Banking or Universities?

Bloomberg reports that the defunct bank Lehman Bros paid its bankruptcy advisers - a restructuring advisor, a big law firm, a few others - $262 million over the past nine months. And this is a bank in bankruptcy.

To be tendentious - what else could we have bought for $262 million? A buyout of the 8% paycut for the entire workforce of the University of California's 10 campuses, and $70 million left over to patch all the other holes.

Global Grotesque Inequality

See five thirty eight.com's perverse but illuminating exercise in how much of the world and its population fits into only 5% of world GDP.

Monopoly Dependencies

When you're not pondering the death of state budgets, which I've been blogging in relation to the university, read "Michael Jackson to be Buried Without His Brain." And the LAT's Steve Lopez on the MJ memorial service.

Read about the Gulf of Mexico "dead zone" that is predicted to grow and grow.

Then read Dean Baker's latest call for a NEW stimulus to save the sagging states, among other things. Same goes for Robert Kuttner.

My ongoing concern is that the U.S. doesn't know how to make money in the open markets its leaders say they love. Its big industries need lock-ins and other kinds of monopolies in which they make piles of cash by abusing market share. Maybe that's the way US capitalism always was - as marxian theory has of course always suggested. I was reminded of this reading a USA Today report on AT&T's iPhone lock-ins - a nice illustration of Karl's concerns.

And in case you think Michael Jackson defines craziness, read Stiglitz and Blimes on the various price tags on US war policy, which carries on.

Markets Are Killing Us

Noam Chomsky did more of the backstory than he usually does in a Riverside Church lecture that Amy Goodman played on July 3rd. What's nice here is his emphasis on how much better things would be if the broad public were actually in charge of economic and social decisions, in contrast to the narrow elites who are still piling their plates unimaginably high as the crisis deepens.

I've been sparing you my recent reading about Roman history, but I'll just note one pattern in the midst of the decline-and-decay analogies with a lumbering dumbbell US elite that is currently demanding that its new president serve himself with his very own Bush and LBJ-like quagmire - "AfPak" - and bailout out the biggest banking screw-ups in world history, letting them keep all their companies and money and rules and therefore insuring they will do it again as soon as possible. Rome: things would go badly with the barbarians on the margins - for decades at a time. Someone from these borderlands would rise in the imperial system and figure out how to replace war with negotiation, trade, assimilation, population flows of various kinds -a whole bunch of unorthodox things that worked. They would succeed enormously. Stilicho, for example, "was himself from a barbarian family," and mixed "negotiation and strategy" with the Visigoths to keep things relatively peaceful (no big reformer here, just a lot of military non-dumbness)- until the junior emperor Honorius had him killed in 408.

Obama may still turn out to be Honorius, appointing diehard attack dogs in the Afghan theater (I can't believe I'm writing these words and it's not 1855). Chomsky started by establishing the sheer irrationality of established leadership's commonsense, quoting the Bagladeshi "New Nation" noting,

It’s very telling that trillions have already been spent to patch up leading world financial institutions, while out of the comparatively small sum of $12 billion pledged in Rome earlier this year, to offset the food crisis, only $1 billion has been delivered. The hope that at least extreme poverty can be eradicated by the end of 2015, as stipulated in the UN’s Millennium Development Goals, seems as unrealistic as ever, not due to lack of resources but to a lack of true concern for the world’s poor.

Chomsky then went on to describe two undemocratic pillars of the American system: the "aristocratic" Constitution, deliberately established to limit popular democracy, and idealized markets, citing Adam Smith on the way that markets serve the interests of those who control them, rather than the general progress of society. I would note how enormous the tension between social development and market signals actually are, with citations from economic history, but am distracted by the thought of how our economic debates are still shaped by quotations from 18th century philosophers. There is something medieval here about the suspension of mental time.

Chomsky pointed it out though, with a searing description of the case of Haiti, where poverty is directly tied to the US-assisted destruction of popular democracy, and then a historical passage on Bretton Woods that makes the direct link between financialization and social decline:

In substantial measure, the food crisis plaguing much of the South and the financial crisis of the North have common roots, namely the shift towards neoliberalism since the 1970s. That brought to an end the postwar, post-Second World War, Bretton Woods system that was instituted by the United States and Britain right after World War II. It had two architects: John Maynard Keynes of Britain and Harry Dexter White in the United States. And they anticipated that its core principles, which included capital controls and regulated currencies—they anticipated that these principles would lead to relatively balanced economic growth and would also free governments to institute the social democratic programs, welfare state programs, that had enormous public support around the world.

