new vision, much less one that has won a new societal consensus. Instead of the collapse of communism in 1989-1991 liberating the western left from one of its oldest albatrosses, freeing social democrats and democratic socialists (in Europe) to think more creatively and less defensively, there has been no discernable Progressive innovation, unless you think that that Bill Clinton and Tony Blair got it right. (I will say this about Bill Clinton after seeing his address to the Netroots Nation (at their Pittsburgh convention) on C-Span: Bill is the most passionate centrist I’ve ever seen, able to work up a remarkably animated voice – and body language – sheer expressiveness - over his willingness to compromise – and keep the business contributions flowing to the foundation. The best idea in his speech was focused on funding for energy efficiency work – the conversion and improvement of existing buildings – the source and nature of the significant missing funding is up in the air, although I understand there is some in the global warming bill passed by the House.)

We’re going to take a look now at a “Progressive” attempt to write in the passionate mode, to keep the public political discussion focused on what the crisis on Wall Street meant for not just for the economy, but for how power and influence is wielded in a great democracy under increasingly inegalitarian conditions. I’m talking about Matt Taibbi’s 12 page article which appeared in the print edition of Rolling Stone magazine in July, 2009. While the newsstand edition was current, there was only an abbreviated online version available. But you can now link to the full article here at http://www.rollingstone.com/politics/story/28816321/inside_the_great_ame...

Matt Taibbi: How Goldman Sacks Washington
No secret: I like Taibbi’s fusion of reason and passion and the fact that by writing in Rolling Stone, he is reaching a younger audience, which certainly can benefit from insights into how our financial system has been operating. On the cover of the print magazine version (July 9-23, 2009), the article gets top left column billing (the Jonas Brothers are the cover story – talk about reaching out to the young) with the title “How Goldman Sachs Runs Washington,” which is not the formal inside title of “The Great American Bubble Machine,” but is rather a powerful current that runs through the article, as does the recurring term “insider.”

The article is organized around the chronology of the bubbles that Goldman has participated in, starting with the Goldman Sachs Trading Corporation and its progeny in a giant investment pyramid scheme, the Shenandoah Corporation and the Blue Ridge Corporation, which are memorable, if for nothing else, than for the soaring imagination implied in their names, and the year of their births – 1929. But there wasn’t much else behind them, because this was the era of investment trusts, highly leveraged ones, and when you read John Kenneth Galbraith’s account in his 1954 book The Great Crash, which Taibbi draws upon, it’s pretty hard to find the actual money making mechanism behind the clever interlocking trust system that was set up.

The second great bubble for Goldman brings us right into contemporary financial history, the mid-to-late 1990’s bubble - “Tech Stocks.” This is when Goldman really began to drift away from its own internal standard of being “long-term greedy” as opposed to well, we all know about Wall Street riding the rip-current tide to the short run perspective. One unnamed hedge fund manager says that old standards of taking companies public and issuing their first stock – the IPO (Initial Public Stock Offering) process - used to be: “‘The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years.’” But by the late 1990’s, that’s out the window: in 2000, GS “underwrote 18 companies in the first four months, 14 of which were money losers at the time.” That was bad enough, but Taibbi also lays the charges of “laddering and spinning” at Goldman’s door, different variations on the “insiderism” rampant during the IPO era.

Laddering involves the great promotional road shows, where in exchange for access to the large portions of shares of the initial IPO, the banks “best clients” have to promise “that they will buy more shares later on the open market.” This is classic insider knowledge “that wasn’t disclosed to the day-trader schmucks who only had the prospectus to go by.” And it allowed Goldman to “jack-up” the initial price, because there was a hidden mechanism (a cynical version of “market momentum”?) sure to take it higher – at least for a while.

Spinning was a practice whereby the inside cut went to the CEO’s of the IPO company, who were offered first shot at a below-the-initial public price for the offering – in exchange – for future corporate business: “According to a report by the House Financial Service Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! Co-founder Jerry Yang and two of the great slithering villains of the financial-scandal age – Tyco’s Dennis Kozlowski and Enron’s Ken Lay.” Eliot Spitzer helps Taibbi put the conduct in perspective for us: “‘The spinning of hot IPO shares was not a harmless corporate perk…instead, it was an integral part of a fraudulent scheme to win new investment-banking business.’”

To demonstrate Taibbi’s non-partisan political spirit, he lays into NJ’s Governor Jon Corzine, who headed Goldman from 1994-1999. Taibbi says Corzine’s 2002 statement that “‘…I’ve never even heard the term laddering before’” is “one of the truly comic moments in the history of America’s recent financial collapse.” That should even things out a bit because Meg Whitman comes in for mention in the “spinning” section, and I understand she’s now running for Governor of California.

Next, it’s on to the great housing bubble and the toxic mortgage-backed securities. Here, Goldman proved to be very, very shrewd. Unlike many of the other investment banks which would suffer huge losses themselves from the very bad mortgage bonds they were selling to others, Goldman is alleged to have placed internal bets against the instruments it’s selling to others – and “bragged about it in public.” An anonymous hedge fund manager is quoted as marveling how “‘how audacious these assholes are’” – and is asked by Taibbi whether this form of insider knowledge – selling products you know are defective to customers – isn’t also securities fraud. The answer isn’t hedged with a credit default swap: “‘It’s exactly securities fraud…it’s the heart of securities fraud.’”

Goldman’s audacity has drawn the interest of a lot of lawyers, from old Massachusetts to New York state, whose regulators are “suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments.”

But there is another theme running right alongside the one called “insiderism.” And that would be the “get out of jail” without a criminal penalty, or any admission of wrong doing one that trots right along side the term “settlement,” and does so not just for Goldman, but for much of the wrongdoing on Wall Street. As sports broadcaster Warner Wolf used to say, “Let’s go to the videotape.”

For laddering: “In 2005 Goldman agreed to pay $40 million for its laddering violations – a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.”)

For spinning: “Goldman angrily denounced the report (House Financial Services Committee Report in 2002) as ‘an egregious distortion of the facts’ – shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators.”

