01 March 2009

Analyzing the collapse

Similar to the discussion of Israel/Gaza/US/Hamas below, I also wanted to open up a discussion regarding the recent economic collapse.

Rich has been providing us with several links over the last few weeks which help us make sense of the causes and subsequent devestation. He has offered the following links (among others):

I would like to add to this list some of my own reading over the last few months (Rich probably sent some of these, too), which include:

"Financial Implosion and Stagnation" from John Bellamy Foster and Fred Magdoff (this is the final chapter from The Great Financial Crisis: Causes and Consequences): http://monthlyreview.org/081201foster-magdoff.php.

In this chapter, Foster and Magdoff lay out a compelling case of how we got to where we are and what we may need to get out of it. Quoting a few passages from the chapter, there argument is: "both the financial explosion in recent decades and the financial implosion now taking place are to be explained mainly in reference to stagnation tendencies within the underlying economy."

Illustrating via some fairly frightening graphs, they claim, "Over the years 1950 to 1970, for each additional dollar made by those in the bottom 90 percent of income earners, those in the top 0.01 percent received an additional $162. In contrast, from 1990 to 2002, for each added dollar made by those in the bottom 90 percent, those in the uppermost 0.01 percent (today around 14,000 households) made an additional $18,000. In the United States the top 1 percent of wealth holders in 2001 together owned more than twice as much as the bottom 80 percent of the population. If this were measured simply in terms of financial wealth, i.e., excluding equity in owner-occupied housing, the top 1 percent owned more than four times the bottom 80 percent. Between 1983 and 2001, the top 1 percent grabbed 28 percent of the rise in national income, 33 percent of the total gain in net worth, and 52 percent of the overall growth in financial worth."

Regarding our economics colleagues, they argue, "Having lost any meaningful roots in society, orthodox neoclassical economics, which presented itself as a single paradigm, became a discipline dominated by largely meaningless abstractions, mechanical models, formal methodologies, and mathematical language, divorced from historical developments. It was anything but a science of the real world; rather its chief importance lay in its role as a self-confirming ideology."

Pointing toward our response, they offer, "There is no doubt that the present growing economic bankruptcy and political outrage have produced a fundamental break in the continuity of the historical process. How should progressive forces approach this crisis? First of all, it is important to discount any attempts to present the serious economic problems that now face us as a kind of “natural disaster.” They have a cause, and it lies in the system itself. And although those at the top of the economy certainly did not welcome the crisis, they nonetheless have been the main beneficiaries of the system, shamelessly enriching themselves at the expense of the rest of the population, and should be held responsible for the main burdens now imposed on society. It is the well-to-do who should foot the bill—not only for reasons of elementary justice, but also because they collectively and their system constitute the reason that things are as bad as they are; and because the best way to help both the economy and those at the bottom is to address the needs of the latter directly. There should be no golden parachutes for the capitalist class paid for at taxpayer expense. But capitalism takes advantage of social inertia, using its power to rob outright when it can’t simply rely on “normal” exploitation. Without a revolt from below the burden will simply be imposed on those at the bottom. All of this requires a mass social and economic upsurge, such as in the latter half of the 1930s, including the revival of unions and mass social movements of all kinds—using the power for change granted to the people in the Constitution; even going so far as to threaten the current duopoly of the two-party system."

And, finally, " Still, there can be no doubt that change should be directed first and foremost to meeting the basic needs of people for food, housing, employment, health, education, a sustainable environment, etc. Will the government assume the responsibility for providing useful work to all those who desire and need it? Will housing be made available (free from crushing mortgages) to everyone, extending as well to the homeless and the poorly housed? Will a single-payer national health system be introduced to cover the needs of the entire population, replacing the worst and most expensive health care system in the advanced capitalist world? Will military spending be cut back drastically, dispensing with global imperial domination? Will the rich be heavily taxed and income and wealth be redistributed? Will the environment, both global and local, be protected? Will the right to organize be made a reality?"

"Stimulus is for Suckers" by James K. Galbraith at http://www.motherjones.com/politics/2008/12/stimulus-suckers.

In this short essay, Galbraith suggests five ways to fix the economy: (1) fix housing, (2) backstop state and local governments with federal funds, (3) support the incomes of the elderly, (4) cut taxes on working Americans, and (5) change how we produce energy, how we consume it, and how much greenhouse gas we emit.

"Why the US has really gone broke" by Chalmers Johnson at http://mondediplo.com/2008/02/05military, which brings to bear our military spending.

"Capitalist Fools" by Joseph Stiglitz at http://www.truthout.org/121008R

Here, Stiglitz chronicles 5 critical decisions that have led to the current crisis: (1) Firing Paul Volcker as chairman of the Fed in 1987; (2) Deregulation; (3) Bush tax cuts; (4) Faking the numbers; (5) The bailout package of 10/3/2008.

"Who are the Architects of Economic Collapse? Will an Obama Administration Reverse the Tide?" by Michel Chossudovsky at http://www.creative-i.info/?p=2059.

"Financial Meltdown and the Madness of Imperialism" by Raymond Lotta at http://www.revcom.us/a/143online/Excerpts_Meltdown-en.html.

And, "Inside the Meltdown" at www.pbs.org/wgbh/pages/frontline/meltdown/view.