And to a large extent, they were vindicated on both counts. In fact, many economists call the years that followed, until the 1970s, the “Golden Age of Capitalism.” That Golden Age led not only to unprecedented and relatively egalitarian growth, but also the introduction of welfare state measures. Keynes and White were perfectly well aware that free capital movement and speculation inhibit these options. Professional economics literature points out what should be obvious, that the free flow of capital creates what is sometimes called a “virtual senate” of lenders and investors who carry out a moment-by-moment referendum on government policies, and if they find that they’re irrational, meaning they help people instead of profits, then they vote against them, by capital flight, by tax on the country, and so on. So the democratic governments have a dual constituency, their own population and the virtual senate, who typically prevail. And for the poor, that means regular disaster.

In fact, one of the differences—one of the reasons for the radical difference between Latin America and East Asia in the last half-century is that Latin America didn’t control capital flight.

Though there are obviously other differences, I don't know how Chomsky's argument can be countered. In the US, the advent of low-services and high capital mobility has coincided with three decades of stagnant wages for 80% of the public, increased poverty, degraded transportation, public health services, schools, universities, you name it - including easy mass layoffs in any industry, chasing of tax deals from one state to the next, and one country to the next, inducing a situation where now American industry can't afford Mexican wages, so it goes to China, which is getting so expensive!, so on to Vietnam.

Another example are trains, which are amazing in Europe and grossly reduce Europe's carbon footprint per euro produced. Chomsky offered a homely example:

Let me just add a personal note on that. I came down here this afternoon by the Acela, you know, the jewel in the crown of new high-speed railroad technology. The first time I came from Boston to New York was sixty years ago. And there was improvement since then: it was five minutes faster today than it was sixty years ago.

The climate crisis is being made worse by the underfunding of public systems in the US for the past 30-40 years. Car-based sprawl didn't slow down after 1980 in places like inland Southern California and North Carolina - it accelerated. How are we supposed to back of an expensive infrastructure that is locked into the mid-20th century and is both brand-new and out of date?

In a popular democracy the answer would be obvious, and Chomsky provides it:

Spain and other European countries are hoping to get US taxpayer funding for high-speed rail and related infrastructure. And at the very same time, Washington is busy dismantling leading sectors of US industry, ruining the lives of workers and communities who could easily do it themselves. It’s pretty hard to conjure up a more damning indictment of the economic system that’s been constructed by state-corporate managers. Surely, the auto industry could be reconstructed to produce what the country needs using its highly skilled workforce. But that’s not even on the agenda. It’s not even being discussed. Rather, we’ll go to Spain, and we’ll give them taxpayer money for them to do it, while we destroy the capacity to do it here.

so we have from Chomsky:
1. narrow elite self-interest underdevelops - even destroys- societies
2. "global managers" will let this financial crisis damage societies rather than themselves - as they are doing in various countries, but also to their own people in the U.S.
3. multiple crises are intensifying each other - climate, hunger, poverty, Western economies, finance
4. popular democracy and mass innovation is our only hope.

The U.S. was supposed to be the great democratic model that could use the powers of the multitude to transcend crises and leap ahead. At the moment it's looking more like latter-day Rome.

***

For the conservative confirmation of market failure, see this FT piece by one of my Euro-Capitalist Pals, Wolfgang Münchau. Here's how it's looking to him:

The European Central Bank has recently pumped €442bn ($620bn, £380bn) in one-year liquidity into the system, but the money is not reaching the real economy. Japanese-style stagnation is no longer possible – it is already here. The only question is how long it will last. Even in an optimistic scenario, global economic growth will be weighed down by a combination of credit squeeze, rising unemployment, rising bankruptcies, rising default rates, and balance sheet adjustment in the household and financial sectors.

I would expect the US to have something approaching a genuine recovery at some point in the next decade, but probably not in 2010 or 2011.

Have I mentioned Herbert Hoover enough? Muchaü seems him in his nightly dreams.

Muchaü doesn't blame banks, but blames the lack of creditworthiness of their formerly excellent customers, who no longer deserve loans. It would be more accurate to blame markets, which overshoot, move like sheep, and couldn't care less about systemic needs, social or economic.

This also comes back to the banks, since markets are structured by policies that are at the moment utterly dominated by the financial needs & desires of big banks - by the desire not to be nationalized and run by Pitchfork Bob and Surgical Nurse Jane, though these two with their broader visions could do a much better job.