For the various charges about alleged withholding of information from investors on the mortgage backed securities that GS sold them (and where other parts of GS operations were betting against these same securities): while many of the lawsuits brought are still pending, the Massachusetts case brought on behalf of 714 mortgage holders has come to a resolution, but the outcome allowed Goldman to get off “virtually scot-free, staving off prosecutions by agreeing to pay a paltry $60 million dollars – about what the bank’s CDO division made in a day and half during the real estate boon.”

If this strikes a familiar chord with readers, that’s good, because it’s the same song that was sung about the repeat violators among big Pharma, which led to the record settlement against Pfizer for that $2.3 billion dollars. But there is still a big, unsolved problem: this is a long standing pattern: of charges, investigations, fines and settlements, and in almost all cases, no admission of wrongdoing. It isn’t working. The whole pattern, and the financial settlements, are just seen as the cost of doing business. They are not deterrents. There is something very wrong in the balance scale here.

And now on to Bubble #4 in Taibbi’s list. It’s centered on Goldman Sach’s role in the great oil and gas price run-up during 2007-2008, which peaked when the world price of a barrel of oil hit $147.30 on July 11, 2008. We’ve already conveyed some of the revelations in Taibbi’s article - when former Commodity Futures Trading Commission (CFTC) members said they knew nothing about those 1991 Bona Fide Hedging exemptions given to GS and 14 other firms, investment banks and brokerage firms who do not have a direct interest in the physical commodities themselves, unlike airlines, farmers or trucking firms The depression era laws which set up the regulation of commodities trading were designed to allow actual producers of commodities, and businesses directly dependent on them, to buffer themselves from price swings by using future contracts. It allowed for limited speculation to give key brokers – market makers - the flexibility needed to bring buyers and sellers together, but otherwise, pure paper speculation was well controlled. This sounds a bit abstract, but we’re talking about the regulation of very crucial products – food grains and oil, for example. And it’s the later that is the focus of Taibbi’s wrath.

When Markets Fail: The Price of Oil
He calls our attention to that infamous (but now almost forgotten) oil price trajectory from about mid year of 2007, when the price per barrel went from about $60 to $147 in July of 2008. That was when the price at the pump for motorists was over $4 dollars a gallon and airlines and trucking firms were being pressed to the wall (and food prices were also skyrocketing and riots breaking in the poorest nations.) He says that the actual world supply and demand figures in the six months preceding the great spike in prices, compiled by our own U.S. Energy Information Administration, showed that “not only was the short-term supply of oil rising, the demand for it was falling – which, in classic economic terms, should have brought prices at the pump down.” To broaden the perspective, Michael Masters, who is a hedge fund manager and gives regular testimony at Congressional hearings on the reform of financial markets, and whom Taibbi quotes in his article, has this to say about this amazing spectacle in his August 5, 2009 testimony to the CFTC: “In fact, the volatility of the last two years has never been seen before in history. First prices doubled from $70 to $140 in twelve months. Then they crashed from $140 to $35 in the next six months. Then they doubled again from $35 to $70 in the six months after that. All of this with not a single major disruption to oil supplies anywhere in the world.” Masters puts the costs to the United States from the 2008 oil bubble at $110 billion minimum, “and possibly as much as $170 billion before multiplier effects.”

So if the world price of oil was becoming completely detached from the fundamentals of supply and demand in 2008, what was driving the price up? Taibbi’s answer is very direct: “Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.”

Of course, Goldman Sachs had lots of company in this rising tide of speculation, as the 14 other exemption letters show, but it was the “chief designer” of one of the main new speculative tools, the commodities index, with its own GSCI tracking the prices “of 24 major commodities but…overwhelmingly weighted towards oil…” Taibbi correctly points out that the enormous sums pouring in from pension funds, insurance companies, and hedge funds get focused in these indexes in one direction – they are “long” – expecting prices to rise. And, as we’ll see from other sources, all this speculation was indeed pushing the price of oil and other commodities upwards, despite all the talk from economists that is was growing demand, market fundamentals driving prices, including from Paul Krugman, who at the time who insisted that there was no sign of physical hoarding of oil supplies (what appears now to be a quaint notion) - so it couldn’t be speculation actually driving prices.

Taibbi also reminds us thus that Goldman had an analyst, Arjun Murti, who, during this great price run-up, was being “hailed as an ‘oracle of oil’ by the New York Times, predicting a ‘super spike’ in oil prices, forecasting a rise to $200 a barrel.” Of course, the classic Wall Street disclaimer can be invoked, that “our analysts” are completely independent from other parts of our business, that is, the speculative parts. However, as Murti is looking in 2009 for oil prices to climb back to over $100 per barrel over the next couple of years, and my own checks on Bloomberg.com “mentions” and one that quotes him in a July 14, 2009 article in the Washington Post don’t refer to J.Aron or that famous GSCI index or any current market positions taken by Goldman and/or affiliates, it would be good journalistic practice to at least mention, if not clarify such matters. But I’m not holding my breath. It’s an endemic problems that extends far beyond the individual and company mentioned here.

Now in matter’s of political economy, there aren’t too many things more important than the price of oil, and what drives it, and the summer and fall of 2008 just happened to be a presidential election year. Considerable political attention was focused on bashing big oil, one of the favorite American pastimes. That seemed in line because the folks at the CFTC were reassuring the public that “speculators are not influencing commodities’ prices.” Indeed, “‘To date, the CFTC has found that supply and demand fundamentals offer the best explanation for the systematic rise in oil prices,’ CFTC spokesman R. David Gary said, reading a statement that had been crafted by agency officials.” The quote is from David Cho’s August 21, 2008 Washington Post article, curiously titled “A Few Speculators Dominate Vast Market for Oil Trading.” But what Cho is also citing from the CFTC database contradicts these Commission statements, and obviously, he’s not buying them at face value, given the title of his article. And he does make note, almost in passing, of the 1991 exemption for GS’s J. Aron, but there is none of the drama, as in Taibbi’s article, about how we learned about it or how key CFTC regulators were in the dark, even though he also quotes the same Michael Greenberger as Taibbi does. (This writer talked to David Cho in September, by phone, and he was aware of the importance and controversy around the 1991 letters, but was unable to go into greater detail due to the nature of the article. He had not yet seen the Taibbi article)

