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Shadows and Not
America’s Suicidal Statecraft
The End of the 19th Century
Up Close: A Mother’s View
A Case of Wild Justice
What Can We Do Next? The
My Angels Are Come
The Declaration of White Independence: The Founding Documents of Transudationism
Awaken and Arise!
One Time in Paris
The Eye of Icarus
Prodigal of the Pecos
Dolphins Under My Bed
What the Hell Is a Liberal?
By Natalia Prentice
The Shadow Factory
Will Barack Obama Confront
By John F. Miglio
Five, ten years from now… they’re
Martin Scorsese captured the transition brilliantly in Casino when he showed the old Mafia-run casinos being torn down and replaced with the new corporate-controlled casinos, a striking metaphor for the death of “family business” in America and the rise of the white collar corporate-criminal complex, which, not coincidentally, supplanted the Mob during the years Ronald Reagan was president.
In fact, by the end of the 1980s, traditional gangsters like John Gotti (known as “The Dapper Don” and “The Teflon Don”– no relation to Ronald Reagan, “The Teflon President”) were on their way out. Gotti himself was the last of a dying breed, a tough street guy who stood by his word, rewarded his friends, and murdered his enemies. And when he finally got caught and convicted, he received a life sentence at a maximum security prison where he eventually got cancer and died.
In contrast, the white collar corporate criminals of the 1980s had no sense of Old World honor and rarely served more than a few years in cushy minimum security federal prisons known as “Club Feds.” During the same era as Gotti, for example, Michael Milken and Ivan Boesky each served only about two years in minimum security prisons for insider trading.
Over the years, however, this has changed, and some of the white collar crooks in the new millennium have received much stiffer sentences. Jeff Skilling, the former CEO of Enron, received over 24 years in prison, and Dennis Kozlowski, the former CEO of Tyco, is currently serving 8-25 at a tough prison in upstate New York. Too bad Kenny Boy Lay died before he went to the slammer. The stories he could have told about his old pals Bush and Cheney!
This brings us to our current crop of top shelf criminals– no longer street-smart wise guys carrying guns like Gotti, or even white collar crooks cooking their companies’ books like Skilling, but outright swindlers like Bernie Madoff, who blithely cheat individuals out of their life savings.
Unfortunately, the Bernie Madoffs of the world are only the tip of the iceberg. The real problem is not with greedy crooks like Madoff who get caught, but all the rest of the greedy crooks in corporate America and Wall Street who don’t get caught because they use their well-connected lobbyists to pressure and bribe politicians to create laws and tax policies that legalize their fraud and deception. In other words, they don’t have to swindle people overtly like Bernie Madoff. They do it the old-fashioned way– by greasing palms and negotiating back room deals with Congress.
For example, in 1999 the banking industry paid off the Congress to pass the Gramm-Leach-Blighly Act and repeal the Glass-Steagall Act, first enacted in 1933 to control speculation and prohibit banks from owning other financial institutions that would create conflicts of interest. In fact, the reason Glass-Steagall was signed into law to begin with was because of the trouble banks got into by taking excessive risks that contributed to the Depression of the 1930s.
By the way, the Gramm-Leach-Blighly bill received overwhelming support from both Democrats and Republicans, and of course Bill Clinton, the best friend Wall Street ever had, signed the bill into law and paved the way for the financial scams that precipitated last year’s economic meltdown of the banking system and the sharp decline in the stock market.
After Clinton, Bush Junior reduced government regulation and oversight even more and made things that much easier for his corporate criminal friends to game the system and cheat the American public out of billions with no-bid contracts, closed-door energy deals, and, worst of all, the subprime mortgage and derivatives scams that precipitated the home foreclosure crisis. But here�s the kicker– the white collar criminals that masterminded these scams during the Bush years have not only gotten away with all the money they made at the expense of American taxpayers, but are the same individuals who are calling the shots today.
And who are these individuals? They’re the real gangsters of America, the ones who make John Gotti look like Sponge Bob Square Pants. They’re the ruthless CEOS in charge of our most powerful corporations, the well-connected Ivy League elitists who run the nation’s largest financial institutions, and the Gordon Gekko-style free market predators who put people out of work and drive them into bankruptcy while they enrich themselves and their friends to the tune of hundreds of billions of dollars. God knows how much loot they’ve already taken out of the country and stashed in bank accounts in Switzerland and the Cayman Island.
It should be noted that a lot of the money that helped Obama get elected came from some of these same individuals, including executives at Citigroup, Lehman Brothers, Credit Suisse, and Goldman Sachs (his number one donor). Even worse, the individuals who are now running his recovery plan– Summers, Geithner, Bernanke– are all part of the same corporate-criminal complex, or what the Mafia used to call amici de amici (friends of friends).
No doubt President Obama is aware of this paradox. The question is, will he have the integrity and fortitude to stand up to these high-power individuals who helped get him elected? So far, he has called on Congress to pass tough new regulations on financial institutions and corporations, but will they go far enough? And will the penalties be stiff enough to make a difference?
At this point no one knows for sure, but if Obama doesn’t make serious changes and allows the corporate-criminal complex to continue its financial assault on average Americans, he runs the risk of inflaming an already enraged populace, one that is just beginning to understand how royally they’ve been screwed in the last few decades.
And as unemployment increases and more people become desperate and have less to lose, they may begin to entertain the idea of taking the law into their own hands. And if this happens, we may all wish for the days when guys like John Gotti were still in charge.
Obama, like Bush, is Throwing
By Rodrigue Tremblay
The [financial] crisis was not a failure of the free market system and the answer is not to try to reinvent that system… Government intervention is not a cure-all.
There is no cause to worry. The high tide of prosperity will continue.
While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States – that is, prosperity.