Could Finance Pay a Tiny Tax, or is that too much to ask?

Let us ponder the mystery: the world of finance liquidated trillions of dollars and damaged the lives of hundreds of millions, and yet it has received only

• bailouts - with public money
• political deference - from Obama and the rest of Washington
• one famous conviction of someone who did terrible damage - Bernie Madoff - but with no address of root causes
  
• NO TAXATION whatsoever.

Not bad for the biggest bunch of colossal screw-ups in history.

One core problem was the fantasy of self-regulation - the fiction that not only were markets self-correcting (re Alan Greenspan's shocked awakening), but that their multiple and especially biggest players were actually better at regulating themselves than any outside party could possibly be. We should remember, as prominent investor Robert Altman reminded us not long ago, the goal of leading investors is not to regulate themselves effectively but to set it up so it's "heads I win, tails you lose."

I'm struck by how time has stood still since I wrote "Bore Me With Some Accounting" six months ago.

In a few hundred words, Dean Baker explains all: "Banks Own the US Government." And you thought after $13.6 trillion of public outlays and guarantees, it would be the other way around.

In this political environment, the poor might get empathy, but Wall Street gets money, and lots of it. Even when the issue is global warming Wall Street has its hand out. The fees on trading carbon permits could run into the hundreds of billions of dollars in coming decades. A simple carbon tax would have been far more efficient, but efficiency is not the most important value when it comes to making Wall Street richer.

The way efficiency comes in way down the list of immediate needs is an interesting feature of our capitalist system that I will ponder some other time.

Baker's main point though is that someone in Washington has actually proposed a tax on our wealthy screw-up friends in finance.

I pay 9.3% California income tax and 33% or something federal, and with social security I'm up around 50% of my income gone in taxes, even though I'm not paying it in France and I don't get much non-military for my money - no national health care, no bullet trains, no local good public transit so I can dump my cars, etc. The proposed tax is 0.02% per transaction. Baker calls it a tax on gambling, and it cut a bit into some of the most absurd arbitrage - making money on minute spreads on large volumes.

Baker points out the political opposition De Fazio the sponsor will face. But his equally important point is about knowledge problem.

The bill faces an enormous uphill struggle in Congress. As Durbin said, the banks own the place, and they are not going to just step aside and let Congress impose a tax on such a lucrative business. But, it is important that people know about the DeFazio bill. First, DeFazio deserves a place on the honour roll for standing up to Wall Street.

Also, it is important for the public to know that there is a relatively low-cost way to make up the shortfall in the highway trust fund. When Congress raises some other tax and/or cuts a useful programme, people should know that there was a better alternative. It just didn't happen because, as we know, the banks own the place.

We don't know much, our dumbness makes us passive, and the passivity leads to easy wins for finance and to bad decisions for the economy overall.

Innovation Crosses the Spectrum?

My Capitalist Pals at Money Morning remind me once again about what I used to like about conservatism. In a piece by Shah Gilani, the big worry is that Obama is a state capitalist, which is often used as a technical synonym for Soviet communist. What gives, I asked myself - these guys aren't Cheneyites. Here's a key passage.

Regulatory reforms must ensure that free markets remain free. Part of what’s necessary is to reform the tendencies of firms to overdo the concept of economies of scale. Bigger isn’t always better if it crowds out the processes of creative destruction, the drain in the tub that can overflow and undermine the floor and foundation of democratic capitalism.

It was big banks, big super-regional banks, big investment banks and big mortgage originators that deposited us into the economic sinkhole in which we’re presently mired. Community banks and small loan originators didn’t conceive of the weapons of mass destruction, but they were forced to compete with the big brothers of business by engaging in many of the same practices and investments as a way to remain competitive or be destroyed by the sprawl of bigger, bolder, and badder brethren. Why not disallow firms to get so big they swallow or destroy all competition?

For this kind of conservatism, markets were about supporting the small innovator who would be otherwise crushed by the rich, the Ivy-League well-connected, the lackeys of the presidential palace. Gilani correctly sees Obama financial policy as protecting the bigs at any cost, which he (also correctly) sees as not only rewarding failure, but rewarding mediocrity.