Although in the general media there was considerable stress that the phenomenon was being caused by the powerful “emerging market” demand from China and India, there was also reputable academic dissent. R.S. Eckaus, a Professor of Economics Emeritus at MIT, issued a June 13, 2008 paper called “The Oil Price Really is a Speculative Bubble,” which still makes good reading at http://accidentalhuntbrothers.com/?p=70

And there was political dissent, coming from the Chair of the House Energy and Commerce Subcommittee on Oversight and Investigations, Congressman Bart Stupak (D, MI-1) – admittedly not a tip-of-the-tongue Congressman. But his July 9, 2008 testimony to the House Agriculture Committee on amending the Commodity Exchange Act was excellent, and can still serve as a good “backgrounder” for then and now at http://agriculture.house.gov/testimony/110/h80709/Stupak.doc . It supports, one year earlier, what Taibbi is saying in July of 2009: “In 2000, physical hedgers- businesses like airlines that need to hedge to ensure a stable price for fuel in future months – accounted for 63% of the oil futures market. Speculators accounted for 37%. By April 2008, physical hedgers only controlled 29% of the market.” And it was not only the CFTC which was handing out exemption letters to allow questionable parties to speculate; “The New York Mercantile Exchange (NYMEX) has granted 117 hedging exemptions since 2006 for West Texas Intermediate crude contracts (a benchmark oil standard), many of which are for swap dealers without physical hedging positions.” And there are more loopholes than just those CFTC ones granted in 1991; including “Bilateral Trades…Foreign Boards of Trade…the InterContinental Exchange (ICE)…in London…the Swaps Loophole…” And David Cho of the Washington Post throws in another from his August 21st Article: “in coming months, swap dealers expect to have yet another venue for oil speculation. The CFTC has stated it would not stand in the way of trading in U.S. oil contracts overseas in Dubai. Goldman Sachs and Vitol (a private Swiss energy conglomerate) are among the major investors in this new exchange.”

In other words, since 1991, speculative reality was running away from the formerly fairly tight control of commodities exercised by the CFTC, including the opening up of new foreign exchanges. And there was a lot of denial about what was going on. If anyone besides Rep. Stupak deserves some public recognition for standing up against this avalanche of speculation, it is Michael Masters. He has a web site called The Accidental Hunt Brothers at http://accidentalhuntbrothers.com/ . It will keep you up to date on most of the news on the reform efforts to reign in commodity speculation by the CFTC. Masters comprehensive testimony in front of the Commission on August 5, 2009 is excellent and understandable to the lay person – about 98% of it, that is; just a couple of paragraphs on the swap option regulation is untranslated trader talk. At http://www.cftc.gov/stellent/groups/public/@newsroom/documents/file/hear... Masters has been right all along, and confirmation that the heavy speculation was driving oil prices is coming in from some unusual places – try the James Baker Institute for Public Policy at Rice University. See the NY Times article “Study Argues CFTC Missed Oil Speculation at http://dealbook.blogs.nytimes.com/2009/08/27/study-argues-cftc-overlooke...

If the financial world had not come crashing down in mid-September, 2008, and then wobble on the edge of a second Great Depression between December, 2008 and early March, 2009, then the outcry over the great oil bubble would have been much larger – and the probing deeper. As it is, so much else bad has happened, that there has been too little outcry. Taibbi is keen to remind us what was going on in US politics at the time. In light of his article, and what I have additionally presented here, it doesn’t make for a very edifying picture of our political process: “In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be ‘very helpful in the short term,’ while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out. But it was all a lie.”

I’ll go even further. What was going on was that in commodities, especially grains and oil, THE MARKET was no longer, due to regulatory negligence, (which itself grew out of 30 years of market worshipping and deregulatory fever) the servant of the economic goals of a democratic society. Instead, citizens were at the markets’ mercies, and markets had been overrun by excessive speculation. The only thing worse than the citizen passivity displayed was the nearly complete ignorance of much of political commentary, with the exceptions I have noted. If you truly believe in the power of markets, as most of our business culture does, far too unreservedly, then how in the world could you rely on oil market prices 2007-2009 to send the proper investment signal? In that New York Times article quoted just above, one of the author’s of the Baker Institute study, Amy Myers Jaffe, said “that the commission’s (CFTC) decision to play down the role of speculators was ‘politically motivated,’ because the agency ‘didn’t want to be blamed for not having proper oversight of the markets.’” Reading this, we can ask, more than just rhetorically: so who in the hell gave the “oversight” away with all the exemption letters and the blessings to escape to less regulated foreign markets, as in London and Dubai? Here’s the link to the actual study itself at http://www.bakerinstitute.org/news/oil-futures

Cap and Trade: Salvation, Scam or Scrum?
For now, I’m going to skip the fifth Goldman saga told by Taibbi, called “Rigging the Bailout,” because if the public has heard about anything in great detail, it’s the insider potential of who worked on, and who benefited most from, the mechanics of the bailout. There is a delicious tax story here, though, and I’ll pick that up with a relish a bit later, but it’s the sixth bubble – Global Warming – that hasn’t gotten much public scrutiny from a Wall Street story line. Once again, whatever one makes out of Taibbi’s style, he’s bringing information to the general reader that I’m not seeing in other places.

This may well be the most controversial section of Taibbi’s article, because it is going to offend a lot of environmentalists and other progressives rooting for the passage of some form of cap-and-trade bill in Congress. I won’t beat around the bush, here’s the heart of the matter, and we’ll lay out some of the details afterward:

The new carbon-credit market is a virtual repeat of the commodities-market casino that’s been kind to Goldman…Goldman wants this bill…the plan is (1) to get in on the ground floor… (2) make sure that they’re the profit-making slice… (3) make sure the slice is a big slice…cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private-tax-collection scheme. This is worse than the bail-out: It allows the bank to seize taxpayer money before it’s even collected.

