Esoteric Dissertations from a One-Track Mind

March 13, 2009

Cramer Becomes Inarticulate

Filed under: capitalism, economy, media — Tags: , , , — codesmithy @ 9:05 am

Crooks and Liars has Jim Cramer’s appearance on the Daily Show.  There was definitely a moment of who-are-going-to-believe as Cramer tries to ignore the fact that Stewart has just played a tape where Cramer admitted that he manipulated the market and following it up with example on how to start a rumor and short Apple’s stock.   

Cramer was all over the map, advocating criminal indictments, kangaroo courts, and positing his street-cred as an Obama voter.  To me, he never seemed to answer the fundamental question: what does he see as CNBC’s role as an institution?  Cramer, lamely, kept admitting that CNBC needed to do better without ever striking at the heart of the issue.  

The focal point of Stewart’s criticism was how CNBC pushes itself as a reliable get-rich-quick network.  When Santelli complains about bailing out loser’s mortgages, he fails to mention that no home owner is leveraged 30 to 1, unlike many investment banks that we are now pumping money into.  The unbelievable sense of entitlement that the executives of bailed out firms demonstrate when simultaneously asking the government for money while threatening dire consequences if their demands aren’t met shows the accountability free and disconnected nature of the Wall Street aristocracy.  Stewart likens it to Sherman’s march to the sea; it is more like Nero fiddling as Rome burns.

The problem is that CNBC could have been the early warning system to let the public know something was going wrong.  Instead, CNBC cheered on Wall Street, and why not?  Everyone was making money at least on paper.  In reality, executives walked away with the real cash for illusory short-term gains and people who entrusted their savings in the market are left holding the long-term losses.

Michael Parenti has an article called “Capitalism’s Self-inflicted Apocalypse.”  While, it might be a tad over-the-top.  The real economy is based on work, not gambling.  Until we get back to that foundation, and limit the tax that these middle-men can place on the productive economy by their arbitrary and obviously undeserved control of capital, disasters like the ones we are experiencing aren’t unexpected, they are inevitable.

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February 25, 2009

Bank Re-privatization?

Filed under: capitalism, economy — Tags: , , , — codesmithy @ 9:50 am

The growing consensus seems to be that banks will be nationalized. The case for nationalizing banks is pretty much a done deal as far as economists are concerned.  Krugman lays out the case fairly well.  I hate the term “stockholders” in this context, because it isn’t really stockholders that are the problem, at least directly.  The problem is with the executives of the banking companies and the ridiculous moral hazard they are faced with.  Society has an incentive to keep these financial institutions afloat.  The executives have an incentive to run the businesses into the ground precisely because they know society will not allow these institutions to fail.  

Why not pay exorbitant bonuses to yourself as your company is losing money hand-over-fist?  Might as well do it now while you still can.  It is precisely this perverse incentive for those who actually run the company that necessitates a government intervention, especially if the institution is FDIC insured.

As such, it is an illusion to say stockholders control a company.  I’m a stockholder and in many cases the ownership is indirect through mutual funds.  It is a complete illusion to say I exercise any power in the corporations in which I own a stake.  Myself and stockholders like me theoretically have power but it is too dilute.  Locking me out from benefits of a bailout is nothing compared to the executives.  However, saying so requires an admission that there is a corporate master class, and such an admission is not considered polite when you are an academic talking to the proles in the New York Times.

Regardless, the nationalization that is proposed is always temporary.  Why?  I’m not saying that re-privatization is not a good idea, but I want someone to explain it to me.  And one key point I would like to see addressed is explaining how re-privatizing banks would ensure a crisis like this won’t happen again, because, to me, this current crisis seems to be a direct result of a private profit motive combined with successful lobbying.  

It is particularly galling because the alternative is so obvious.  Why not keep the banks nationalized and centralize them?  Why not lock out the for-profit motive of lending entirely?  The Federal Reserve system already effectively sets interest rates, why not just take it one step further and provide financial services directly to citizens and businesses in the form of a national bank. Citizens could deposit and obtain loans from this bank.  We could get rid of FDIC.  If people wanted to risk putting their money in private banks, fine.  But, if it goes under, the government is not going to come and bail you out.  I even imagine there are some economies of scale with such an approach, in that it may be more efficient than the current banking system.  It would also reduce the need for regulatory oversight of private banks.  At the very least, there wouldn’t be “stockholders” to screw things up.

