OBAMA'S ACCOMPLISHMENTS ...

For those who are disappointed that President Obama hasn't done enough, this Rachel Maddow clip shows that he has accomplished alot in less than 2 years ...



Keep in mind that all of this has happened with the Party of No acting like a political anchor around President Obama's neck. Impressive.

- Mark

FINANCIAL REFORM: DRAFTED BY MONTY PYTHON, EMBRACED BY HOMER SIMPSON?

Let's say you have an alcoholic in your circle. At first they were fun to have at parties. Then they started going to extremes, every day. The blackouts and passing out begin. It gets ugly. They finally do something really stupid, but not "illegal" in the eyes of the law. They say they're open to participating in a recovery program. Do you applaud the alcoholic's recovery program because they switch to beer and wine, and then pass out only once or twice a month?

Well, apparently, this is what passes for a successful 12 step program if we look closely at the financial reform bill being considered in Congress now. In one of the better reviews of the financial reform legislation pending before Congress, this post from Richard Smith at nakedcapitalism.com offers one of the most incisive and quick reads on the tone of the reform bill.

For Smith there's little doubt that the primary problem centers around our "shadow" banking system, where consumers have been able to find virtually unregulated credit from private investors (for home loans, for example). This shadow banking system has grown so large that it's $16 trillion asset base is now larger than our "normal" commercial banking sector's (not quite $13 trillion), and is the essence of what Kevin Phillips called the "financialization" of the American economy.

One of the key issues according to Richard Smith centers around what the shadow banking system counts as assets, and how they should be counted and regulated. Should "holdings in other banks’ debt" count? What about "capital arbitrage"? The financial sector wants looser rules on asset oversight and regulation. After all, the more assets they can list, the more money they can lend. As you can imagine, the legislation in front of Congress now has become so diluted with lobbyist driven "reform" that Richard Smith writes: 

So where does that leave us with our shadow banking reforms? Well, we have a modest tweak to bank capital requirements, of unknown efficacy (Collins) and a bunch of new committees, mostly in the Fed. The mountain has laboured, and brought forth a mouse.

To be sure, there's much to be said about financial legislation being the deepest banking reform we've seen in generations. This much is true. But the flip side of that coin is that we've done nothing but deregulate over the past 30+ years (even the S&L debacle was an asset protecting bailout).

An alcoholic switching to wine and beer, and then passing out only a few times a month, isn't saying much. Neither is financial reform that has become so diluted and open to manipulation that it "seems to have been drafted by the Monty Python crew" in Congress.

I've written about the proposed legislation often, so I won't add anything else to Smith's points. But read the post. Even though it may appear a bit jargon-filled for some, it's a good one.

- Mark

OUR EVOLVING THIRD DEPRESSION

Economist and NY Times' op-ed writer Paul Krugman sees the beginning of "the Third Depression" in America and around the world. Pointing to the Long Depression of the 19th century (beginning in 1873) and the Great Depression of the 20th century (1929), Krugman argues that what we saw both times was "an era of nonstop decline." This is what we face today.

Arguing that the Third Depression is really just getting under way, Krugman writes that "this third depression will be primarily a failure of policy" and points to "last weekend’s deeply discouraging G-20 meeting" where governments obsessed about inflation "when the real threat is deflation." For Krugman "preaching the need for belt-tightening when the real problem is inadequate spending" is a policy prescription destined for disaster because of the millions who remain unemployed.

The primary culprit here is "the victory of an orthodoxy that has little to do with rational analysis," with policymakers slavishly adhering to the idea that we need to assuage markets by holding back on spending. The outcome is a stunningly shallow belief globally "that imposing suffering on other people is how you show leadership in tough times."

When we throw in the fact that Republicans derailed legislation last week that would have extended unemployment benefits and sent billions to states in an effort to avoid layoffs it's easy to understand Krugman's pessimism. Over 1 million people will be affect by this decision. To be sure, apart from being unhinged ideologues who say one thing and do another, the Republican party's real goal is to keep the market collapse going so they can pin it on President Obama in November (so much for "America First"). Still, in the final analysis what we have is a leadership - both national and global - who cling to the tenets of a dying ideology like the monarchs of Europe clinged a decadent and dying feudal system.

Apart from the fact that Krugman has gotten so many things right over the years, I'm inclinded to agree with Krugman's assessment because of the evolving characteristics of our economic situation. The biggest issue for me is how we continue to believe that if we appease the same corrupt market gods who got us into this mess that they'll act good and respond with appropriate investment strategies, just like the textbook says it should happen. This expectation is simply naive.

From the tricks behind high frequency trading, to the astronomical bets made in derivative markets few understand, to the lack of transparency surrounding toxic assets, to the use of unicorn math (mark-to-market accounting) and a genuine depence on government favors (both bailouts and legislation), we are witnessing the wholesale destruction of market capitalism around the world. The focus is no longer on wealth creation, but wealth extraction. Adam Smith is turning in his grave.

That policymakers believe fiscal authority, without serious real financial reform, will save the day in this environment says much about our failure to learn the lessons of history. A third depression, indeed.

- Mark

WHY WE NEED HOME LOAN MODIFICATIONS (for everyone) ...

OK, we know that between 14 to 25 million homes are under water. This helps to explain why approximately 7 million Americans are behind on their mortgage payments.

