Neo-liberal Crisis Threatens Peru

Crisis threatens Peru, with presumed populist Humala taking a corporatist stand. Rhetoric is hardening on both sides, and no one appears able to define the struggle between the rural poor and international gold mining interests in a positive-sum manner.

The Enemy of Society

U.S. society remains, despite war and recession, sufficiently comfortable and deluded so that it refuses to face up to the harm it is suffering from allowing its pro-business/anti-people system to continue to exist. It is not necessary to eliminate business, which is a useful tool, but when that tool is transformed by a misguided elite into an idol existing not to benefit society but for its own sake, then the fundamental shape and values of society are warped, and the tool becomes a weapon employed by rich CEOs to plunder the wealth of everyone else. The solution is to create institutions that serve, not exploit.

The Meaning of Being 'Pro-Business'

Words, these days, lack straightforward meanings, but the meanings are nevertheless there, and you can understand the meanings if you try. Consider the loaded phrase "pro-business."

Superfluous People

Washington is run by and for rich businessmen. When politicians brag about being "pro-business," they really mean favoring rich executives, not the millions of workers who form the productive core of business. From this attitude flows an essentially predatory foreign policy; what we should all have learned from the Financial Crisis of 2008 and the reaction of Washington (under both major parties) to that crisis is that a business-friendly elite of the rich will, in the end, have the same attitude toward the people of U.S. society as it does toward the struggling poor everywhere else.

Enemies of Capitalism

Does our capitalism system have enemies? You bet it does…but they are not who you think.

Recognizing Class War

After a generation of subtle class war by the rich, a new pattern is emerging in the West: popular anger.

Big Capital Makes the Case for Socialism

J.P. Morgan and Bank of America just this week illustrated again the need for big, socialist government.

Sometimes government should be small, to allow individual creativity, and sometimes big, to achieve victory over society's enemies. In just the last few days, two behemoths of capitalism--J.P. Morgan and Bank of America--have made the case, unintentionally, for government not just big but socialist. J.P. Morgan admitted that it was up to all the old Wall St. tricks that created the Financial Crisis of 2008 that stole homes out from under millions of Americans and left millions of others unemployed. Bank of America arrogantly refused stockholders' calls for it to investigate itself to detect fraudulent foreclosure behavior. A well brought up five-year-old knows enough to think critically about his or her own behavior.

Everyone is of course now having fun at Jamie Dimon's expense, not that he can't afford it with his repulsive $25M a year salary, unfortunately eclipsing Bank of America's sneering attitude toward both stockholders and customers, which may cause even more harm to U.S. society. Unfortunately, the critical rhetoric focuses on the obvious but superficial calls for regulation.

Regulation of the out-of-control financial piracy of Big Capital is a perhaps useful band-aid that may stem the loss of financial blood while we move the U.S. financial system to the hospital, but what the patient needs is either major surgery or to be put out of its misery. Americans need to have a real national debate about the terms of this restructuring but must take care to avoid wasting time; four years have already been wasted, and Romney clearly feels no embarrassment in defending the system that brought us the Financial Crisis, suggesting that he at least feels that enough Americans can be hoodwinked once again to get him into the
White House.

There is perhaps no harm in immediately instituting some obvious regulations:

• no bank should be permitted to gamble with its own money;
• derivatives should be regulated with total transparency if not banned entirely; 
• the revolving door between financial institution management and government positions that facilitates capitalist pirates writing laws to cheat the American people should be slammed shut.

Beyond regulations, new laws would help.

• Punishments should be made up close and personal for all officials of financial institutions that take government bailouts. All income beyond minimum wage levels obtained (one hardly dares say "earned") for, say, the five years leading up to any receipt of government welfare or bailouts should be forfeited.
• The tax code should immediately be reformed to ensure that income tax levels for workers are always lower than capital gains. It is a fundamental moral point that earned income should be taxed less harshly than unearned income: there is a reason it's called "unearned," folks!

But all this is just band-aids. The real issue that Americans should be discussing in this election year is how to put the American people back in the driver's seat and put Big Finance in its place. Our individualist capitalism system may work great on Main Street, but on Wall Street it has become too big to tolerate. In a word, then, to what degree does the U.S. now need to replace capitalism with socialism?

Capitalism or Socialism?