What other good pieces exist out there on the meltdown? (Did This American Life just run another show with the guys that did a pretty good job outlining the bursting housing bubble?) Where has your analysis taken you? What other proposed solutions have you seen? How can we stand in solidarity?

Would love to carry this conversation into the RF Conference in May (Ypsilanti--5/14-5/17: http://www.rougeforumconference.org/)


adam said...

Some more resources sent by a friend:

"Wall Street's Best Investment I: Paying for Policy in Washington"

By Robert Weissman March 4, 2009

Financial deregulatory mania over the last three decades led directly to the current financial meltdown.

Were the deregulators acting out of principle? Perhaps.

But it couldn't have hurt that the financial sector invested a staggering $5.1 billion in political influence purchasing in the United States over the last decade.

The money flows are laid out in gruesome detail in "Sold Out: How Wall Street and Washington Betrayed America," a report that my colleague Jim Donahue and I wrote, along with a team of contributors from the Consumer Education Foundation and my organization, Essential Information. The report is available at: www.wallstreetwatch.org/soldoutreport.htm.

The entire financial sector (finance, insurance, real estate) drowned political candidates in campaign contributions, spending more than $1.7 billion in federal elections from 1998-2008. Primarily reflecting the balance of power over the decade, about 55 percent went to Republicans and 45 percent to Democrats. Democrats took just more than half of the financial sector's 2008 election cycle contributions.

The industry spent even more -- topping $3.4 billion -- on officially registered lobbyists during the same period. This total certainly underestimates by a considerable amount what the industry spent to influence policymaking. U.S. reporting rules require that lobby firms and individual lobbyists disclose how much they have been paid for lobbying activity, but lobbying activity is defined to include direct contacts with key government officials, or work in preparation for meeting with key government officials. Public relations efforts and various kinds of indirect lobbying are not covered by the reporting rules.

During the decade-long period:

* Commercial banks spent more than $154 million on campaign contributions, while investing $383 million in officially registered lobbying;

* Accounting firms spent $81 million on campaign contributions and $122 million on lobbying;

* Insurance companies donated more than $220 million and spent more than

$1.1 billion on lobbying; and

* Securities firms invested more than $512 million in campaign contributions, and an additional nearly $600 million in lobbying. Hedge funds, a subcategory of the securities industry, spent $34 million on campaign contributions (about half in the 2008 election cycle); and $20 million on lobbying. Private equity firms, also a subcategory of the securities industry, contributed $58 million to federal candidates and spent $43 million on lobbying.

Individual firms spent tens of millions of dollars each. During the decade-long period:

* Goldman Sachs spent more than $46 million on political influence buying;

* Merrill Lynch threw more than $68 million at politicians;

* Citigroup spent more than $108 million;

* Bank of America devoted more than $39 million;

* JPMorgan Chase invested more than $65 million; and

* Accounting giants Deloitte & Touche, Ernst & Young, KPMG and Pricewaterhouse spent, respectively, $32 million, $37 million, $27 million and $55 million.

The number of people working to advance the financial sector's political objectives is startling. In 2007, the financial sector employed a staggering 2,996 separate lobbyists to influence federal policy making, more than five for each Member of Congress. This figure only counts officially registered lobbyists. That means it does not count those who offered "strategic advice" or helped mount policy-related PR campaigns for financial sector companies. The figure counts those lobbying at the federal level; it does not take into account lobbyists at state houses across the country. To be clear, the 2,996 figure represents the number of separate individuals employed by the financial sector as lobbyists in 2007. We did not double count individuals who lobby for more than one company the total number of financial sector lobby hires in 2007 was a whopping 6,738.

A great many of those lobbyists entered and exited through the revolving door connecting the lobbying world with government. Surveying only 20 leading firms in the financial sector (none from the insurance industry or real estate), we found that 142 industry lobbyists during the period

19982008 had formerly worked as "covered officials" in the government.

"Covered officials" are top officials in the executive branch (most political appointees, from members of the cabinet to directors of bureaus embedded in agencies), Members of Congress, and congressional staff.

Nothing evidences the revolving door -- or Wall Street's direct influence over policymaking -- more than the stream of Goldman Sachs expatriates who left the Wall Street goliath, spun through the revolving door, and emerged to hold top regulatory positions. Topping the list, of course, are former Treasury Secretaries Robert Rubin and Henry Paulson, both of whom had served as chair of Goldman Sachs before entering government. Goldman continues to be well represented in government, with among others, Gary Gensler, President Obama's pick to chair the Commodity Futures Trading Commission, and Mark Patterson, a former Goldman lobbyist now serving as chief of staff to Treasury Secretary Timothy Geithner.

All of this awesome influence buying has enabled Wall Street to establish the framework for debates in Washington, and to obtain very specific deregulatory actions, with devastating consequences. More on this in tomorrow's column.

Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor, http://www.multinationalmonitor.org and director of Essential Action http://www.essentialaction.org.

(c) Robert Weissman

This article is posted at:


adam said...

The Real AIG Scandal
It's not the bonuses. It's that AIG's counterparties are getting paid back in full.
By Eliot Spitzer
Posted Tuesday, March 17, 2009, at 10:41 AM ET

Article URL: http://www.slate.com/id/2213942/