January 13, 2009

The Enron Economy

Filed under: capitalism, economy, politics — Tags: , — codesmithy @ 8:49 am

Paul Krugman called our economy the Madoff economy back in December.  With all due respect to Mr. Krugman, I would tweak his description and call what we are experiencing the Enron economy.

60 Minutes ran an investigation into the price of oil.  It is not a coincidence that banks going south the same time the price of oil dropped.  

Oil has been the prime factor in the economy taking a turn for the worse.  Living in the suburbs, or exburbs became unaffordable because of transportation costs, rising food prices, and the rising prices of other basic necessities.  The root of all of these problems were oil prices.  Prices that were artificially inflated to feed speculative traders, and it was the productive economy that took the hit.  The direct parallel to this is what Enron was able to do to the California electricity market, not the Ponzi scheme Madoff set up.

The potential political ramifications were nearly as concerning.  Enron, whose former CEO and figurehead of the company had intimate ties with the Bush family, played a key part in getting Democratic governor Gray Davis recalled.  This resulted in the election of Republican governor Arnold Schwarzenegger.  The parallel between this and “drill, baby, drill” is left for the reader.

Enron was not just the story of one company, it was the canary in the coal-mine.  The first one to go.  Enron did not just implode on its own, it took the law firms, accounting firms, government regulators and investment banks to look the other way.  However, in reality, the facts are so much more damning than that.  It isn’t that these institutions merely looked the other way, they were actively complicit in the fraud.  No, they didn’t know everything, but that doesn’t mean they didn’t know anything.

When history looks back on the first decade of this new century, I think they will label it the age of fraud and negligence.    The defining characteristic will be incompetence, a contempt for the rule of law, and the failure of institutions to properly check and balance other centers of power.  It is all born out of a ideology that abhors rules, and the very notion of democratic governance.  Now, we are all experiencing its benefits.

August 11, 2008

Noam Chomsky: On Globalization

Filed under: capitalism, politics — Tags: — codesmithy @ 10:31 am

In the above video, Chomsky gives a brief outline of “globalization.”  What qualifies as a “good” or “bad” economic outcome can deeply depend on perspective.  At the heart of the issue is ideology.  Do we want a world based on global capitalization or civic globalization?

Krugman laid out the old saw there were three types of economists: liberal economists, conservative economists, and professional conservative economists.  As such, economic news is frequently colored with establishment perspectives, i.e. what is good for the current rulers of the society.  The view laid out is that what is good for the rulers is good for the rest of us by proxy.  Lavish the rulers with riches so that they can shower us with their benevolent generosity in return.  That is not democracy, but rather plutocracy.  I’ll also leave the obvious parallels to Christian dogma as an exercise for the reader.

The big lies of a capitalist economy is that the rising tide lifts all ships and that capitalism and freedom are inexorably linked.  China provides a perfect counter-example, it combines the latest authoritarian measures with a potent mix of global capitalism.

In the end, there is a pretext that capitalism is based on tacit consent.  However, frequently the most profitable enterprises are based, not on any for of informed consent, tacit or explicit, but rather exploitation of the desperate.  Disaster, as it turns out, is the ultimate capitalist enterprise.  Welcome to the era of manufactured disaster.

August 4, 2008

James Loewen – On Social Class

Filed under: capitalism, history, politics — Tags: — codesmithy @ 8:46 am

James Loewen is a professor and author.  He is probably best known for the book Lies My Teacher Told Me: Everything Your American History Textbook Got Wrong.  In the above video he talks about a taboo subject in American society: class.  Discussing class is a difficult task.  It is actually unsurprising that the right-wing picked up on Martin Luther King’s vision of a color blind society and routinely tout it as the true heirs of his legacy.  It has long been the claim of conservatives that we have already established a just social order.  These claims date back before and during Jim Crow and the nadir of American race relations as Slavery by Another Name shows.