Many Americans would prefer to walk away than be stuck in a home that's not worth what they owe on it. This is what we call strategic default.

For my part I can't fault anyone for walking away in an environment where banks get bailed out for their market stupidity, and then have the added luxury of using unicorn math to make it appear that their "legacy" assets are worth more than they are (to learn more about revaluing "legacy assets" and other market garbage read this and this).

Rather than doing something that would bring a little justice to our economic mess - like allowing bankruptcy judges to modify home mortgage terms, eliminating all interest on home loans, or working to blow up the fake debts accumulated during the bubble days - financially stressed homeowners are stuck with regular threats of foreclosures (especially on houses with equity) and President Obama's other gift to the banking industry, the Home Affordable Modification Program (HAMP).

While congress continues to have hearings on HAMP's progress, the real problem is that deck is stacked against America's middle-class. Seriously, why is it that banks can say their assets are worth more than they are, and get almost 0% loans from the government, but then America's middle class have few options beyond accepting foreclosure, making regular payments on homes that are underwater, and operating under financial conditions that are the functional equivalent of entering a debtor's prison?

These considerations are what makes this post on strategic defaults from nakedcapitalism.com so interesting.

In a few words the article makes it clear that we need legislation that allows bankruptcy judges to modify mortgage amount during a bankruptcy proceeding (instead of simply forcing a foreclosure). Apart from the fact that home ownership lies at the heart of the American Dream, among the practical market reasons for allowing bankruptcy judges to rewrite mortgages include how loan modifications can ...

1. Offer immediate relief to qualified homeowners.
2. Solve the market problems created by subsidized securitization (it tells the securitizers "Get over it, you have to pay for your stupidity too").
3. Address both problems of payment-reset "shock" and negative equity.
4. Screen out speculators (vulture capitalism is not what Adam Smith had in mind).
5. Spread the burden between borrowers and lenders.
6. Avoid the costs of another government bailout (another one's coming the way we're going).

Perhaps the best reason for allowing home loan modifications - which the financial sector derisively likes to call "cramdowns" - is that allowing banks to book property that is underwater at full value, while telling the homeowner they have no real options, essentially gives Wall Street the green light to maintain it's on-going Alice in Wonderland approach to debt and finance.

Seriously, allowing Wall Street and other market players to pretend that what they have on their books is worth what it used to be before the market collapsed is akin to saying that there's no difference between these stars before and after they "aged".

In the real world evolving market realities are supposed to help redefine market environments, for everyone. This isn't happening because of favorable legislation for America's biggest financial institutions. If Wall Street wants the privilege of revaluing assets under stressed economic conditions then homeowners should also have access to loan modifications when they're going through bankruptcy.

Think about it. Once homes are revalued by bankruptcy judges the banksters won't have to revalue so many of their CDO and other toxic assets because they'll reach a new, but more real, market price (like our home values have).

I know, I know ... What about the inviolability of a contract? This kind of thinking is based on a flawed understanding of how the real world operates. Consider the following ...

1. Union contracts get busted up or renegotiated on a regular basis.
2. Companies regularly play "fine print" games with their contracts - especially the credit card industry - and jack up rates for no other reason than they can.
3. Bankruptcy judges write down mortgages for commercial property and other secured loans (like luxury boats) on a regular basis.
4. Many states backed out of contracturally agreed to raises, and docked state employees 10% of their pay after the 2008 market collapse.
5. Subsidiaries can close up shop and leave customers hanging on to worthless contracts, while the corporation at the top of the legal food chain keeps your money (I know about this first hand).

And the list goes on ...

What I'm saying here is that contracts and promises get broken all the time. Allowing bankruptcy judges to rewrite mortgage loans would send a much needed message to America's pampered and incompetent financial institutions. Once market players realize it's going to be a two way street they'll start making better loans, and will be more careful when they decide to "securitize" a loan.

There's more to the story, so read the post, and the discussion that follows. It's pretty good.

- Mark

MICHAEL JACKSON

Michael Jackson passed away a year ago. I'm just going to post what I posted a year ago.
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This was the very first album I had growing up. I've liked his music ever since.

- Mark

P.S.: My kids had no idea why Michael Jackson was such a big deal. I showed them Michael Jackson's Moonwalk. My daughter said that it was "freaky cool" because she had only seen it on cartoons and didn't think anybody could actually do that. So I decided to post it here. The Moonwalk begins at 3:40.

KUDOS TO SHEPARD SMITH

While it's no secret that I think the Fox News Corporation is a joke (and have said so for years), there's at least one guy at Fox who I've pointed to as someone who takes his job as a journalist seriously, Shepard Smith. This clip/piece explains why ...



On the other side of this coin, it should be noted that Andrew Napolitano appears to be an unhinged free market crazy. Like Rep. Joe Barton, he seems to be little more than a boot-licking corporate sycophant.

- Mark

RENT A WHITE GUY ... WALL STREET STYLE

Oh, how the tables have turned. Check out this article on Chinese business practices in The Atlantic. We all know that Wall Street has turned itself into a empty but glitzy casino that no longer produces anything. But renting white guys in ties as show pieces in China is a little like NASCAR renting hot women. They're bit players in a circus sideshow.

