Who Rules America?
By James Petras – January 13, 2007
In the broadest and deepest sense, understanding how the US political system functions, the decisions of war and peace are taken, who gets what, how and why, requires that we address the question of ‘Who rules America?’ In tackling the question of ‘ruling’ one needs to clarify a great deal of misunderstandings, particularly the confusion between those who make governmental decisions and the socio-economic institutional parameters which define the interests to be served. ‘Ruling’ is exacting: it defines the ‘rules’ to be followed by the political and administrative decision-makers in formulating budgetary expenditures, taxes, labor and social legislation, trade policy, military and strategic questions of war and peace. The ‘rules’ are established, modified and adjusted according to the specific composition of the leading sectors of a ruling class (RC). Rules change with shifts in power within the ruling class. Shifts in power can reflect the internal dynamics of an economy or the changing position of economic sectors in the world economy, particularly the rise and decline of economic competitors.
The ‘rules’ imposed by one economic sector of the RC at a time of favorable conditions in the world economy, will be altered as new dominant economic sectors emerge and unfavorable external conditions weaken the former dominant economic sectors. As we shall describe below the relative and absolute decline of the US manufacturing sector is directly related to the rise of a multidimensional ‘financial sector’ and to the greater competitiveness of other manufacturing countries. The result is an accelerating process of liberalization of the economy favored by the ascending financial sectors. Liberalization in pursuit of unregulated flows of investments, buyouts, acquisitions and trade increases the financial sector’s profits, commissions, incomes and bonuses. Liberalization facilitates the financial sector’s acquisition of assets. The declining competitiveness of the older ruling class manufacturing sector dependent on statist protectionism and subsidies leads to ‘rear-guard’ policies, attempting to fashion an unwieldy policy of liberalization abroad and protectionism at home.
The answer to the question of who rules depends on specifying the historical moment and place on the world economy. The answer is complicated by the fact that shifts among ‘sectors’ of the ruling class involves a prolonged ‘transitional period.’ During this period declining and ascending sectors may intermingle and the class members of declining sectors ‘convert’ to the rising sector. Hence, while power between economic sectors may change, the leading class groupings may not lose out or decline. They merely shift their investments and adapt to the new and more lucrative opportunities created by the ascending sector.
For example, while the US manufacturing sector has declined relative to ‘finance capital,’ many of the major investment institutions have shifted to the new financial ‘growth sectors.’ Concomitantly, the converted sectors of the ruling class will shift their policies toward greater liberalization and deregulation, thus severely weakening the rear-guard demands of the uncompetitive manufacturing sector. Equally important within the declining economic sectors of the RC, drastic structural changes may ensue, to regain profitable returns and retain influence and power. Foremost of these changes is relocation of production overseas to low wage, low tax, non-union locations, the introduction of IT technology designed to reduce labor costs and increase productivity, and diversification of economic activity to incorporate lucrative financial ‘services’.
For example General Electric has moved from manufacturing toward financial services, relocated labor intensive activity off-shore and computerized operations. Through these moves the distinction between ‘manufacturing’ and financial capital has been made obsolete in describing the ‘ruling class’.
To the degree that older manufacturing capitalists retain any economic and political weight in the RC, they have done so via sub-contracting overseas to Asia and Mexico (General Motors/Ford), invested in overseas plants to capture foreign markets, or have been converted in large part into commercial and importing operations (shoes, textiles, toys, electronics and computer chips).
Locally based manufacturers which remain in the RC are largely found among military contractors living off the largesse of state spending and depending on the political support of congressional and trade union officials, eager to secure employment for a shrinking manufacturing labor force.
During this transitional period of rapid and all-encompassing changes in the ruling class, enormous financial opportunities have opened up throughout the world. As a result of political tensions within the ‘governing class,’ key policymakers are drawn directly from the most representative institutions of Wall Street. Key economic policies, especially those which are most relevant to the RC, tend to be overwhelmingly in the hands of tried and experienced top leaders from Wall Street.
Despite (or because of) the ascendancy of various sectors of financial capital in the RC, and their agreements on a host of ‘liberalizing’ economic policies, they are not homogeneous in all of their political outlooks, party affiliations, or their foreign policy outlook. Most of these political differences are questions of small matter — except on one issue where there is a major and growing rift, namely in the Middle East. A sector of the RC strongly aligned with the state of Israel supports a bellicose policy toward the Jewish state’s adversaries (Iran, Syria, Hezbollah and Palestine) as opposed to another sector of the RC favoring a diplomatic approach, directed toward securing closer ties with Arab and Persian elites. Given the highly militarized turn in US foreign policy (largely due to the ascendancy of neo-conservative ideologues, the strong influence of the Zionist Lobby, and the instability and failures of their policies in the Middle East and China) the RC has pressed for and secured direct control over foreign economic policy.
The tensions and conflicts within the RC — especially between the Zioncons and the ‘free marketeers’ — have been papered over by the enormous economic benefits accruing to all sectors. All RC financial sectors have been enriched by White House and Congressional policies. All have benefited from the ascendancy of ‘liberalizing regimes’ throughout the world. They have reaped the gains of the expansionary phase of the international economy. While the entire ruling financial, real estate and trading sectors have been the main beneficiaries, it has been the financial groups, particularly the investment banks that have led the way and provide the political leadership.
Ascendancy of Financial Capital
‘Finance capital’ has many faces and cannot be understood without reference to specific sectors. Investment banks, pension funds, hedge funds, savings and loan banks, investment funds are only a few of the operative managers of a multi-trillion dollar economy. Moreover each of these sectors have specialized departments engaged in particular types of speculative-financial activity including commodity and currency, trading, consulting and managing acquisition and mergers. Despite a few exposes, court cases, fines and an occasional jailing, the financial sector writes its rules, controls its regulators and has secured license to speculate on everything, everywhere and all the time. They have created the framework or universe in which all other economic activities (manufacturing, retail sales and real estate) take place.
‘Finance capital’ is not an isolated sector and cannot be counterposed to the ‘productive economy’ except in the most marginal ‘local activity’. In large part finance capital interacts with and is the essential driving force in real estate speculation, agro-business, commodity production and manufacturing activity. To a large degree ‘market prices’ are as influenced by speculative intervention as they are by ‘supply and demand.’ Equally important, the entire architecture of the ‘paper empire’ (the entire complex of inter-related financial investments) is ultimately dependent on the production of goods and services. The structure of power and wealth takes the form of an inverted triangle in which a vast army of workers, peasants and salary employees produce value which becomes the basis for near and remote, simple and exotic, lucrative and speculative financial instruments. The transfer of value from the productive activities of labor up through the ladder and branches of financial instruments is carried out through various vehicles: direct financial ownership of enterprises, credit, debt leveraging, buyouts and mergers. The tendency of ‘productive capitalists’ is to start-up an enterprise, innovate, exploit labor, capture markets and then ‘sell-out’ or go ‘public’ (stock offerings). The financial sector acts as combined intermediary, manager, proxy-purchaser and consultant, capturing substantial fees and expanding their economic empires and preparing the way to higher levels of acquisitions and mergers. ‘Finance capital’ is the midwife of the concentration and centralization of wealth and capital as well as the direct owner of the means of production and distribution. From exacting a larger and larger ‘tribute’ or ‘rent’ (commission or fee) on each large-scale capital transaction, ‘finance capital’ has moved toward penetrating and controlling an enormous array of economic activities, transferring capital across national and sectoral boundaries, extracting profits and dumping shares according to the business, product and profit cycle.
Within the ruling class, the financial elite is the most parasitical component and exceeds the corporate bosses (CEOs) and most entrepreneurs in wealth and annual payments. It falls short of the annual income and assets of the super-rich entrepreneurs like William Gates and Michael Dell.
The financial ruling class is internally stratified into three sub-groups: at the top are big private equity bankers and hedge-fund managers, followed by the Wall Street chief executives, who in turn are above the next rung of senior associate or vice-presidents of a big private equity funds who is followed by their counterparts at Wall Street’s public equity funds. Top hedge fund managers and executive have made $1 billion dollars or more a year — several times what the CEO’s make at publicly traded investment houses. For example in 2006 Lloyd Blankfein, CEO of Goldman Sachs, was paid $53.4 million, while Dan Ochs, executive of the hedge fund Och-Ziff Capital paid himself $220 million dollars. That same year the Morgan Stanley CEO received $40 million dollars, while the chief executive of the hedge fund Citadel was paid over $300 million dollars.
While the ‘hedge fund’ speculators receive the highest annual salaries, the private equity executives can equal their hundreds of millions payments through deal fees and special dividend payments from portfolio companies. This was especially true in 2006 when buyouts reached a record $710 billion dollars. The big bucks for the private equity bosses comes from the accumulating stake executives have in portfolio companies. They typically skim 20% of profits, which are realized when a group sells or lists a portfolio company. At that time, the payday runs into the hundreds of millions of dollars.
The subset of the financial ruling class is the ‘junior bankers’ of private equity firms who take about $500,000 a year. At the bottom rung are the ‘junior bankers’ of publicly traded investment houses (‘Wall Street’) who average $350,000 a year. The financial ruling class is made up of these multi-billionaire elites from the hedge funds, private and public equity bankers and their associates in big prestigious corporate legal and accounting firms. They in turn are linked to the judicial and regulatory authorities, through political appointments and contributions, and by their central position in the national economy.
Within the financial ruling class, political leadership does not usually come from the richest hedge fund speculators, even less among the ‘junior bankers.’ Political leaders come from the public and private equity banks, namely Wall Street — especially Goldman Sachs, Blackstone, the Carlyle Group and others. They organize and fund both major parties and their electoral campaigns. They pressure, negotiate and draw up the most comprehensive and favorable legislation on global strategies (liberalization and deregulation) and sectoral policies (reductions in taxes, government pressure on countries like China to ‘open’ their financial services to foreign penetration and so on). They pressure the government to ‘bailout’ bankrupt and failed speculative firms and to balance the budget by lowering social expenditures instead of raising taxes on speculative ‘windfall’ profits.