That’s pretty tough stuff. As we look at some of the details of Goldman’s climate chessboard, the onlooker is confronted, especially if they are convinced of the reality of Global Warming, and want to mitigate it, as this writer does, with different interpretations of what Goldman is up to and why: are they, as Taibbi is asserting, merely repeating the moral of the other bubbles – “being rewarded with mountains of virtually free money and government guarantees” – or are they for once acting out of some conviction and long-term planning that will be good for society – well, at least “long-term planning” as far as the usual Wall Street horizon has been? So here’s what Taibbi lays out, much of it new to me:

Hank Paulson did some of the writing in 2005 for Goldman’s environmental policy, and the major change to note here is that for once, the bank is in favor or regulations – and going beyond cap and trade for alternative energy investments: wind, renewable diesel and solar. GS owns a 10% stake in the Chicago Climate Exchange, “where the carbon credits will be traded.” (It also raises broader questions, relative to derivative exchanges in general: should the major trading players themselves own the revenue-generating exchanges, and is there insider information available to the folks who own and run them?) Goldman has a “minority stake” in a “Utah based firm that sells carbon credits of the type that will be in great demand if the bill passes.” And Al Gore is a business partner with three “bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris,” in a firm that will be “investing in carbon offsets” – which are mitigation projects that will either soak up carbon or prevent it from being released in the first place, and which is one of the most controversial and hardest to police aspects of the whole cap-and-trade direction.

This writer has mixed feelings about what is presented here: is Goldman acting out of genuine conviction, pure insiderism and selfishness, or some combination of both? Does it matter, if this is the direction we should go in? After all, couldn’t this indicate a beginning shift from within capitalism to more socially oriented values, that have been written about elsewhere in this essay? It’s pretty clear that Taibbi is putting the bleakest interpretation on the actions, and from the momentum he’s built up in the rest of the essay (Global Warming is the sixth and last bubble), perhaps he’s entitled to that judgement. But this writer is more worried about how we got to the cap-and-trade answer in the first place, and whether it is the right mechanism for accomplishing the shift away from carbon fuels and energy. I was questioning the mechanism long before this Goldman expose, because the more I read about the complicated process, the more I thought: 1). That the environmentalists who designed and defend it were, at the time of creation, deeply influenced by the perhaps not repeatable success of curbing other less sweeping air pollutants, and, more importantly, by the general aura surrounding “market based” trading mechanisms – especially good at countering the “command and control” charges always thrown up by industry (and by the way, doing the organizations no real harm in the corporate contribution zone either) 2). And by going this market route, by virtue of its complexity, the environmental movement could also stave off the charge that they were creating a new tax, or raising existing ones – that magic trading system would do it by, instead….well, exactly how would it change behavior if it didn’t raise the cost of using carbon? In reality, the charge of being a disguised tax is already being leveled, of course, by the Right…

This writer leans strongly towards the James Hansen, direct carbon tax method, starting low, as close to the source of the carbon as possible (leveled right at the initial sale of the basic commodity: coal, oil, gas…), and rising steadily and predictably in known increments…I note that our friend Michael Masters is quoted on the last page of Taibbi’s article: “ ‘If it’s going to be a tax, I would prefer that Washington set the tax and collect it…But we’re saying that Wall street can set the tax, and Wall Street can collect the tax. That’s the last thing in the world I want. It’s just asinine.’”

But of course, the green cap-and-trade folks deny that there’s any tax here at all, and will pile up the complexities, if necessary, so that it will seem that there are no taxes, no burdens, no sacrifice and no pain whatsoever involved in the great transition. And they’ve been appropriately castigated for this happy talk on the Op-Ed pages of the NYTimes. Well, no pain except perhaps for the complexity of the bill, and I’ve seen rebuttals of that which say that the operative parts are in the range of 100-200 pages of a 1,000 plus page bill. However, having had more than a decade of working in another “frying pan” environmental policy area – land use – I can say with confidence, that under the pressures generated by the Era of Market Utopianism – and its accompanying anti-tax and anti-regulatory commandments – there are no limits to the intellectual contortions that environmentalists will go through in order to evade the heresy charges – even it ends up compromising the ability of policies to actually work. I witnessed this whole cycle in the “evolution” of the NJ State Plan. And we have witnessed 25 years of tinkering with the “clean-up” of the Chesapeake Bay.

However, it would appear that some folks in Congress, namely, U.S. Senators, have been reading Taibbi, and perhaps Michael Masters. On August 13, I came across a Bloomberg.com article – “Goldman Faces Carbon Market Curbs in Senate Proposals” by Jim Efstathiou and Daniel Whitten. Open worries about Goldman Sachs and JP Morgan Chase running loose in the carbon markets are there in the very first sentence. Here’s a sample of the sentiment:

‘The volatility that has existed in the oil market is exactly what we don’t want to happen in carbon markets,’ said Senator Maria Cantwell...’…Markets will have inadequate liquidity without bank participation, Bill Winters, co-chief executive officer of JPMorgan’s investment bank, said at a July 23 press conference in New York… ‘There will be no derivatives, there will be no credit swaps,’ said Senator John Kerry… Senator Cantwell…would require all trading to be executed through exchanges rather than over the counter and would allow only polluters to trade emissions allowances… ‘There is a growing faction of senators demonizing the potential role Wall Street will have in pollution derivatives markets, and with good reason,’ said Tyson Slocum, energy program director for Public Citizen, a Washington based advocacy group. ‘The odds are that the Senate simply has too many hurdles to overcome to get this bill done this year.’ (at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a9qWGysLQ.Cg).

Trading’s Future: What do you get “in Exchange?”
The issue of how much liquidity is needed, and who should supply it often revolves around the issue of speculation, and the limits to be set on it, whether for trading the new carbon credits or the old oil futures. Readers should be aware that Michael Masters has called for, in that August 5, 2009 testimony to the Commodity Futures Trading Commission (CFTC), speculation by non-physical traders to be limited to no more than 50% of total interests across all the exchanges;10 years ago the actual level was just 10%. Today it’s 90% in oil futures. Ideally, the level should be 25-35% with a single entity held to 5%. He wants the “passive” index funds to be entirely banned from the commodities markets. Because there is essentially only one world price for oil (with two major benchmark types), the U.S. CFTC must first attempt to get a grip on all the exemptions in the already regulated markets, bring the over-the-counter and two party trades under their jurisdiction, and then seek international cooperation from the exchanges which trade in oil but have no origin or destination in the United States for some of the trades. It’s a very tall order, but the stakes for every citizen and every business are also very high.

