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Oligarchy? Or Kleptocracy? You decide! (3)

And go read Baseline Scenario's (and IMF's, sigh) Simon Johnson on "The Quiet Coup". It seems that Keynes was both right, and wrong, when he wrote:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

In fact, although their ideas do rule our world, such economists are not defunct, and they didn't do their damage "a few years back." Rather, they're very much alive*, in power, and still making policy. Johnson writes:

Just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world. ...

A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspan’s pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: “The management of market risk and credit risk has become increasingly sophisticated. … Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”

Of course, this was mostly an illusion. Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t. ... To date, the U.S. government, in an effort to rescue [AIG], has committed about $180 billion in investments and loans to cover losses that AIG’s sophisticated risk modeling had said were virtually impossible.

And so on. Now, thinking back to Stirlings three divisions of the left:

1. The Finance Left accepts all this without question. "Of course we need "entitlement reform.?

2. The Labor Left accepts the intellectual framework, but seeks to mitigate it. "Of course we can't simply abolish the insurance companies."

3. The Pioneer left doesn't accept any of this, and that's why it's marginalized. But changes happens at the margins -- at the frontier. And that, dear reader, is why you are reading Corrente -- even if, or exactly because, we say Fuck.

That said, there's plenty of food for thought in Johnson's article. Read, ponder, and critique. For example, I don't imagine that turning the banks into regulated public utilities, let alone abolishing corporate personhood, are on Johnson's policy horizon. They should be -- along with legalizing marijuana growing.

NOTE * If you call being a zombie alive.

UPDATE It occurs to me that both Krugman and Johnson use the word "mystique" to describe this belief system. Good word, and an unconscious echo of Betty Friedan?

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lizpolaris's picture
Submitted by lizpolaris on

I think we just elected a new kakistocracy, which replaces the old Republican one. Good luck to us all.

herb the verb's picture
Submitted by herb the verb on

and the kewl kidz? Surely they believe they are also "pioneers", since they (like the trustafarian that thinks he worked very hard to get where he is as president of Daddy's company) would never believe they are in the first group and openly despise the second.

Submitted by lambert on

(a) Because there's a strong strain of hedge fundies in the "creative class" -- all those bright young quants throwing parties in Manhattan, eh?

(b) Because a lot of 'em don't want to eliminate Broderism, but to recreate it.

That's clearly where Kos comes from, and he's the supertanker, as it were. And I'd go through the list of bloggers I still read, but I don't want to get into personalities.

I'd put some of the remainer in with Labor Left.

I admit the notion is hazy -- I'm experimenting with it.

Submitted by jawbone on

Question: If Team Obama, following the wishes or requirements of the banksters and uberwealthy, really crashes the economy and the nation, what will follow? Ignoring for a moment that this just might work long enough to put off the day of reckoning.

Thinking about that, I figure the oligarchs will use what money and power remains to them to stay in power, only this time time they will swing as far right as necessary to do so. So, some form of facism? Corporatism? Feudalism (do love that Vassals Handbook)?

FDR, faced with deep economic disruption, avoided facism and communiism with his liberal/progressive democratic socialism (small letters, as opposed to lemon socialism) to keep capitalisms alive and well. He chose deliberately to side with the non-wealthy against the uber-wealthy of his day and against his own class. He reined in the power of the oligarchy, regulaged their ability to take risks, and made the tax system more progressive.

Obama? Seems to be siding with the uber-wealthy, so far. He says the right words about, say, universal healthcare, but then tosses in caveats which can almost be missed, talks about filling in "gaps," mentions a few nibbling at the edges reforms, and, on closer examimation, seems to want to leave the existing system in place. As he does with the banksters, et al.

So, what will happen if things do go cowpie, really shitty?

(Oh, and how 'bout them three wars now? Irag, Afghanistan, now Pakistan. More confusion and chaos, just what the oligarchic kleptos like.)

Ga6th's picture
Submitted by Ga6th on

plans don't work then he's going to be run out of Washington on the rails. The only reason Bush wasn't was because everything started collapsing during his second term and later in the second term too. If Obama can't show some progress or move those unemployment numbers by the summer and into the fall, the party and the country will be calling for his head come Jan.

gqmartinez's picture
Submitted by gqmartinez on

Unemployment has recently lagged recessions. Recent projections show that unemployment will get to about 10.5 nationally (and about 12 in CA) through NEXT summer. Obama is going to need a lot of political capital to get through that. If the bankster welfare plans don't work and the recession really is prolonged, 2010 and 2012 will be very interesting.

Submitted by jawbone on

This came out in Feb 15th article in the Financial Times:

According to a securities industry person who has had intensive contact with the SEC lately, its staff is preoccupied with damage control. “They’re not thinking about ratings reform, they’re thinking about keeping their jobs. The Bernie Madoff fiasco has them in shell shock.”

