Nothing new under the financial sun

This week "Frontline" did an interesting report on Brooksley Born (left photo), probably someone you haven't heard of because her tenure in government was abruptly truncated when she failed to act like one of the boys. She was Clinton's original choice as head of the Commodities Future Trading Commission. A Stanford law graduate, a very seasoned securities litigator with Arnold & Porter in Washington, D.C., she took her rather obscure job seriously and immediately became concerned about the immense volume of unregulated derivatives traded over the counter with no federal oversight at all. So she proposed regulations to force this off-site gambling into the open, where it would be subject to normal capital requirements, disclosure and reporting.

She was aggressively opposed by Clinton's Three-Headed Monster of Deregulation: the misogynistic Larry Summers, the arrogant Robert Rubin (Sec. of Treasury) and the Ayn-addled Alan Greenspan, Chairman of the Fed. They didn't want any regulation at all, being market "fundamentalists." Greenspan went so far as to dispute the necessity of regulating securities fraud, arguing that the "market" (which had a kind of holy, talismanic meaning for him) would take care of it. They blocked Brooksley at every turn, showing up at Congressional hearings with her and kneecapping her ideas. Clinton, in the thrall of the go-go tech IPO craze and the booming market on Wall Street, sided with the Boyz, of course, since his weaselly cowardice where women were concerned (think Lani Guinier) made his decision easy. Clinton became a champion of financial deregulation (he signed the repeal of the Glass-Steagall Act, which is why you see securities dealers inside your local Bank of America), globalization and offshoring of American jobs. In a lot of ways, George W. Bush simply executed Clinton's plan for the destruction of the American middle class and ruination of the American economy. The hard work of making America vulnerable to grifters and banksters was well underway when Bush took charge in the Oval Office. With the financialization of the economy a done deal, Bush could concentrate on his true passion, war.

Anyway, after Born quit in frustration, the derivative business (credit default swaps, etc.) exploded into a business with a notional value greater than the combined GDP's of the nations of the world. It was a situation completely out of control. Various geniuses, such as those at Long-Term Capital Management, based their opaque investment schemes on the unregulated derivatives market, and made a killing in ways which they claimed were immune from failure. Then the Russian economy collapsed and LTCM, for reasons no one could completely understand (since no one really understood their business) went into free-fall, losing hundreds of millions of dollars every day. LTCM was so interconnected with the banks on Wall Street that the failure of the hedge fund threatened to bring the American economy down with it, which may sound familiar. So Robert Rubin organized a cartel of big banks to bail LTCM out and the crisis passed. Rubin's role as savior of Wall Street is remembered; his seminal role in thwarting regulation of the business that sank LTCM, less so.

The derivatives business went totally nuts under the malignant neglect of Bush&Cheney, reaching, by some estimates, a notional value of one quadrillion dollars. The collapse of AIG was directly attributable to its land office business in credit default swaps, side bets on the success or failure of securities such as mortgage-backed bonds. And, of course, there was no real oversight of the mortgage-backed security business itself, another multi-trillion dollar business in which all the big commercial and investment banks were deeply involved. When Bear Stearns failed in 2007, it started a domino collapse of the entire financial industry. This time the banks themselves could not save the system (so they said, since they were the ones who needed saving), so it was left to the federal government and the Federal Reserve, the lender of last resort, to bail everyone out.

It must be a little strange for President Obama to meet with his economic advisors, see Larry Summers sitting on the other side of the desk in the Oval Office, and realize this somewhat porcine and definitely self-satisfied guy is one of the principal architects of the problem we're in now. And yet he leans heavily on his advice; after all, Summers is really, really "smart." Obama tends to marginalize Paul Volcker, an occasional ex officio advisor, because Volcker has lately taken to calling for the nationalization of banks such as Citigroup, Bank of America and Wells Fargo, on the grounds that they're "zombie banks." (If for no other reason, I am grateful to the financial crisis for this colorful usage, lifted from the Afro-Caribbean voodoo tradition.) They're being propped up by bailouts and zero percent loans, and by the government's acquiescence in allowing them to count the hundreds of billions in cruddy loans on their books as if they had real value. Volcker thinks this is pointless, especially since they're not really lending, just hoarding. As Max Keiser has said, America needs a banking system, but it doesn't follow that we need exactly these banks run by these specific, well-connected individuals.