Goldman Sachs “owns a 10 percent take in the Chicago Climate Exchange, where the carbon credits will be traded,” Taibbi tells us in his warning on the 6th and last Goldman Bubble. The word here is “Exchange.” You’re going to hear more about them, and the term is already being tossed in via the health care debate - “regional exchanges” - where we consumers will shop for one of the many health care plans – but maybe not a “public option” one. We’re all familiar with the New York Stock Exchange, NASDAQ, The New York Mercantile Exchange (NYMEX), where oil the commodity is traded. And exchanges are proliferating, for two driving reasons: to break the monopolies and lock on trading fees that the existing owners have, and also to also evade the regulatory oversight which US agencies exert – oversight such as it is. For example, the Intercontinental Exchange Inc.(ICE) was started in the U.S. but also expanded to London, where it trades oil futures which formerly were rooted in NYMEX – and regulated by the CFTC – but which then would be overseen by the London Foreign Board of Trade.

In the great regulatory debate about how and where derivatives, especially Credit Default Swaps (CDSs), will be brought under greater public control, another term is tossed out: clearinghouse. In the most abstract sense, exchanges have clearinghouses as a technical subsidiary operation, finishing trades, settling accounts and enforcing the margins under the ground rules set by the parent body exchange. The other term tossed around in this debate is “over-the-counter” derivative trades which have taken place between the brokers and private parties and aren’t formally controlled either by a clearinghouse or an exchange.

In the derivative reform debate in Congress, the Obama Administration, in the person of Secretary of the Treasure Timothy Geithner, wants CDSs regulated through clearinghouses, which is what the large banks want – and they’re first out of the gate with their Intercontinental Exchange Inc.’s ICE Trust, to do just that. Congressional reformers, however, like Iowa Senator Tom Harkin, want them regulated on exchanges. Gary Gensler, a former Goldman Sachs alum who was appointed by President Obama to head the Commodity Futures Trading Commission, seems to be doing a straddle by blurring the distinction between exchange and clearinghouse, and also leaving the door open to have “customized” derivatives left to the unregulated over-the-counter trades, which would be just fine by the major banks. The fight over exchange vs. clearinghouse is not all semantics however. On an exchange, the prices would be more readily available to the whole public, transparent, in other words, and that would reduce the margins between the “asking and offer” price – which is kept by the owners of the exchange.

In this debate, which is quickly buried in the mechanics of how to regulate the huge derivatives market, most of which is now over-the-counter and is estimated to be about $600 trillion dollars at face or nominal value – give or take a $100 trillion or so – what is being forgotten is a very important question: who owns the basic trading platforms, whether they are exchanges or clearinghouses? This writer’s deeper worry is that the actual ownership of these platforms calls for at minimum a “no conflicts of interest” for- profit ownership, or a public utilities/nonprofit one – and that by allowing the banks and brokerages which also trade directly in the instruments under scrutiny – they may be able to gain insider advantages. And also there is the trend towards the big players, the remaining large banks and brokerages, to move, as in almost all other areas of economic life today, towards oligopoly itself: greater and greater concentration of power in fewer and fewer hands.

This is not, if my readers will forgive me, a matter of purely speculative concern. On July 14, 2009, Matthew Leising wrote the story “Credit Swaps Investigated by U.S. Justice Department,” on Bloomberg.com. The entity being investigated is the Markit Group Ltd., which “provides derivative and bond data to more than 1,500 customers. It owns the most actively traded credit swap indexes and pricing services in the market, which represents $28 trillion in underlying securities, according to the New York-based Depository Trust & Clearing Corporation.” And who owns Depository? Well, once again it’s the major players… the NYSE…other exchanges, banks, brokerages…And who owns Markit? Starting with the largest shareholder, JPMorgan owns 1.67 million shares, then Bank of America, Royal Bank of Scotland Group, and Goldman Sachs comes in at 1.11 million out of a total of 14.38 million. And these four banks, plus Morgan Stanley, Deutsche Bank, UBS, and some others, are the controlling owners of the ICE trust which has broken through to be the front runner for handling the CDSs. (Leising is upfront in his article: Bloomberg.com “competes with Markit in selling information to the financial-services industry.”) But you can see my worries here.

Now the reason the Justice Department has sent out “civil investigation notices” to the major bank owners of Markit is to see if “they have unfair access to price information…” Leising quotes former JPMorgan Chase & Co. investment banker and author of House of Cards William Cohan on the investigation: “‘The fact that they control Markit and it provides information about the prices of credit-default swaps and they’ve benefited from this for many years without any challenge or investigation was outrageous.’” (Leising, July 14th at http://www.bloomberg.com/apps/news?pid=20601087&sid=ahcdJoyFIDsk ; Leising also wrote another article about the investigation on July 16, at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aEV5G0CvyY8A

For background on the exchange vs, clearinghouse debate, I relied on two excellent articles. Martha C. White’s “Desperately Seeking Sunlight” from June 17, 2009 at http://www.thebigmoney.com/articles/explainer/2009/06/17/desperately-see... and Gretchen Morgenson and Don Van Natta Jr.’s “In Crisis, Banks Dig In For Fight Against Rules, which appeared on June 1, 2009 at http://www.nytimes.com/2009/06/01/business/01lobby.html?pagewanted=1

If you want to know what Wall Street has been up to in the lobbying arena on these reform issues, there was an excellent article at Bloomberg.com on August 31, 2009, by Christine Harper, Matthew Leising and Shannon Harrington. Wall Street and its lobbyists are very happy to have the nation consumed and preoccupied by the health care debate, because the strategy is to buy time, on the theory that “as stock market values and the economy improve, anger at banks is likely to subside.” Here’s some of the specifics: “Goldman Sachs held an off-the-record seminar for reporters in April to explain how credit-default swaps work…On August 24, while lawmakers were on recess, the U.S. Chamber of Commerce organized a briefing for congressional staffers aimed at explaining how companies use derivatives to manage risk…Wall Street firms and trade associations have held a series of meetings with staff members of the House Financial Services Committee to discuss derivatives trading…” See “Wall Street Stealth Lobby Defends $35 billion Derivatives Haul” at http://www.bloomberg.com/apps/news?pid=20601109&sid=agFM_w6e2i00