Mary Schapiro, the new chair of the SEC, has said that the ratings agencies’ conflicts should be looked into, but that suggests a rather long time horizon to revive confidence in the system.

Sean Egan, whose Egan-Jones rating agency is one NSRSO that is paid by the investors, not the issuers, is frustrated by the slow progress in the reform process. “You have to back up to why the markets are frozen, and the answer is a lack of credibility in risk assessment.”

Why don’t the institutional investors take the lead on ratings reform, if the SEC is too slow? Mr Egan says: “You have a problem with the money market funds that the institutional investors sell [which are rated for creditworthiness by the ratings agencies]. The institutions don’t want to be out there in public trashing S&P and Moody’s because they are afraid of retaliation,” even if there is no basis for that fear.

Ian Welsh discusses that situation in his post today on his new website named "Ian Welsh." Actually, it's a repost from 2/19 on FDL, but he thinks it's still very appropriate, if not more so. And, nearly 6 weeks later, are new regulations on ratings agencies even being discussed? And why not?

If the US does not, at the least:

Reduce executive compensation—significantly,
Bring all securities under regulation (i.e. Credit Default Swaps must be regulated as insurance including reserve requirements and the necessity to use government approved actuarial charts),
Reduce overall leverage to 10X for everyone,
Break financial companies back into functional firms (i.e. break brokerages and insurance companies and investment banks off of retail banks),
Disallow financial innovation which is not expressly approved by regulators and is not then fully regulated,
Fix its trade imbalances,
Fix its savings rate,
Move off of the oil economy,
Ensure that lending is done responsibly and at relatively low markups from the Fed Funds rate, and
Enact anti-usury laws,

then you can bet dollars to the donuts that they will no longer buy that this will not happen again in some form. This crisis is a structural problem, not a random mess caused by bad luck.

gqmartinez's picture
Submitted by gqmartinez on

As I mentioned a little while ago, many pols don't spend a lot of time in deep thought on policy (I have some personal anecdotes to back up this view). This means that they can be easily persuadable. Since those with money get access, they can share their point of view with the pols. Unless there is a strong enough counter (unions, online community, etc.) to the big money donors, all that the pols will hear are pro-big money thoughts.

This is why I get so frustrated by the Obama "64 dimensional chess" brigade that seeks to spin everything Obama does in such a positive light, even when it is clearly bad. We are not providing a strong enough counter argument.

Submitted by lambert on

It's beliefs.

After all, controlling people through controlling their thoughts and discourse -- Paging Dr. Orwell -- is a lot more effective than bribing them.

A bribed politician tends not to stay bribed. But a believer tends to stay a believer.

All of which goes to show why the tools for becoming hypersensive to Versailles discourse under the last administration are still, as Johnson puts it, "cultural capital" under the new administration. The bass are in the lilies. Pass it on.

Submitted by jawbone on

passage of the Gramm-Leach-Bliley Act which undid the Glass-Steagal separation of banks and brokerages. Interesting read.

Here's a quote from Phil Gramm from the WayBack Machine: Hellfire Call post:

''The world changes, and we have to change with it,'' said Senator Phil Gramm of Texas, who wrote the law that will bear his name along with the two other main Republican sponsors, Representative Jim Leach of Iowa and Representative Thomas J. Bliley Jr. of Virginia. ''We have a new century coming, and we have an opportunity to dominate that century the same way we dominated this century. Glass-Steagall, in the midst of the Great Depression, came at a time when the thinking was that the government was the answer. In this era of economic prosperity, we have decided that freedom is the answer.'' (My emphasis)

Don't miss Summers' quotes as well. Like this one:

''The concerns that we will have a meltdown like 1929 are dramatically overblown,'' said Senator Bob Kerrey, Democrat of Nebraska.

Submitted by jawbone on

Strong stand against Obama's lemon socialism, the bad loans made by bankers be rescued by the taxpayer and the profits, if any, go to the banksters.

The truth is that these losses are larger than the government can absorb and pass to the taxpayer. The banking system and economy cannot return to growth until the bad debt is cleared, and since it cannot be absorbed it must be defaulted.

We are therefore faced with two alternatives:

Force the banks to eat their own losses, in which case they will go under.

Attempt to force the taxpayers to eat the losses while the banks keep the profits, in which case the government will go under.

The longer we wait to do the right thing (#1), the greater the odds that outcome #2 happens whether we want it to or not. (Emphasis in original)

Request to Geithner to fix the naked CDS mess going forward at least:

All I have wanted, and all that is necessary to stop the stupidity, is:

1. Force them all onto a regulated, public exchange exactly as is done for listed options, stocks and futures.
2. Mark all positions to the market nightly.
3. Have a central counterparty for all contracts, as is done with the OCC for listed options.
4. Allow and in fact mandate that the central counterparty enforce, on a nightly basis, margin requirements.