Regardless, social stratification and class remain an omnipresent facts and economics are directly tied to politics.  There has been a one-sided class war in this country.  The reluctance to discuss class and the inability to organize a political party around working-class interests means social stratification will continue.

August 3, 2008

In Praise of Idleness by Bertrand Russell

Filed under: capitalism, culture — Tags: , — codesmithy @ 9:07 am

Bertrand Russell wrote an essay called “In Praise of Idleness.”  Maybe it is a tad presumptuous to claim there  are threads of anarcho-syndicalist thought in it, but it certainly fits into the critique that Russell prescribed.   The Internet and computers have dramatically changed the landscape in terms of the manufacture of physical things.  Do we really need to manufacture books, CDs, DVDs, newspapers?  Do we really need to build movie theatres?  Do we really need the broadcast towers, the telephones, the bulk of mail delivery?

The Internet also presents the potential for immense benefits hardly imaginable in Russell’s time.  Leisure time can be used to make artifacts that are available the world over at virtually no charge.  The information age is revolutionizing industries.  The question is simple, do we split the world into haves and have-nots?  Do some people get to tenuously keep their jobs as another segment of society struggles to get by, while the capitalists see the bulk of the benefit?  Or do we split, and give all people more leisure?

There is no good reason why the arduous tasks are left to a certain class of people.  It isn’t about the whole society going idle, but rather, redistributing the work between those currently with, and without jobs in addition to ensuring the labor surplus is used for the benefit of the society as a whole instead of into the pockets of the capitalist.  If we really think about the resources that are just wasted (for example building nuclear weapons that should never be used), imagine what the nation would look like if those resources were used to improve the well-being of the members in society, including a shorter working day for arduous tasks.

July 27, 2008

The Road to Serfdom

Filed under: books, capitalism, politics — Tags: , — codesmithy @ 9:21 am

As promised, I read The Road to Serfdom by Friedrich Hayek.  I checked it out from one of the primary socialist institutions in this nation, the library.  From the due date sheet at the front of the book, it looks like I was not the only one to have this idea.

Generally when I walk into a library, I have a deep sense of dissatisfaction.  It is a profound remorse that I am physically incapable of reading all the knowledge that is contained on those many selves.  What am I missing out on, I ponder.  The Road to Serfdom cured me of this affliction.  I consider The Road to Serfdom a typical book in the library.  Wildly heralded in certain circles, Friedrich Hayek is an influential thinker.  But the book itself is the epitome of mediocrity.  How can something be so bland and lack of meaningful flavor?  First, it has to try really hard.

Hayek expressed his amazement in the introduction that the book could be successfully abridged, as it was for Reader’s Digest, while keeping the core argument intact.  This is like marveling over the ability of people to breath.  The primary problem is one of definitions.  The book does not define socialism, totalitarianism, fascism, collectivism, etc. except to say they are the same thing.

In addition, I take some offense to the pretense of the book.  Hayek argues that a planned economy is the road to serfdom, not a road to serfdom.  Hayek must have expressed surprise when he discovered that serfdom existed as a social relation and did not come about the way he describes in his book.

The book itself is a conglomeration of muddled paranoia.  To show it as such, we need to do what Hayek refused to, and provide reasons why totalitarianism is bad.

Totalitarianism can be thought of as a mass system of slavery.  But that definition is a little bit lax, because what is slavery?  What distinguishes coercive slavery from wage slavery?   Obviously, we need to dig a little bit deeper.  Slavery is bad because the worker is not given a choice of his profession.  So far so good, except for the fact capitalist society doesn’t offer an absolute choice of profession either.

To get more concrete, let’s say we have a totalitarian society in which everyone is a millionaire book critic.  The problem with the totalitarian society doe not exist for those who enjoy being book critics, but rather those who despise it.  Hayek argues that those who despise being book critics should have a choice to do whatever they want.  In order for these contrarians to be happy, the society has to be set up so that people and freely associate and trade.  This way, our dissatisfied book critic can embark on a career as a shoe shiner if he/she so chooses.