And appearing as a source at the conclusion, or directly quoted in these two articles, as well as Taibbi’s, (and many others) is University of Maryland’s Michael Greenberger, formerly of the CFTC. Since everyone seems to go to him for his knowledge and experience, I wonder why the Obama administration hasn’t hired him? After all, they’ve apparently given the green light to Gary Gensler at the CFTC to hire Scott O’Malia, a current Republican clerk for the Senate Energy and Water Development subcommittee, who was also with Senator Mitch McConnell for nine years, and in between, with Mirant, an electricity company, as the director of federal legislative affairs. David Corn and Daniel Schulman’s Sept. 17th article on Mother Jones (“Trading Places: From Ex-Lobbyist to Market Watchdog”) also tells us that during 2001-2002, O’Malia was registered to lobby for deregulation, and Mirant was a major player in the California electricity deregulation fiasco. Once again, Michael Greenberger gets the last word in the article: “The CFTC’s mission…goes to the very heart of the prices we pay for the bread we put on the table and the fuel we put in our car. I can’t understand why the president would jeopardize that mission by appointing people who do not support his commitment to financial reform.’” At http://www.motherjones.com/politics/2009/09/scott-omalia-commodity-futur... (My emphasis.)

Goldman: Taxing our Limits?
Because our fellow American citizens on the Right have focused their August outrage on the role of government in health care, and the DC rally of September 12 also brought out their fears of government debt, this writer wanted to emphasize the spirit of “shared sacrifice” coming from that star of the private sector, Goldman Sachs. They are really pitching in to make sure we have the revenues to properly care for our citizens. Taibbi is pleased to inform us that in 2008, a year in which GS “paid out $10 billion in compensation and benefits…and made a profit of more than $2 billion…” it coughed up “fourteen million dollars” in taxes, for “an effective tax rate of …one percent.” But wait: Goldman Sachs can explain: “…the low taxes are due in large part to changes in the bank’s geographical earnings mix.’” Showing that he is a fair and reasonable reporter, Taibbi takes some of the edge off what some might construe as unfairly singling out Goldman - by reassuring us that a “GAO report…found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.” He comments near the end of this section on the bailout, that this tax game “should be a pitchfork-level outrage…but hardly anyone said a word.’” No Matt, no anger located here, we all know where the great outrage in the land is being directed, and it’s not towards tax evasion by the corporations or our wealthiest citizens – witness also the yawns over the IRS work on tens of thousands of hidden US accounts at Swiss banks, focused on UBS. It would seem anger in the US is as selectively and unfairly distributed as the national income; that is to say, deeply influenced by ideology.

When Taibbi opens his article on Goldman Sachs, he goes to the pervasive “presence” of former Goldman Sachs alumni in the second paragraph: a familiar, but still alarming, litany of extensive connections. He concludes that it’s almost a hopeless task to list them all, but even though most of us are used to this recitation by now, I still find myself getting a jolt to be reminded how many sit near the jugulars of governmental and financial power: John Thain at Merrill Lynch; Robert Steel at Wachovia (pre-mergers); Joshua Bolten, Bush’ chief of staff coinciding with the bailout; Mark Patterson, current chief of staff at Treasury; Ed Liddy at AIG (salvage operation); “the heads of the Canadian and Italian national banks…head of the World Bank…head of the NY Stock Exchange…last two heads of the Federal Reserve Bank of NY…and then, let us not forget, Gary Gensler at the Commodity Futures Trading Commission.

Chairman Gensler’s situation could be a reminder not to become too deterministic in reciting this litany. Does former connection equal current influence on behalf of GS? How long do the old informal ties to Goldman Sachs last, after the formal ones have been severed? After 18 years and a senior position and partnership at Goldman, Gensler served at the Department of the Treasury from 1997-2001, and then as a senior advisor to Senator Paul Sarbanes, who co-authored the Sarbanes-Oxley Act in the wake of the financial scandals at the turn of the century. Yet Gensler’s track record in favor of deregulation at Treasury was damning enough to get Senator Bernie Sanders to oppose his nomination for the chairmanship of the CFTC. Gensler has lost his wife to cancer, is raising three daughters, and was in the running for Chairman of the Maryland Democratic Party before his wife became ill. He is making decent reform proposals for reigning in speculation at the CFTC, but his broader derivatives proposal is more ambiguous, as noted above. And, as we have previously noted in another section, we might infer, in the absence of protest, that he is comfortable with the President’s accepting the nomination of Scott O’Malia for one of the open Republican slots at the CFTC.

These very same issues are raised again in Gretchen Morgenson’s and Don Van Natta, Jr.’s scrutiny of Henry M. Paulson’s phone logs of contacts with Goldman Sach’s leaders, especially with CEO Lloyd C. Blankfein during the heights of the financial crisis in 2007 and 2008:

All told, from Sept. 16 to Sept. 21, 2008, Mr. Paulson and Mr. Blankfein spoke 24 times…far more often with Mr. Blankfein than any other executive, according to entries in his calendars… moreover…they do not reflect calls he made on his cell phone or from his home telephone…during August 2007…Mr. Paulson spoke with Mr. Blankfein 13 times,. Mr. Paulson placed 12 of those calls. By contrast, Mr. Paulson spoke six times that August with Richard S. Fuld Jr., of Lehman, four times with Jamie Diman of JP Morgan Chase and only twice with John Thain of Merrill Lynch. See the article at http://www.nytimes.com/2009/08/09/business/09paulson.html?pagewanted=1

Is Democracy Possible Here?
With the topics just covered above, and woven throughout this essay, it is time once again, as I did in the last posting from Aug. 8, to return to that hauntingly prescient article Paul Starr wrote in the New York Review of Books in the July 16th issue. The title tells us some of what is on the table (“Liberalism for Now”) but it is the title of the book under review that really captures our attention: Ronald Dworkin’s Is Democracy Possible Here? Principles for New Political Debate (2006). Starr sets up the convergence of the book’s themes with the high aims of the Obama Presidency, the stress on “personal responsibility and respect for tradition” and his “efforts to engage conservatives and to find common moral ground without sacrificing the integrity of his positions…and to take some of the bitterness out of the air of American public life. Both Obama and Dworkin pursue liberal aims within a vision of a wider democratic partnership that would include conservatives, even if conservatives refuse their overtures.” In light of what has happened on the ground since August, 2009, this indeed is a fascinating flight of optimism about our condition. Just what is that common ground between liberals and conservatives?