Tuesday, February 10, may be the date when the U.S. economy officially entered into an economic depression. This was when President Obama’s Treasury Secretary, Timothy Geithner, announced that the Obama administration was about to expand Bush’s Secretary Paulson’s $700-billion plan to rescue large U.S. banks from insolvency, euphemistically called the Troubled Assets Relief Program (TARP).
Its purpose is to use public capital, loans and guarantees to remove toxic financial assets from private banks’ balance sheets and to transfer them to the Government and/or to willing private investors (hedge funds, private equity firms and other investors).
One must keep in mind that Mr. Paulson and Mr. Geithner were the principal architects of last October’s original plan. This was then, and it is now, a plan designed primarily to use hundreds of billions of taxpayer dollars to prevent banks from declaring bankruptcy, while in fact doing little to accomplish its presumed primary objective of getting banks to resume normal lending. Such a cure has failed in the past and is likely to fail now. Saving insolvent banks is not the same as fixing them and making them viable.
Indeed, when Mr. Geithner announced on Tuesday, February 10, that he was expanding the Paulson plan to make it a $1.5 trillion bailout plan, financial markets saw it as simply rearranging the chairs on the deck of the Titanic, and they sold off. I believe the markets are right and the Obama-Geithner plan only makes the Bush-Paulsen plan worse. Both are misguided and do little to address the root cause of the financial crisis, which is a mountain of unsustainable bad debts that was allowed to expand recklessly over the last ten years, and which is now crumbling down, dragging the entire economy down with it.
With more public money thrown at the problem with little strings attached, large U.S. banks will only use the new cash to de-leverage themselves and pay off their debts, buyout smaller banks and find a way to reward their incompetent executives with large bonuses, but little will trickle down to the real economy. We are back to the discredited Reagan era’s economic trickle-down theory, the rich helping themselves first and the poor getting the crumbs.
Let’s look coldly at the situation. The ratio of total debt to the U.S. Gross Domestic Product (GDP) is now higher than it was in 1933, when it reached the lofty and unsustainable level of 299.8 percent. It took nearly twenty years to bring down the debt/GDP ratio to below 140 in 1952. In the second quarter of 2008, all debt records were broken when the total debt ratio in the U.S. registered at 356,7 percent of GDP. If the same process of unwinding of excessive debt level plays itself out this time, this could translate into a debt deflation process lasting possibly until 2027!
It all depends on the problem being recognized for what it is, that is to say a mountain of unsustainable and insolvable debts and bets that have to be cancelled and erased from the books. Transferring such bad debts from the banks and other entities to the government will not solve the problem. It will only displace it from one place to another and potentially create new and even more serious problems, such as horrendous future tax increases or an onset of hyperinflation down the road.
There exists a state of denial in Washington D.C. regarding the excessive debt problem, essentially because the same people who are responsible for creating the mess are in power. It doesn’t matter whether a Republican or a Democratic administration is in place, they remain in charge and they rely on the same failed economic policies. The Geithner plan is the son of the Paulson plan. Both are destined to fail because they are based on a flawed diagnosis.
To deflate the mountain of bad debts and unclog the credit system in an orderly fashion, and to prevent a deflationary spiral from taking hold, the Obama administration should take the advice of L. William Seidman, chairman of the S&L Resolution Trust Corp. (RTC), the agency created in the 1990s to manage hundreds of insolvent thrifts.
At that time, the RTC seized the assets of troubled savings and loans and resold them to bargain-seeking investors. The Obama administration should bite the bullet and create a similar Banking Restructuring Trust to temporarily take over the large insolvent American banks, streamline their operations, liquidate their bad debts and bets, and reorganize them on a firmer financial basis. I myself proposed such a restructuring trust last September. This would be more efficient and less costly than throwing trillions of dollars down a black hole without even solving the structural problem at hand.
The creation of such a Trust to unify government intervention has also been proposed by former Federal Reserve Chairman Paul A. Volcker and by former Treasury Secretary Nicholas F. Brady. This would entail, of course, that many of the banks’ illiquid assets in CDOs (“Collateralized Debt Obligations”) and in CDS (“Credit Default Swaps”) and other shaky assets, would have to be written off or cancelled in a chapter 11-like process. Such a process would cleanse the banks from the excesses accumulated in previous years and prepare them to meet credit demand as the economy recovers. But, above all, it would mark an end to incremental, complicated and improvised ‘ad hoc’ government interventions to solve the banking crisis. I would bet that there would be a powerful rally of financial markets if such a take-charge and decisive approach were to be adopted.
The Geithner bank bailout plan must not be confused with the $800 billion-plus fiscal stimulus plan for the entire economy that Congress is about to adopt. The latter, contrary to the former, is designed to cushion the fall of real spending in the economy and is likely to have a net positive impact. Indeed, as households increase their savings rate and curtail their discretionary spending to compensate for the loss of housing and financial wealth, government spending has to take up the slack.
However, it should be realized that the multiplier effect on aggregate spending of each dollar of fresh public spending is not very high because national economies nowadays are globalized. Indeed, as domestic spending is being sustained, imports increase but exports may decline as world demand contracts. It is only if all governments adopt expansionary fiscal policies that all economic boats can be lifted. With European and Chinese economies weakening, this may take some time before world demand stops contracting.
All this is to say that while the Geithner bank rescue plan is misguided and should be reengineered, Obama’s fiscal stimulus package is most likely too timid and should be enlarged, considering the scope of the problem at hand. All in all, let us hope that a prolonged economic depression can be avoided.
Rodrigue Tremblay is professor emeritus of economics at the University of Montreal and can be reached at rodrigue.tremblay@ yahoo.com. He is the author of the book The New American Empire. Visit his blog site at http://www.thenewamericanempire.com/blog.
A bone-chilling political
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