Hayek also argues that it is important that the market is not planned.  A society can’t have quotas on the number of book critics or shoe shiners.  In Hayek’s view it is better for impersonal forces to rule, having a planner set out how many shinners or book critics there shall be will inevitably lead to cronyism or suspicion.  Without a doubt, there is an undeniable transparency to just letting someone try and fail.  Again, these are all arguments for a free market, and they are all good as far as they go.  But we would be remiss if we did not bring some Marx into the mix.

Marx argued that there are specific historical conditions of modern industrial society.  At the outset, there are people who find their lot in the life where the only thing they have to sell is their labor-power.  Marx also argued that it is the nature of the capitalist system to drop the price of commodities, thus forcing the adoption of industrialized processes throughout the economy.  It is also in the capitalist’s interest to make the work unskilled, thus guaranteeing the largest possible labor pool.  This is combined with other perversities such as extending the working day, increasing productivity and keeping wages to mere subsistence.  This guarantees the capitalist the highest amount of profit by minimizing the amount of compensation the worker gets as the result of the proceeds of his labor.

The key revelation by Marx is that capitalist society didn’t spring up out of the blue.  There are definite historical conditions.  It isn’t like the rich of one era voluntarily ceded their wealth to the mobs that won their freedom.  Even in America, who came to own what chunks of land was a function of what a King or Queen handed out.  The notable thing about the American revolution is not what changed, but rather, how much remained the same economically.  There was no wealth redistribution.  The publicly supported westward expansion is best understood as a land grab.  It is this land grab that offered settlers independence at the expense of the aboriginal people.  However, this independence is particular to the epoch it takes place in.  Productivity increases undermined this independence, thus there are people who only have their labor-power to sell for survival.  If that isn’t serfdom, I don’t know what is.

The coercive force comes about somewhat differently.  We have the pretense of fairness because the same rules apply to everyone, however a certain segment of society is forced to submit because they find their only independent means of survival criminalized.

Ergo, there will always be compromises on someone’s freedom.  The question is merely one of extent.  Do we want someone’s freedom to be determined by the conditions of their wealth or do we provide freedom more or less equally, independent of wealth.  In short, do we allow the economic conditions to dictate the politics, or the  politics to dictate the economics?  If a libertarian is to be consistent, one must oppose concentrated power in all forms, including concentrated wealth.  This means regulation and therefore planning.  The alternative is, well, actual serfdom.

July 15, 2008

Credit Crisis: Fannie Mae, Freddie Mac

Filed under: capitalism, economy, politics — Tags: , , , — codesmithy @ 9:11 am

Paul Krugman examines the coming bailout of Fannie Mae and Freddie Mac in his op-ed column “Fannie, Freddie and You.”  Basically, a bailout of Fannie Mae and Freddie Mac is coming.  Both are quasi-government institutions to encourage home ownership.  While, profits are privatived and losses are socialized, Fannie Mae and Freddie Mac are examples of regulation that worked, well, for the most part.

Krugman points out that both institutions were tightly regulated in terms of lending.  However, they weren’t required to put up enough capital, which left them vulernable to this type of problem when the assets declined.  The capital requirement is just insurance, and without a doubt both institutions should have had more.   Nevertheless, given the scope of the current crisis, taxpayers would be left holding the bag one way or another.  This is the very essence of a social safety net.

The question of whether they should have ever been privatized to begin with is another question entirely, and tellingly, one that Krugman doesn’t ask.  Privatizing these institutions gave rise to the perversity of incentives which led to the lack of capital backing.  However, it is unlikely that a corporation would do much better.  The same type of perversity exists, only it is the shareholders left footing the bill instead of taxpayers.  Sometimes, the financial leaders can spur an after the fact taxpayer bailout by pointing out that it is not them who will suffer, but rather shareholders who depend on some form of financial instruments for their retirement.

There are lots things to get very upset about surrounding this entire crisis.  The Fannie Mae and Freddie Mac bailout is small in the big scheme of things.  If the government starts buying up bad debt from private instutions that avoided regulation, that is the time to get really upset.

