FOX NEWS (misinformation)

Apparently you're better off watching nothing than watching Fox News ... Check this out.



- Mark

GOOD NEWS, BAD NEWS ON THE U.S. ECONOMY

This is big picture, long term stuff. OK, first the Good News ...

Good News ...
Because of advances in technology, innovation, and significant improvements in U.S. productivity, America's share of total world output has remained remarkably constant at a little more than 25%, despite the significant increases in output around the world, especially in Asia.

Bad News ...

With the rise of other national economies, our bloated national debt, and the slow collapse of the dollar, the world has slowly dropped it's use of the dollar for trade and as a store of value ...

So, are we on the right track given the rise of the rest of the world (since we're holding steady), or is something amiss?

We'll be discussing this in class on Monday.

- Mark

PAX AMERICANA, THROUGH LATIN AMERICA'S EYES

It's incredible how our world changed in just one generation. It was 1980. I was in junior college when I started studying politics and international relations. The United States was engaged in a cold war, paying for the defense of the west, and staring down the Soviet Union as it was crumbling into history. The American Peace, or Pax Americana, was in full bloom.

South of the border, most of Latin America was dominated by corrupt regimes and crony capitalists. The region's growing debts insured that the United States would wag it's finger at our neighbors to the south, as if they were broken step-children. And why not? The U.S. had a debt to GDP ratio that was just above 30% (we owed about $979 billion then) while most of Latin America had debt to GDP ratios that hovered between 35-60%, which would be even higher when set against declining export earnings in the 1980s. Though debt ratios didn't approach 100% for most of the region in the 1980s, declining export earning contributed significantly to Latin America's Lost Decade.

And we continued to wag our finger through it all.

How things have changed in just one generation.

There's no longer a cold war, but the United States continues to spend lavishly on military budgets like drunken sailors. We are spending far more money on defense than the next 17 militaries, combined. Worse, we spend 6 times more than our presumptive enemies China, Korea and Iran put together (we might be spending more than $1 trillion a year on defense).

And for what? To defend ourselves from terrorists who killed fewer Americans in 2010 (15, most in Afghanistan) than dog bites (34) or lightening (29)?  Combined with the incredibly irresponsible trickle down borrow-and-spend policies initiated by President Reagan (then carried on by both Bushes), and it should come as no surprise that America now finds itself in a financial mess. We've been spending and cutting taxes recklessly, while subsidizing crony capitalists, and pursuing foreign demons that don't warrant the expenditures.

How big is the mess? The U.S. now finds itself with a debt to GDP ratio that hovers over 95%. This is far worse than any of the major economies in Latin America today. Bolivia, run by socialist president Evo Morales, recently posted a 3.7% budget surplus (in 2010) and felt comfortable enough to lecture the United States on it's finances.

And while capacity to pay is as important as ever (the U.S. still retains the capacity to pay), the recent stupidity we saw over the debt ceiling is not encouraging. The Tea Party's fake populism and manufactured rage are encouraging the Barbarians at the Gate to question the credibility of the United States.

Today, even though annual budget deficits in the United States have only averaged about 10% of GDP after the 2008 market collapse (not bad considering what happened) ...

... total debt to GDP ratios in the United States have risen so fast it's now approaching 100% of GDP. This is quite a swing from when it was just above 30% when President Reagan entered the White House. No wonder Ecuador's socialist president lectured the United States on it's finances. Simply put, he can.

Why is all of this important? Because apart from the faux populist outrage we're getting from the Tea Party cranks (where were these guys when Reagan tripled and Bush II doubled our national debt?), we now have to deal with a world that has less confidence in America.

The world sees a country that seems more concerned with empty tax cuts, crony capitalism for Wall Street, and endless foreign wars than it is with fiscal responsibility and global leadership. They see a nation run by Wall Street kleptocrats, who are guided by ideologues pushing a failed ideology. Worse, many have a sense that they are seeing an empire in decline.

This helps explain why leftist-socialist presidential candidates have had found success in Argentina, Brazil, Chile, Bolivia and Venezuela. While there's much to admire in this country, it's no longer easy for  Latin Americans to point to the United States' economic model as the path to follow. How can it be when fraud and incompetence on Wall Street are rewarded with bailouts and bonuses?