Well, despite such thinking, I do believe this is another instance where Obama is loath to fail in a unique and original way, and if all the Goldman Sachs alums and Goldman Sachs cronies around him tell him that we must save The Banks in the Club (the ones left after Goldman helped the government get rid of competitors like Merrill Lynch and Lehman Brothers), so be it. If the economy goes down for the count (if America becomes a failed state), he wants to make certain that he is following the corrupt consensus in Washington, D.C., and the de-regulating, Wall Street-pandering, bribe-accepting cadres supposedly representing us remain definitely in the ascendant in D.C. As a recent example, Obama raised $2 million for the Democrats on Wall Street just this past Tuesday night - how tough do you want to be with your Sugar Daddies?

Oil is now $82/barrel despite slumping demand and massive overstock. Makes a lot of sense, huh? It does when you see a Euro costs a buck fifty now. Bernanke is reaching the end of his capacity to stoke Treasury purchases by "quantitative easing." If we don't buy our own debt, who will? That will become a very interesting question, and one where the answer, I'm afraid, is going to be delivered during Barack's first term. He's going to be dealing with crises, seriatim, that will make LTCM seem like someone's overdraft at the local credit union.

Nonsensical Slogans as Official Policy

I've remarked a few times on a phenomenon which has become the norm in American politics over the last decade or so, namely, the Nonsensical Slogan as official policy. As a prime example, there was Bush/Cheney's deathless repetition of the real reason for the war in Iraq: "We're fighting them there so we don't have to fight them here." In my naivete, I was prone to thinking this moronic incantation only demonstrated that Bush & Cheney were foolish. How wrong can a person be? They were way ahead of me, in actuality, because the slogan worked.

Although the statement itself made no sense. Bush, in a press conference, admitted unequivocally that Saddam had "nothing" to do with 9/11. So - what was the basis for the insistence that we would fight Iraqis here if we did not fight them there? Have we ever fought Iraqis here? Have they ever tried to invade or attack us here? We've been in combat with Iraqis, in desultory fashion, on and off since 1991. In all that time, with all that provocation, did they ever attack us? Yet Bush & Cheney (and Rove), seasoned pols that they were and are, had a better reading of the American booboisie than I, I have to admit.

It's at least reassuring to read other writers once in a while who refuse to abandon common sense in the face of propaganda. Take, for example, Johann Hari, a fine writer who contributes on the HuffPost sometimes. He was analyzing the various rationales for continuing the American occupation of Afghanistan. The Nonsensical Slogan most often trotted out, by Bush originally and now by the Obama Administration, is that we cannot allow Afghanistan "to become a safe haven for terrorists planning attacks against the United States." At the surface, at least (that is, before you spend two or three tenths of a second thinking about it), this rationale seems more plausible than fighting them over there so we don't have to fight them here. Hari points out, however, as I've tried to do before, that this reasoning is equally lame.

He adds a few facts I hadn't thought of. Since 9/11, there have been two other headline terrorist attacks, the 3/11 attacks on the trains in Madrid, and the 7/7 attacks on British public transit. None of these attacks (including 9/11 on New York and D.C.) was actually "planned" in Afghanistan. As far as preparations for 9/11, most of those were done in Hamburg, Germany, and in South Florida. It is strictly and only the temporary residence of Osama bin Laden and a few top al-Qaeda henchmen in Afghanistan that provided cover for what was actually simply an acting out of American rage against a plausible foe. Except that Bush & Cheney completely blew it where bin Laden was concerned, so it's difficult to see now what in the hell it was about.

