April 24, 2010

Get me a ticket on an aeroplane

"The United States is extremely lucky that no honest, charismatic figure has arisen,” Chomsky went on. “Every charismatic figure is such an obvious crook that he destroys himself, like McCarthy or Nixon or the evangelist preachers. If somebody comes along who is charismatic and honest this country is in real trouble because of the frustration, disillusionment, the justified anger and the absence of any coherent response. What are people supposed to think if someone says ‘I have got an answer, we have an enemy’? There it was the Jews. Here it will be the illegal immigrants and the blacks. We will be told that white males are a persecuted minority. We will be told we have to defend ourselves and the honor of the nation. Military force will be exalted. People will be beaten up. This could become an overwhelming force. And if it happens it will be more dangerous than Germany. The United States is the world power. Germany was powerful but had more powerful antagonists. I don’t think all this is very far away. If the polls are accurate it is not the Republicans but the right-wing Republicans, the crazed Republicans, who will sweep the next election.

"when Fascism comes to America, it will be wrapped in the flag and carrying a cross." Sinclair Lewis, It Can't Happen Here.

Thus spake Noam Chomsky recently, and Mr. Lewis in 1935. Oddly enough, I found myself saying something similar recently, right down to the detail about a Germany versus America comparative-awfulness analysis. I guess paranoid minds think alike. At least I hope it's paranoia. I thought to myself that Germany prior to the mid-1920's or so, or around the time of the Beer Hall Putsch in Munich (1923), had been a relative bastion of Enlightenment thinking, or at least to the extent any European country could be enlightened in the aftermath of the First World War. A largely educated, cultured populace, the home of Bach, Beethoven, Brahms, Goethe and Schiller. Yet it all went to hell anyway. Whereas modern America can boast Toby Keith, Rush Limbaugh and Sarah Palin as cultural icons. One can take cold comfort there. Germany thought Hitler had been dealt with after the Putsch: he was arrested, tried and imprisoned. The hyperinflation of the Weimar Republic gradually ebbed. Progressive America thought the danger had passed with the election of Barack Obama and the marginalization of an increasingly radical-Right Republican Party. Now the Democrats grimly concede that the Republicans have a reasonable chance of recapturing the House in November. How could this happen in two years?

The United States Bank (based in the Bronx - not the Federal Reserve, but a privately chartered bank) failed in 1929, Wall Street crashed, and the Depression was on, returning Germany to its post-Versailles Treaty malaise, and setting the stage for the Little Corporal with the Chaplin mustache. Thus runs one theory of the rise of Nazism in such books as The Origins of the Second World War by A.J.P. Taylor, a model of lucidity and perhaps oversimplification. Yet it's pretty hard to argue with the claim that national humiliation often leads to a backlash and a search for scapegoats, especially when the country once enjoyed unchallenged preeminence. My own view is that the USA was on a long, slow trajectory of decline long before the Wall Street crash of 2007-2009, and that it's naive (and whistling past the graveyard) to think that everything going on is because Lehman Brothers went bankrupt. That's just preposterous, a result of the uber-insularity of the intellectuals, largely based in New York, who dictate the first draft of history in this country. But Americans, like other peoples, prefer having specific people to blame when calamities strike. Even the weather is treated that way, if you've noticed: "The fierce storm was blamed for five deaths yesterday." (Is the storm supposed to feel remorse? Knock it off in the future?)

So if I were a Wall Street banker (and since I don't really ID myself here, LET ME ASSURE YOU I AM NOT), I would probably be reading A Tale of Two Cities as a self-help book about now, and avoiding ladies who sit on the curb knitting all day. I'm sure they all have escape plans if TSHTF. I confess I've been a little surprised at the growing strength of this Tea Party stuff, which is definitely a Right Wing movement with a survivalist, militia-backed aura about it, and that's not good at all. I thought if times got bad that Americans would simply dumpster-dive between episodes of American Idol and Dancing with the Stars, and would not notice that anything had gone wrong until the Social Security checks did not arrive one day, finally expiring of a Cheeto overdose on the couch during the final episode of "Lost."