Yet, the United States continues to prod and push Latin America on issues ranging from drugs to immigration when, as any Latin American will tell you, it's U.S. policies and habits that encourage both. The Bush administration even tried a cold war tactic when they participated in (led?) an attempt to remove Venezuela's Hugo Chavez from power in 2002, even though he had been popularly and legitimately elected president. While it wasn't picked up by America's media, political insiders understood that the U.S. had a hand in the attempt to oust Chavez from power by bankrolling Venezuelan groups opposed to Hugo Chavez.

Then there's the hypocrisy of our response to the 2008 market crash.

History tells us that if any of our neighbors to the south had experienced the same market meltdown that we did in 2008 that our response would have been much different. Apart from demanding strict austerity measures we would have pressured Latin American officials to make big changes in the way government bureaucrats and their crony capitalists did business. Our response to our own meltdown, however, was to spend lavishly and to cover up for Wall Street with taxpayer backed bailout funds.

How we reacted to our market meltdown in 2008 is one of the reasons why I wrote, tongue-in-cheek, that it's a good thing we don't have a U.S. Embassy in the United States.

In the past - using the U.S. Embassy as a base to direct events - the U.S. initiated coups and forced unwanted leaders from power for lesser offenses throughout the world. With this in mind, in 2009, after being asked about the evolving economic mess in the United States, Chile's then President (2006-2010) Michelle Bachelet joked:

The reason why in the United States there has never been a coup d'etat is because, in the United States, there is no United States embassy.

President Bachelet may have been joking (she issued an apology later), but the point was made. After 30 years of pursuing budget busting tax cuts and unrestrained neoliberal policies in the United States, we are now experiencing what Latin America did when it embraced free market policies under corrupt regimes in the 1980s: economic instability and financial collapse.

What's worse, in many ways we've done nothing to rectify the issues that have altered our economic landscape in just one generation. This is unfortunate because, while our media ignores how it's all tied in to the American Peace, Latin America is picking up on the new realities of Pax Americana in the 21st century.

I'll be touching on this, and other issues, in my Politics of Latin America class this winter. Stay tuned for updates.

- Mark

TEN MYTHS ABOUT OUR BUDGET MESS (and Why The GOP Isn't Serious About Solving It)

Imagine what would have happened if after Pearl Harbor the president had declared war on Japan, and then invaded Korea. Most Americans would have thought FDR was crazy. Taking your eye off the ball to pursue monsters that exist only in your world doesn't win you many fans.

But this is precisely what the GOP is doing with our current budget mess. They are taking their eye off the ball, as they pursue monsters in a world that only they believe is real. Below I consider their Monster Myths, and the very real Budget Realities that should be shaping our current budget debate.


MYTH #1: BUDGET DEFICITS ARE PRESIDENT OBAMA'S FAULT
We hear it all the time. President Obama is to blame for jacking up our budget. Nothing could be further from the truth.

BUDGET REALITY: Consider this. If it weren't for the Bush era policies - tax cuts for the rich, unfunded wars, deregulation induced market collapse, trillions in bailout costs, etc. - our budget deficits would be right about $100 billion - or less - instead of around $1.3 trillion.

Or we can look at numbers this way ...

Either way you cut it, President Obama isn't to blame for this budget mess.


MYTH #2: TAX CUTS FOR THE RICH REDUCES DEFICITS
We've been told this for the better part of 30 years: "We need to cut taxes on the richest Americans so they can invest." The added benefit of increased investments will "trickle down" to the rest of America in the form of economic growth, and more tax revenue.

REALITY: After 30 years of tax cuts for the rich we now have a national debt that's gone from just under $1 trillion in 1980 to $14.3 trillion today. The Republican response after more than 30 years of having their grand theory blow up in their face? They're proposing yet more tax cuts for the rich.

MYTH #3: WE CAN FIX THE BUDGET BY CUTTING ENTITLEMENTS
We're told every day about rising Medicare and Social Security costs. Ergo, the argument goes, we need to cut benefits for these programs.