The Dance of the Billions: Finance Capital Reaps the Profits from their Power
Speculators of the world had a spectacular year in 2006 as global equities hit double digit gains in the US, European and Asian markets. China, Brazil, Russia and India were centers of speculative profiteering as the China FTSE index rose 94%, Russia’s stock market rose 60%, Brazil’s Bovespa was up 32.9% and India’s Sensex climbed 46.7%. In large part the stock markets rose because of cheap credit (to speculate), strong liquidity (huge financial, petrol and commodity profits and rents) and so-called ‘reforms’ which gave foreign investors greater access to markets in China, India and Brazil. The biggest profits in stock market speculation occurred under putative ‘center-left’ regimes (Brazil and India) and ‘Communist’ China, which have realigned themselves with the most retrograde and ‘leading’ sectors of their financial ruling class.
Russia’s booming stock market reflects a different process involving the re-nationalization of gas and petroleum sectors, at the expense of the gangster-oligarchs of the Yeltsin era and the ‘give-away’ contracts to European/US oil and gas companies (Shell, Texaco). As a result huge windfall profits have been re-cycled internally among the new Putin era millionaires who have been engaged in conspicuous consumption, speculation and investment in joint ventures with foreign manufacturers in transport and energy related industries.
The shift toward foreign-controlled speculative capital emerging in China, India and Brazil as opposed to ‘national and state’ funded investment in Russia accounts for the irrational and vitriolic hostility exhibited by the western financial press to President Putin.
One of the major sources of profit-making is in the area of ‘mergers and acquisitions’ (M&A) — the buying and selling of multinational conglomerates, with $3,900 billion in deals for 2006. Investment banks took $18.8 billion dollars in ‘fees’ leading to multi-million dollar bonuses for ‘M&A’ bankers. M&A, hostile or benign, are largely speculative activity fueled by cheap debt and leading to the greater concentration of ownership and profits. Today it is said 2% of the households own 80% of the world’s assets. Within this small elite, a fraction embedded in financial capital owns and controls the bulk of the world’s assets and organizes and facilitates further concentration of conglomerates. The value of speculative M&A on a world scale is 16% higher than at the height of the ‘DOTCOM’ speculative boom in 2000. In the US alone, over $400 billion dollars worth of private equity deals were struck in 2005, three times higher than the previous year.
To understand who are the leading members of the financial ruling class one needs only to look at the ten leading private equity banks and the value and number of M&A deals in which they were engaged:
Private equity rankings by M&A deals (Year to Dec 20 2006)
US Value $bn Number
Blackstone 85.3 12
Texas Pacific 81.9 11
Bain Capital Partners 74.7 9
Thomas H Lee Partners 53.4 6
Goldman Sachs 51.2 5
Carlyle 50.0 14
Apollo Management l 44.9 7
Kohlberg Kravis Roberts 44.5 3
Merrill Lynch 35.9 3
Cerberus Capital Management 28.6 4
Industry Total 402.6 1,157
(Financial Times, 12/27/2006, p 13 — FT montage: Bob Haslett)
The crucial fact is that these private equity banks are involved in every sector of the economy, in every region of the world economy and increasingly speculate in the conglomerates which are acquired.
In the era of the ascendancy of speculative finance capital, it is not surprising that the three leading investment banks, Goldman Sachs, Lehman Brothers and Bear Stearns reported record annual profits, based on their expansion in Europe and Asia, and their transfer of profits from manufacturing and services to the financial sector. For the year 2006, Goldman Sachs (GS) recorded the most profitable year ever for a Wall Street investment bank, on the basis of big (speculative) ‘trading gains and lucrative investment in the world’s worst sweatshops in Asia. GS reported a 69% jump in annual earnings to $9.54 billion dollars. Lehman Brothers (LB) and Bear Stearns (BS) equity banks also recorded record earnings. LB earned a record $4billion for the year. SB earned a record $2.1 billion dollars. For the year Lehman set aside about $334,000 dollars per junior banker, while top speculators and bankers earned a big multiple of that amount.
For the year 2006 investment banking revenue reached nearly $38 billion dollars compared to $25 billion dollars in 2004 — an increase of 34% (Financial Times Dec. 13, 2006 p.15).
The dominance of finance capital has been nurtured by the speculative activity of the controllers and directors of state-owned companies. State ownership is an ambiguous term since it raises a further, more precise, question: ‘Who owns the state’? In the Middle East, there are seven state-owned oil and gas companies. In six of those companies, the principal beneficiaries are a small ruling elite. They recycle their revenues and profits through US and EU investment banks largely into bonds, real estate and other speculative financial instruments (FT Dec 15, 2006 p.11). State ownership and speculative capital, in the context of closed ‘Gulf-State’ type of ruling classes, are complementary, not contradictory, activities. The ruling regime in Dubai converts oil rents into building a regional financial center. Many Jewish-American-led Wall Street investment banks cohabitate with new Islamic-based investment houses, both reaping speculative returns.
Much of the investment funds now in the hands of US investment banks, hedge funds and other sectors of the financial ruling class originated in profits extracted from workers in the manufacturing and service sector. Two inter-related processes led to the growth and dominance of finance capital: the transfer of capital and profits from the ‘productive’ to the financial and speculative sector and the transfer of finance capital overseas, in the form of take-over of foreign assets now equivalent of around 80% of the US GDP. The roots of finance capital are embedded in three types of intensified exploitation: 1) of labor (via extended hours, transfer of pension and health costs from capital to labor, frozen minimum wage, stagnant and declining real wages and salaries); 2) of manufacturing profits (through higher rents, inter-sectoral transfers to financial instruments, interest payments and fees and commissions for mergers and acquisitions); and 3) via state fiscal policies by lowering capital gains taxes, increasing tax write-offs and tax incentives for overseas investments and imposing regressive local, state and federal taxes.
The result is increasing inequality between, on the one hand, senior and junior bankers, public, private equity, investment and hedge fund directors, and their entourage of lawyers, accountants and, on the other hand, wage and salaried workers. Income ratios range between 400 to 1 and 1,000 to 1, between the ruling class and median wage and salary workers is the norm.
Crisis of the Working and Middle Class: (Begin to Worry the Ruling Class)
Living standards for the working and middle class and the urban poor have declined substantially over the past thirty years (1978-2006) to a point where one can point to a burgeoning crises. While real hourly wages in constant 2005 dollars have stagnated, health, pension, energy and educational costs (increasingly borne by wage and salary workers) have skyrocketed. If extensions in work time and intensification of work place production (increases in productivity) are included in the equation, it is clear that living (including working) conditions have declined sharply. Even the financial press can write articles entitled: “Why Ordinary Americans have Missed Out on the Benefits of Growth” (FT November 2, 2006 p.11).
Financial and investment banks are in charge of advising and directing the ‘restructuring’ of enterprises for mergers and acquisitions by downsizing, outsourcing, give-backs and other cost-cutting measures. This has led to downward mobility for the wage and salaried workers who retain their jobs even as their tenure is more precarious. In other words, the greater the salaries, bonuses, profits and rents for the financial ruling class engaged in ‘restructuring’ for M&As, the greater the decline in living standards for the working and middle class.
One measure of the enormous influence of the financial ruling class in heightening the exploitation of labor is found in the enormous disparity between productivity and wages. Between 2000 and 2005, the US economy grew 12%, and productivity (measured by output per hour worked in the business sector) rose 17% while hourly wages rose only 3%. Real family income fell during the same period (FT November 2, 2006 p.11). According to a poll in the fall of November 2006, three quarters of Americans say they are either worse off or no better off than they were six years ago (FT November 3, 2006 p.13).
The impact of the policies of the financial ruling class on both the manufacturing and service sectors transcends their profit skimming, credit leverage on business operations and management practices. It embraces the entire architecture of the income, investment and class structure. The growth of vast inequalities between the yearly payments of the financial ruling class and the medium salary of workers has reached unprecedented levels. The financial elite receives something in the range of a ratio of 500 up to 1,000 times that of an average worker, depending on how narrowly or broadly we conceive of the financial ruling class.
Members of the financial ruling class have noted these vast and growing inequalities and express some concern over their possible social and political repercussions. According to the Financial Times (December 21, 2006), billionaire Stephen Schwartzman, CEO of the private equity group Blackstone warned “that the widening gap between Wall Street’s lavish pay packages and middle America’s stagnating wages risks causing a political and social backlash against the US’s ‘New Rich’.” Treasury Secretary and former CEO of Goldman Sachs, Hank Paulson admitted that median wage stagnation was a problem and that amidst “strong economic expansion many Americans simply are not feeling [sic!] the benefits” (FT November 2, 2006 p. 11).
Ben Bernanke, Chairman of the Federal Reserve Bank testified before the Senate that “inequality is potentially a concern for the US economy . . . to the extent that incomes and wealth are spreading apart. I think that is not a good trend” (Ibid). In 2005, the proportion of national income to GDP going to profits, rents and other non-wage and salary sources is at record levels: 43%. Inequality in the distribution of national income in the US is the worst in the entire developed capitalist world. Moreover studies of time series data reveal that in the US inequality increased far greater and intergenerational social mobility was far more difficult in the US than any country in Western Europe. The growth of monstrous and rigid class inequalities reflects the narrow social base of an economy dominated by finance capital, its ingrown intergenerational linkages and the exorbitant entry fees ($50,000 per annum tuition with room and board) to elite private universities and post-graduate business schools. Equally important, the political power of finance capital and its ‘associated’ conglomerates wield uncontested political power in the US in comparison to any country in Europe. As a result the US government redistributes far less through the tax and social security, health and educational system than other countries. (ibid)
While some financial rulers express some anxiety about a ‘backlash’ from the deepening class divide, not a single one publicly supports any tax or other redistributive measures. Instead they call for increases in educational up-grading, job retraining and greater geographical mobility, though it is precisely among the educated middle class which is suffering salary stagnation.
Neither the Democratic Party majority in Congress, nor the Republican-controlled Executive offer any proposals to challenge the financial ruling class’s dominance nor are there any proposals to reverse its most retrograde policies causing the growing inequalities, wage stagnation and the increasing rigidity of the class structure. The reason has been reported in the Wall Street Journal and the Financial Times: An overwhelming chunk of the funds that Democrats raise nationally for election campaigns comes either from Wall Street financiers or Silicon Valley software entrepreneurs. (FT November 3, 2006 p. 13). The Democratic congressional electoral campaign was tightly controlled by two of Wall Street’s favorite Democrats, Senator Charles ‘Israel First’ Schumer and Congressman Rahm Immanuel, who selectively funded candidates who were pro-war, pro-Wall Street and unconditionally pro-Israel. Democrats slated to head strategic Congressional committees like Zion-Lib Barney Frank have already announced they have ‘good working relations’ with Wall Street.