Arguing over “capitalism or socialism, small government or big government” serves only to confuse voters; indeed, that is often the point: when the rich advocate “small” government, they almost always mean “small” for someone else. The banquet of a good lifestyle requires both the salt of capitalism and the pepper of socialism, big government when it helps society, small government otherwise.

The issue we face is deciding when government should be big, when it should be “small,” to what degree the economic system should be capitalist or socialist.  Given an environment of strict regulation and a well educated citizenry, capitalism in certain sectors of the economy can facilitate rapid development by replacing tedious and inefficient government oversight with self-organized popular creativity. But fraud is inherent in a system that allows some to become grossly more powerful than others, as 99% of us have learned to our sorrow since 2007.

Moreover, even the rich would not like pure capitalism. Who wants to pay a toll on every single road? The West had such a system once – in the Middle Ages, where local noblemen and other robbers interrupted trade and travel to line their pockets. Who, except a dictator, would want a capitalist Internet charging a fee every time you surfed or sent an email? Who would want to buy the air they breathe from a local vendor?

Does that last example sound idiotic? Corporations are already trying to steal the planet’s drinking water and then sell it back to the thirsty. This particular abuse of the commons (drinking water, like air, being a “common” good that should be shared by all) provoked a revolution in Bolivia and a bit of a revolt in Atlanta as well. As extremist fans of extreme capitalism undermine government’s power to regulate while corporations take advantage by polluting the air we breathe, the temptation to buy clean, bottled air can only increase. A better way to go for all breathers (even rich ones) would obviously be to defend the commons by keeping the air clean.

Other examples of situations where capitalism seems pretty clearly inappropriate are legion. Extreme capitalism is not even appropriate in that capital of capitalism, Wall Street – it leads to fraud, distortions of fundamentals, and the chaos that requires emergency Big Government of the most extreme type. Even the purest and richest of pure capitalists, it seems, cannot function efficiently without oversight; just ask the boys at AIG and Lehman.

Education provides another example of an area where small government and unrestrained capitalism (in this case, turning education into a private business) risks real harm to the common good. Conservatives love to advocate private schools, but would they appreciate having to send their kids to a private socialist or Salafi school? Once society grants private schools the right to exist, where is the line to be drawn?

Health care is a second misleading example of conservative knee-jerk hostility to government leading to outcomes harmful to themselves as well as everyone else. Why would anyone want a capitalist health care system, with doctors focused on profit rather than helping the sick? Who wants medicine prescribed on the basis of the profit it returns to the doctor rather than the health value for the patient? On the other hand, Big Government-Big Pharma corruption widespread in government-run health care is equally pernicious. Any system can be abused, but the very purpose of capitalist health care is to make money, and the easiest way to do that is to treat only the affluent and to ignore…the sick! The purpose of socialist health care, in contrast, is for society to decide on some minimum level of health care and then provide it to all. The real argument should center not on the size of government involvement in health care but whether the government role protects the public or acts as a cover for Big Pharma greed.

Morally, there is no contest. Socialist principles are indistinguishable from the Declaration of Independence’s call for government “of the people, by the people, and for the people.”

In practice, the issue is less clear-cut. Even the richest corporate leaders want some socialism: Big Oil happily takes billions in U.S. welfare every year; Big Pharma designs the health care system to maximize profits rather than health care quality; Big Finance warps the U.S. tax code to its private benefit. No billionaire wants pure capitalism.

On the other hand, there is no doubt that social regimes can become both oppressive and inefficient. Moreover, many examples of situations where socialism (i.e., ownership by society) is inappropriate also exist. Public (i.e., socialized) libraries are great as long as the government’s role is restricted to funding and depoliticizing, but who would want the government to decide which books we could read? Public management of the Internet is crucial to its contribution to society, but who would want the government to censor their emails? Government inspectors are critical to a safe food supply, but who would want the government setting their dinner menu?

And then there’s the little matter of physical security. Who wants private armies? The West had that system once, too. It was called feudalism. On the other hand, a state that controls all means of force is an invitation to dictatorship. One possible compromise is to have both central and local powers, with the central government having only those powers explicitly awarded to it. But ultimately security for society must rest on strong government combined with the rule of law, transparency, and popular vigilance…not private enterprise.