This is the pro-market liberalism of the late 18th and early 19th-century. It produces hostility to government that modern liberals, socialists, and marxists cannot accept. But this classical liberalism is completely right about threat posed to innovation and equity by huge size and state nepotism. Obama's big bank bailouts look as nepotistic as humanly possible given popular anger about the obvious problems - in terms of both justice and efficiency - with giving so much to the top (AIG, AIG's counterparties, bank holding companies, et.c) and almost nothing to the public (very limited mortgage help, etc.)

Local, small, networked, innovative - these should be terms that classical liberals (market "conservatives") and various kinds of socialists should come together around. State capitalism was an authoritiarian corruption of socialism that was neither an egalitarian worker's state nor an efficient corporatism. Most of the left hated the latter almost as much as the right did, so why not start doing more with this?

One historical note: the state's favoritism toward gigantic, nepotistically well-connected monopolies got the early middle-class to side with workers during the French Revolution, and for a while in 1848. Gilani's kind of outcry might signal the start of a political realignment of the middle-classes, one which in the past has been revolutionary.

Things That Blew Up

The best history so far of the development of some fatal financial instruments is Donald MacKensie's review of Gillian Tett's book on JP Morgan's role in inventing a new kind of collatoralized debt obligations. The piece makes the technicalities clearer than any other - read it! the key passage:

As the historian of economics Perry Mehrling has pointed out, events in financial markets cast shadows ahead, not behind. What has loomed over the banking system for the last two years is the shadow of the gigantic, system-wide default of the super-senior tranches of all the CDOs based on the US mortgage-backed securities issued towards the end of the bubble.

If you don't know what that means - read the article! It's help on the shape of thing to come.

Thanks for Noticing

Today's No Shit, Sherlock Award goes to the Financial Times for noting that the "green shoots" recovery ain't all its cracked up to be. Did somebody go outside and talk to someone in a pub?

To be fair, what they're noticing is that other people are noticing the recovery isn't really happening. Arbitrage strategies are shifting, and meanwhile nobody's doing much of anything for the economy where the rest of us live and work - except cut stuff insanely. Yes, Steroid Boy, I'm talking about you.

The people who really Hate America are currency traders, who take every possible opportunity to sell the dollar. I have an archive of 350 Bloomberg currency reports, and someday I will count all the reasons traders have to sell the dollar. Today it's "speculation the Federal Reserve will temper expectations for an interest-rate increase this year in an attempt to lower borrowing costs" - dollar goes down against the euro about 3%. Whatever - the explanation doesn't really matter, and they just make them up. The only time they buy dollars is when some bit of news makes everything else in the world look worse. The default is, in the immortal words of Steven Butler, director of foreign exchange trading at Scotia Capital Inc. in Toronto, on September 11, 2007: "Everybody hates the dollar."

Last week's news this week: Naomi Prins does at least as well as Joe Nocera at explaining why Obama's new regs won't make any difference.

And thanks to Gerry for sending me a like to a Business Week piece on one of the major stakes of all this playboying with billions in real and fake money - declining innovation in the US and the dead end road we're looking down.

The People NEED the Spanish Inquisition

Not that I love polls but well I do love them. They are such good political enter- tainment. Obama's approval rating on the economy is down to 51%, though it's still higher than my approval rating of Obama on the economy. But then pollsters never call me.

Obama's disapproval ratings on the economy have recently tripled. There's a real split on whether Obama has the "right set of goals and policies to improve the economy" (question 12 of the full poll). 87% are somewhat or very dissatisfied with the state of the economy (question 19). Interestingly, this is double the percentage that are somewhat or very dissatisfied with their own financial situation (question 20), suggesting independent concern with the big picture.

So people get that Obama's plans aren't very impressive. On the other hand, they have even less of a clue. 69% are concerned "a great deal" or "quite a bit" about an increased role for the federal government even in a disaster like US health care (question 14). A majority opposes the GM bailout even when it is correctly described as federal stock ownership and increased management control. And 58% think controlling the deficit is more important than a quick recovery (question 24). Too bad Herbert Hoover isn't around so Americans could vote the Great Depression back in 2010.

Part of the explanation for this massive dumbness in the midst of crisis is that no mass education has taken place. There's been no general investigation of who and what caused the banking crisis, even though there is historical precedent for this (the Pecora Commission that began in 1932) and even though 70% or so want some kind of investigation. Father Frank preaches brimestone is his sermon today on Obama's weak financial reforms, pointing out that " "the old Wall Street order remains intact." Worse, so does its knowledge institutions like Moody's and other rating agencies, who were so busy investing in the bubble they were refusing to analyze correctly that they were unable to warn anyone until it was too late. What's just is bad is that none of the financial professions have come forward with apologies or reform proposals or self-critiques that could make anyone believe that this all won't happen again. No investigation, no knowledge reforms, no recreation of professional independence. Ethics, knowledge, humanity, and progress aside, this will delay for economic recovery.