The Financial Ruling Class Also Governs
Ruling classes rule the economy, are at the top of the social structure and establish the parameters and rules within which the politicians operate. More often than not few actually engage directly in congressional politics, preferring to build economic empires while channeling money toward candidates prepared to do their bidding. Only when an apparent division occurs, especially within the Executive, between the interests of the ruling class and the policies of the regime will elite members of the ruling class intervene directly or take a senior executive position to ‘rectify’ policy.
Ruling Class Political Power: Paulson Takes Over Treasury
Several sharp divergences occurred during the Bush regime between finance capital and policymakers. These policies prejudiced or threatened to seriously damage important sectors of the financial ruling class. Theses include: 1) the aggressive militarist and protectionist policies pursued by senior Pentagon officials and ‘Zion-con’ Senators toward China; 2) the political veto by Congress of the sale of US port management to a Gulf State-owned company and of a US oil company to China; 3) the failure of the Bush regime to secure the privatization of social security and to weaken the regulatory measures introduced in the aftermath of the massive corporate (Enron and World Com) and Wall Street swindles, and 4) the need to put a check on the uncontrolled growth of fiscal deficits resulting from the Middle East wars, the ballooning trade deficits and the weakening dollar.
The headlines of the financial press (FT December 4, 2006 p.3) spell out finance capital’s direct intervention into key White House policy making:
“Goldman Sachs Top Alumni Wield Clout in White House” and “Former Bank Executives Hold Unprecedented Power within a US Administration.”
US financial and manufacturing ruling classes have long influenced, advised and formulated policy for US Presidents. But given the stakes, the risks and the opportunities facing the financial ruling class, it has moved directly into key government posts. What is especially unprecedented is the dominant presence of members from one investment bank — Goldman Sachs. In late November 2006, Goldman Sachs (GS) senior executive William Dudley took over the Federal Reserve Bank of New York markets group. Hank Paulson, ex-CEO of GS is Treasury Secretary — explicitly anointed by President Bush as undisputed czar of all economic policies. Reuben Jeffrey, a former GS managing partner is the chief regulator of commodity futures and options trading, Joshua Bolten, White House Chief of Staff (he decides who Bush sees, when and for how long — in other words arranges Bush’s agenda) served as GS executive director. Robert Steel, former GS vice chairman, advises Paulson on domestic finance. Randall Fort, ex-GS director of global security, advises Secretary of State Rice. The ex-GS officials also dominate Bush’s working group on financial markets and financial crisis management. The investment bankers wielding state power will control the Bush regime’s biggest housing giants (Fannie Mae and Freddie Mac), tax policy, energy markets — all issues that directly affect the investment banks. In other words, the financial banks will be ‘regulated’ by their own executives. The degree of finance capital’s stranglehold on political power is evidenced by the total lack of criticism by either party. As one financial newspaper noted: “Neither Mr. Bush nor Goldman have been criticized by Democrats for holding too many powerful jobs in part because the investment bank (GS) also has deep ties to Democrats. Goldman represented the biggest single donor base to the Democrats ahead of this (2006) year’s mid-term election.” (FT December 4, 2006)
Among Paulson’s first moves was to organize a top level delegation to China and a working group to work on forming a ‘strategic partnership’. Its task is to accelerate the ‘opening’ of China’s financial markets to penetration and majority takeovers by US operated investment funds. This represents a potential multi-trillion dollar window of opportunity. By seizing the initiative Paulson hopes to undercut the anti-China cohort of neo-con, Pentagon and White House militarists, as well as backwater backers of Taiwanese independence and Congressional chauvinist demagogues like Senator Schumer who threaten to undermine lucrative US-Chinese economic relations.
To lower the fiscal deficit, Paulson proposes to ‘reform’ entitlements — reduce spending on Medicare and Medicaid and to work out a deal with the Democrats to privatize Social Security piecemeal.
Where finance capital has not been able to fashion a coherent economic strategy is with regard to Washington’s Middle East wars. Because of the pull of the Zionist Lobby on many of leading lights of Wall Street — including its unofficial mouthpieces — the Wall Street Journal and the NY Times — Paulson has failed to formulate a strategy. He does not even pay lip service to the Baker Iraq Study Group report’s proposal to gradually draw down troops for fear of alienating some key senior executives of Goldman Sachs, Stern, Lehman Brothers et al who follow the ‘Israel First’ line. As a result, Paulson has to work around the Lobby by focusing on dealing with the Gulf city-state monarchies and Saudi Arabia in order to avoid another disastrous repetition of the Dubai Port management sale. Paulson above all wants to avoid Zionist political interference with the two way flow of finance capital between the petrol-financial-banking complexes in the Gulf States and Wall Street. He wants to facilitate US finance capital’s access to the large dollar surpluses in the region. It is not surprising that the Israeli regime has accommodated their wealthy and influential financial backers on Wall Street by drawing a distinction between ‘moderate’ (Gulf States) with whom they claim common interests and ‘Islamic extremists.’ Israeli Prime Minister Olmert has directed his zealots in the US-Jewish Lobby to take heed of the refinements in the Party Line in dealing with US-Arab relations.
Nevertheless with all its concentrated political power and its enormous wealth and economic leverage over the economy, Wall Street cannot control or avoid serious economic vulnerabilities or possible catastrophic military-political events.
The Future of the Financial Ruling Class
What is abundantly clear is that one of the main threats to world markets — and the health of the financial ruling class — is an Israeli military attack on Iran. This will extend warfare throughout Asia and the Islamic world, drive energy prices beyond levels heretofore known, cause a major recession and likely a crash in financial markets. But as in the case of the relationships between Israel and the US, the Zionist Lobby calls the shots and its Wall Street acolytes acquiesce. As matters now stand, the Jewish Lobby supports the escalation of the Iraq war and the savaging of Palestine, Somalia and Afghanistan. It has neutralized the biggest and most concerted effort by big name centrist political figures to alter White House policy. Baker, Carter, former military commanders of US forces in Iraq have been savaged by the Zionist ideologues. Under their influence the White House is putting into practice the war strategy presented by the ‘American’ Enterprise Institute (a Zioncon think tank). As a result parallel to Bush’s appointment of Paulson and Wall Streeters to run imperial economic policy, he has appointed an entire new pro-war civilian military-security apparatus to escalate and extend the Middle East wars to Africa (Somalia) and Latin America (Venezuela).
Sooner or later a break between Wall Street and the militarists will occur. The additional costs of an escalating wars, the continual ballooning debt payments, huge imbalances in the balance of payments and decreasing inflows of capital as multi-national repatriate profits and overseas central banks diversify their currency reserves will force the issue. The enormous and growing inequalities, the massive concentration of wealth and capital at a time of declining living standards and stagnant income for the vast majority, gives the financial ruling class little political capital or credibility if and when an economic and financial crisis breaks.
With foreign investors owning 47% of all marketable US Treasury bonds in 2006 compared to 33% in 2001 and foreign holdings of US corporate debt up to 30% today, from 23% just five years ago, a rapid sell-off would totally destabilize US financial markets and the economic system as well as the world economy. A rapid sell-off of dollars with catastrophic consequences cannot be ruled out if US-Zionist militarism continues to run amuck, creating conditions of extended and prolonged warfare.
The paradox is that some of the most wealthy and powerful beneficiaries of the ascendancy of finance capital are precisely the same class of people who are financing their own self-destruction. While cheap finance is fueling multi-billion dollar mergers, acquisitions, commissions and executive payoffs, heightened militarism operates on a budget plagued by tax reductions, exemptions and evasions for the financial ruling class and ever greater squeezing of the overburdened wage and salary classes. Something has to break the cohabitation between ruling class financiers and political militarists. They are running in opposite directions. One is investing capital abroad and the other spending borrowed funds at home. For the moment there are no signs of any serious clashes at the top, and in the middle and working classes there are no signs of any political break with the two Wall Street parties or any challenge to the militarist-Zionist stranglehold on Congress. Likely it will take a catastrophe, like a White House-backed Israeli nuclear attack on Iran to detonate the kind of crisis which will provoke a deep and widespread popular backlash of all things military, financial and made in Israel.
WSJ-Asia Cheers Tightening Iran Sanctions
According to The Wall Street Journal Asia’s editorial board, newly announced cooperation from Japan and South Korea on enforcing UN sanctions against Iran “is worth cheering.”
The editorial board attributed South Korea’s cooperation on sanctions to its “growing up as a democracy,” and Japan’s acquiescence on the issue as a much needed about-face from its “needless tiff with the White House over a troop relocation agreement in Okinawa.”
While glossing over the complexities of both Seoul and Tokyo’s relationships with Washington — which, I think it’s fair to say, amount to a lot more than South Korea “growing up” and Japan’s mea culpa for a “needless tiff” — the seeming tightening of the sanctions regime on Tehran should be put in context.
Reports do seem to confirm that sanctions have had a measurable and noticeable effect on Iran’s trading relationships, but sanctions have also resulted in Iran expanding trading relationships in Latin America and Africa, and looking towards expanding trade with much bigger economies, such as China.
According to All Headline News:
Chinese Transport Minister Liu Zhijun is expected to visit Iran Sunday to sign a $2 billion contract to build a 360-mile-long railway linking key Iranian destinations that could later join to existing Iraq and Syrian railway networks and extending to the Mediterranean Sea.
Experts on U.S.-Iran relations Flynt and Hillary Mann Leverett responded to the little-reported news item on China’s expanding trade relationship with Iran on their blog, The Race for Iran, writing:
None of the initiatives discussed in the news report cited above violate UN sanctions against Iran. In fact, we cannot see how these efforts would even violate U.S. or other unilaterally-defined national sanctions against the Islamic Republic. Nevertheless, there have been other indications in recent weeks that China is not going to let a U.S.-led push to maximize Iran’s international economic isolation get in the way of Sino-Iranian economic ties. India has taken a similar position, see here, and may, like China, be acting to strengthen its economic and strategic ties to Iran.
Indeed, a look at Iran’s trading partners clearly shows the importance of China’s huge economy to Tehran.
According to the CIA World Fact Book, Iran’s Export economy breaks down as follows:
China 16.58%, Japan 11.9%, India 10.54%, South Korea 7.54%, Turkey 4.36% (2009)
And its import economy is also worth examining.