It doesn't seem that benign. Personally, I would prefer that the United States just slump into a kind of economic mediocrity leavened with a little more fun and conviviality, sort of a North American version of Italy or Greece, without an intervening step such as Mussolini or the Greek Colonels. Just skip the Fascist crap, because it never works out. I hope Noam is being his usual alarmist self, the way he was in Manufacturing Consent, with his crazy-ass theory that a handful of mega-corporations would control most of the media outlets in America, broadcasting propaganda for a central government controlled by business interests. Okay, maybe that's a bad example of his alarmism, which seems more now like objective reality.

But you get the idea. Okay, almost time for "The Pacific," about the U.S. Marines in World War II. Damn, they were great. We won't let that effort go to waste, right?

April 23, 2010

Imperial death throes, nativist version

The Government Accountability Office (GAO) notes that the current federal deficit to GDP ratio is 99%, a figure not reached since 1945. Paul Krugman, among others, sometimes cites this data point to prove we've been here before. One thing I would note before taking too much solace in this analogy is that in 1945 we were fighting World War II. That's maybe what you call your classic special circumstance. The globe was being encircled by two fascist empires and the USA, Great Britain and the Soviet Union were all that stood between them and success. So the question becomes: how can a country get into this kind of a mess without a world war to explain it? That's a much different way of looking at the same facts, don't you think? The United States overcame this monumental debt through post-War prosperity, something else Krugman and the Cornucopians also note without pointing out a rather obvious problem with this part of the analogy. The world lay in ruins in 1945, the USA was the economic colossus with the biggest manufacturing capacity on Earth, the homeland was essentially untouched, and we were on a racehorse productive footing. Does any of that sound remotely similar?

I never quite understand how Nobel Prize winners miss details like that. The GAO (and remember, this is a fairly neutral fact-finding body, maybe the only one we really have in Washington) goes on to note that in under ten years (in 2020), the USA will spend 93% of its budget on interest payments on the national debt, Medicare, Medicaid, and Social Security. Woody Allen once said, optimistically, that death should not be looked upon "as an end; think of it as a very effective way to cut down on your expenses." By comparison, the reduction of the central government to a disbursement office for medical and pension payments will mean we will not have to worry about runaway defense expenditures, the court system, federal pensions, national parks, the interstate highway system, Amtrak, or anything else. In other words, on the trajectory outlined by the GAO at some point during the next ten years (and before ten years, obviously, because well short of the 93% mark lies The Last Station), the USA will cease to exist.

I don't know whether such a termination will actually happen, but it's odd how little such an outcome is actually discussed in public life, because the simple mathematics of the situation (which is what the GAO is dispassionately working with) compel only one conclusion. And realistically speaking, I don't think anyone actually believes that the Congress can actually take any proactive measures which would avoid the problem. Rather, it will allow Reality to dictate the course of events. Somewhere deep in the American psyche a realization of the consequences of the last 30 or 40 years of group irresponsibility and lack of realism are beginning to cohere. This is the fount, in my opinion, of the "distancing" that is going on between Ordinary Citizens, such as those in the Tea Party and certain States, on one hand, and the federal government on the other. Certain Southern governors, for example, have talked openly about secession and reminisced fondly about The Good Old Days - you know, during the Civil War. This stuff is catching on, and not just among the rubes. In some cases, I'm sure, the impetus for separation is given a kickstart by racism, i.e., that some people just will not accept having a President who is not entirely from the same genetic stock as George & Martha Washington (although the truth is that George Washington is from the same stock as both Barack Obama and Grover Washington). But that doesn't come close to a complete explanation. People are getting it that Social Security is actually on thin ice. Medicare is breaking down. Real unemployment is around 20%. And when an economy already struggling before the "housing crisis" fell through the floor, the federal government made certain that Congress's wealthy benefactors in lower Manhattan were taken care of and coddled with money from Main Street. An Ordinary American does not need to understand the intricate details of all this in order to get the general picture, and to get it accurately.