REALITY: After decades of providing favorable legislation for a select few Americans we've created at least $1 trillion in write-offs and charge-offs for corporations and other individuals. The really good part is that you and I pay for it. For example, if you like going to lunch with your business friend, who picks up the tab, guess what? You and I actually help pay for it. It's called a business expense, which the business community gets to deduct from what they pay in taxes. Congress has created so many of these deductions that you and I get to pick up more than $1 trillion in business and other expenses.

The Republican want to ignore that we could go a long way in solving our budget deficits if we went after some of the more than $1 trillion in write-offs and deductions we have in our tax code. Why? Because these deductions help their campaign donors.


MYTH #4: SLASHING SPENDING WILL FIX THE MESS
One of the things we're told is that spending money on the state is a waste. The state can do nothing right. As such, we need to cut back on wasteful federal and state budgets because they drain revenue.

REALITY: Today there is more than $330 billion in uncollected federal taxes. Yet, the Republicans want to cut the budget of the IRS by $600 million (with even more cuts later). What the GOP doesn't understand is that for every dollar the Internal Revenue Service spends on audits, liens and seizing property from tax cheats they bring in more than $10. This is a 10:1 rate of return. So, to simplify, if we allow the IRS to spend ...

... we get $10 in revenue in return ...

While no one likes paying taxes, this sounds like a pretty good investment to me.


MYTH #5: SLASHING SPENDING WILL FIX THE MESS (again)
Again, we're told that state spending is a waste. The state can do nothing right. As such, we need to cut back on wasteful federal and state budgets because they drain revenue.

REALITY: According to the Congressional Budget Office (CBO), for every dollar the federal government spends on public work projects, or transfers to ordinary Americans (in the form of unemployment benefits) it generates between $1 and $2.50 in economic activity. This is what it looks like every time we spend money on regular Americans ...

will get us about ...

MYTH #6: TAX CUTS FOR THE RICH GENERATES GROWTH
Like Myth #3 above, for the better part of 30 years we've been told that if we cut taxes on the rich they will invest and generate more economic activity because the rich know what to do with their money. Ergo, we need to provide the rich with more tax cuts.

REALITY: Of all the lies about tax cuts creating more wealth for everyone this one has to be perhaps the biggest lie of all. In fact, according to the Congressional Budget Office, for every dollar in tax cuts we give to America's richest class we only get 50 cents (and perhaps as little at 10 cents) in return. Or ...

in tax cuts for the rich will get us (maybe) ...

MYTH #7: TAXES ARE TOO HIGH ON CORPORATE AMERICA
A couple of weeks back we heard on "60 Minutes" (from corporate America) that corporate tax rates in America were among the highest in the world.

REALITY: Apart from the fact that corporations should stop whining since they are able to draw from U.S. government funded universities, infrastructures, research centers, its military, legal networks, policing bodies, etc. the reality is corporate tax rates in America are at record LOW levels.

In fact, when we look at what corporations (and what their millionaire CEOs) are paying as a share of tax revenue today versus what they (and you and me) paid years ago, the "high corporate tax rate" meme is, quite frankly, a hoax.

Incredibly, the high tax rate meme gets worse once you understand the difference between the "marginal" tax rate and the "effective" tax rate, which you can learn about here.


MYTH #8: SOCIAL SECURITY/PENSIONS ARE A BURDEN
We know that Social Security has produced surpluses, and that the federal government owes the system at least $4 trillion from what it has borrowed from the program. The Republican response? Lie, and say our retirement system is broke, and then make misleading proposals to cut or privatize Social Security.

REALITY: As I've been pointing out year after year, social security is not in trouble. In fact, it's one of the few "profitable" government programs we have. Every president knows this because they've been borrowing hundreds of billions from the program for years. We now owe Social Security trillions in back pay. Oh, and federal pensions aren't really underfunded either. We're just getting ripped off by the private sector, in more ways than one.

MYTH #9: WE NEED TO BE MORE LIKE THE RUGGED RED STATES
Remember Sarah Palin on the 2008 presidential campaign trail, telling us how we needed to do what they do in Alaska? Indeed, how many times did you hear Sarah Palin say how much she appreciated being in the American south because the people there reminded her of the rugged individualists in her home state? There's a reason why this was the case. They're a bunch of Red State Welfare Queens too.