UAE 15.14%, China 13.48%, Germany 9.66%, South Korea 7.16%, Italy 5.27%, Russia 4.81%, India 4.12% (2009)
No doubt Japan and South Korea’s implementation of sanctions will change those statistics, but China and India’s growing regional and global clout would indicate that Tehran’s trading relationships with these regional powerhouses will become an increasingly important component of the Islamic Republic’s foreign trade. As sanctions tighten on Iran’s economy, no one should be surprised to see Tehran turn to alternative, non-western aligned economies to fill the gaps.
America’s Economy Is Not Here to Pay for Wars
By Jason Ditz | Lew Rockwell | September 8, 2010
In a recent speech at Wayne State University in Detroit, America’s top military commander, Joint Chiefs of Staff Chairman Admiral Michael Mullen declared that the most serious threat to America’s national security is the national debt. His argument for this was that the debt and its deleterious effect on America’s economy could hinder the growth of military expenditures.
Mullen further lamented that current estimates have the federal government paying some $600 billion in interest on the debt in 2012 adding, “That’s one year’s worth of defense budget.”
But America’s civilian economy isn’t just something to be taxed to pay for war, and America’s civilian population is not just a collection of potential recruits and sources of revenue for the military. The military is supposed to be here to serve America, not the other way around.
And without downplaying the various serious economic consequences of America’s national debt, Admiral Mullen’s comments betray a very disturbing (and increasingly common) view of the American economy as little more than fuel for its ever-growing war machine.
In fact the $600 billion interest payment is coming in no small part because Admiral Mullen and the rest of the military’s leadership has been pressing for unprecedented increases in military spending. Now, having spent America’s economy to the brink of ruin, Admiral Mullen has the nerve to complain that the harm he has already done is hampering the harm he intends to do.
It isn’t even true, incidentally, that the $600 billion is “one year’s worth of defense budget.” Not anymore it isn’t. In fact President Obama is seeking over $700 billion for fiscal year 2011, and that is one budget item that, whether there is a Republican or Democrat in office, we always expect to grow.
But just 10 years ago it would’ve been two years worth. In 2000 America was spending around $300 billion on its military. That was by far the biggest military budget on the planet. If America still had a $300 billion military, it would still be the largest by far.
Instead America is barreling into the future with a military budget that rivals the rest of the world combined, and an endless wish list of very expensive new military goals. Is it really such a mystery that this is unsustainable?
The purpose of Admiral Mullen’s visit and his assorted talks in Detroit were to admonish local industry leaders that the “patriotic” thing to do was to hire more former soldiers, while insisting that “industry, community and military leaders share the same goals.” One wonders how industry and community leaders feel about an endless series of wars bankrupting the nation, but it can only be assumed that they feel differently than the admiral does.
Though many Americans are reluctant to openly criticize the nation’s military leadership in time of war, Admiral Mullen’s comments make it very clear how little regard he has for us and it is high time we, as Americans, make it clear that this country cannot and will not be sacrificed at the altar of a series of wars whose only goal seems to be fleecing the American taxpayer of an ever growing portion of what he produces. We’ve been down that road for the past decade and we can all see where it has led.
Wind Energy’s House of Cards
By Steve Goreham | August 31, 2010
The International Energy Agency (IEA) recently issued their 2009 Wind Energy Report. Brian Smith, chair of the IEA Wind Executive Committee, states that wind member countries “installed more than 20 gigawatts of new wind capacity” (nameplate capacity). The report was written by representatives of 20 member countries, consisting of 14 European nations, Australia, Canada, Japan, Korea, Mexico, and the United States.
The report is very optimistic about wind energy’s prospects. Member nations report on “how they have progressed in the deployment of wind energy, how they are benefitting from wind energy deployment, and how they are devising strategies and conducting research to increase wind’s contribution to world energy supply.” But a deeper analysis shows that the wind industry is a house of cards built on a foundation of sand.
The house of cards is a global industry based entirely on subsidies, price guarantees, and mandates. Wind generation systems are not deployed anywhere in the world without extensive government financial or mandated support. Fourteen of the 20 IEA member nations use feed-in tariffs (FITs) to force utility companies to buy electricity from wind farms at above market rates. Examples are FITs used by Finland, Germany, Greece, Netherlands, Portugal and Spain, which are set in the range of 7.8-12.1 Eurocents per kilowatt-hour, equal to 11.2-17.4 U.S. cents per kilowatt-hour. These are subsidized wholesale prices, yet significantly above the average U.S. retail price of 9.7 cents per kilowatt-hour. Nine of the twenty nations mandate that utilities supply a percentage of electricity from renewables. Nations that have provided little government support for wind, such as Japan, Korea, Mexico, and Norway, have seen little growth in installations.
In the U.S., the 2009 Recovery Act authorizes a direct cash grant of 30% of the total value to wind projects. Alternatively, the federal government provides a 30% investment tax credit, or a 2.1 cents per kW-hr production subsidy. State governments add loan guarantees, further investment tax credits, and the forbearance of property and sales taxes. Twenty-nine states have enacted Renewable Portfolio Standards to force utilities to purchase renewable energy, primarily wind. These mandates raise the price of wind energy, a further subsidy to the industry. In total, taxpayers are subsidizing 30-50% of the price U.S. wind energy installations. Wind must be subsidized because it is much more expensive than electricity from coal, natural gas, hydroelectric, and nuclear sources. According to the U.S. Department of Energy, wind-generated electricity is about 80% more expensive than coal-fired power, and off-shore wind is significantly more expensive. The IEA representatives from Denmark and the United Kingdom estimate costs for offshore wind at roughly double the cost of onshore wind. The planned Cape Wind project in Nantucket Sound reportedly will deliver electricity at a whopping 27 cents per kW-hour, compared to the Massachusetts average price of 16 cents per kW-hour and the U.S. average of 9.7 cents.
Advocates claim that subsidies are needed to help wind energy move down the learning curve to become cost competitive with other technologies. But wind turbines have been deployed for more than 20 years. As of 2009, the United States had installed about 33,000 wind turbine towers. World installations have exceeded 140,000 turbines. When will this cost competitiveness be achieved?
Despite the growing number of installations, total wind energy costs are increasing. Wind installation costs per kilowatt-hour decreased from the early 1990s until 2001, but have been rising since. For example, U.S. installations reached a cost low of $1,285 per kw-hr in 2001, but have since risen steadily to $2,080 per kw-hr in 2009, an increase of 62%. It’s unlikely that electricity from wind will ever be competitive with conventional fuel sources.
A close read of the IEA Wind Report reveals issues with actual wind turbine operating lifetimes and maintenance. Wind turbines that were installed in the 1990s are now being replaced in Denmark, Germany, Netherlands, and other nations. In the harsh weather environments of high-wind corridors, many of these turbines have not reached the 20-year lifetimes claimed by manufacturers. In comparison, operating lifetimes for coal-fired power plants consistently reach 50 years.
Very costly repairs are often required to maintain wind turbine operation. Japan reports that lightning hits and typhoons have damaged “a considerable number of wind turbines,” finding that on average, each turbine will fail three times over its 20-year life. Denmark reports that each turbine’s gearbox must be replaced on average four times during its lifetime, costing about 20% of the price of a wind turbine.
The story of Denmark is illustrative. Over the last 20 years, Denmark has installed 5,100 wind towers, one for every thousand citizens. A map with a black dot for each wind farm shows that 300-foot-high steel and concrete towers can be seen from almost every field, farm, hill, and seashore of this nation. In 2009, these towers provided only 767 megawatts of electricity, less than the output of a single conventional coal-fired power plant. This single power plant would occupy the space of one black dot on the map.
Wind towers provide only about 10% of Denmark’s electricity, but contribute to electricity rates of 28 Eurocents per kilowatt-hour, the highest in Europe and four times the U.S. price. Yet, Danish government officials are proud of their wind system. Why would they install 5,000 towers instead of one coal plant? It’s because they believe they are reducing global warming.
In fact, the global wind industry is built on a foundation of sand—the hypothesis that man-made global warming is destroying Earth’s climate. The IEA report contains repeated statements about carbon emissions saved by wind installations in each nation. Yet, mounting satellite temperature data, new studies of ocean cycles such as the Pacific Decadal Oscillation, and research on solar activity, show that global warming is due to natural cycles of the Earth,not man-made greenhouse gas emissions. Should global warming alarmism fail in its efforts to promote wind energy, the subsidies will disappear, and the house of cards will collapse. Then the world will be left with 140,000 silent monuments to Climatism.
Steve Goreham is Executive Director for the Climate Science Coalition of America and author of Climatism! Science, Common Sense, and the 21st Century’s Hottest Topic.
Reconstructing climate change…
Andrew McKillop | VHeadline | September 6, 2010
Through the whole year of 2009, building up to the failed Copenhagen “climate summit,” climate change was heavily promoted by a small but powerful group of OECD political leaders and their corporate, press and media elites as a major challenge to the planet and to our way of life. It was also the big signal for selling Low Carbon energy: from nuclear power and windfarms to landfill methane gas recovery or electric cars.
Anything not needing oil or seeming not to was a great big emerging and breaking business opportunity.
By midyear 2010, the climate change and green energy transition to “a new ecological society” theme had imploded and fallen off the teleprompters of the few political leaders whom had taken this theme as serious and had invested political “face” or capital in it. Climate change almost disappeared from public view. The USA’s voluntary but legally binding CO² emissions trading exchange, in Chicago, announced that it was scaling back its activity, and possibly going out of business, as the traded value of a ton of CO² fell to US10 cents. The UN IPCC was swiveled back into view with the role of scapegoat: this climate experts panel had delivered the wrong newsbytes and soundbytes to the few but important politicians who ran with the climate change ball in 2009.
By 2010 it was a ball and chain, the IPCC needed reform, and the IPCC’s communication needed serious reconstructing.
Reconstruction of news, science data, other views and different opinions is a long-term stalwart in modern society and its politics. From organizing public support for wars, even when the public itself may be attacked or subject to economic loss, to ensuring that political leaders are re-elected, or that women start smoking and the public keeps buying the consumer products which rack up the highest profits, the role of “communication” is primordial.