Other victories for dumbness: an interesting tidbit appears in question 39, about affirmative action. When affirmative action is described correctly, as "countering the effects of discrimination" without "rigid quotas," 2/3rds favor it - in contrast to Supreme Court case law and most media coverage, which at best treats AA as highly controversial.

The only overexposed minority I know is the Republican right, symbolized by Rush Limbaugh. Limbaugh has never had more than 13% of the public express "very positive" feelings for him, and that was in 1993. This is about the same number of people that call themselves "strong Republicans" in this June 2009 poll (question F4), which should remind everyone of the anti-democdratic implications of the fact that strong Republicans have been running the U.S. since 1980.

Add "very" and "somewhat" positive for Limbaugh and you get between 20 and 25% of the public, fairly steadily over the past 15 years. This guy has always spoken for a fringe, and his mainstreaming can only be explained as the selective celebrity attention through which the media systematically overstates the impact of a tiny magic circle with powerful political friends. This star system is not that great for the quality of Hollywood movies, and it's incredibly terrible for politics.

The Reagan-Obama Continuum

The French economist Gilles Leblanc reminds France Culture listeners that the crisis remains brutal, that it has transmitted itself into every sector of the economy, and that the decline in industrial output has been faster and larger (e.g. in automobiles, down 30%) than during the Great depression.

The US President Barak Obama has performed a "balancing act" with his financial reforms, most pundits agree. Even Krugman does good-news-bad-news on this front. A clearer vision of the smallness of the reforms is Joe Nocera's.

The banking world fought like mad dogs to avoid limits on executive comp and won that battle. There IS new regulation of the "shadow banking" sector - one that includes huge lending and securitizing entities whether it be GMAC, GM's loan service or the Blackstone group. But it's all weak.

Why is the Democrat Obama administration softer on finance capital in the wake of its enormous disgrace than are My Capitalist Pals, e.g. Shah Gilani at Money Morning. Here's Galani's summary:

But sadly, true to the inviolate nature of politics and the power of entrenched and vested money interests, this once-in-a-lifetime opportunity to actually tear down the failed structures that guarantee another economic collapse and to replace them once and for all with a substantive regulatory structure that can stave off future financial tsunamis isn’t likely to happen.

It seems that the Obama administration’s sensitivity to potentially jeopardizing what some are pointing to as signs of recovery by not calling for radical regulatory surgery has resulted in signals that the approach will instead be to empower existing regulators with more patches and some needles and thread.

See Gilani's list of everything that is NOT being done that needs doing.

The key problem is that Obama is operating with a Clinton-Republican vision of economics - as what someone called a "Chicago School Democrat." In his speech, Obama claimed, "We're called upon to recognize that the free market is the most powerful generative force for our prosperity -- but it is not a free license to ignore the consequences of our action." The same statement was made many times by Ronald Reagan. On the key matter of the economy, the shift from Republican to Democrat paradigms has not taken place - or rather, they are proving to be exactly the same.

In the wake of the actual failure of the model of self-regulating markets, Obama is maintaining the primacy of these markets, but with a bit more government regulation. Reaganism persists in the total refusal to submit this regulation to any kind of democratic process, in which for example recipients of TARP money are clearly identified, principles are discussed and weighed, the Main Street economy is clearly factored in, and, worst of all, financial discretion is curtailed - it remains maximized in the form of the tiny 5% requirement for assets held against money lent or invested. In this model, the market remains the Lord and master of wealth creation.
Government is the spoiler not the builder.

Recent weeks of “green shoots” rhetoric played an important role. Banks paid back some of their TARP money because they prefer to avoid caps on executive compensation to increasing their lending - money they would have lent has instead gone back to the feds.

Green shoots defined the crisis as a mood swing, a quick and drastic business cycle that is leaving like an unusually serious summer storm. This says that the system is sound, banking and political leaders made no serious mistakes and the ideas of their bubble years remain valid – with a little surgical elimination of some soft spots.

Regulation will remain crippled under Obama because private is still good while public is mostly bad. New private instruments will be invented to stay in the shadows as side deals between private parties. No change in the relation between financial and industrial economies is imagined – there is no Tobin tax, no responsibalisation of finance as one can say in French but not in English.