Starr tells us that Dworkin rests it upon a moral consensus built upon the “‘intrinsic value of human life,’” and that “when a life has begun, it matters objectively whether it goes well.” And the other shore of common ground is “‘personal responsibility,’” that “each of us has special responsibility for making a success of our lives; we are responsible for finding value in life and deciding what kind of life to lead.” Flowing out of that intrinsic value of human life comes the proposition that “every person living under a government has a right to be treated by that government as an equal.” But this seeming tilt towards equality is tempered by the concept of personal responsibility, which “‘rules out efforts to compensate people for choices that turn out badly.’” To me, that sounds a bit too close to the public morality of 1870-1900 America, built upon Protestant conservatism and the individual family farm or business, with hard work as the measure of just deserts, which had some correspondence to the America of 1800-1850. But it was then stretched to absurdity by the conservatism of its day, religious and secular, in the face of the power of the tycoons and the great new industrial system where millions could be thrown out of work not for personal failure or “laziness,” but by the collapse of say – the railroad bond market. But Starr says Dworkin adds this corrective. “Most contemporary poverty in America, in Dworkin’s view, is the result not of the irresponsibility of low-income people, but of circumstances and policies beyond their control. Indeed, as he sees it, the failure of the government to show equal concern for the poor is so serious that it threatens the legitimacy of American democracy” and leads to the question “Is the United States failing to meet the minimum moral standards of democracy?”

While these passages might raise liberal hopes about Dworkin’s view, the Right’s current attack on Acorn, with their undercover recordings, and the assault on green jobs advocate Van Jones, shows that they are instinctively going for the still raw nerve of the perceived irresponsibility of poor people, and of those who would be their champions through publicly seeded job creation (even as Ariana Huffington has stressed Jones patient and flexible record of working with the private sector). Starr’s portrayal of Dworkin also suggests that his twin anchors of common morality won’t be enough to string a lifeline across one of the great divides that separate conservatives from liberals: the liberal stress upon the importance of “public” morality in economic values and institutions, and the determined conservative focus on private personal morality. You can see this broad chasm by noting which way religious conservatives have broken in the health care debate – still stressing morality in the beginning and end of life; for those already here – the 40-50 million without health care & those evicted from coverage - it’s throw yourself on the mercies of that private sector. At least that’s my interpretation of how all this “common ground” works out when it comes to a specific public policy. (See “Opposition to Health-Care Reform Revives Christian Right,” by Jacqueline L. Salmon, Washington Post, September 9, 2009 at http://www.washingtonpost.com/wp-dyn/content/article/2009/09/08/AR200909... )

As for equal treatment before the government, well, isn’t that at the heart of Matt Taibbi’s article on Goldman Sachs; who’s got the inside track, and who’s got the best tax treatment?

The concluding section of Starr’s review is, once again, simply haunting in light of the politics of the past views months, written as it was several months before Joe Wilson’s deeply symbolic breech of Congressional decorum during President Obama’ health care address on September 9th. Paul Starr reminds us that “liberals have a stake in the kind of conservatism that flourishes in America – they need to make it more open to persuasion and partnership.” Not hoping to win over the likes of Limbaugh and Hannity, he says, but rather “to isolate them, and ultimately to persuade enough Republicans that playing to their hard-core base is a strategy for making their own party irrelevant.” Sounds so plausible, but it ignores the responsibility that American moderates have to hold the public airwaves to some standard of truth, which they have failed to do with folks like Limbaugh, even on the most irresponsible and outrageous claims about the most infamous regime in history. (The American Historical Association brushed off my request to render a narrow judgement on the assertion of the Nazis as “leftists,” the organization claimed they don’t get involved in politics. Silly me for pursuing such a trivial matter.) Far from isolating the radio Right, it is my experience in conversations with many citizens that it remains the dominant source of misinformation even in the so called middle of the political spectrum. I would like moderates and progressives alike to ponder this passage by Paul Starr, and ask yourselves who is having the bigger political impact on the health care debate?

One crucial aspect of the tone that Obama set was a kind of rhetorical non-violence, a spirit of comity and calm reason that he displayed in the face of attacks and when he addressed conservatives…early in their presidencies, both of his immediate predecessors became the objects not merely of opposition but of contempt, and that kind of virulence could be even more threatening to the county as economic stress increases. If Obama can hold on to the respect of the opposition and encourage many others to keep an open mind, he will have done more than Bill Clinton or George W. Bush did. (My emphasis.)

The Great China Trade: Your job, Their profit.
In the very same edition of the New York Review of Books as this remarkable article by Paul Starr is another one, even more obscured by the pressure cooker atmosphere generated by the health care debate, but one much more focused on the root causes of that economic stress. I’m referring to Robert Skidelsky’s review of MartinWolf’s book, Fixing Global Finance: “The World Financial Crisis & the American Mission.” While I don’t expect these names to resonate with the average citizen, I would like to place them on the stage properly for my readers. Robert Skidelsky is the proclaimed biographer of John Maynard Keynes and is a professor emeritus of political economy in England; he considers Martin Wolf, of the Financial Times, whom this writer has quoted many times for my readers, to be the “world’s most respected financial columnist…” So we are dealing with two intellectual heavyweights, representing, in my opinion, the moderate left and moderate right of center on economic matters. At the core of Skidelsky’s review and Wolf’s book are two versions contesting for the grand explanation of what has caused the great economic shock, going for deeper causation than the usually cited ones of regulatory neglect and derivatives gone wild in America. This can be summarized as the “money glut” versus the “savings glut.” The money glut puts the onus for excessive spending, and indebtedness, on the Federal Reserve, Greenspan and Bernanke (recently reappointed, an inevitability), for low interest rates held for too long, fueling debt and over-consumption, and neglecting long-term productive investment here. The “savings glut” explanation puts the burden on the Asian surplus trading nations, who over-save, juggle their currencies to artificial lows, and provide the world with too much saving, which found its outlet in all the wrong places in the U.S.