Communication & Public Relations (PR) are most basically propaganda, because the underlying facts and reality have to be reconstructed to make the message easy to sell. The climate change theme of 2009 was an example of this process, but in its quest to serve its masters and lever up its own prestige, the UN IPCC had gone too far in reconstructing climate science and data.
THE CRITICAL MOMENT
The window of opportunity for “saving climate change,” and perhaps re-launching it as a new dominant social, political and business theme, is narrow and likely already closing. For climate change this is a critical moment. The largest of its lies, or “enhanced truth” in PR newspeak have been exposed, and lesser extremes of generating constant fodder for the press, media and TV to uncritically recycle were also heavily criticized in the Climategate process. This underlines the critical challenge for attempts at saving the Climate Change and Anthropogenic Global Warming (CC and AGW) theme. When a big lie starts being exposed in public, or a previous completely accepted and slickly sold “truth” starts to slip in the opinion polls and lose traction in the minds of average consumers, the theme is in danger. At this time the role of PR is critical.
To save the theme, or in ecological parlance to “recycle” it needs a re-powering of the propaganda machine. This also needs political leaders prepared to stick their necks out a second time, and due to the presence of new truths and new doubts about the basic reality of climate change also competing for dominance, the so-called public debate is necessarily chaotic and clumsy, unsure and uncertain. The outlook for saving CC and AGW is therefore doubtful.
One key fact concerning the failed launch of climate change fear and admiration of green and low carbon energy is this effort only concerned 4 major political leaders. To be sure, these were from 4 leading OECD Old World rich nations, but this was always a minority — or elite — political quest. Their year-long and massive PR campaign on CC and AGW, ending in farce and chaos at the December 2009 Copenhagen “climate summit,” was only a minority endeavor.
Until December 2009, the four leaders Obama, Merkel, Sarkozy and the soon-voted-out Brown gave regular interviews where emotive soundbytes of the type “catastrophe,” “saving the planet,” “our last chance” were regularly utilized. Their doomster rhetoric was so extreme it was hard to believe they were much concerned about the trifling problem of their economies being mired in the worst economic crisis since the 1930s Great Depression, according to the equally hysterical IMF. Their handling of the economic crisis tended to confirm this conclusion.
The alternative offered by these four-only leaders was typically confused. Supposedly an “ecological” society totally dependent on “green energy” would arise, perhaps by about 2035, but this magical transformation would just as magically not affect sales of BMW cars, Boeing airplanes or French nuclear reactors in the meantime.
CO² emissions trading would of course vastly expand, but to what end?
How would this cash be “recycled” to build the bicycle-dependent eco-society just around the corner, in an eyeblink of time?
Proving the theme was launched in haste, with bad planning and logistics, the missing strands were more substantial than the substance of the magical transformation dangled by these 4 political leaders at the microphone, through 2009, but dropped like a lead weight in 2010. Since their failure at the Dec 2009 Copenhagen meeting to vendre la meche and obtain worldwide support for a supposed global transition to an ecological society depending on green energy, the 4 leaders have predictably “walked away” from the issue: this was especially easy for Gordon Brown. Today, the implosion of this new social, political and business theme is starkly evident.
RECONSTRUCTING THE PAST
With CC and AGW we are still in the “shock” phase following the effective collapse of what was launched as a new and dominant theme. These new dominant social themes are not painstakingly built, using large amounts of funds and the investment of “face” or personal prestige by political deciders and corporate elites for the fun of it. The new theme is launched to either reinforce existing, or build entirely new economic and financial, business and commercial themes. The personal investment by the four leaders was made clear by the speeches and pronouncements of this 4-person OECD launch team of CC and AGW fear and public admiration of so-called ecological lifestyles and alternate or renewable energy, throughout the whole year of 2009.
Failure of the launch process was made concrete by the North-South divide, between Old World and New World, on all parts and components of the new theme. This culminated in open stand-offs between the 4 OECD leaders and powerful Emerging economy leaders, at the ill-fated Copenhagen meeting. Quite shortly after this, culprits and scapegoats had to be found, and this was materialized by the UN IPCC group of experts on CC and AGW, who were blamed for various faults. These extended from plain lying, to exaggeration, distortion and more technical failures such as “imperfectly quantifying uncertainties,” yet another example of the incoherent, confused and unrealistic values and goals surrounding the CC and AGW theme.
Today, a “decent interval” after the Copenhagen farce and the resignation of its director, Yvo de Boer, the UN IPCC is now fully playing its scapegoat role. It is now in “reform and reconstruction,” and in major part this concerns its communication. The remaining figurehead, Rajendra Pachauri, may however not be forced to immediately quit, given the further loss of prestige for the IPCC that this would inevitably cause, a point well appreciated by Pachauri himself.
In a Times Of India interview, September 3, 2010, Pachauri had this to say about what the IPCC is supposed to communicate. Speaking of how he would go about “repairing” the panel’s governance and methods and keep his job, he said:
“At the (IPCC) meeting, we dwelt at length on Article 2 of the UN Framework Convention on Climate Change, which says the central objective of the convention is to prevent the anthropogenic interference with the climate system which is in terms of ecosystem, ensuring food security and ensuring that development can take place. These are the three central pillars.”
The newspeak or PR speak stands out in this confused mix-and-mingle of dominant social themes. Keywords like “ecological” and “anthropogenic interference” are jumbled with “pillars,” “food security” and economic development, while the now-controversial roles of green energy and energy transition are totally downplayed. This signals that green energy is at least on hold or has already been “recycled” to the wastebin of IPCC “communication.”
GIVING UP ENERGY TRANSITION
In early 2009, when the four-only world leaders who most openly nailed their colors to the mast or “pillar” of CC and AGW took their supposedly courageous, or foolhardy political decision to launch this totally new theme, world oil prices were still declining from their most recent all-time high of about US$ 145 a barrel, attained in July 2008. Natural gas prices would soon fall even more massively than oil or traded coal prices, due to the recession and the “supply side miracle” of shale and fracture gas reserves, at least in the USA. Due however to the slow-moving process of political thinking, or slow thinking by the persons who write politicians’ speeches, the very high price levels for oil and other traded fossil fuels in 2008 were a “founding fact” to exploit, as a key motivation for preaching energy transition away from oil and other fossil fuels.
The global economy had entered recession, also offering the CC and AGW theme as a way to get the public distracted from economic rout. The recession slashed economic growth, energy demand and traded energy prices along with employment, raised government debt and budget deficits to new and extreme highs in the Old World OECD countries — but not in the “decoupled growth” Emerging economies of Asia.
The political pressure, as well as economic rationale for “jump-starting” and “ramping up” green energy was always different in North and South, or East and West: recession sharpened and intensified this. The high oil and gas price driver, or rationale for green energy development greatly declined through the year of 2009, thanks to recession and the gas supply breakthrough. This made the December climate conference a conference too late for the OECD team’s announced goals of creating new and massive funding and financing mechanisms for green energy in the low income countries, mainly in Africa, to prevent them “getting the oil habit” and to siphon off more of their growing oil production. Similarly, the rationale for “ramping up” carbon finance and CO2 credits trading, to generate funds for investing in the Old World’s own transition to green energy also greatly declined in a single year, notably because the “feed through” from trading, to on-the-ground and real world green energy projects was so low. This was quickly reflected, in 2010 by “fledgling carbon markets” showing every sign of being crippled birds unable to fly, even if they chirruped loud and strong in their cash-stuffed nests.
To be sure, this left two of the IPCC’s supposed “pillars” — ensuring food security and economic development, but this through using more and more oil and other fossil fuels, as in China and India. World agriculture’s link with and dependence on climate and weather is of course well known, but its extreme, near-total dependence on oil and other fossil fuels is less well known or carefully ignored. Notably in the developed Old World North, in the OECD countries, farming and food production can attain extreme highs of oil intensity, as in Japan, exceeding 10 barrels of oil per hectare, per year, of direct farm input oil energy. Food security, very simply, is oil security. Using windmills and solar collectors to raise food output very simply lacks any credibility.
Also the IPCC’s role in preaching energy transition away from oil was never direct: the logical framework created to buttress this PR role of the IPCC was complex. It firstly posited a large or even near-apocalyptic CC and AGW, established this was heavily due to CO2 emissions by a careful choice of exaggerated data, and then identified mainly oil as being responsible for these CO2 emissions. This was despite the clear and massive role of coal-fired power stations as CO2 emitters, as underlined by James Hansen and the windpower, nuclear power, and other “low carbon” energy lobbies. The role of natural gas or methane, of which extremely large and fast increasing unburnt amounts are emitted each year, was never given high prominence by the IPCC, and will probably be given less in the future due to natural gas returning, provisionally of course, to the nice-price fold of cheap energy.
RECONSTRUCTING THE IPCC
It is certain the IPCC will be reformed and reconstructed, if only because of the heavy loss of face suffered by the three remaining political leaders of the 2009 four-person OECD leadership team advocating CC and AGW, and accelerated energy transition. From this year, the IPCC will be expected to be more scientific and less controversial, that is less easily faulted and harder to expose. Despite this “new moderation,” Pachauri engaged in “fighting talk,” in his September 3 Times of India interview, seeking a second term as chief of the IPCC, and promising, or threatening: “(I will) certainly shed any inhibitions or feelings of cowardice. I believe this is now my opportunity to go out and do what I think is right. In the second term I may be little more uncomfortable for the people than I was in the first.”
While oil prices stay relatively low — and as set by present ‘realistic anticipations’ of political and business leaders this would be anywhere below US$ 90 a barrel — and the OECD group remains mired by extreme public debt and budget deficits, the need for massive PR to achieve a quick transition away from oil has melted much faster than Pachauri’s melting Himalaya glaciers. Energy transition is now the “long term issue” it always was, and for political leaders a long-term issue is anything which extends through all or most of their mandate, about 4 years. This further places the CC and AGW theme outside the range and out of time for the real world temporal framework of political deciders.
The IPCC may therefore be allowed to die a timely death. Its budgets can be cut or frozen, and its transition to the added status of becoming a full-blown UN agency pushed further back.
To be sure, the vast quantities of impressively imaginative studies and scenarios produced under its aegis, some of which was the “meat” of Climategate, will continue being recycled in the press and media, on the inside pages, and in TV documentaries at off-peak hours, but as a new and powerful social theme announcing large scale economic, financial, business or commercial action the time has passed and the theme has failed.