In this context it's interesting to assess the Arizona "anti-immigrant" law that is sitting on the governor's desk in Phoenix. What is she going to do? In a fairly direct way, I see this legislative enactment as another step along the way toward federal breakdown. In their heart of hearts, even Liberals can't help but be somewhat empathetic to the frustration behind the AZ law, although they can't admit that out loud. President Obama says the law is "misguided" and may infringe "civil liberties," but his problem on that score is pretty simple: President Obama really has no credibility where "civil liberties" are concerned because he doesn't really believe in them, not as a bedrock principle. Glenn Greenwald documents Obama's laissez-faire attitude toward the Bill of Rights on pretty much a daily basis. If an American citizen has an Arabic last name, is a troublemaker, and if the Right Wing would not object to the guy getting whacked, then official White House policy is now established that the guy can be taken out, and that will have to suffice for his 5th Amendment Due Process rights. There isn't much exaggeration in that characterization.

Immigration control is supposed to be a matter of federal jurisdiction. So what is the federal government doing? Building part of a wall. There are many laws on the books regarding citizenship, but they're not enforced. So the question becomes: do we actually have an immigration policy or not? Does the United States assert the right to control its borders, not just against people from Latin America, but generally? Do we believe we have the right to control our population? The money shot from Senate 1070 in Arizona is the following provision:

Requires officials and agencies to reasonably attempt to determine the immigration status of a person involved in a lawful contact where reasonable suspicion exists regarding the immigration status of the person, except if the determination may hinder or obstruct an investigation.

The law is more complicated than that, and it has lots of subparagraphs that attempt to get in the way of people picking up day laborers out at the Home Depot, et cetera, for example, it becomes a "misdemeanor" to obstruct traffic so the guys can jump in the back seat for a day of trimming your hedges. There is, of course, absolutely no doubt against whom the bill is aimed. It's not a coincidence that the bill emerges during a severe economic downturn amid all the foreclosures and state budget deficits. This is when people begin looking with a gimlet eye toward the "foreigners," who only yesterday were your neighbors (kind of like the Twilight Zone's immortal "The Monsters Are Due on Maple Street.") But up above, in the legislative summary, we see the problem: what's a "lawful contact" and what's a "reasonable suspicion?" Does Jose have to be stopped or accosted by the police for something else before they start in on the driver's license and birth certificate stuff? Who knows. I think the law is deliberately vague.

I personally like the idea that I can walk around in America without my "identification papers" (especially the kind that "expired two weeks ago" - remember the opening scene in "Casablanca." Speaking of which, why does the guy run directly toward the wall in the last second before he's shot in the back by the gendarmerie? Were retakes just too expensive during World War II?). If Arizona passes this law (I'm sure Gov. Jan Brewer will sign it), then of course the police are going to feel obligated to stop all kinds of people to avoid charges of "racial profiling," just as grandmothers using walkers are taken out of the line at the airport for a full body search.

Arizona's state-level "solution" to the problem of immigration is a nightmare for Obama, who received 60-70% of the Hispanic vote in the last election, partly on the strength of his promise to, once again, "reform our immigration laws," which of course means a general amnesty for all illegals. And here's a state beating him to the punch, and perhaps overstepping the Bill of Rights, which Barack usually uses to clean stuff off the bottom of his shoes but has now become a sacred document, involving, as it does, the electoral votes from New Mexico, Colorado and Florida.

This won't end well, but it is another portent of those strengthening "centrifugal forces." Ten years ago, I don't think a state would have tried something like this, tempting though it may have been. That it's about to become law is a sign of the times.

April 20, 2010

Busting Out the Wall Street Casinos

I'm tempted to keep writing about Wall Street Fraud because the Stat Counter is going through the roof, and I'm aware of my public, you know. Just stick that in the label down below ("Wall Street Fraud," that is) and the world beats a path to your door. So I say hello to my new friends in India & France. I don't know any Hindi, but I can say bonjour. I suppose the citizens of the Earth have been waiting for the United States to begin, at least, the process of trying to clean up the mess that Wall Street has inflicted upon the civilized world at large, and the SEC complaint against Goldman Sachs, while barely a start, is a move in the right direction. I see where the brave and honorable Marcy Kaptur has even sent a letter to Eric Holder expressing her desire to see the Department of Justice use its criminal powers to come to the assistance of the SEC.