The article is actually kind of funny ... until you realize that using white guys as props is really an indicator of what's happening to the American Empire. Unfortunately the new face of America's Empire is increasingly dominated by sideshow circus freaks (in a tie, of course) who aren't interest in creating anything of value. And that includes Wall Street.

- Mark

GOP KICKS JOE SIX-PACK IN THE GROIN, BUT STANDING TALL FOR PARIS HILTON

This is classic. Today Senate Republicans killed legislation that would extend unemployment benefits and provide aid to state governments, saying it would add too much to the federal deficit. How much would today's legislation have cost? Aproximattely $33 billion. Or about the same amount that Wall Street paid out in bonuses in 2008 and in 2009.

Because the legislation failed approximately 1 million people will lose their unemployment benefits, while another 300,000 state workers will probably lose their jobs. States may have to fire that many people after losing funding that was in the proposed bill.

Got that? Wall Street gets bailed out and cashes in after wrecking the economy and ruining the lives of millions of Americans. Yet, Senate Republicans think nothing should be done to help those who've lost their jobs and homes as a result of Wall Street's stupidity and greed - which caused the worst economic recession since the Great Depression - because it's not good for America's work ethic. Great.

But this isn't what makes the the 57-41 vote so disgusting (yeah, there were 57 votes in favor of extending benefits, but Republicans are threatening to filibuster, again). What's so galling about the vote is that while Senate Republicans are worried about adding $33 billion to our budget deficit they continue to support repealing the Estate Tax, which would add approximately $1.3 Trillion to  the deficit between fiscal years 2012 and 2021 ($1 trillion in lost tax revenue plus $277 billion in higher interest payments on the national debt).

 
That's right. Republicans are afraid of adding about $33 billion to our budget deficit at the same time they want to add $1.3 Trillion to our national debt by making sure the Paris Hilton's of America don't have to pay any inheritance taxes. I don't know about anyone else but coming out of the right womb and favorable legislation for the rich doesn't seem like the America I've read about.
 

 
That the Republicans would chose to protect the interests of the Paris Hilton's of America (in the process crying and whining about a "death tax"), while throwing America's middle-class to the wolves, says much about Republican ideas and their priorities. What a bunch of idiots.
 
- Mark

BAILOUT MONEY BEING PAID BACK? WHO CARES ...

Treasury Secretary Tim Geithner says that the TARP bailout money is being repaid by the banks. Specifically, Mr. Geithner told our Congressional TARP watchdog panel that banks had repaid about 75 percent of the bailout (Troubled Asset Relief Program, or TARP) money they received, and that the government’s investments in those banks had brought taxpayers $21 billion.

Wonderful. Nothing like a little smoke & mirrors to distract America from the real money being shelled out by the American taxpayer.

My question is what about the trillions of dollars that the has been stolen by sent to Wall Street via at least a dozen Federal Reserve programs? Where did this money come from? What's happened to this money? Who's going to pay for all the reckless bets paid out, that never should have been paid out? And why were the idiots on Wall Street compensated 100 cents on the dollar for all their stupidity?

I think I have a pretty good idea what's happened to all our money. With all the smoke & mirrors encouraged by our federal regulators it's pretty much gone the way of our market economy. Down a dark tube. This is why I like this comic from This Modern World. It reminds us all that the "invisible hand" of the marketplace is essentially a one way street.

Either way, the American taxpayer ends up as road kill.

- Mark

REP. JOE BARTON APOLOGIZES TO PHILLIP MORRIS TOO?

Is Rep. Joe Barton on the verge of apologizing to Phillip Morris, the largest tobacco company in the U.S.? He might after learning that the "smoking toddler" from Indonesia, Ardi Rizal, has cut down from smoking 40 cigarrettes a day to just 15 after Indonesian government officials interfered with the three-year old's smoking habits.

Private companies, after all, should be allowed to peddle their wares to anyone, free from government intervention, right?

OK, Rep. Barton might not be on the verge of apologizing to Phillip Morris for Indonesia's tyrannical approach to smoking. I'm bringing this up to make a point. If taken to an extreme, Rep. Barton's decision to criticize President Obama for "shaking down" BP suggests that he and other right wing extremists are against interfering with the profit making capabilities of any corporation ... as long as corporations shove enough campaign money their way, and claim to embrace their unicorn theories of free markets.

It took over 100 years for child labor laws and consumer protections to emerge in this country. The slippery slope of deregulation that republican extremists embrace today could take us back to a darker market period in our country's history. You know, when "buyer beware" really meant "don't fight us ... your government is owned by corporate America".

- Mark

REP. JOE BARTON APOLOGIZES TO BRITISH ... KING GEORGE FOR UNCIVILITY DURING AMERICAN REVOLUTION!

This would have been the headline if Rep. Joe Barton (R-Texas) had been around during the American Revolution. Think about it. As our Founding Fathers declared in the Declaration of Indepdendence, British Petroleum - like King George III - has "plundered our seas, ravaged our Coasts, ... and destroyed the lives of our people."

Yet, Rep. Joe Barton thinks British Petroleum - like Britain's chartered corporations in the 1770s - should be able to do Britain's bidding in America, even if it means sacrificing America's national sovereignty and our coastal shores. Here's Barton in his own words.