It matters little to the victim whether oppression comes at the hands of a corporation or a regime. And yet, a fundamental distinction exists between the worst socialist regime and the worst capitalist system: at least under socialism, the people always have the option of voting. (If a socialist system removes the right to vote or, as in the USSR, rigs the vote, then the system has turned into something else – call it a dictatorship or communism or whatever you want; it is no longer “socialism;” it is no longer rule for society but rule for the rulers.) In a system with a weak regime and powerful, unrestrained corporations, the people have no defense at all. Such a system has surely never existed in modern human history, for the corporations would immediately demand and receive special privileges and transform the system into a Big Government Corporate Welfare System, essentially fascism without brutality, and, indeed, that is precisely the goal of the class war launched by the super-rich in the U.S. Under a Big Government for Corporations system, the people would have no recourse but armed revolt, which would surely provoke a corporate crackdown and the transformation of the system into full-blown fascism.

The problem in the U.S. today is essentially Big Government that works for Big Capital rather than Society and does so in an atmosphere of unadulterated corporate piracy. There is a fundamental distinction between the corporations of the 1950s that provided lifetime careers at good salaries while they made America rich and the banks that run mortgage mills to make a quick buck off high fees with the intention of selling the mortgage fast enough to avoid responsibility for what happens to the deluded new owner. The rich seem to recognize no common interest between themselves and the society that protects them from foreign aggression or domestic street crime, that paves the roads their limousines use, that buys the product they produce (if, indeed, they still produce anything). Government is indeed “big” and uses its power to hand out corporate welfare on the basis of the size of the corporation rather than the utility of the service that corporation provides to society.

Life is too complicated to be regulated at every point, and people are too vulnerable to be left on their own in a world of enormous institutions. It’s not a matter of capitalism vs. socialism. Rather, the challenge is to balance freedom for individual creativity against the common need for protection. Capitalism with a heavy dose of socialism in sectors critical to the common good works in a strong democracy, enabling economic efficiency to be combined with popular oversight. “Strong democracy,” however, implies the acceptance by all of a social contract that puts government in the hands “of the people.” Room exists for powerful private interests as long as the economic pie is expanding faster than the rate at which power and wealth flow to the most powerful private elements. To the degree that those private power centers seek profit at the expense of the common good, capitalist tendencies need to be curtailed in favor of socialist tendencies; put differently, government power needs to be enhanced for the express purpose of protecting the commons (be it air, water, civil rights, freedom of education, protection against police brutality, clean food, or reliable health care) against abuse by those powerful private interests.

Today in the U.S., conservatives are correct that government is too big: too big when it allows corporate fraud to go unpunished, too big when it allows war profiteers to make billions, too big when it gives welfare to wealthy oil corporations, too big when the police suppress protests against corporate crime). When government tries to regulate and finds itself too weak to control corruption or corporate abuse, then the government is too small. The problem is not the size of the government but in whose interests the government functions. 


_______________
Here we go again -

• Dimon admits Morgan Stanley behavior "egregious:" Wall St. financial firms have become the enemy of American society
• Senator Carl Levin: "The enormous loss JP Morgan announced today is just the latest evidence that what banks call 'hedges' are often risky bets that so-called 'too big to fail' banks have no business making. Today’s announcement is a stark reminder of the need for regulators to establish tough, effective standards to implement the Merkley-Levin language to protect taxpayers from having to cover such high-risk bets."
• Simon Johnson - "fatal flaw in Federal Reserve thinking"
• Memo to Senate Banking Committee: "Banks would not be allowed to conduct broker-dealer activities, make markets in derivatives or securities, trade securities or derivatives for either their own account or customers, or sponsor hedge or private equity funds."
• Paul Volker, 5/9/12 in Senate testimony: "The expectation that taxpayers will help absorb potential losses can only reassure creditors that risks will be minimized and help induce risk-taking on the assumption that losses will be socialized"

The American Nightmare

When the American Dream becomes defined in terms of money and force rather than values, then it will fade into "The American Nightmare."

The American Dream, as every American knows, is a gem whose facets are values. We Americans actually don't spend a lot of time thinking about the American Dream, which is a great misfortune in times like these when it is under direct attack. If we do think about it, the thoughts are typically superficial, with jokes about "American as apple pie," crass visions of a big suburban house with a greedy SUV out front, or just the brain-dead assumption that we can take the American Dream for granted. Nothing could be further from the truth, as the concerted neo-con attack on the Constitution's guarantees and the judicial system's protections for those yet to be convicted reveals. Deep down, though, when you slap an American awake, he can see that it is not about money: it is about values. So for Americans, the elephant in the room this election season as we hurl the thunderbolts of sound bites at each other, is the degree to which American behavior is destroying our values...cracking the translucent, shimmering but oh so delicate facets of that gem called "the American Dream."