REALITY: While Sarah Palin and other Red State politicians likes to wax nostalgic about the rugged individualists they represent, for every dollar most Red Staters pay into our nation's treasury they take out more than they put in. So, for example, for every dollar Alaskans pay into our nation's treasury box they take out $1.84. However, for every dollar California puts in we get 78 cents in return. 

MYTH #10: GOVERNMENT = SOCIALISM
We've all watched as Fox News, Rush Limbaugh, and virtually every Tea Bag groupie has piled on, telling the world that "the State is the problem."

REALITY: OK, time to have a little fun. I posted on this a few years back (and in the fall). Unless you're a conservative, this helps illustrate how intellectually bankrupt the "hate-the-state" mentality really is.



Moral of the story? The Republican party and their Tea Party brethren are not serious about the budget. They never have been. Why else would they have introduced misleading stories and a budget with no numbers? They would rather peddle myths about trickle down economics, and blame President Obama for our budget mess, than deal with our budget realities. It's all about creating a political narrative.

Put more simply, the GOP has no problem with the state appearing bankrupt, or allowing it to go broke, because it makes their "private sector" ideas look better. It's part of their 30 year race to the bottom strategy.

Unfortunately, in spite of overwhelming evidence that debunks their smoke & mirror lies, their strategy appears to be working.

- Mark

THIS IS WHY WALL STREET IS CORRUPT

Why is Wall Street a hollow shell of what it used to be? Because they want easy money, and Washington is more than happy to oblige them ...

The Background ...
One of the more interesting developments we've learned about over the past two years is how a number of accounting and industry gimmicks undermined the integrity of the market. Don't believe me? Check this out.

From insurance contracts that meant nothing when the chips were down (Credit Default Swaps), to market contracts that were built on toxic loans (securitized debt), to firms making stupid bets on all of this with borrowed money (borrowing at 40:1 ratios), one thing is clear: The 2008 market collapse was no accident. It was caused by the seemingly infinite stupidity of market players in the pursuit of easy money.

If we understand this we can understand why this Bloomberg piece on the Lehman Brothers collapse is so important.

It tells us that the market stupidity that led up to the 2008 market collapse went beyond simply betting on - and then insuring - toxic crap with borrowed money. Companies like Lehman Brothers were actually lending billions to themselves in a series of seedy financial transactions. These transactions saw firms like Lehman hide or flush it's toxic crap off the books (a process that worked something like this), which made it look like they were healthier than they actually were.

Standard Corruption (Continued)
Why is this so important today? Because, according to the Bloomberg piece, much of the financial smoke & mirrors that Lehman Brothers was engaged in before it went bankrupt - which included removing $50 billion in crap off of its books, and then lending itself $3 billion - "would elude the Dodd-Frank law designed to prevent such financial alchemy" today. Nice.

If you're keeping score at home this what it all means.

Apart from creating toxic assets, then covering them with worthless insurance policies - and then borrowing money to make it all work - firms like Lehman Brothers used a "rats maze" of financial tricks to both lend money to themselves, and to mislead regulators (who were both clueless and complicit). And it worked.

The problem is that this continues to go on today. This happens because most Americans are either too ill-informed or too busy working in the trenches to care. But perhaps the biggest reason this goes on is that, for years, Washington has been doing it's level best to provide political and legal cover for the financial mandarins on Wall Street when they screw up.

And it happens in a number of different ways.

An Offer They Can't Refuse ...
But Washington is doing more than simply providing political and legal cover with subsidies, favorable legislation, and bailouts. They are also setting the conditions for turning Wall Street's financial rat maze into a real hall of mirrors. Here's how it's happening ...

As I pointed out last summer, to secure bailout cash A.I.G. was given an offer that they couldn't refuse: "You either accept bailout money and waive your right to sue those who sold you crap, or you go under and suffer the financial and legal consequences."

The interesting thing here is that all of this occurred AFTER the Federal Reserve requested that "national security" procedures be followed before it would cough up to Congress key documents about A.I.G.'s transactions. If this request had been granted it effectively meant that none of the information A.I.G. shared with Congress would be made public.

Only the village idiot would believe that A.I.G. had no idea that these efforts were being made.