Reconstruction will shade into destruction — unless the IPCC and budding green energy czars get the windfall gift of much higher oil prices and a raft of climate catastrophes to feed on.
###
Background:
Chicago Climate Exchange drops 50%, new record low
The only lower price than today’s closing price on a ton of carbon is ZERO
August 31, 2010 by Anthony Watts
And:
Where “Global Warming” and “Peak Oil” meet
Aletho News – November 11, 2009
30 Statistics That Prove The Elite Are Getting Richer, The Poor Are Getting Poorer And The Middle Class Is Being Destroyed
The Economic Collapse – 07 September 2010
The Rich Are Getting Richer
1 – As of 2007, the top 1 percent of all Americans was taking home 24 percent of the national income. This was a level that had not been seen since the days of the Great Depression.
2 – Incomes have been growing in the United States, but those at the very top of the pyramid have been gobbling up almost all of the income growth. According to Harvard Magazine, 66% of the income growth between 2001 and 2007 went to the top 1% of all Americans.
3 – Even official government figures bear out the fact that the rich are getting richer. An analysis of income-tax data by the Congressional Budget Office a few years ago found that the top 1% of all American households own nearly twice as much of the corporate wealth as they did just 15 years ago.
4– Most Americans have suffered during the last few years, but not the boys and girls down on Wall Street. New York state Comptroller Thomas DiNapoli says that Wall Street bonuses for 2009 were up 17 percent when compared with 2008.
5 – Even as the number of Americans living in poverty skyrockets, the number of millionaires just keeps growing. In fact, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million during 2009.
6 – The amount of money some of these Wall Street hotshots are making is incredible. Back in 2005, the top 25 hedge fund managers earned a total of 9 billion dollars. That would be bad enough, but even in these hard economic times the rich just keep getting richer. One year after the recent financial collapse the top 25 hedge fund managers earned a total of approximately $25 billion. That breaks down to an average of $1 billion each. The truth is that the United States has been experiencing uneven prosperity for quite some time and things just seem to get worse with each passing year.
The Poor Are Getting Poorer
7 – Government anti-poverty programs are exploding in size in response to the recent economic difficulties. USA Today is reporting that a record one in six Americans are now being served by at least one government anti-poverty program.
8 – Over 50 million Americans are on now Medicaid. That figure is up more than 17 percent since the beginning of the recession.
9 – The number of Americans in the food stamp program rose to a new all-time record of 40.8 million in May. That number is up almost 50 percent since the beginning of the recession.
10 – The number of Americans who cannot afford even the basic necessities is absolutely staggering. A whopping 50 million Americans could not afford to buy enough food in order to stay healthy at some point over the last year.
11 – Compared to other industrialized nations, the United States is doing very poorly. The U.S. poverty rate is now the third worst among the developed nations tracked by the Organization for Economic Cooperation and Development.
12 – The saddest part of this is what we are doing to our children. According to one recent study, approximately 21 percent of all children in the United States are living below the poverty line in 2010.
13 – But the American people cannot provide for their families if they don’t have jobs. Today there are not nearly enough jobs for everyone. In 2010, it takes the average unemployed American worker over 8 months to find a job.
14 – Approximately 10 million Americans are currently receiving unemployment insurance, which is a number that is nearly four times higher than what it was at back in 2007.
15 – The truth is that we are creating a permanent underclass of Americans that cannot get jobs. The number of Americans receiving long-term unemployment benefits has increased over 60 percent in just the past year.
16 – Increasingly, the wealth of the United States is being held in fewer and fewer hands. One study found that as of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets.
17 – It is not a good time to be living in “the bottom half” in America. The size of “the pie” being divided up among those at the low end of the wage scale is becoming really, really small. In fact, the bottom 40 percent of all income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
The Middle Class Is Being Destroyed
18 – Even those Americans that still do have decent jobs are seeing their wealth fade rapidly. For example, U.S. families have $6 trillion less in housing wealth than they did just three years ago.
19 – Home ownership used to be a sign that one had arrived in the middle class, but in 2010 an increasing number of Americans are finding out that they simply can’t afford their homes anymore. One out of every seven mortgages were either delinquent or in foreclosure during the first quarter of 2010.
20 – The reality is that incomes have just not kept up with housing costs. This has put an incredible amount of pressure on the middle class. Just how much pressure? Well, only the top 5 percent of all U.S. households have earned enough additional income to match the rise in housing costs since 1975.
21 – The debt binge middle class Americans have been on over the past couple of decades has drained many of them completely dry, and now more Americans than ever have bad credit scores. Over 25 percent of Americans now have a credit score below 599, which means that they are a very bad credit risk.
22 – A rapidly rising number of Americans are actually choosing bankruptcy as a way out of their financial problems. Nationwide, bankruptcy filings rose 20 percent in the 12 month period ending this past June 30th.
23 – The middle class manufacturing jobs that once defined so many American cities are rapidly disappearing. Despite the fact that the U.S. population has dramatically increased, less Americans are employed in manufacturing today than in 1950.
24 – These days it seems like almost everyone is looking for a good job, but very few people are finding them. According to one recent survey, 28% of all U.S. households have at least one member that is looking for a full-time job.
25 – Even many of those Americans that still have decent jobs have been hit hard by this economic downturn. A recent Pew Research survey found that 55 percent of the U.S. labor force has experienced either unemployment, a pay decrease, a reduction in hours or an involuntary move to part-time work since the recession began.
26 – The number of jobs that are evaporating is absolutely stunning. According to one analysis, the United States has lost a total of 10.5 million jobs since 2007.
27 – So where are the jobs going? It doesn’t take a genius to figure it out. China’s trade surplus (much of it with the United States) climbed 140 percent in June compared to a year earlier.
28 – The truth is that “globalism” and “free trade” have put middle class American workers in direct competition with the cheapest labor in the world. This is what middle class American workers must now compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour.
29 – Due to these difficult economic conditions, the middle class is being squeezed as never before. According to a poll taken in 2009, 61 percent of Americans “always or usually” live paycheck to paycheck. That was up significantly from 49 percent in 2008 and 43 percent in 2007.
30 – So what kind of future do our young people have in front of them? Unfortunately, things don’t look pretty. Many fresh college graduates can’t even get a job that will allow them to be independent. One recent survey of last year’s college graduates discovered that 80 percent moved right back home with their parents after graduation. That was up significantly from 63 percent in 2006.
Analysts: Iraq war ‘partly to blame’ for financial crisis
Stiglitz and Bilmes: Recession will be longer because of war
The financial crisis that rocked the world in 2008 and still reverberates today was “due at least in part” to the Iraq war, which also made it more difficult for the government to react when economic problems happened, argue two prominent policy makers.
In an article in Sunday’s Washington Post, former Clinton-era economic adviser Joseph Stiglitz and Harvard University public policy lecturer Linda J. Bilmes say that the Iraq war forced the US to take on more debt than it had to, and caused in part the rising oil prices that resulted in large amounts of money flowing out of the US economy.
To counter the effects of those trends, fiscal policy makers had to keep interest rates unnaturally low, causing the securities and real estate bubbles that burst at the start of the recession, the authors say.
The authors also amended their assessment from several years ago that the Iraq war’s true cost is around $3 trillion, saying new information suggests that the cost goes “beyond” that estimate.
Saying what might have been is always difficult, especially with something as complex as the global financial crisis, which had many contributing factors. Perhaps the crisis would have happened in any case. But almost surely, with more spending at home, and without the need for such low interest rates and such soft regulation to keep the economy going in its absence, the bubble would have been smaller, and the consequences of its breaking therefore less severe. To put it more bluntly: The war contributed indirectly to disastrous monetary policy and regulations.
The Iraq war didn’t just contribute to the severity of the financial crisis, though; it also kept us from responding to it effectively. Increased indebtedness meant that the government had far less room to maneuver than it otherwise would have had. More specifically, worries about the (war-inflated) debt and deficit constrained the size of the stimulus, and they continue to hamper our ability to respond to the recession. With the unemployment rate remaining stubbornly high, the country needs a second stimulus. But mounting government debt means support for this is low. The result is that the recession will be longer, output lower, unemployment higher and deficits larger than they would have been absent the war.
Stiglitz and Bilmes estimate that about a quarter of the debt increase the US saw during the first five years of the war are attributable to the war — about $900 billion of a $3.6 trillion rise in the debt. They also estimate that the war added about $10 to the cost of a barrel of oil, amounting to a cost of $250 billion to the US economy.
In articles in the Times of London and the Washington Post two years ago, Stiglitz and Bilmes estimated that the cost of the war, including the costs to the US economy, amounted to $3 trillion. At the time, the Pentagon questioned their assertion.
“It appears that our $3 trillion estimate (which accounted for both government expenses and the war’s broader impact on the U.S. economy) was, if anything, too low,” the authors state.
“Reimagining history is a perilous exercise. Nonetheless, it seems clear that without this war, not only would America’s standing in the world be higher, our economy would be stronger,” the authors conclude.
Is the World Bank deliberately concealing disappointing West Bank economic “growth” figures?
By Ali Abunimah | September 2, 2010
An August 31 press release from the World Bank states:
The Palestinian Authority (PA) has achieved strong results in recent years, but the resurgence of growth remains dependent on donor assistance.
- in the first half of 2010, the economy saw 7% real growth;
- in the West Bank, unemployment in the fourth quarter of 2009 fell to 18% from 20% in the same quarter of 2008;
- unemployment in Gaza also dropped, falling from 45% in the fourth quarter of 2008 to 39% in the last quarter of 2009;
- the PA has unified its cash transfer programs into one consolidated program that has greatly increased the efficiency of the PA’s social safety system and is one of the most advanced in the region;
- the PA has improved its budgeting process, budget execution and financial reporting capacity; and introduced commitment controls to reduce spending.
What is very interesting is that the press release provides no breakdown for growth in the West Bank separate from the Gaza Strip. What we have instead apparently is a 7% overall growth figure.
In June a highly informed source who has since been proven correct on a number of other issues told me:
World Bank figures due to be published in coming weeks are likely to show that economic growth in the Gaza Strip in the first quarter of 2010 has exceeded that in the West Bank. While virtually all economic growth in the West Bank is a result of foreign aid, much of the growth in Gaza is attributable to a “parallel economy” that has emerged thanks to the tunnels. This has even created a small new class of nouveaux riches in Gaza.