The latest canary in the moral mine of American society is the recent trend among the most irresponsible and unpatriotic of our astoundingly pathetic crop of current power-seekers to spout the pop soundbite about trying to justify torture as "just part of war." This blatant return to the morality of a Grade B movie about the Dark Ages is ominous enough for those who want to live the American Dream, and these chickens will surely come home to roost, if indeed they are not already doing so in the form of increasingly brutal political and police suppression of democratic activism (not just against the Occupy protesters but also against the teachers and firemen...and, in street clothing, police[!] who protested the right wing attack on union rights and the sanctity of contracts in Madison last winter). It is a lot easier to cheat and brutalize citizens after you have accepted that torturing enemies is suddenly to be considered an "American value."

Far more ominous is the nasty little twist of the term "all options" into a codeword for A) ignoring all the myriad positive, win-win, cautious, moderate, sympathetic options while B) focusing on the most insane of the zero-sum (and indeed in this case negative-sum, i.e., "lose-lose") barbarisms at our disposal, namely unprovoked nuclear aggression. I will not further belabor this, or the ultimate affront to American values of a supposed American ally trying to push us into launching such a war. This case is so extreme that it should be obvious to anyone who thinks. Unfortunately, today it seems difficult for a person who thinks to get access to the mass media, but there are a few Congressmen, believe it or not, who are concerned about this ultimate attack on American values. You will not hear their speeches on the evening news, but reading their websites is well worth the few minutes it takes.

Making excuses for torture and nuclear war are egregious examples of the attack by Americans and others on the American values that form the core of the American Dream, but other examples, albeit less obvious, may be almost as serious...and more dangerous to the degree that they go unnoticed. Goldman Sachs provides an example from the central issue of financial policy writ large, i.e., the rules by which the super-rich and the government itself are allowed to employ wealth to manipulate the rest of us.

In the history of Goldman Sachs Money and Power, William  D. Cohan describes how the company evolved over 150 years from a firm dedicated to providing funds to companies needing liquidity to produce into a company that appears to exist only to maximize its own wealth, with no regard either for its clients (against whom it bets) or society. This picture, in other words, shows Goldman evolving from part of the productive economy into a predator destroying the very system from which it profits: from an institution with a long-term view to an institution with a suicidally short-term view.

Whether or not one agrees with the above image of Goldman, it is all too reminiscent of the winner-take-all attitude that exemplifies the whole course of the corruption bubble that created the 2008 Financial Crisis, the winner-take-all wave of empire-building since 9/11, and the broader winner-take-all addiction that has in recent decades infected all of American society to be easily dismissed. Cohan's book carries the subtitle "How Goldman Sachs Came to Rule the World." He might have subtitled his expose "How Goldman Sachs Symbolized the Attack on American Values." But don't blame Goldman Sachs too much. What Goldman did was just on a larger scale from but morally no different than the Congressman passing a law to make financial fraud legal, the regulator looking the other way, the politician waving the bloody shirt of nuclear war to get elected, or the individual lying about his salary to buy a house on which he knows he cannot make the mortgage payments.

Creating Enemies

Undermine their democracy movement. Install a dictator. Pump him full of weapons. Ignore the complaints of the people until they turn in desperation to a religious extremist who kicks you out. Support the invasion of a vicious neighborhood dictator. Threaten the dictatorship, shoving it further to the right. Slap it in the face for any show of moderation -it must be a trick! Build up a local nuclear client; hand it a nuclear monopoly; encourage its nuclear threats. Deny your enemy the right of self-defense. Make your own threats. Make the leaders extreme and solidify their control. Overstate the enemy's power. Scare everyone. Release reports claiming that the enemy "might" have something or "might" be thinking about something. Trim social services to pay for more weapons, and transform the CEO's who provide them into multi-millionaires. Thank you, Mr. Extremist Third World Dictator. If you did not exist, we would have had to create you.

The Next 100 Years: Incentives

Today, incentives are structured in the U.S. to avoid thinking about the crucial challenges we face, so we are busy digging deeper the hole we are standing in.