Skidelsky’s gives us a lucid account of the subtleties which Wolf applies to these polar opposite explanations; the Chinese manufacturers who earn US dollars don’t loan directly to US citizens and businesses – their dollars are borrowed by the Chinese central bank for currency operations and to keep Chinese inflation at bay. And the US is doing an end around too; it has a huge deficit but “instead of having to borrow from the American public” it turns to the Chinese government, who uses its savings to buy the US Treasury bonds which fund our debt. This helps keep US interest rates low by not having public borrowing crowd out private borrowing and spending. Thus “it was via their impact on the financing of the federal deficit that Chinese savings made it possible for the US consumer to go on a spending spree.” But it gets more subtle than that. Wolf sees the Chinese savings glut through an inverse lens: it really was an “‘investment dearth in the US.’”

Step back now and think of what we have written about in earlier postings. The big question I left readers with in the last economic essay on June 15 was where a sustainable new basis could be found for economic growth, once the economy began to recover, as it now seems to be very gradually doing in mid-September. Think also about how the “green jobs” theme is being hammered by the American Right, mocked and driven from public office. But if Wolf is right, then we still have that problem: a dearth of sound investments. Here’s how Skidelsky summarizes the deeper cause of the collapse:

The lack of opportunities for profitable investment determined the pattern of American spending. Americans borrowed not to invest in new machines but to speculate in houses and mergers and acquisitions. The resulting growth in paper wealth triggered a consumption boom. The situation was unsustainable because no new resources were being created with which to pay back either domestic or foreign borrowing…In fact the present financial meltdown is producing the market-led adjustment that has eluded policymakers. (My emphasis.)

By that last sentence, he means that Americans have to save more to survive – and pay off debts; China has to increase domestic spending, good old fashioned Keynesian pump-priming, to make up for the loss of foreign export demand. Wolf’s sophisticated suggestions on how to keep these readjustments moving in the right direction then follow, but Skidelsky is not going to let him off the hook so easily when it comes to America’s responsibility for allowing these great international trade imbalances to grow in the first place. And here’s the hot-wiring to the main strands of our argument in this essay, especially connecting to the moral foundations for that potentially common ground between liberals and conservatives explored in Paul Starr’s review of Is Democracy Possible Here? Skidelsky says Wolf’s story “is only half-told.” The missing half is as follows:

…the fact is that the present system has suited the United States – specifically the power holders in the United States – just as much as it has those in China…the American-Chinese symbiosis has been excellent for US business profits. American businessmen have been complicit in Chinese ‘super-competitiveness’ by arranging for manufacturing jobs to be moved to China from the US in order to cut costs. The decline in US manufacturing and the growth in nontradable services, and the financial operations that secured this restructuring, have enabled financiers and businessmen to earn huge profits that should have been shared with their workers. Morally, the financial community has been living well beyond it means. But perhaps above all, by getting other countries to finance its imperial pretensions, the US government has been able to live beyond its means. (My emphasis.)

Skidelsky says Wolf stresses the “‘exorbitant privilege’ of the US dollar,” by which he means the economic benefits that have always historically flowed to the issuer of the leading reserve currency of world trade, but he neglected to mention the “political benefits” that go with it – due to his lack of historical perspective. The dollar was “overpriviledged” and actually was showing some signs of trouble as early as the 1960’s and “every historian knows that a hegemonic currency is part of an imperial system of political relations. Americans acquiesced in the unbalanced economic relations initiated by East Asian governments in their undervaluation of their currencies because they ensured the persistence of unbalanced political relations.” These observations are driving towards the conclusion, from Skidelsky, not Wolf, that in order to cure these vast imbalances we will have to have a much more “plural” world in terms of military and economic power. Although Afghanistan is not mentioned, the implied adventure seems to be hovering just above the print, as does the recent news jolt of an imported tire dispute with China. Skidelsky questions whether, “even under Obama,” the US is willing to undergo “the huge mental realignment…The financial crash has disclosed the need for an economic realignment. But it will not happen until the US renounces its imperial mission.” (The article is dated June 17, 2009).

Have a Nice Day
On the very same day that I finished the above paragraph, an Op-Ed piece entitled “Have a Nice Day” appeared in the New York Times, from Thomas Friedman. Perhaps I shouldn’t be putting a globalization worshipper like Friedman in right after this discussion of how terrible that direction has worked out for US workers and our middle class, but sometimes, especially on green jobs, Friedman gets it mostly right. He’s picked up on the Right’s sneering about those “green jobs.” And his title could be taken a number of ways, including a sarcastic reference to the economic reality passing us buy as we indulge in reciting all the things government shouldn’t do for us, while the Chinese and German governments are preparing to clean our clocks on the new energy economy.

Friedman is writing about a US company, Applied Materials, which has branched out from making computer micro-chips to making solar panels thanks to its fluency with nano-technology. But I better qualify that: it makes the machines that make these manufactured goods, so it is really at the heart of modern manufacturing. Friedman says they’ve got 14 solar panel factories, and he’s touring the one in Silicon Valley. Where are all the others, he leads us to ask? “…Five are in Germany, four are in China, one is in Spain, one is in India, one is in Italy, one is in Taiwan and one is even in Abu Dhabi.”
Although I have already done so myself, Friedman doesn’t mention the American Right. But who do you think the following sentence is aimed at, and who do you think, by virtue of its ideology, is standing directly astride this path to a better economic life in the US: “If we want to launch a solar industry here, big-time, we need to offer the kind of long-term certainty that Germany does or impose the national requirement on our utilities to generate solar power as China does or have the government build giant solar farms, the way it built the Hoover Dam, and sell the electricity.” (“Have a Nice Day” at http://www.nytimes.com/2009/09/16/opinion/16friedman.html).

Editors Note: In coming editions, readers can look forward to more detailed reviews of Phillip’s Arrogant Capital, Ho’s Liquidated, Phillips-Fein’s Invisible Hands, and Frank’s The Wrecking Crew, woven into breaking events and current analysis.

Until then, the very best.

Bill Neil
Rockville, MD

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future