Put another way, A.I.G. was told, "Play ball with us and we'll do what we can to stuff you full of cash and protect you. But if you don't play ball, you're on your own." A.I.G. eventually waived their right to sue the firms that sold it toxic crap, and accepted the bailout money.

Some where, some place, Al Capone had to be smiling. He couldn't have done it better.

At the end of the day this offer was made because the biggest players (on Wall Street and in Washington) knew that if A.I.G. actually sued firms like Goldman Sachs, who sold them crap, that lawyers in discovery would've started digging into the deliberate and corrupt practices of Wall Street. This would have blown the cover off of their financial shell game.

Fortunately for Wall Street, their influence in Washington is only growing stronger.

Corruption, With a National Security Twist ...
We shouldn't be surprised by any of this. In 2006 the Bush administration granted it's top national security person, John Negroponte, broad authority to excuse publicly traded companies from standard accounting and securities-disclosure obligations. This authority used to be held only by the President of the United States. And it was only granted for legitimate cloak and dagger missions. Not to cover up Wall Street's stunning levels of stupidity and greed.

Seriously. This is how bad it's gotten. 

In the final analysis, Wall Street is no longer just about favorable legislation and bailouts. It can now call on their friends in Washington to: (1) secure A.I.G.-like extortion offers, (2) ask the Federal Reserve to request national security waivers, and then (3) cook the books and get cloak and dagger cover for their corrupt practices.

And you were wondering why Wall Street is corrupt.

- Mark

WHY ISN'T WALL STREET IN JAIL?

Everyone should read this Rolling Stone article on the corruption and stupidity that dominate the halls of Washington and the financial institutions on Wall Street. Written by Matt Taibbi, we are asked the very simple question: "Why Isn't Wall Street in Jail?". Here's the introduction ...

Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.

"Everything's fucked up, and nobody goes to jail," he said. "That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that."

I put down my notebook. "Just that?"

"That's right," he said, signaling to the waitress for the check. "Everything's fucked up, and nobody goes to jail. You can end the piece right there."

It only gets better as you read through it. Enjoy ...

- Mark

REPUBLICAN REPORT IS A JOKE

We know that with the helping hand of favorable legislation from Washington that Wall Street gambling and greed are primarily to blame for the 2008 market meltdown. Still, as the Huffington Post's Shahien Nasiripour wrote about last week, all four Republican members on the the Financial Crisis Inquiry Commission voted to exclude the following terms from the commission's report: “Wall Street,” “deregulation,” “shadow banking,” and “interconnection.”

This is like saying we're going to study welfare fraud but we're not going use the words "welfare" or "fraud." It doesn't make sense.

The good news is that the rest of the commission members didn't want to go along with the Republican charade. The bad news is that the Republican commission members - which includes our previous local Congressman, Bill Thomas - decided to write their own Republican report.

Don't believe me? Check it out here.

For those of you who don't have the time to read the Republican Report, or who are unfamiliar with Washington-speak, let me break the report down for you: The market collapse was the government's fault ... but mostly it was Fannie Mae and Freddie Mac's fault.

Even though blaming Fannie Mae and Freddie Mac for the market collapse has been thoroughly discredited (as I pointed out here, here, and here) the Republican Report says nothing about the evidence that debunks their points. Worse, there was no mention of the unspeakable words noted above in the Republican Report - no "shadow banking" system ... no references to "deregulation" (which Bill Thomas voted to approve numerous times when he was a member of Congress) ... and there were definitely no references to Wall Street's stupidity and greed.

Everything was the government's fault. End of story.

As for final words of wisdom the Republican Report provides us with this classic ending: "We caution our nation's leaders to learn the appropriate lessons from history and take seriously the need to reduce our federal deficit."

Huh?

No mention of favorable legislation, deregulation, agency capture, irresponsible lenders, speculation run rampant, etc. It simply was the government's fault. Paul Krugman discusses the Wall Street Whitewash here. 

I'm going to post on the simplistic arguments used by the Republican commission members later (which you can also read about in my book) but, for now, let's just say the Republican Report is a cruel joke.