At the time the source told me that what we’d probably see as a result is the World Bank and PA emphasizing the overall growth figure, rather than dwelling on disappointing results in the West Bank — where a huge politically-motivated aid effort has been aimed at shoring up the Israeli-backed collaborator regime of Mahmoud Abbas and illegally-appointed “prime minister” Salam Fayyad.
Could this be what is happening here? Perhaps the World Bank has provided a West Bank/Gaza breakdown somewhere else? (I haven’t had time to conduct a thorough search yet, but a quick search didn’t reveal it). But I do think its significant there is no breakdown in the press release. It’s a safe assumption that if there had been stellar performance in the West Bank, the World Bank would have emphasized it.
The whole narrative of “Fayyadist” state building depends on the notion that the West Bank economy is booming. There are claims, for example, of a “property boom” in Ramallah, which as I explained tells us nothing about the true state of the West Bank economy.
Indeed a recent Save the Children study found that outside the Ramallah bubble, poverty conditions across much of the West Bank are even worse than in Gaza. My recent Los Angeles times op-ed references that and debunks more “Fayyadist” myths.
Does Our Economy Really Have to Run on Fraud?
The Angelides Commission Squints Back at the Bank Bailout and the Fall of Lehman
By MICHAEL HUDSON | CounterPunch | September 3, 2010
What is the difference between today’s economy and Lehman Brothers just before it collapsed in September 2008? Should Lehman, the economy, Wall Street – or none of the above – be bailed out of bad mortgage debt? How did the Fed and Treasury decide which Wall Street firms to save – and how do they decide whether or not to save U.S. companies, personal mortgage debtors, states and cities from bankruptcy and insolvency today? Why did it start by saving the richest financial institutions, leaving the “real” economy locked in debt deflation?
Stated another way, why was Lehman the only Wall Street firm permitted to go under? How does the logic that Washington used in its case compare to how it is treating the economy at large? Why bail out Wall Street – whose managers are rich enough not to need to spend their gains – and not the quarter of U.S. homeowners unfortunate enough also to suffer “negative equity” but not qualify for the help that the officials they elect gave to Wall Street’s winners by enabling Bear Stearns, A.I.G., Countrywide Financial and other gamblers to pay their bad debts?
There was disagreement last Wednesday at the Financial Crisis Inquiry Commission now plodding along through its post mortem hearings on the causes of Wall Street’s autumn 2008 collapse and ensuing bailout. Federal Reserve economists argue that the economy – and Wall Street firms apart from Lehman – merely had a liquidity problem, a temporary failure to find buyers for its junk mortgages. By contrast, Lehman had a more deep-seated “balance sheet” problem: negative equity. A taxpayer bailout would have been an utter waste, not recoverable.
Lehman CEO Dick Fuld is bitter. He claims that Lehman was unfairly singled out. After all, the Fed lent $29 billion to help JPMorgan Chase buy out Bear Stearns the preceding spring. In the wake of Lehman’s failure it seemed to gain the courage to say, “Never again,” and avoided new collapses by bailing out A.I.G. – saving all its counter-parties from having to take a loss.
Was this not a giveaway? Fuld implied. Why couldn’t the Fed and Treasury do for Lehman what they did with other Wall Street investment firms and stock brokers: let it reclassify itself as a bank so it could pawn off its junk mortgages at the Fed’s discount window for 100 cents on the dollar, sticking taxpayers with the loss? (And by the way, will these firms ever be asked to buy back these mortgages at the price they borrowed against from the government? Or will they be allowed to walk away from their debts in a Wall Street version of “jingle mail”?)
This is the soap opera that Americans should be watching, if only it weren’t conducted in the foreign language of jargon and euphemism. At issue is whether Lehman’s crisis was merely a temporary “liquidity problem,” that time would have cleaned up; or, did the firm suffer a more deep-seated “balance sheet problem” (negative equity), as Federal Reserve Chairman Ben Bernanke claims – a junk balance sheet, composed of assets that not only had no buyers at the time, but had no visible likelihood of recovering their market price even after the $13 trillion the Treasury and Federal Reserve have spent to bail out Wall Street.
Insisting that Lehman should have shared in Washington’s $13 trillion giveaway. Fuld testified that his firm was just as savable as Countrywide or A.I.G. – or Fannie Mae for that matter. Lehman was perversely singled out, he claims. Was it not indeed as savable as the Fed and Treasury claim the U.S. real estate sector is? Like over-mortgaged homeowners, all it needed was enough time to finish selling off its portfolio, given enough loan support to tide it over.
The problem, of course, is that the securities that Lehman hoped to pawn off were fraudulent junk. American homeowners are victims, not crooks. Wall Street bailed out crooks at Countrywide and its cohorts. The credit-rating agency Fitch has found financial fraud in every mortgage package it has examined. And these are the packages that have made Wall Street rich and powerful enough to gain Washington bailouts to establish them as a new ruling class, bailouts to use for buying up Washington politicians and lawmakers, and for buying out the popular press to tell people how necessary Wall Street financial practice is to “support” the economy and “create wealth.”
Could any other daytime telecast have a more typecast villain than Fuld? A novelist would be hard-put to better personify greed, arrogantly playing bridge with his boss while Lehman burned. Yet his testimony has a certain logic. If the negative equity suffered by a quarter of U.S. homeowners can be saved, as the Fed claims it can, where should the line be drawn?
Or to put this question the other way around, why are ten million American homeowners being treated like Lehman, if the Fed believes that they are as savable as Countrywide and A.I.G.?
Huge sums are at stake, because the bailout has left little for Social Security, and nothing to bail out the insolvent states and cities, or for more stimuli to pull the national economy out of depression.
Most relevant in Fuld’s self-pitying defense before the Angelides Committee is not what he said about his own firm, but his accusation that the Fed and Treasury rescued the rest of Wall Street. Weren’t other firms just as bad? Why was Lehman singled out?
The Fed’s witnesses gave a devastating reply. They drew a clear distinction between a temporary “liquidity problem” and outright negative net worth – the “balance-sheet problem” of insufficient assets to cover one’s debts. Lehman was so badly managed, the Fed claimed, so reckless and arrogant in its belief that it could cheat its customers by selling junk at a huge markup, that it could not have been rescued except by an outright taxpayer giveaway. As the Fed’s Chief Counsel, Scott Alvarez, put matters: “I think that if the Federal Reserve had lent to Lehman … in the way that some people think without adequate collateral … this hearing and all other hearings would have only been about how we had wasted the taxpayers’ money – and I don’t expect we would have been repaid.” Like the city of Oakland, in Gertrude Stein’s derisive phrase, there was no “there” there.
Included in the hearings’ evidence is an exasperated e-mail sent by Treasury Secretary Hank Paulson’s chief of staff, Jim Wilkinson, on Sept. 9, 2008: “I just can’t stomach us bailing out Lehman. Will be horrible in the press.” Five days later, on Sept. 14, he added that unless a private buyer could be found (e.g., as JPMorgan Chase stepped forward to buy Bear Stearns), “No way govt money is coming in … also just did a call with the WH [White House] and usg [U.S. Government] is united behind no money … I think we are headed for winddown.”(1)
Lehman’s problem was not just temporary illiquidity. It had a fatal balance-sheet problem: Its assets were not worth anywhere near what it owed. So with poetic justice, it was in the same position as the subprime borrowers whose junk mortgages it had underwritten and sold to investors gullible enough to believe Moody’s and Standard and Poor’s AAA ratings. This fraudulent junk was supposed to be as safe as a U.S. Treasury bond. But it turned out to be only as safe as Social Security and state pension promises are in today’s “Big fish eat little fish” world.
Yet Fuld is correct in pointing out that not only Bear Stearns and A.I.G., but also Morgan Stanley and Goldman Sachs would have failed without state support. So the question remains: Why bail out these firms (and their counter-parties!) but not Lehman?
This is too narrow a scope to pose the proper question. What needs to be discussed is the result of Washington arranging for Wall Street to repay its TARP, A.I.G. and other bailout money – including that of Fannie Mae and Freddie Mac – by “earning its way out of debt” at the “real” economy’s expense. Why has Washington refused to write down the bad debts of homeowners, states and cities, and companies facing bankruptcy unless they annul their pension promises to their employees? Why is Washington treating the American economy like it treated Lehman and telling it to “drop dead”?
The explanation is that a double standard exists. The wealthy get bailed out – the creditors, not the debtors. And even the fraudsters, not their victims.
Sidestepping the Fraud Issue
Recent federal bankruptcy proceedings have exposed Lehman’s deceptive off-balance-sheet accounting gimmicks such as Repo 105 to conceal its true position. No fraud charges have yet been levied, but this is the invisible elephant in the Washington committee rooms. “Everyone was doing it,” so that makes it legal – or what is the same thing these days, non-prosecutable in practice. To prosecute would be to disrupt the financial system – and it is Fed doctrine that the economy cannot survive without a financial system enabled to “earn its way out of debt” by raking off the needed wealth from the rest of the economy?
So the Fed, the Treasury and the Justice Department have merely taken the timid baby step of pointing out that Lehman suffered from such bad management that no firm was willing to buy it out. Barclay’s was interested, but Fuld was so greedy that he found its offer not rich enough for his taste. So he ended up with nothing. It is a classic morality tale. But evidently not fraud.
The fraud issue lies as far outside the scope of the financial committee meetings as the question of how the economy should cope with its unpayably high mortgage, state and local debts in the face of its inadequately funded pension obligations. Fed Chairman Bernanke testified on Thursday, September 2, that “the market” itself breeds what most people would call fraud. Widening the market for home ownership necessarily involves lowering loan standards, he explained. But as the Lehman failure illustrates, where should we draw the line between “illiquidity” and insolvency on the one hand, and higher risk and outright fraud?
The Fed argues that the economy cannot recover without a solvent financial system. But what about that large part of the financial system based on fraud? Would the economy fall apart without it – without mortgage fraud, without deceptive packaging of junk mortgages, and for that matter without computerized gambling on derivatives? What of the credit-ratings agencies whose AAA writings were as much up for sale as the conscience and honesty of politicians on the Senate and House Banking Committees? Do we really need them?
And does the economy need more credit (that is, debt)? Or does it need jobs? Does it need to un-tax the banks and give tax-favoritism to Wall Street (“capital gains” tax rates) to enable it to earn its way out of debt at the expense of the production-and-consumption economy?