If Representative Kaptur's letter is delivered, that will at least offer some proof that we have an Attorney General. Mr. Holder certainly maintains a low profile. He was going to prosecute at least one case, against Khalid Sheikh Mohammed in District Court in New York, but now it seems virtually certain that he will turn even that prosecution, the biggest in his docket, over to the military. So it isn't as if he doesn't have time to take on Wall Street. What he should do is deputize Eliot Spitzer as a U.S. Attorney in charge of financial malfeasance and turn him loose. Eliot did a great job as the Sheriff of Wall Street, back in the day, which is why the Bush Administration, in cahoots with the Big Boyz, had to set him up for a fall. He understands how the game is played, how the big investment banks are making huge amounts of money by borrowing at a half percent and lending the money back to the government at 3%, while Congress sits still for it because these banks are so vital to the functioning of our economy. An economy which utterly sucks, but never mind. These things don't have to make sense, they just have to make money for the right people.

It's possible the SEC action is a rogue operation. It seems to violate one of Obama's key principles, ENSOL - the Eternal Now Statute of Limitations. Under this guideline, a predicate act cannot be prosecuted if it occurred in the past, because this is Looking Backward, Not Forward. Thus far, it has been applied mainly to war crimes and illegal wiretapping, but philosophically speaking a logical extension to Wall Street bankers, who are tantamount to government officials, could be made. We shouldn't forget that despite all those Obama email solicitations sent to us mere mortals (the "Morts" in Michael Lewis's phrase) for campaign money, his single biggest contributor was Goldman Sachs, and Obama's first overnight guest at the White House (as a way of saying thanks) was Lloyd Blankfein, the head guy at Goldman. Blankfein must be wondering right now: why don't I get the benefit of ENSOL? These things they're accusing us of, they all happened in the past, just like torture and wiretapping. It is a curious breach of professional courtesy, especially after the O-Man went out of his way to praise Lloyd and Jamie Dimon, the equally unscrupulous head guy at JP Morgan Chase, as "savvy businessmen," although that was after he called everyone on Wall Street a bunch of "fat cat bankers." Blankfein, Dimon, all the rest of them - they must be wondering what's up with this guy.

Meanwhile, I did catch Clinton's act on "This Week" Sunday where Bill admitted he made a mistake in agreeing to deregulate derivatives. Since derivatives were and remain the single biggest, efficient cause of the entire world economy going into a financial collapse, this seems like a minimal admission. No one admits error with quite the aplomb and gravitas of Bill Clinton. He never brags, but he's very effective at apologizing. I recall he also admitted that doing nothing during the Rwanda genocide was also a mistake, one that cost the lives of 800,000 Rwandans, or about 20% of the population. Some days nothing goes right. Bill's explanation, about derivatives, was that the "thinking" at the time, championed by Larry Summers, Bob Rubin and Alan Greenspan (and Summers is still on the job with Obama!), was that derivatives were the exclusive realm of the rich and sophisticated and thus needed no supervision. Thus, we allowed a company like AIG to make book on bets against all manner of derivative performance, such as subprime mortgage CDOs, and paid no attention to whether AIG had anything like the cash reserves necessary to make the bets good if the book went against them, on account of all the sophistication and resources of the people involved (like Joseph Cassano of AIG Financial Products division, who would write a credit default swap based on your bet about how many people would get off the 38 bus at the next stop). Yet when AIG crashed, due to its idiocy and lack of resources, the deregulation meant that the American public had to buy the company at enormous expense ($180 billion) so that it could make good on its bad bets with companies like Goldman Sachs (who took down $14 billion of that bailout), because the American financial system depends on these fraudulent investment banks in order to keep the gangster economy going, and anyway, if Geithner had not presided over that backdoor bailout, then what was all that largesse Blankfein was shoveling into the Obama campaign supposed to buy?