Why the Republican Report is a Joke ...
After the 1929 stock market crash many Americans wanted to know what happened. Just like Americans in 2008 they were understandably angry and wanted answers. So after Franklin D. Roosevelt came to office the Senate banking committee created an investigative commission to look at the causes behind the 1929 market collapse and the Great Depression.

To get answers a former Manhattan Deputy District Attorney with experience in financial crimes, Ferdinand Pecora, was hired as chief counsel.

Born in Sicily, Pecora was a hard nosed, no nonsense, kind of guy who believed in the spirit of the American Dream. He saw corrupt Wall Street "banksters" (a term he coined) as enemies of that dream. While FDR gets credit for saving the system, history will record Pecora as the man who did the grunt work that saved American capitalism. As Mary Bottari put it:

The vigorous Pecora commission interviewed hundreds, including financial magnates, their underlings, brokers and analysts, compiled 12,000 pages of testimony and paved the way for a major financial services overhaul. The 1933 Glass-Steagall Act, the 1934 Securities and Exchange Act and other legislation protected the economy for the next 60 years. When these reforms unraveled in the 1980s and 1990s, the ground was laid for a “boom and bail" economy.

To understand how our "boom and bail' economy" collapsed in 2008 Congress authorized the creation of another commission, The Financial Crisis Inquiry Commission. Unfortunately, today's commission - in spite of the presence of Brooksley Born and Phil Angelides - doesn't seem to have the same cohesion, or sense of urgency that the Pecora Commission had.

As we are seeing today - and as I noted over a year ago - while there are several people on the commission who could perform Pecora-like roles, the commission has been stocked with Wall Street sycophants and partisan ringers. Their goal is not to find answers. Their goal is to stonewall, and keep Wall Street from being regulated, like they were after the Pecora Commission. Former Congressman Bill Thomas, in particular, has a stake in keeping the world from looking at all the deregulation he pushed through and signed off on.

Put another way, Republican commission members are not honest brokers.

Finally, I called the commission and asked if anyone could get back to me to discuss the excluded words, among other topics. I'll be checking my messages tomorrow.

- Mark

UPDATE: One of the joys I get from writing this blog is finding out how many smart people tune in from time to time. I've learned from the authority on Pecora - Michael Perino - that the Wall Street investigation actually started in March 1932 while Herbert Hoover was still President. Perino points out that the invesigation basically went nowhere until Ferdinand Pecora was appointed counsel in January 1933, before FDR assumed office in March. Pecora turned the hearings around that winter just as the banking crisis of 1933 was in full swing. He put on the stand Charles Mitchell, chairman of the National City Bank (today’s Citigroup) and revealed massive wrongdoing at the bank in the run-up to the Great Crash. When FDR took office, Pecora was re-appointed as the committee’s counsel. For more on this check out Perinos book, The Hellhound of Wall Street: How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance (Penguin Press 2010). I encourage you to buy the book.

PRISON ECONOMICS, IMMIGRATION, AND AMERICA'S RACE TO THE BOTTOM

One of the more interesting things I've found when giving off-campus presentations is taking on topics that have been over-hyped by the media, and then turned into emotional and political spectacles. How can America begin to have a serious discussion on anything of substance when the media and the American public crave Ballon Boy stories, snooki-drenched reality shows, and other entertainment blood that have turned much of America into the world's navel-gazing heartland?

This is what I think about when I'm asked to explain complex topics that are trivialized by the media, like how our immigration challenges have actually been made worse by "free-market" policies that are hardly driven by free market realities.

Think about it. Just as no one wants to discuss the societal costs of a media culture driven by Balloon Boy-like drama, no one wants to discuss how reckless free market policies would push more Mexicans out of Mexico, and eventually feed a xenophobic and race-baiting crowd here in the U.S. The press, and our increasingly snooki-drenched society, would rather focus on spectacle than analysis.

As a result, in my off-campus talks, apart from having to explain Mexico's development history, I need to explain how the North American Free Trade Agreement (NAFTA) was a highly scripted trade document that has little to do with free markets, or laissez-faire economics. This usually entails asking my audience how a multi-thousand page, government-escorted,  government-enforced, legally obtuse and lobbyist driven trade document reminds anyone of the magic of the market?

This is what makes this article on Prison Economics so ironic.