Mankind faces two fundamental challenges that are external to the political system, i.e., not the result of faulty governance: climate change and population growth. Mankind’s response might be bottom-up, as suggested by the Occupy movement; all seven billion of us might slowly accept new cultural priorities. However, the behavior of government will surely have a huge impact, and by far the most influential government is that of the U.S. The U.S. government itself faces two constraints on its ability to rise to meet these challenges: its addiction to global military activism and its support of elite financial exploitation. With the natural leader of global governments thus distracted, an effective governmental response to the two major global challenges seems a long shot.

Washington’s international focus on using military force to spread its influence and its domestic focus on facilitating the enrichment of the super-rich at the expense of everyone else undermine its ability to address the two key external challenges. Focusing on the uncritical enrichment of all the rich rather than, say, allowing the enrichment of those who perform socially useful tasks while punishing those who behave irresponsibly is a critical failing. The choice is not between the wealthy and the poor: there is no obvious reason to assume that equality would lead to resolution of global problems. There is no obvious reason why the incentive of becoming rich in return for making greater contributions to society cannot be a socially responsible approach.

Abetting the mindless enrichment of the few, regardless of their behavior, on the other hand, clearly obstructs effective steps to meet common challenges. Playing the stock market using other people’s money with the assurance of government bailouts for all the rich who lose offers an enticing prospect for the rich that will suck away into meaningless financial contortions funds that could be employed for long-term projects of benefit to all, including projects to redesign society to meet the challenges of climatic and demographic change. A foreign policy that frames international issues in terms of military competition similarly drains away funds while simultaneously exacerbating social problems by destroying infrastructure and provoking refugee flows, to cite just two effects. Both financial exploitation and war are socially destructive forms of behavior that simultaneously drain away government resources and distract government from addressing real problems.

More, they create zero-sum psychological contexts that inhibit cooperation between the two sides. Concerning war, one need only note the difficulty of Israelis and Palestinians cooperating on a mutually beneficial program to share scarce water resources or the difficulty of Washington and the Taliban reaching agreement on a mutually beneficial program to develop Afghanistan’s economy amidst endless violence. Concerning finance, the lack of Wall St. efforts after the 2008 Financial Crisis it did so much to provoke to take responsibility for the damage it caused to the American public and the rapidity with which efforts to call the uber-rich to account were slandered as “class warfare” betray the same elite zero-sum perspective.

As Paul Krugman said back in 2009 in answer to his own question about why some bankers “suddenly” began making “vast fortunes” just before the 2008 collapse:

It was, we were told, a reward for their creativity — for financial innovation. At this point, however, it’s hard to think of any major recent financial innovations that actually aided society, as opposed to being new, improved ways to blow bubbles, evade regulations and implement de facto Ponzi schemes. [New York Times 4/26/09.]

Krugman goes on to point out that the issue concerned not just “the bankers” but the whole system, in which the government provided vast amounts of corporate welfare to promote their accumulation of wealth:

Wall Street is no longer, in any real sense, part of the private sector. It’s a ward of the state, every bit as dependent on government aid as recipients of Temporary Assistance for Needy Families, a k a “welfare.”

I’m not just talking about the $600 billion or so already committed under the TARP. There are also the huge credit lines extended by the Federal Reserve; large-scale lending by Federal Home Loan Banks; the taxpayer-financed payoffs of A.I.G. contracts; the vast expansion of F.D.I.C. guarantees; and, more broadly, the implicit backing provided to every financial firm considered too big, or too strategic, to fail.

And, writing in 2009, Krugman of course did not refer to the scandalous bias, reported just recently, built into U.S. tax law permitting many of the richest corporations in the land completely to evade taxes in years when they made billions of dollars of profit.