The question that Washington financial committees should be asking (and economics textbooks should be posing) is whether wider home ownership is really dependent on easier and looser lending standards. After all, the effect of easy credit is to enable borrowers to bid up housing prices. Is this really how to make the U.S. economy more competitive – given the fact that industrial labor now typically pays 40 per cent of its wage income for housing?
Or, does the Fed’s easy-money policy deregulation of oversight open the way for asset-price inflation that puts home ownership even further out of reach – except at the price of running up a lifetime of debt to the banks that write the loans on their keyboard at steep markups over their cost of funding from the compliant Fed?
Qui bono?
Who is to benefit from the Fed’s easy money policy – consumers and homeowners, or Wall Street? This is the broad issue that should be discussed. What would have happened without the bailout? (Remember, Republican Congressmen opposed it – before that fatal Friday when “maverick” John McCain rushed back to Washington and said he would not debate Obama that evening unless Congress approved the bailout of his Wall Street backers.) What if it had been the debtors who were bailed out by a write-down of bad debts, instead of the lenders who had made bad loans and the large institutions that bought them?
The bailout has saddled taxpayers not only with $13 trillion that now must be sacrificed by the economy at large (but not by Wall Street), with the cost of a decade-long depression resulting from keeping the bad debt on the books. This is what rightly should be deemed criminal.
Defenders of Wall Street insist that there was no alternative. And the committee hearings are carefully only listening to such people, because these are very respectable hearings. They are writing mythology, almost as if they are crafting a new religion. In this new ethic, Wall Street financial institutions – “credit creators,” that is, debt creators – are supposed to fund industry, not strip assets or make bad loans. Without rich people, who would “create jobs”? Such is the self-serving logic of Wall Street. For them, Wall Street is the economy. The wealth of a nation is worth whatever banks will lend, by collateralizing the economic surplus for debt service.
What the Angelides Commission really should focus on is whether this is true or false. That would make it a soap opera worth watching. The Fed so far has stonewalled attempts to discover just who was bailed out in autumn 2008? But most important of all is, what dynamic was bailed out? What class of people?
The answer would seem to be, financial firms employing and serving the nation’s wealthiest 1 per cent? Any and all fraudsters among their ranks? (There has not been a single prosecution, as Bill Black reminds us.) Or the remaining 99 per cent of the population – their bank deposits and indeed, their jobs themselves?
Academic textbooks pretend that the economy is all about production and consumption – factories producing the things their workers buy. The distribution of wealth does not appear, nor is it regularly tracked in statistics. But in Washington and at the hearings, the economy seems to be all about lending and debt, all about balance sheets.
I believe that the beneficiaries were fraudsters, and that the system cannot be saved. Trying to save it by keeping the debts in place – and letting Wall Street banks “work their way out of debt” at the U.S. economy’s expense – threatens to lock the economy in a chronic debt deflation and depression.
At issue is the concept of capital. Does money that is made by short-term, computer-driven financial trades qualify as “capital formation” and hence deserving of tax breaks? Are the billions of dollars of “earnings” reported by Wall Street speculators to be taxed at the low 15 per cent “capital gains” rate? That is only a fraction of the income-tax rate that most workers pay – on top of which is piled the 11 per cent FICA wage withholding for Social Security and Medicare that all workers have to pay on their salaries up to the cut-off point of about $102,000. (This cut-off frees from this tax the tens of millions of dollars that hedge fund traders pay themselves.) Or should these trading gains – a zero-sum activity where one party’s gain is, by definition, another’s loss (usually one’s customers) – be taxed more highly than poverty-level income of workers?
A short while ago the Blackstone hedge fund’s co-founder, Stephen Schwarzman, characterized the attempt to tax short-term arbitrage trading gains at the same rate that wage-earners pay as analogous to Adolph Hitler’s invasion of Poland in 1939. It is a class war against fraudsters and criminals – an unfair war as serious as World War II. In Schwarzman’s apocalyptic vision the Democrats are re-enacting the role of Adolph Hitler by mounting a fiscal blitzkrieg to force billionaires to pay as high a tax rate as workers. Are not Wall Street firms doing “God’s work,”as Goldman Sachs chairman Lloyd Blankfein, put it last fall? And if they are, then are not those who would tax or criticize Wall Street “God-killers”?
If religion can be turned on its head like this – where the Invisible Hand of Wall Street (invisible to the Justice Department, at least) is elevated to a faux-Deist moral philosophy – is it any surprise that economic orthodoxy and formerly progressive tax policy are succumbing? The rentiers are fighting back – against the Enlightenment, against Progressive Era tax policy, and against hopes for U.S. economic recovery. Given today’s florid emotionalism when it comes to discussing Wall Street finances, it hardly is surprising that the Angelides hearings do not dare venture into such territory as to ask whether the bottom 90 per cent of the U.S. economy might need to be bailed out with debt relief just as Wall Street’s elites were.
On Thursday, Fed Chairman Bernanke tried to put the financial flow of funds that led up to the crisis in perspective. In his testimony before the Financial Crisis Inquiry Commission he described a self-feeding process that actually started with the U.S. balance-of-payments deficit that made foreigners so flush with dollars. They understandably wanted yields higher than the Treasury was paying, as the Fed was flooding the economy with credit to keep asset prices afloat to save the banks from having to take loan write-downs and admit that debt creation was not really the same thing as Alan Greenspan euphemized in calling it “wealth creation.” So foreign financial institutions became a large but overly trusting market for packaged junk mortgages.
When asked just who was pushing the great explosion of mortgage lending, Bernanke pointed to the mortgage packagers – Wall Street profiting from the commissions and rake-offs it was making by pretending that the loans were not bad. However, he reminded his audience, there also had to be popular demand for housing. People were panicked. They worried that if they did not buy a home back in 2005, they could not afford to buy in the future. And they were cajoled with financial televangelists assuring them that they would always enjoy the option of selling at a profit. But Bernanke said nothing about fraud in all this. To widen the market for home ownership, banks had to write more mortgages, and this required lowering their standards.
So they did it all for us, for “the people” – and the backers of Fannie Mae and Freddy Mac who egged them on.
Where does “lowering loan standards” turn into outright fraud? Has that simply become part of “the market”? This is what the commission seems to fear to address. But it is getting late – already we are in September, and the report is scheduled for December. So is this really going to be “it”? This would be like a soap opera ending in the middle of the desert, with the main protagonists stranded. This seems to be where the Commission is leaving the U.S. economy as it waits for the recommendations of the Joint Commission to Roll Back Social Security, or whatever the name of Obama’s Republicanized Democratic commission is more formally called. The result is more like the cliffhanger of a serial, leaving the viewer to try and imagine how the protagonist – in this case, the economy – will ever manage to be saved.
Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website, mh@michael-hudson.com
(1) Tom Braithwaite, “Fuld criticises Fed for letting Lehman fail,” Financial Times, September 2, 2010, and John D. McKinnon and Victoria McGrane, “Clashing Testimony Over Lehman Bankruptcy,” Wall Street Journal, Sept. 2, 2010.
No West Bank Study for Gaza Students
Ma’an – September 2, 2010
GAZA CITY — Gaza university students remain unable to access classrooms in the West Bank, a report fro the Al-Mezan Center for Human rights said on Tuesday.
“After a decade or more of de-development in Gaza,” the rights group said, residents of the Strip need all possible skills to ameliorate the humanitarian situation and advance development.
Students from Gaza City once were able to travel to the University of Birzeit by car in one hour, the report said, explaining that for students seeking post-graduate study degrees in medicine, dentistry, veterinary studies, radiology, medical environment protection, law and democracy, and human rights cannot find degree-granting institutions in Gaza, and historically looked to the West Bank for opportunities.
A blanket ban, the center said, has been imposed on Palestinian students from the Gaza Strip, preventing them enrolling at Palestinian universities in the West Bank to continue their education.
“This ban is not based on security needs – which if certain conditions are met can be legitimate in the context of belligerent occupation and armed conflict– but rather on belonging to a specific ‘category’ of persons. That is, students are prevented from accessing the West Bank
because they are students,” the report said.
In the last year, Al-Mezan reported, “all applications from students in Gaza who wish to study in the West Bank are rejected by the Israeli authorities.”
Chicago Climate Exchange drops 50%, new record low
The only lower price than today’s closing price on a ton of carbon is ZERO
August 31, 2010 by Anthony Watts
Perhaps reacting to the news yesterday about the IPCC getting taken to the woodshed, the growing number of stories in the MSM about the IPCC failure, and the recent layoffs at CCX, carbon trading has once again been devalued by the market. Amazingly, it lost 50% of it’s value for 2006, 2007, and 2008 “carbon instruments” today. Unless CCX starts making adjustments in single cents, the next downward adjustment is zero. The latest CCX advisory says they will be closed for labor day, and will reopen for trading September 7th. One wonders.
Here’s the CCX front page graph at closing today:
The CCX end of day table really says it all, 50% off, from a dime to a nickel in a day:
CCX end of day, August 31, 2010
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Neocons confess: “We did 9/11-anthrax”
By Kevin Barrett | Press TV | September 6, 2014
As the 13th anniversary of the crimes of September, 2001 approaches, the neoconservatives are shrieking from the rooftops – and effectively confessing that they were the real perpetrators of the 9/11-Anthrax false flag operation. (The neocons, you may recall, openly called for a “new Pearl Harbor” in September, 2000 – and got one exactly one year later.)
Every year at this time, the neocons orchestrate and hype a series of public relations stunts designed to magnify fears of “radical Islam” and reinforce their crumbling 9/11-Anthrax cover story. But this year’s propaganda campaign is so extreme that it represents a tacit confession: The neocons know that the truth about the 9/11-Anthrax operation is slowly closing in on them; so they are over-reacting by desperately trying to stoke the dying embers of the so-called War on Terror, in order to maintain the myth that Muslims (rather than neoconservative Zionists) attacked America in the autumn of 2001.
When a hysterical person exhibits guilty demeanor by trying too hard to blame a crime on someone else, that person is almost certainly the real perpetrator. As the neocons try much too hard to blame Islam for 9/11 and “terrorism” in general, their hysteria inadvertently reveals their own culpability. Like Shakespeare’s Lady MacBeth, the neoconservative movement has blood on its hands and “doth protest too much.” … continue
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