The article describes how a cabal of executives from the private prison industry came together to discuss industry business, and then ended up crafting the language that became Arizona's new immigration law. Their goal was to find a way to have the government pay them money for incarcerating more people. Getting the public foaming at the mouth over Mexican immigrants was their tactic of choice.

Think, for a moment, what this means.

Private prison executives, who stand to make lots of money if their prisons are full, developed an immigration law that's designed to increase arrest and incarceration rates of Mexican migrants. This, in turn, will lead to increased demand for more prisons because, according to the Corrections Corporation of America (CCA), the agency that detains illegal immigrants (Immigration and Customs Enforcement, or ICE) is the targeted client, and will provide "a significant portion of our revenues" as incarceration rates increase.

So, at this time, this is what we have: An industry driven trade agreement (NAFTA), negotiated and enforced by the state (federal governments on both sides), that effectively forces Mexicans off their land and out of Mexico (in the name of efficiency). This is followed by industry driven immigration law, embraced and pushed for by the state (Arizona), which allows the private sector to profit from capturing and incarcerating "illegals" who enter the state.

With NAFTA and Mexico's laggard development levels forcing more Mexicans out of Mexico, rounding up and incarcerating them is kind of like shooting fish in a barrel. Only better.

With the state (at many levels) backing the privatization and incarceration activities, there are fewer people around to push for real policy solutions when it comes to developing Mexico. Worse, we're now feeding a private group that has both the resources and a financial stake in fighting comprehensive immigration reform, and demonizing an entire ethnic group. Nice.
 
And the privatized race to the bottom continues. 

- Mark

KING NOTHING & THE DECLINE OF EMPIRES

From the group Metallica ... While I'm not a fan of Metallica (my son shared this with me), "King Nothing" is a music video that hits on many of the topics we've been discussing in my International Relations class. Specifically, we've been focusing on the rise and decline of empires, and how empires over time have consistently pursued conflict and war (i.e. what ends up being hegemonic war) when they sense their hold on power is slipping away. Things don't go well towards the end.

Fair Warning: While some of the clips in the video may be a bit strong for some, the "King Nothing" message is provocative and offers some insight into why we're not safer after conducting our War on Terror ...



- Mark

AMERICAN DECLINE ... THE CYCLE OF EMPIRES CONTINUES

This was sent to me from a student who remembered some of my lectures (a nice compliment; thanks), and thought it hit on many of the same themes I discussed last year. I agree ...



While the ad definitely captures the empire-in-decline narrative, the story-line, unfortunately, is incomplete. Generic spending on government programs and "waste" aren't entirely to blame for our nation's debt problems.

Government bailouts for the private sector (which really took off under Reagan), favorable legislation for the rich (which undercuts our tax base), and a culture of war (fomented by the war crazies) have as much to do with our current financial mess, if not more, than expenditures on services and waste. Indeed, President Reagan effectively tripled our national debt, while President Bush doubled it (then he poisoned the financial well by setting up a trillion dollar bailout and government guarantee program for good measure).

Still, the ad is vivid, and sends a message about our nation's decline, and our seeming inability to do anything about the root causes of debt.

- Mark

THIS IS WHY OBAMA'S IN TROUBLE ... MAIN ST. IS REELING, WALL ST. IS CLUELESS

QUESTION: What do abysmal employment numbers, rising poverty levels, collapsing home prices, evaporating middle-class wealth, a forgotten Main Street, white pity rallies and, finally, the emergence of a whiny elite class have in common?

ANSWER: They all help us understand why the Democrats have a hill to climb this November, and why this nation's troubles may be just beginning.

Let's take a closer look ...

ON THE JOBS FRONT, former Labor Secretary Robert Reich reports:

The Labor Department reports [in June] that the private sector added a measly 41,000 net new jobs in May. (The vast bulk of new jobs in May were temporary government Census workers.) But at least 100,000 new jobs are needed every month just to keep up with population growth.

In other words, the labor market continues to deteriorate.

The average length of unemployment continues to rise – now up to 34.4 weeks (up from 33 weeks in April). That’s another record. More Americans are too discouraged to look for a job than last year at this time (1.1 million in May, an increase of 291,000 from a year earlier.) Of the small number of jobs created by the private sector in May, many came from temporary help services ...