Yet what has been the performance, three years after the onset of the 2008 Financial Crisis, of Big Finance in thanks for being handed the hard-earned dollars of “the 99%,” some 20 million of whom are now either officially unemployed, under-employed, or so discouraged they have dropped out of the market? In 2010 Big Finance foreclosed on an all-time record of over 1,000,000 homes. The Republican allies of Big Finance in Congress are advocating that Washington pull back from reforming the fraudulent foreclosure process, and House Majority Leader Eric Cantor (R-VA)—who recently called the Occupy Wall St. protesters a “mob”—has received hundreds of thousands of dollars in campaign support from Big Finance during 2011. Meanwhile, the acting Comptroller of the Currency John Walsh is telling us that foreclosure reform could take “a year,” but—pending such reform—of course the foreclosures conveniently continue [LA Times 9/23/11]. Banks, surprise-surprise, are still fabricating documents to promote foreclosure [America Blog 9/1/11]. As for Wall St. fraud, the possibility of perjury charges against Goldman Sachs CEO Blankfein for 2011 remarks to Congress is emblematic of the attitude of Wall St. [Fierce Finance 4/14/11].

A political focus on the pursuit of short-term military victory that provokes long-term hatred or the accumulation of wealth without concomitant production of…anything…also has a subtle psychological impact by encouraging short-term thinking. In war, it is hard to get away from the obvious goal of winning the next battle; at the stock market, it is hard to get away from the obvious goal of making profitable short-term investments. To ask a general facing the threat of defeat or an investor facing the threat of financial ruin for a thoughtful assessment of where society will be in a generation is laughable.

Were the general charged instead with guarding a generation-long international effort to construct something or were the trader told his profits would be a function of progress toward some generation-long social goal, those two individuals would have entirely different attitudes toward the future of society. In a word, socially useful thinking and socially productive behavior can be bought. Generals and traders are neither good nor evil: incentives matter.

War and its domestic equivalent, financial exploitation organized by a minority as an institutionalized component of the system, are short-term, zero-sum activities, while the real dangers on mankind’s horizon call for century-long programs supported by everyone. U.S. elite priorities do not just miss the target of protecting our future but exacerbate the problems we must address, and the way the system is designed—with incentives for short-term thinking and socially destructive behavior—make it almost impossible to reform those anti-social elite priorities.

Republican Games and the Trashing of the U.S. Economy

Former Secretary of Labor Robert Reich has a critical perspective on the linkage between the Republican political games over the debt ceiling and the state of the real economy (i.e., your job, your income, your mortgage, the profit of your business, the appearance of your main street). Curiously, the gamblers all Republicans love (known as "Wall Street") lost big as soon as Obama caved in to the Tea Party extremists. Watch today's DOW Jones figures. The recession did not wake up very many people in the U.S. Will the double dip, now showing on your favorite main street, finally teach us our lesson?

Welfare for the Rich. One reason for the U.S. economic mess is that the rich are cheating everyone else. Check out how much billionaire hedge fund managers pay in taxes. Just as we give welfare to Big Oil, we also give it to Big Finance. Did you really think they got that rich just by working hard? If my income had been taxed at the rate paid by hedge fund managers, I'd be rich now too.

Employment. In April, unemployment fell in most U.S. cities. In May unemployment rose in 210 U.S. cities; in June, it rose in 345 cities. Meanwhile, July job growth almost matched population growth. (U.S. population growth requires at least 125,000 new jobs per month to stay even.) Pundits saw the near tie as "progress." One pundit reportedly called the U.S. economy, the world's largest still (I think; though China is catching up), "not dead." Well obviously. If it were "dead," the U.S. government would no longer be paying out retirement checks to retired Federal workers (using all that cash so kindly loaned to us by...the Chinese).


Euroschlerosis. With whole European countries sounding more and more like the Lehmans and AIGs of Recession I, the double-dip seems more and more likely. Keep in mind that there is only one global financial system (unless you count North Korea and Myanmar as having their own). In fact, as every U.S. worker and homeowner knows, Recession I never ended; it just keeps transforming itself in interesting ways that just leave the average person poorer and poorer. (Remember, U.S. wages have now been stagnant for more than a decade.)

Bait and Switch for Dumb Voters. John Atcheson explains how Republican leaders have tricked the very uneducated American public:

Bait and switch.  Divide and Conquer.
So, after starting with a surplus in 2000, Republicans used two wars, two rounds of tax cuts, and a giant giveaway to big Pharma, to get the country racking up debt like a drunken sailor. 
Along comes the Bush recession, and the debt accelerates, and the Republicans declare the debt to be an “emergency” and right on schedule immediately attack popular programs like Medicare, Medicaid, Social Security, Student loans –and virtually anything that doesn’t help the uber rich or the corporations suddenly must be cut if we are to stay solvent.