The other aspect which Hari talks about is what might be called the Whack-A-Mole problem. Supposing for a moment that terrorists need a "safe haven" to "plan attacks" (and in the three examples above, there is no evidence for this), why is it that Islamic terrorists would cooperate by all migrating to Afghanistan so we can annihilate them? That presents a contradiction in terms: if they're that stupid, what's the real problem anyway? If General Jim Jones is correct (no one has authoritatively contradicted him), there are currently about one hundred members of al-Qaeda left in Afghanistan. One shudders to think that if there were many more before, then like toothpaste being pushed from the tube, they are now all over the border in nuke-armed Pakistan. How helpful. But more to the point, what is it about Afghanistan that makes it uniquely suitable as a "terrorist base" as opposed to other Muslim states such as Yemen, Indonesia or Algeria, or, to refer to the actual home states of the actual 9/11 hijackers, Egypt and Saudi Arabia? The United States cannot actually invade, occupy and nation-build in every last country that might be used as a terrorist "base," and to repeat: why does a terrorist need a "base?" Timothy McVeigh used the United States as a base, and he accomplished what he was after.

I work on the assumption that President Obama is a pretty clear thinker and must see these easily-grasped points. It does not make sense to confer upon Afghanistan the unique status as "terrorist stronghold" simply because it was bin Laden's last-known forwarding address, following stints in Saudi Arabia and Sudan. Yet Obama repeats, over and over, that the Afghanistan War is a "war of necessity." Necessary for what, and to whom?

Nero's Hoedown

For those curious about the fate of the world, I recommend Dmitry Orlov's cluborlov.blogspot for the first of a three-part series on global temperature increase, and particularly the estimates on sea level rise. A business as usual approach to carbon emissions will result, according to the Hadley Centre in Britain, by the year 2055, in a 7.2 F temperature increase, with catastrophic implications for the two largest repositories of land-based fresh water, Greenland (10%) and Antarctica (90%). I suppose the usual divergence of opinion in this country remains: those who say there's no problem, like Sen. James Inhofe (R,-Hades), and those in the scientific community who claim there will be a 7.2 F global average temperature rise in the next 45 years if we don't take drastic action.

At least there's a clear choice. Meanwhile, the debate rages on how many troops to send to Afghanistan. President Obama seems captivated by the Friedman Gambit for the moment: if Karzai is corrupt (he is), then we have no one to "partner with." How can we commit the Sacred Blood of our Brave Young Men and Women, so the sanctimonious cackle of the Chickenhawks goes, without someone to partner with? We'd really love to sink into a quagmire, we really would, but not without someone to partner with. If Karzai were a little more like John Adams, and would stop wearing that Shriners' hat, we could get somewhere, like up to our necks in quicksand.

Glenn Greenwald dusts off a largely-forgotten report from 2004 by the Defense Science Policy Board (whoever they might be) which roundly criticized the approach to counter-terrorism of Bush/Cheney (although the report was put together during their reign) because fighting wars in Muslim countries just makes things worse. It uses fancier language than that, but that's what it says. They don't hate us "for our freedoms," as the silly shibboleth went, but because of our support of corrupt dictatorships in the Muslim world (Egypt, Saudi Arabia) and because we bomb them and invade them. Hey, don't look at me: Donald Rumsfeld commissioned the report of this group.

That's something I've wondered about. We're all concerned about instability in Pakistan now, but why did things get so sketchy there during the last 8 years? Any connection to what we're doing next door (and in Pakistan itself)? If the presence of American forces in the Muslim world is the problem, how does increasing the number of troops solve it?

Is there any connection between the two parts of this blog? Probably, but I'm not sure I've thought of it yet. I'm beginning to think that we cling to our wars in more or less the same way Great Britain hung on to its empire in the early part of the last century, before it finally had to release its grip on the "jewel in the Crown," India, after World War II. By demonstrating our military might, we conceal such inconvenient realities as our $12 trillion dollar national debt, half owed to foreigners; the projected increase in the debt by $9 trillion before 2020; the pathetic actuarial state of the entitlement programs; the skewing of 90% of the nation's wealth to about 1% of the population; the corruption of Congress; the destruction of the USA's manufacturing base in favor of a "financialized," paper-shuffling economy; 20% unemployment; and various other signs and portents. We're so systemically ill that we can barely rouse ourselves to pay attention to the next catastrophe, so we talk about some more wars to keep us "safe." In Copenhagen at the end of the year, when the nations of the Earth meet to draw up plans to deal with global warming, we should probably do the world a favor and just stay out of the way. Maybe rather than weighing in with a lot of ideas we won't follow through on (you can't get a meaningful climate change bill through this Congress), we should just vote "present."