Meanwhile California is going up in flames - like Main Street pretty much everywhere.

Unhappy Furloughs

I'll soon discuss the Obama reforms, but meanwhile blood flows in the trenches. The NYT had a good piece on furloughs, the new work-for-nothing strategy (as it turns out in practice). But the most telling moment in the piece was about fear and secrecy at work:

Ms. Roberson and Mr. Becht were among the few people interviewed for this article who were willing to allow their names to be published. Others asked to have their names and workplaces withheld out of fear of retribution from bosses or colleagues. And some were hesitant to complain openly about their employment situation, given how many of their friends and family members had lost jobs.

“You’re not sure what they’re watching,” one furloughed man, an online salesman in Chicago, said about his bosses. “Do some people feel that they have to work those hours? Yes.”

The US workplace has gotten so despotic that it flatly contradicts the US conception of itself as democratic. Employers are displaying almost no interest either in the welfare of their employees or even in the reduced effectiveness of workers who skulk like punished dogs.

One of my colleagues in Grenoble remarked today that people are being asked to fit the work rather than the work fitting the people. It's true, and this self-imposed darwinism is so advanced in the US that it has become almost invisible.

More examples:
23% wages cuts at the Globe = survival.
firing 400 people = creating an innovation culture.

They should just say we have no ideas, but this way we spend less of our money.

Meanwhile back in the economy

I just got back from a great trip to Rome, full of new friends, constant beauty, thoughts of decline via stupid leaders - centuries full of them - and thoughts of endurance and triumph. But I'll write about Rome somewhere other than here.

Back in my office at U Lyon 2 there's a mountain of household goods left by our students gone back to California. Anyone need a rose-colored yoga mat? Who had the pillowcovers that are the same as mine at Place Bellecour? Where have all of you gone?

There's so much financial crapola to catch up with. I'm going to have to switch to the University budget side for a while, which is pure Hoover-time. But I ran into this piece about layoffs in Bahrain. People there seem to think that there are issues beside saving employers money.

"For four years I worked honestly for the bank and I considered it my second home", says Narjis Ahmed al Haddad, a former call centre administrator at Gulf International, who was attending a trade union meeting about the lay-offs a week ago. "But they terminated our jobs in one moment, so of course, you'll be angry".

"I still cannot comprehend that I don't have a job any more," says Mona al Kooheji, who worked as a secretary in the structured finance division.

"We have a lot of things set up for our futures, for our children, which is completely finished."

Wow. Your plans - you the employee's - are a factor! Why didn't we think of that in the USA?

The main factor is cultural: we got retrained by Pol Pot to see ourselves as "disposable Americans." Or maybe it was Rush Limbaugh and Phil Gramm, I can't remember. Give up your plans for the good of the firm. . .

All we need is the total reconstruction of economics so that it is measured by social and individual goals. The good news is that other cultures never stopped doing this - or at least knowing how.

Double Standards and Michigan, 1968

General Motors went bankrupt this week, but it's already disappeared from the media radar. GM was the flagship of the American economy during the "American Century," and its stock went from the mid $30s to a bit over a dollar in about 18 months. Oh well - we still have Google.

My noir instinct is that American business doesn't care that GM is bankrupt, because the "new GM" will have shed most of its workers and its obligations to the ones that are left, including its retirees. Somehow, a union trust fund tied to a company that couldn't pay retiree health care is supposed to pay retiree health care. The deal has been changed for hundreds of thousands of former GM employees who were told everything would be fine if they shut up and did their job. No workplace democracy, but a very nice retirement package . . And now look. That's what you get for playing by the rules. Bailouts for bondholders, but no bailouts for retired lineworkers.

The only interesting moment in the GM coverage was when auto analyst Maryann Keller, speaking on To the Point, said that GM had been going out of business for 40 years, and LA Times auto columnist Dan Niel dated GM's decline to 1980s CEO Roger Smith - gosh he was bad. It reminded me of Michael Moore's first feature film "Roger and Me," in which the target of the exposé was the same Roger Smith. The destruction of Michigan through delocalization of facotries was clearly documented in that film, as was the whole executive class's incapacity to grasp reality and do something intelligent.

The film came out in 1989. Here we are exactly 20 years later. What if economists had actually taken Michael Moore seriously? Well, never mind - they might have started their calls to strip pensioners of their health coverage that much earlier.