It's all definitely a pretty picture. Congress is so slow-witted that about three years after it became completely clear why the financial system was burning, the House and Senate are just now beginning to figure out exactly how we got had by Goldman, JP Morgan, Merrill Lynch, Lehman Brothers, Bear Stearns, Bank of America, Citigroup, Countrywide, New Century and a host of other scoundrels. Just in time, I'd say, because there are statutes of limitations involved, not the fanciful ENSOL either, but real ones. With guys like William Black, Frank Partnoy, Michael Lewis, Simon Johnson and many other learned commentators drawing them crystal-clear road maps, for literally years, Congress is just now positioning itself to do something about this mess. Which tends to demonstrate that they're only doing so, for the most part, because they really feel now they have absolutely no other choice. They'd really rather wait for another ten years and then "apologize" for not doing the right thing, but that is not going to play very well with a public even now sharpening the tines on their pitch forks.

April 19, 2010

I've got the horse right here, his name is Paul Revere

As a public service, I offer one or two comments on the legal framework relevant to an evaluation of the SEC's case against Goldman Sachs. I am moved to describe this framework by the highly undedifying spectacle of watching Maria Bartiromo on CNBC hysterically defend GS against the SEC's "unfair" allegations against this venerable den of financiers currently infesting Wall Street.

Maria wonders whether Goldman is being accused of "fraud" or of merely being "unethical." Further, she wonders whether it's fair to require the "seller" of a security to disclose the buyer and vice versa, something, she assures us, "has never been done." Her remarks tend to demonstrate that someone who has been chosen for her high profile position on the basis of the size of her eyes and her hairdo is not necessarily the best arbiter of the legal details involved, but does tend to prove that Goldman's PR flackery is effective insofar as it provides the talking heads with irrelevant gibberish to deflect public opinion away from the actual issue.

The gist of the SEC case is based (as in many, many cases of securities fraud) on the simple yet highly utile provisions of Rule 10b-5 of the Securities & Exchange Act of 1934, that Depression Era legislation which miraculously survived both Reaganism and Greenspan's tour of duty as Fed Chairman (Greenspan, like his heroine, Ayn Rand, thought the "market" should regulate fraud without government intereference). Rule 10b-5 (so named because of the subsection it occupies within the statutory enactment):

"Rule 10b-5: Employment of Manipulative and Deceptive Practices":

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security."

That's it, the whole statute. Refreshingly pithy, direct, effective. Goldman is up against subsection (b) of the rule. It omitted "to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.

Here are the statements which Goldman made to the German bank and other investors in the Abacus CDO: okay, meine Freunden, here are some wonderful mortgage bonds for you to invest a billion dollars in, easy money, fixed income, and all secured by hard-working Americans religiously devoted to making timely payments, and also you should know that ACA, that big asset manager you like so much, played a role in choosing the specific collateral (American houses) in the portfolio.

So far so good. But you also need to avoid the omission of a statement necessary to make sense of the statements actually made, so that they're not misleading. Did Goldman omit to say anything? Well, yes. While it's true that the person "on the other side of the deal," in this case John Paulson, is not ordinarily disclosed, Paulson was somewhat more than just the person "on the other side of the deal" in this situation. Paulson was actually the guy choosing the collateral for the CDO, and he was choosing it not for its strong, Amerikanischer creditworthiness, but instead for its essential crappiness. Instead of those idealized Americans of the German fantasy with the picket fence and Priuses in the two-car garage, Paulson was looking for part-time lap dancers in over-limit status on their Discover Cards who claimed, on an unverified basis, that they made $200 k a year writhing and squirming in the Ultra Room of the Flamingo, and scored five houses to flip on just such credentials.

Details slightly exaggerated for effect; your parody may differ.

You see, Paulson wanted the short side of the bet, because he had a more realistic appreciation of his fellow Americans. But for a short side to work, you need a sucker on the long side. Just as a bookie who takes a bet on the Lakers, give the 6-1/2 points, Goldman needs to find someone who thinks the OK Thunder can beat the spread. This is what Goldman means by saying it acts as an "intermediary;" they're the tout, and their cut of the action was $15 million from Paulson to make this tanked game work.

What can we say? Paulson and Goldman had home court advantage. Pays to know the players before you start throwing a billion around, especially when you're relying on a shifty book like the one run by the fine "investment bankers" at Goldman Sachs. It's the oldest permanently established floating con game in New York.