Have the conservatives, and their love for campaign cash, gone so crazy blind that they can no longer see the difference between our nation's sovereignty and their petty political aspirations? Has their shallow and self-serving hatred for government gone so wild that they can no longer see how government is actually supposed to work on behalf of the people? No Gulf coast fisherman wins if they're forced into 10 years of litigation with British Petroleum over the Gulf coast oil spill (see Exxon Valdez victims in Alaska on this one).

Apologizing to British Petroleum because President Obama secured $20 billion in up front money for a disaster that is clearly their fault is simply nuts on the part of Rep. Barton. What an idiot.

Then we have Mississippi Gov. Haley Barbour ...



These guys are little more than political whores (with apologies to legitimate whores for linking them to these idiots).

- Mark

"DEATH OF AN ECONOMIC PARADIGM"

This article - "Death of an Economic Paradigm" - from nakedcapitalism.com's Yves Smith is one of the most succinct and incisive pieces I've read on the state of our economic world.

First, she argues that our leaders have failed miserably in their attempt to fix our reckless and unaccountable market system. Then Smith makes it clear that she believes this occurred because our policymakers seem incapable of understanding that we're "in the middle of a breakdown of an economic paradigm."

I agree. Most of our policymakers don't understand history, can't think conceptually and, as a result, can't be expected to understand how some of our most basic economic ideas have become polluted over time. Here's one of the key set-ups as to why this is the case ...

In 1776, Adam Smith published The Wealth of Nations. In it, he argued that self-interested action sometimes produced, as if by “an invisible hand”, results that were beneficial to broader society. Smith also pointed out that self-interest could just as readily do harm. He fiercely criticized both how employers colluded to keep wages low, as well as the “savage injustice” that European mercantilist interests had “commit(ted) with impunity” in colonies in Asia and the Americas.
Smith’s ideas were cherry-picked and turned into a simplistic ideology that dominates university economics departments and policymaking. This theory proclaims that the “invisible hand” ensures that economic self-interest will always lead to the best outcomes imaginable. It follows that any restrictions on the profit-seeking activities of individuals and corporations are inefficient and nonsensical.

Those of you who follow this blog regularly won't be surprised by what Yves Smith writes. However, you will be interested to find that she - like me - seems to believe that it will take another economic crisis before we find the will to fix this mess. Hope it's not too late by then.

- Mark

MY TAKE ON CHRIS MATTHEWS' "THE RISE OF THE NEW RIGHT" DOCUMENTARY

I just finished watching parts of Chris Matthews' one hour documentary on The Rise of the New Right on MSNBC. While it was no doubt enlightening for those who aren't familiar with the history of far right politics, it really shed no real light on the Birthers, the Tea Party movement, the militias, the Black Helicopter crowd, etc. These people have been with us for some time now.

The only difference today is that we have a 24 hour news cable cycle to feed, and a Black man in the White House. You put both of them together with a collapsed economy, brought on by unregulated stupidity, and you can understand the news cycle's need to put some symmetry to the movement.

Let me make this clear, once and for all. These people aren't new patriots, riled up by government tyranny. They're delusional, crazy, and frustrated, people who didn't get their way the last election. Just because they play dress up commando on the weekend, or don 18th century clothing whenever Fox News blows a dog whistle, doesn't make them patriots.

Look, the problems we have today we had under George W. Bush. The problems President Obama's facing today are a direct result of a failed ideology (which we continue to follow in many ways) he didn't initiate. The only documentary the cable programs should be doing on this group are for Animal Planet, or for some deranged Hallmark Life series. Seriously, these people don't need legitimation. They need help.

Stay tuned. I'll have more to say about this at a later date.

- Mark

THE BANKSTERS ... MAKING WILLIE SUTTON PROUD

"Because that's where the money is."

- Famed Bank Robber, Willie Sutton,

responding to a reporter who asked him why he robbed banks.

 

 
Nakedcapitalism's Yves Smith muses about an interesting post from Housingwire.com on foreclosures. It turns out that of all of the housing foreclosures followed by RealtyTrac (one of the 'go to' sources on these things), over 50% of foreclosed homes actually have positive equity. That's right, banks are foreclosing on homes that can be resold at a profit at a higher rate than they're foreclosing on homes that are underwater.

Like famed bank robber Willie Sutton, the banksters are going after homes with equity because "that's where the money is." There's two possible reasons for this.

First, as I've been writing about for a while, it makes no sense for the banks to concentrate on foreclosing on negative equity mortgages because then they have to write-down the value of their assets and their managed portfolios. It especially makes no sense when you consider the banksters understand ...

* You can't claim bonuses, demand higher wages, charge hefty management fees, and then make billion dollar bets if your asset base is declining. Foreclosing only on homes that are underwater damages the asset base.

* New rules allow the banks to use Unicorn math to "reprice" their toxic assets, which artificially inflates the value of their asset base and portfolios (while regulating the market price out of the market). If you don't foreclose on toxic mortgages you can reprice the toxic instrument they are affiliated with.

Second, it's much easier to go after delinquent homeowners with positive equity, where court backlogs aren't so deep, and the outcome is more profitable. As Yves Smith suggests, with foreclosure rates rising in previously "safe" areas like Provo, Utah and Portland, Oregon, the banks seem to be going after the easy money. Because California, Arizona, and Florida have been the hardest hit states there's now a backlog of foreclosure cases there. This means more time in court, for longer periods, in these regions. Foreclosing on homeowners with equity in places like Utah is the industry's low hanging fruit.