In the NYT Magazine today, Roger Lowenstein makes the radical proposal to democratize corporate boards. He offers a nice short description of how completely self-dealing and insulated boards often are, with the crap results that are all to obvious.

It's a good reminder at least that there's little democratic about American business, and that democracy and American business are not friends.

The field of economics has long avoided all such considerations, but in the wake of its embarrassment during the current crisis - which it both failed to predict and actively created - is trying some internal self-reform. Thus NYT business columnist Joe Nocera has dug up a guy - a business "columnist" for "Time," and writes,

As Mr. Grantham sees it, if professional investors had been willing to acknowledge these aberrations — and trade on the fact that the market was out of whack — they should have been able to beat the market. But thanks to the efficient market hypothesis, no one was willing to call a bubble a bubble — because, after all, stock prices were rational.

Gong. Way too little, way too late. LOTS of people saying this when it mattered - everyone from the mainstream Dean Baker to analysts of the deep historical cycles of capitalism like Giovanni Arrighi. And it doesn't seem to be making much difference in Econland, where Nocera concludes that the bubble really came from people wanting to believe it was different this time, and Burton Malkiel, the popularizer of the Efficient Market Hypothesis, announces the necessity of his own blindness towards bubbles.

There's a double standard at work here. Prominent economists who were dead wrong on their economics and cost ordinary people much or most of their retirements, for example, are still prominent, and allowed to excuse themselves in the pages of the NYT. Obscure economists, sociologists, professors of ethnic and womens' and American studies who were right remain, well, obscure. Dean Baker is a partial exception, and that's about it. Obama is insuring that the mainstream of the past stays mainstream in the present, but this will insure that a familiar dumbness stays front and center in setting the limits of economic policy.

Writing from Beirut, Rami Khouri has a good op-ed in the NYT that compliments Obama's mountaintop speech in Cairo on how there are so many good Muslims in America and the world, but points out that "An absolute commitment to equal rights and justice as the No. 1 issue would have been smoother." Smoother, only if Obama's goal were to replace force with negotiation and US preeminence with egalitarian multilateralism. But Obama does not favor international equality in nuclear programs or anything else. The main effect will be the continuation of double standards (to say nothing of inequality): nukes for us but not for you, massive bailouts for us but not for you, occupation by us but not by you . . .

Khouri is very generous and says, "He sought a new beginning, though, which we all badly need." I don't agree that this is what Obama seeks. It's more likely that he seeks a more balanced and therefore more effective extension of American power. Khouri gets this right in the first part of a sentence that winds up in the place of friendly diplomacy: "The fact that almost every fine principle articulated by Mr. Obama was contradicted by harsh U.S. policies throughout the region should not detract from the potential power of the ideas in his speech."

The continuing effect of that inequality -- the inequality enforced by US preeminence -- will be double standards, and double standards are a form of elementary injustice that drives everyone nuts and makes peace impossible.

Which reminds me of the summer of 68. Some people were protesting in Paris, Prague, New York, San Francisco, or leading lives of drug-enhanced artistic expression. My brother and I were packed off by our parents to our aunt and uncle's house outside of Plymouth, Michigan.
They showed us a great time, piling us into their 1967 Buick Electra 225 and bouncing up and down over the expansion joints of most of Michigan's highways to the lakes, the sand dunes, the cities and towns, and Niagara Falls. To me, growing up in Los Angeles, the woods looked like a jungle, and the leaves were so luminously green they looked like they were made out of stained glass. My cousin Harry - then in his 20s - worked as a mechanic at the local Buick dealership, and there were always 2 Buicks in the yard, always two years apart in age, the 1965 being set to get replaced in the fall. My aunt and uncle were retired apple farmers, and lived in the 2 story farmhouse that was surrounded by brick subdivisions of the houses of people that had moved to work there for jobs. There was a lot of election news - Bobby Kennedy had been killed, and Martin had been killed, and George Wallace was doing well, and Nixon and Humphrey were holding their conventions. Aunt Margaret found me in front of the TV one day watching Wallace give a speech, slapped the TV off and shoved me out the front screen door - I stayed outside the rest of the summer. Aunt Pat and Uncle Russ came through on their way to Botswana for the Peace Corps -- Plymouth Michigan was kind of a hub. There were the suburbs, but also the green flames of the trees, and the empty roads where the Electra rolled like a magic carpet.

That world is gone. Not so much improved - as it needed to be - as just gone.