July 14, 2008

The One-Sided Class War

Filed under: capitalism, culture, politics — Tags: , , — codesmithy @ 8:13 am

Ian Welsh has a post over at firedoglake called “There Was a Class War.  The Rich Won It.” The productivity and wages graph is the most significant.  If you read Milton Friedman that departure between productivity and wages is sort of puzzling.  Obviously, if someone is producing more wealth, they should share in the profits.  It is the sensibility that a rising tide lifts all ships.  Then, what the hell?  Why didn’t this rising tide lift all ships.

One isn’t going to find the answer out from Friedman.  One would need to look at a work like Capital by Karl Marx to find a decent explanation for why this occurs.  Don’t expect to hear it from the corporate owned media, or in the classroom.   But, let’s face it, having an anti-intellectual, functionally illiterate, easily distracted, indoctrinated majority does have its advantages.  In this scenario, why wouldn’t the rich do everything to wield the power of government to their advantage?  Why wouldn’t they engage in a propaganda war in order to convince the masses that everything is alright, and those who complain are just whiners?  It has all worked out for Reagan, Helms, Snow, Russert, etc.  Mission Accomplished.  The debt and the trade deficit, it isn’t their problem.  When are the working-classes going to wake up and realize they are holding the bag?

June 27, 2008

Welcome to Corporate America

Filed under: capitalism, politics — Tags: , , — codesmithy @ 9:01 am

There have been three items in the news recently that at first look distinct, but nevertheless related.

  1. The reduction in damages for the Exxon Valdez Oil Spill
  2. The FISA “compromise” and telecom immunity
  3. The failure to close the so-called “Enron Loophole”

First, there was the supreme courts decision to reduce damages by 1/10th the original amount, from $5 billion to $500 million.  As The Seattle Times states, Exxon’s profits were $40 billion for the last-year.

Punitive damages are the only way to curtail corporate negligence, make them internalize the costs.  As The Seattle Times editorial states:

A 987-foot oil tanker runs aground after its captain turns the helm over to an unlicensed subordinate and leaves the bridge….

Thirteen-hundred miles of Alaskan shoreline are fouled, an estimated 30,000 birds are killed, and the rest is brutal history.

The potential for disaster was there. Exxon knew Hazelwood had a drinking problem.  The jury found that the institution had its own dereliction of duty and fined it for its inability to prevent this disaster.  But like most corporations, they fought it.  And after years of fighting, they won.  The people die, the corporation lives on.  This is what passes for justice in Corporate America.

Next we have the FISA compromise, although Obama might consider the prosecution of the telecoms as secondary, I see it as primary concern.  These corporations knew, a priori, that they were breaking the law by allowing government wiretaps.  However, the executive branch went with the carrot and stick approach.  Those that helped the government spy got contracts.  Those that didn’t got prosecuted, like Qwest’s Joe Nacchio.  Now, after a heroic struggle to uncover the wrongdoing, Congress comes in to save the phone companies for their complicity in the misdeeds.  The executive branch gets to say the magic words and the lawsuits are dismissed.  Congress wants to substitute its own ineffectual oversight mechanism.  The prime reason it is so ineffectual is because impeachment is off the table.  The executive only has to resist and obstruct, meanwhile Congressmen of the supposed opposition party lie to their constituents and quickly try to let all players effectively off the hook, but especially the corporations.  This is what passes for justice in Corporate America.

Finally, we have the “Enron loophole.”  One has to be borderline retarded not to see the relationship between high gas prices and the record profits the oil companies keep raking in.  Much like the Calfornia energy crisis caused by Enron, it would not be surprising to find some market manipulation.  To be sure, global demand and a falling dollar are both playing a role.  However, market manipulation is playing a part also.  As Enron proved, energy companies couldn’t care less about the broader economy.  Enron didn’t implode because of their energy trading, they imploded because of the patch work of financial instruments they employed to hide mountains of bad risks from the balance sheets.  Manipulating the California energy market was remarkably profitable.  It just goes to show how deeply unprofitable the rest of the company turned out to be.  Right now, we are allowing a huge wealth transfer from the working people of this nation to the stock-holders and primarily the executives of oil companies.  America’s continuing oil dependence is disappointing, but, right now, American citizens are being taken to the cleaners for record profits of oil companies.  This is what passes for justice in Corporate America.

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