And best of all, for the banksters, it's legal.

If you believe in reincarnation, I'm pretty sure where you can find Willie Sutton. He's on Wall Street.

- Mark

BANKS STOLE TAX DOLLARS EVEN BEFORE THE TAXPAYER FUNDED BAILOUT

As if state and local governments didn't already have enough financial problems ...

State and local governments regularly raise $400 billion a year through taxes, which are used to build needed infrastructure projects. The money raised is used to build schools, hospitals, roads, parks, and all the good stuff that makes communities work. Voters and elected officials understand this, which explains why they will vote to fund certain measures. It makes good community sense to invest in things like parks and roads.
 

Now, thanks to the same banksters who brought down the market by gambling on useless derivatives, billions in taxpayer funded infrastructure project money was illegally siphoned off because of bribes and inside kick back schemes orchestrated by money managers from Goldman Sachs, Bank of America, etc. In effect, the banksters stole taxpayer dollars, even before they facilitated the 2008 market collapse and got a taxpayer funded bailout!

Here's how it happened.

Imagine that a community or a state needs money to build schools, parks, or some roads. Voters and elected officials like the idea and will vote to fund infrastructure projects with taxpayer money. Money is secured through taxes, but in most cases can't be spent immediately. As a result, state and local governments must find financial institutions to "hold" the money. With billions at stake, you can imagine that financial institutions want a piece of the action. This is where the trouble begins.

* Municipalities and other governments send their money to financial institutions to hold taxpayer money, where it can earn interest before public agencies spend it (the process operates like a CD would).

* Many financial institutions who got these funds, to hold in trust, paid government "advisors" to steer deposits their way. Court documents show that payoffs ranged from $4,500 to $475,000 per deal.

* After the financial institutions got the money (cheaply) they then lent it out at higher rates (or used it to gamble on derivatives), and then paid off the financial advisors for their efforts.

To recap. Advising firms, working with firm like Goldman Sachs and Bank of America, colluded with each other and then deliberately withheld information from municipalities and other governments about higher paying programs. This cost taxpayers and governments in the form of lost interest income.

Or, as Bloomberg.com put it, "Wall Street’s biggest banks were cheating cities and towns during the same decade in which they were setting the stage for a global economic collapse." Nice.

- Mark

IT'S ALL CLINTON AND "BUCKWHEATS" FAULT ...

I got my hair cut yesterday. I go to the same place because it reminds me of the barbers I used to go to in the 1960s. There's no video games, or fancy hair products. Just a barber cutting hair, telling jokes, with discussion from Peanut Gallery. I particularly enjoy the political discussions (which I don't participate in), which usually don't go much beyond the intellectual level of the backyard musings of Hank Hill and his friends on King of the Hill. Yesterday didn't disappoint.

Yesterday our conversation turned to the oil spill in the Gulf.  By the time I left the general consensus was that the damage caused by the oil spill was the fault of rules created under "Bill Clinton's EPA" and "Buckwheat's" (yeah, that's the term used) incompetence in capturing the oil. The rationale? BP was probably trying to follow stupid regulations that didn't make business sense. And besides, Obama's just "making it worse" by not letting BP do their repair and clean-up job right. Dale Gribble would have felt perfectly at home ...

Anyways, I'm writing about the conversation because it illustrates just how partisanship - and blind hatred for President Obama - can transform people, who might seem to be regular no-nonsense guys, into people who hate and don't care for the facts. Worse, it illustrates that ordinary people don't really understand how big corporations operate in a market environment where smoke & mirrors can be as big a part of a business plan as are profit projections.

For example, it turns out BP's preparation and response plans were not only unrealistic, but they've been pretty much made up since Day 1. The Associated Press did an analysis of British Petroleum's 582-page regional spill plan for the Gulf, and its 52-page site-specific plan for the Deepwater Horizon rig, and found it was "riddled with omissions and glaring errors."  How bad does it get? In BP's Deepwater Horizon plan State prisoners are "mentioned" as part of a trained response team, even though they're never considered or incoporated as part of any official clean-up plan.

Put another way, BP was stacking the deck with bogus information and wishful thinking. Here are some of BP's other wishful thinking claims ...

1. There would be no coastline problems because the site is so far offshore.

2. BP has the capability to respond to a worst case discharge resulting from their oil drilling activities, with a combined response that could skim, suck up, or otherwise remove 20 million gallons of oil each day from the water.

3. In the spill scenarios detailed in the documents, fish, marine mammals and birds escape serious harm; beaches remain pristine; water quality is only a temporary problem.

3. The Gulf's loop current, which is currently projected to help send oil hundreds of miles around Florida's southern tip, and up the Atlantic coast, isn't mentioned in either plan.

4. At least 80 Louisiana state prisoners were "trained" to clean birds by listening to a presentation and watching a video. It was a work force never envisioned in the plans, which contain no detailed references to how birds will be cleansed of oil.

In a few words, just like those who believe in Unicorn theories about markets, and market players, BP's plans were based more on rosy assumptions about the world than it was grounded in reality. They really didn't have a clue about what would happen in the event of an oil disaster, in spite of telling the world that they did.

As Sarah Palin might ask, "So how's that private-sector-knows-what-they're-doing thingy workin' out for yah?"