Fictions of Inequality

I replaced Fr. Frank with Père Alain this afternoon - Alain Badiou, the French philosopher, who did a public interview today (page 18) with a Le Monde guy in a big art complex on the banks of the Saône river here in Lyon. The topic was philosophy and the novel, and at one point Badiou said this in my paraphrase translation:

the novel is rooted in equality. All great novels have an equal regard for all their characters, in the sense that they all are subjects of understanding. The novel grants everyone an existence that is prior to social sorting and economic hierarchies. This is a special form of knowledge, because it is fundamentally egalitarian.

Bien sur, Père Alain: this is completely true. I would go further and say that the absence of equality eats the soul. There are many forms of this, like slavery as what Orlando Patterson called "social death," and other forms of domination from torture to incarceration that destroy the dominated's identity and kill the ability of society to grasp their existence.

Badiou said at another point that the novel and politics are different forms of knowing. And on top of this, there is no master discourse above them that translates one into the other: they are just different. And "novel" knowledge is desperately in need of expansion and distribution everywhere, especially where politics and economics now are.

I've said before that this thing called the "middle class" in the US - the annoying term for the vast multi-racial economic majority that does the vast majority of the work - doesn't exist without equality, and is crushed by it's absence. The crushing has been happening visibly for well over a year, witnessed in stupefying crash figures from Dean Baker last week, and neighborhood stories all over the place, and in charts like the one below, that show the crashing value of the only meaningful asset owned by most US families:

Part of the point is the familiar but always important one that the munchkins are getting screwed while the wicked witches of east and west are protected by the federal government.

But the deeper point is that the victims of this bust would never have been so vulnerable had they been able to stick with equality as a principle. They weren't. Their pensions were converted to mutual funds that rose and fell with the market, their unions were gutted and then humiliated, their industries deindustrialized -- the fall of GM and Chrysler has been going on behind a few years of great SUV sales and zero-percent financing profits - their government services cast by Reaganism as a slave addiction, and their skills disparaged as old-economy while their jobs were outsourced and shipped abroad. Their public universities were cut in real dollar year after year, ending up in 2005 per capita below where they had been 25 years before. To top it off, their real wages haven't gone up for 30 years.

So they trusted to one boom-bubble after another. They put their funds in dot-com and telecom stocks in the 1990s, which blew up in 2000. They put their money in real estate, which melted in 2007 and exploded in 2008. They might have put their trust in their jobs and maybe their savings in their companies, but what would they have gotten back from that?

None of this would ever have happened if US society valued equality of outcome, period. It would have been intolerable, violated the basic standards of society, and been stopped.

The crash is the real-economy effect of two things. The first is capitalism's structural problems that lead to what Giovanni Arrighi called the financialization that signals the beginning of the end for a hegemonic power like the U.S. The second is a deep cultural illiteracy at the top of the economy, which accelerates and brutalizes the crisis itself.

The good news, if you can call it that, is that the bubble solutions to painful inequality have run out. They only place for the working/middle-classes to go for help is back to wages, which need to increase, their jobs, which need stabilzation, and public services, which are the only thing that ever head their lives together.

Governor Whack Job

Arnold has gone around the bend and is ignoring polls that say the no votes on sales tax increases means the public wants to eliminate in-house care for Alzheimer's patients, CalGrants for students, CalWorks, state parks, everything. He's going to go down with the right-wing ship, with the extreme right of the California Republican party that hates him anyway, and is taking as many of us as possible with him. The Gov goes around saying stupid helpless stuff like, "I know that that could mean potentially that now Alzheimer's patients will not get this in-home service that they deserve. . . . But you know something? Even though those are tough choices, what is the alternative?"

Actually the alternatives are legion, but most of them involve increasing equity in the tax system, and we have all been taught that fairness is bad for California business, so
are totally ignored as the entire state political system is thrown into a paroxym of defensive lobbying. Who can take the U.S. and especially California seriously given this total inability to solve the most basic financial problems?

Genius at work:

"Several of the latest cuts were eye-openers, but the largest was the wholesale elimination of the California Work Opportunity and Responsibility to Kids Program, which provides grants to parents that people commonly refer to as "welfare."

"Matosantos said that by eliminating the CalWorks welfare program and the Healthy Families program for children's healthcare -- which would affect 930,000 children -- the state could save nearly $1.6 billion. But it would also lose $4.7 billion in federal funds."

The captain is crazy. The crew is awol. The ship is sinking.