OK, I will offer a partial apology to the American voter. I admit it is very hard to persuade oneself how insistent supposedly patriotic Republican politicians are on wrecking the society's circumstances in order to enrich themselves. But really, after the $3 trillion war against Iraq, the trashing of the Gulf of Mexico, the endless trillions of above-board and under-the-table Wall St. bailout (evidently totally somewhere around $12 trillion), the recession, and the lack of government reform of our financial system, it is about time you started focusing. The U.S. is probably the world's richest nation in terms of resources, but we are throwing it away at a rate that will in fact put us into another depression. And the last time we had a depression, it came with camps of the unemployed, fascist police attacks on the poor, and a brush with communist revolution. You really don't want to go there.

The Lesson of AIG

The man-made recession, which continues, did not, apparently, cause the collapse of civilization as we know it, but if we do not take this opportunity to learn how better to manage big institutions, the next time may be worse. Or, perhaps civilization as we know it, based on a capitalist rampage, should undergo planned obsolescence.

The lesson of AIG’s collapse and purchase by the Government, using taxpayer funds definitely not intended for that risky purpose, at a minimum is this: some of our society’s institutions have in fact become too big to fail, without unacceptable collateral damage, and should thus be managed under intense public scrutiny to minimize such potential collateral damage. Whether or not the AIGs fail is a private concern; how they fail is the business of the Government and the People.

It seems fairly obvious that AIG decision-makers were running their company in a manner irresponsible to their shareholders, their customers, and society [Sorkin, 376-411]. This statement is based not just on their business decisions but, more, on their lack of understanding of their own business: despite the billions they maneuvered, they evidently did not know their own numbers, like a private individual who borrows from all his friends and spends every penny he gets without ever figuring out how much income he has, how much he is spending, or how much he owes. Such an individual will end up in jail; the penalty for executives in organizations too big to fail should be much more severe. A number of specific questions about the degree to which AIG decision-makers were held responsible for this failure of duty follow:

1. To what degree were AIG’s CEO and, perhaps more importantly, its previous CEO (for the one at the time of its collapse—Willumstad--had not been in the position long enough to have cleaned house) a) made to explain AIG’s failure and b) made to pay personally via fines that, after the fact, amounted to a removal of incentive for others to behave with such irresponsibility?
2. Were the decision-makers just below the CEO criticized by AIG’s own controller (David Herzog) [Sorkin, 410] fired, fined, and debriefed for the public record?
3. Where is the official evaluation of how the business practices of AIG went so wrong and what we as a Government and a Society should do to ensure transparency for such institutions in the future?

For their clients who held AIG paper (e.g., insurance policies), for their investors who hoped for a profit, and for the millions of innocent victims who would suffer from AIG failure, AIG had a minimal responsibility at least to understand its own balance sheet. The Government had a more profound duty since its primary (and grossly failed) responsibility in the years from the gutting of Glass-Steagall under Clinton until the Bush Recession was to society, not to the rich. The Government, specifically the regulatory agencies and Congress (which sent the financial institutions the message that “anything goes” and sent regulators the message that befriending the fat cats they were supposed to be regulating was OK), betrayed the interests of the U.S. public in favor of rich and generous institutions.

American society needs to think deeply about how to minimize such corruption. The first step surely is for Americans to wake up and educate themselves so they can differentiate between corrupt politicians who support the elite rather than the public interest, for it is unclear how to punish the politicians responsible for creating the anti-regulatory environment in which the recession was cultivated except by voting them into the ash heap of history. A second step would be to pass an amendment to the Constitution clearly defining “person” as referring only to “people,” not groups, institutions, or companies. A third step would be to prohibit three things that present clear conflicts of interest:

1.      electoral contributions by financial institutions;

2.      the revolving door through which the billionaire financial elite flows from Wall Street to Washington (where it passes legislation favorable to Wall Street) and then back to Wall Street, where they earn further billions with yet further safety from being held responsible;

3.      lobbying by financial institutions (which should be allowed only public statements of what they favor, not private lobbying of politicians).

Further Reading:

·        Impact of Government controls on AIG salaries

·        Brief review of the post-bailout continuation of Government favoritism for AIG, despite years of scandalous and criminal (for which a huge fine had been assessed even before the recession) behavior, at the expense of the public

·        Outspoken review of AIG

·        As of July 2011, AIG problems continue…