Today, in spite of BP promising that it could secure more than enough boats to scoop up all the oil before any deepwater spill could reach shore, we see beaches contaminated, sea and marine life threatened or dead (so much for "no adverse impacts"), and an oil slick that now covers about 3,300 square miles.

And it's all Clinton and Obama's fault ...

- Mark

UNDERWATER DIVE

Via Huffington Post ... check out this video.



- Mark

FROM WAR TO MERCANTILISM & MARKET CAPITALISM ... EXAM POST

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As noted about a month ago here, from time to time I post notes to help students prepare for exams. This is one of those posts. Below I provide a brief sketch of how eras like the Enlightenment combined with war to create the conditions for the modern state and market capitalism to emerge. Critical here is understanding how eras like the Enlightenment combined with war to help secularize society, which helped turn avarice, individual honor, and profits into a "good" thing. I discuss all of these in greater detail in chapters 3 and 5 of my book, The Myth of the Free Market.
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The political roots of our current market economy can be summed up in two words: Liberal Revolution.

Recall that before 1776 - when Adam Smith’s The Wealth of Nations was published and the Declaration of Independence was signed - the Western world was still stuck in a feudal mindset where myths, custom, and tradition dominated what the vast majority of society believed. If someone fell on the floor, in what we now know is an epileptic seizure, anyone in the crowd could be singled out for witchcraft or sorcery.

As well, most commoners had little say over what they wanted to do when they “grew up” and even less control over who would rule over them. Economic feudalism and political monarchies stifled both individual initiative and political freedom. Custom and tradition, rather than individual acumen and personal talent dominated our social and political environment.

This would change because of how three intertwined developments combined with the increased scale of war to secularize our world views. Ultimately, all of this depended on the gradual consolidation of political power to occur. First, the three intertwined developments that helped bring about Liberal Revolution ...

Three Intertwined Developments
The Renaissance (p. 56-60) brought knowledge and the creative spirit back to Europe by reopening the classics to society. St. Francis (1181-1226) and others began to challenge the notion that the world was merely a collection of symbols expressing God’s message, waiting to be unraveled by the priests. Universities were established during the High Middle Ages (1000-1300 AD), creating places where conventional wisdom was discussed and even challenged. Still, custom and tradition mandated that commoners obey authority - the church and the aristocracy - and warned against not accepting your fate in life.

Later, the Reformation - a succession of wars fought to establish religious conformity and “moral universalism” throughout Europe - helped raise questions about the Catholic Church, and finally ended in 1648. The Treaty of Westphalia (1648) ended the Reformation, with individual monarchs declaring that it was better to allow each one to determine how people would worship and pray within their borders.

The questions raised by Martin Luther’s 95 theses (tacked on a church door in 1517) were instrumental because they not only questioned internal church practices, but they helped create an environment that would lead scholars and others to question the church’s veracity, and it’s authority on many topics. In the process, feudal customs and traditions would be challenged.

Finally, the Enlightenment - a period of scientific discovery and philosophical discourse - raised serious questions about our world views. By questioning and disproving church teachings scientists and scholars during the Enlightenment helped “secularize” our world by illustrating how and why the church could be wrong. For example, when Galileo looked through his telescope and showed that the earth moved (p. 65) the impact was immediate.

If the church could be wrong about the earth not being the center of the universe could it also be wrong about the divine right to rule, original sin, and the notion that one should simply accept their station in life? If so perhaps the monarchs weren’t the rulers God wanted. Better yet, what if peasants and others didn’t have to accept their fate in life?

These were heady questions indeed.

The Role of War in Secularizing Society
While our knowledge of the world was being altered by the combined effects of the Renaissance, the Reformation and the Enlightenment, the demands of military battles slowly compelled heads of state to acquire armies that could fight for the state, and individual honor, rather than convoluted religious symbols or against the devil’s emissaries.

By inspiring soldiers to fight for national security rather than religious goals it became much easier to convince individual soldiers about the fight. Because survival is instinctual and objective, while fighting for God is faith based and subjective, arguing over “Who else is worthy to worship my God alongside me?” no longer dominated the mind-set of armies.

Better yet, by tying the quest for national security to each soldier’s honor and glory the state actively encouraged individual accomplishment and personal triumph. The goals of moral universalism and the Christian Faith slowly faded away. By secularizing accomplishment on the battlefield the state went a long way in elevating individualism and personal excellence, which are the hallmarks of classical liberalism and entrepreneurialism in market economies today.

Together with the developments brought about by the Renaissance, the Reformation, and the Enlightenment, an increasingly secularized society no longer accepted explanations offered by the church. Perhaps more importantly, myths declined as a source of explanation as “scientists” looked for the causes behind disease, weather patterns, and the movement of the stars.

But the biggest impact brought about by war and the Enlightenment was the realization that while armies were expensive, free thinkers were generally surrounded by the most ambitious and profitable merchants of their day. If the state were to survive it would need revenue (p. 63-65). Ergo, it would need to court traders and thinkers, rather than seek the approval of priests and monks. The result? States began making bargains with merchants. In exchange for tax revenue the state would provide protection, stability, and even a say in how the state would be governed.

These dynamics are the roots of modern parliaments and, perhaps more importantly, helps us understand the logic behind constitutional liberalism. Perhaps more importantly, it helps us understand how war and the need for security would shape the state in the modern era by leading to the creation of increasingly efficient bureaucracies (of violence) and war.

War Made the State and the State Made War …
After the collapse of Rome the Eurasian continent was divided along geographic, linguistic, and cultural lines. Once tied together by Roman conquest, infrastructure and diplomacy, Europe devolved into a hodgepodge of unconnected regions. The “empires” that existed were really little more than competing families dominated by strong personalities.

Making matters more difficult was that apart from the Catholic Church coherent and cohesive institutions on the Eurasian continent were largely absent. Simply put, Rome’s “successor kingdoms in the west did not learn how priceless” the state institutions they had destroyed were, and were equally ignorant recognizing how difficult it would be to replace them. The need to pay for war would make this abundantly clear.

Through the Dark Ages (476-1,000 AD) and the High Middle Ages (1,000-1,300 AD), from the Steppe mountain regions to the Pyrenees of Europe, the Eurasian continent was dominated largely by barbarian clans and feuding nobles. And while Western Europe may not have been, as John Keegan suggested, “a continent without armies” it was probably more realistic to say Europe was largely a continent without the institutions necessary for collecting taxes and building large professional armies.

Grappling with the problem of paying warriors, kings began raising private militias made up of nobles and indentured soldiers. As war evolved the arrival of new tactics and technologies – which brought pikemen, artillery, and muskets into warfare – continued to strain state resources. This would help convince Europe’s monarchs to pursue administrative competence during the High Middle Ages in the areas of finance and war.

Because of these dynamics Western European states developed ever larger political units. Smaller political units, especially those capable of producing regular income, were incorporated or swallowed up in the process.

By the fifteenth century European monarchs looked for ways to manage what had been patched together. With weapon innovations proving costlier by the decade the key problem for monarchs was raising revenue, especially from lesser lords who often rebelled. To pay for new weapons and to fund military campaigns Europe’s monarchs became creative domestically, and more aggressive abroad.

The former would set the stage for representative government and mercantilism. The latter paved the way for imperialism and colonial wars. In all cases, it was the demands of war that created the environment for liberal constitutionalism and market capitalism to emerge in the West from the 17th through the 19th centuries.
 
- Mark

BERNIE MADOFF: A MISUNDERSTOOD ROBIN HOOD? (and other small bytes)

It looks like Bernie Madoff has a good reason for both scamming people and his unrepetant "F**k my victims" attitude/commentary. It turns out they "deserved" what they got because, as he told one of his cell mates, they were "rich and greedy and wanted more."

So I guess Bernie Madoff is really a misunderstood Robin Hood, with a potty mouth ...

Paul Krugman has yet another great piece that debunks the standard conservative-Fox News canard that poor people and the Community Reinvestment Act are to blame for our 2008 market meltdown. In a few words, as I wrote here, market players were looking for and underwriting the bubble mortgage market ...

 

If you're like me and think that our current financial reform legislation stinks, you'll be happy to know we're not alone. It turns our that Richard Fisher, President of the Dallas branch of the Federal Reserve, also thinks our financial reform legislation stinks and really doesn't go far enough ...

Finally, according to the U.K.'s Telegraph it looks like the family of BP's chief, Tony Hayword, is now getting police protection. You would think that a man who lives in a home with a 12ft high perimeter hedge, with a private access road, and who has a £4 million salary could afford to pay for his own private security. With any luck the Kent police will use BP oil well drilling standards and send these guys ...

 - Mark

PAUL VOLCKER'S STILL THE MAN

Via Mark Thoma's blog, Economist's View, we're directed to Paul Volcker's excellent article "The Time We Have Is Growing Short", which he penned for the New York Review of Books.

Those of you who follow my blog regularly will recognize Volcker's arguments immediately. In a few words, we're not out of the financial woods yet. Worse, as I've been pointing out for some time now, we're looking at another market meltdown unless we do something to rein in the legalized gambling that's still occurring on Wall Street.

The NYR article is rather long and can be found here. For those of you who want to take advantage of Professor Thoma's excellent editing skills, click here. Keep in mind that Paul Volcker is one of the few big guys who understands what happened to our markets, and actually tried to derail some of the stupidity that created our current mess when he headed the Federal Reserve.

More simply, if you want to understand why we're looking at another market meltdown read the article.

- Mark

DECLARE BANKRUPTCY? STOP THE MORTGAGE PAYMENTS? WHY YOU MIGHT WANT TO WALK AWAY ...

Have you ever wondered about the fairness of Wall Street running the economy into the ground, getting bailout after bailout, paying out big bonuses, and then going after you with higher interest rates, canceled credit, and record foreclosures ... and then making you feel like the bad guy? Well wonder no more. In "Default, Please" (from nakedcapitalism.com) we gain insight into why walking away from your mortgage and/or declaring bankruptcy might actually be a good thing, for everyone.

Indeed, after reading this piece you might want to start thinking about creating your own personal Debt Jubilee or, more appropriately, creating your own personal bailout. Here's what one of the analysts is saying about bankruptcy and foreclosure, and why you might want to consider it if you're looking down the barrel of a financial gun ...

What we are experiencing is called the global credit crisis for a reason. There is too much debt in the world. More and more economists are talking about the threat of a deflationary crisis ahead. What does this mean for you? Well, if you have a house that is under water, or more debt than you can reasonably hope to repay, your best options may be the unthinkable. But it really should not be unthinkable to default on a loan or even to declare bankruptcy. Don’t stop reading. It is really a good option for many, it is moral, legal and good for the country. It is also become very common. You and your children will look back in a generation with pride.

In small amounts, debt is good. Home ownership is only possible for the young with mortgages, and many college degrees are partially supported with student loans. Working capital for growing businesses allow for inventory and distribution expenses. Lenders benefit as well: high interest rates are paid to pensioners on their life savings.

When debt exceeds a certain level it becomes a cancer on society. Easy credit fuels speculation which triggers bubbles. These bubbles lead to a temporary lift in apparent wealth, which increases economic activity beyond its sustainable level. But eventually more and more debt triggers economic decline with the inevitable glut of goods produced by an overheated economy.

What people are discovering too late is that their debt is not repayable. Ever. They once had a hope they could wait out their bad times. This is true of many homeowners, many businesses and many governmental bodies. The “great unwind” is going to be deflationary. Prices and salaries will decline, jobs will become more scarce, and debt will continue to increase.

The earlier you pull the rip cord the better off you will be later. In many states mortgage loans are non-recourse. Never make another mortgage payment. Turn over the keys after foreclosure. You will lose all of your down payment, but the lender can never get another penny from you. Your credit score will fall. But you do not want any more credit. Right? If you are trying to quit crack, how would feel about your pusher reducing your crack score? Stay off credit for a few years, and they will take you back with open arms.

There should no longer be any moral question about whether it is wrong to walk away from debt legally. The advent of limited liability corporations and the legal ‘personhood’ of corporate shells have allowed business to create one sided bets for years, and they happily walk away when the tide shifts. This is the calculus of 21st century finance, and you are a bit player in this game [Mark here; emphasis mine].

But it is the macro effects of a large transfer of wealth from creditors to debtors that interests me the most. I am not talking about ‘redistributive change’ in a liberal political sense. Creditors are not all bad, and debtors are not all good. There is a terrible corrosive force that excess debt has on societies. Ken Rogoff and Carmen Reinhart have written an excellent book on the subject “This time is different”, and suffice it to say the outcome for societies can be a generation of high unemployment and low economic growth. No serious economist challenges this data. However there is a lot of debate about what to do about it.

The current administration is implementing a policy of recapitalizing the banks (whose assets are still worth far less than their own debts) by lending them money through the Fed for nothing and borrowing back the money through the treasury for a lot more. This is called transferring debt from the banks to the government. But government debt has the same drag on societies in the long run, they can just hold their breath longer.

In the end deft default always occurs in these situations. The debts cannot be paid by the combined debtors in a society. The default may occur when inflation destroys the value of the debt over time. Or the default may occur with the eventual death of the debtor. Or the debt is discharged legally.

The longer this process takes, the more damage occurs to the society. There are strange incentives that a person has when their debt is unpayable. Why would you try to earn more? The more you earn the more debt you pay. But you cannot earn enough to get out of debt. So you stop trying. If you owe too much on your house, you might decide you have nothing more to lose on your house. So you will simply decide to wait it out. You will minimize the repairs and improvements on the house, rent the house out to frat boys and hope for the best.

The banks are great examples of distorted incentives. They have sucked up a $1T of government money. They are still paying huge bonuses. They are not lending to businesses in need. Distorted incentives indeed.

In the ancient days the Christian nations would have a debt Jubilee every 30 years. It sounds like a party because it was. Debts were forgiven en-masse when societies became constipated with debt.

The economy will continue to stagnate, and unemployment will increase. Asset values will continue to decrease until the defaults begin. When the rot is finally purged from our system, the great American wealth machine will start anew. It is time to party like its 1454. Start your own personal debt jubilee.

Former Labor Secretary, Robert Reich, offers an interesting take on these dynamics as well.

Specifically, Reich points to the hypocrisy of pundits and industry officials who shamelessly criticize homeowners for taking on loans they can't afford, and then argue the "deadbeats" deserve whatever losses come their way. Yet, at the same time, they don't apply the same scrutiny to individual executives, the financial institutions, or the federal government (through the Federal Reserve) who seem to have no problem saving irresponsible “lenders, the credit-rating agencies, financial intermediaries, and hedge funds” with taxpayer dollars. As Reich points out, no one compelled banks to hand out and underwrite loans without documentation of income, jobs, assets, etc.

Let me repeat this, at the end of the day no one compelled banks to hand out and underwrite loans without documentation of income, jobs, assets, etc.

Still, for years there has been a tendency to euphemistically label billion dollar bail-outs as “moral hazard” and struggling homeowners and other debtors as "irresponsible" and "undeserving" deadbeats. The social stigma and the wrecked mental state of "irresponsible" debtors that follows is what the financial institutions bank on. Shifting blame, rather than accepting (even partial) responsibility, has become a corporate strategy.

These dynamics encourage financial institutions to recklessly make loans, take on big risks, and make dumb decisions. And why not? Banks now have the luxury of privatizing the profits when the going is good, and socializing the losses when the going gets tough. Better yet (for them), they have convinced the world that the American consumer is the irresponsible party if they can't meet their obligations. What a racket.

I'll have more to say about this at a later date, when I discuss the Lehman Brothers bankruptcy, and why the American taxpayer is playing the sucker in today's economy.

- Mark