... The only reason the economy isn’t in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can’t continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories) ...

ON THE POVERTY FRONT, via the NY Times, the Census Bureau reports:

Forty-four million people in the United States, or one in seven residents, lived in poverty in 2009, an increase of 4 million from the year before, the Census Bureau reported on Thursday.

The poverty rate climbed to 14.3 percent — the highest level since 1994 — from 13.2 percent in 2008. The rise was steepest for children, with one in five residents under 18 living below the official poverty line, the bureau said ...

... For a single adult in 2009, the poverty line was $10,830 in pretax cash income; for a family of four, $22,050.

Things could be worse, except for ...

Given the depth of the recession, some economists had expected an even larger jump in the poor. Expanded unemployment insurance and a rise in the number of families doubling up helped temper the trend, said Timothy M. Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin.

“A lot of people would have been worse off if they didn’t have someone to move in with,” said Mr. Smeeding, noting that in a typical case, a struggling family, like a mother with a child, stays with more prosperous parents or other relatives. The Census study found an 11.6 percent increase in the number of such multifamily households last year.

ON THE HOUSING FRONT, Michael David White is reporting:

Data from HousingStory.net predicts a nine percent fall in property prices nationwide in 2010. HousingStory.net is making this prediction "despite positive signals of higher prices including a gain of seven percent nationwide by Case-Shiller 10-City index from its post-crash bottom in April 2009."

So, why all the doom and gloom for the housing market? Part of the story is explained because of the lagging jobs and poverty picture painted above. But the real key is tied to historical projections that were broken by the bubble market starting in 2000. By using pre-bubble trends that predate 2000 it follows that housing prices will continue to fall.

This is especially since government sponsored home ownership programs are either ending, or not going so well (the Making Home Affordable Program, is especially a disaster because the details were left in the hands of the banks).

ON THE COLLAPSING NET WORTH FRONT, via Huffington Post we see that the Federal Reserve is reporting:

Americans' net worth plunged in the second quarter of this year, new data from the Federal Reserve show, erasing the gains of the previous two quarters and adding evidence to the argument that the economy has entered a double-dip recession.

The net worth of households and non-profit organizations dropped $1.52 trillion during the period from April 1 to June 30 of this year, according to the report released Friday. The new figure, $53.50 trillion, represents a 2.8 percent decline from the previous quarter.

The net quarterly loss, the data suggests, came from Americans' losses in the sagging stock market. Equity shares owned by households and non-profits tanked in the second quarter, dropping $1.88 trillion or 11.2 percent to $14.87 trillion from the previous quarter. The second quarter figure went down past the territory of 2009's third quarter ($15.32 trillion), almost to the range of the 2009 second quarter ($13.06 trillion), when equity was just starting to rise from its low of $10.94 trillion in the first quarter of that year.

ON THE "FORGETTING" MAIN STREET FRONT, as I pointed out after the Democrats lost the U.S. Senate seat in Massachusetts, Main Street is rightfully pissed off because:

1. President Obama rewarded Wall Street for their incompetence, while doing little to nothing for Main Street.

2. President Obama didn't push Congress when it came to allowing cheaper medicines in from countries like Canada (there goes the elderly independent vote).

3. President Obama made it look like he didn't really want a single payer system, or a public option, both of which he pushed for on the campaign trail. The base is uninspired.

4. Unemployment is hovering around 10% after the Obama administration said it wouldn't hit 10%. 

5. After the House passed foreclosure legislation, which would have helped stem record foreclosures by allowing bankruptcy judges to rewrite mortgages, it died in the Senate. After going to bat for Wall Street, President Obama did nothing to help push it through the Senate ... The message is clear, "You're on your own Main Street."

6. President Obama's Making Home Affordable plan is being undermined by banks, who have Federal trillion-dollar guarantees and aren't in any hurry to negotiate with distressed homeowners. Sitting by as homeowners get kicked out of their homes by the very banks that created our mess is no strategy for winning votes.

ON THE WHITE PITY / "WHINY" BILLIONAIRE FRONT, David Frum and Les Leopold report:

Former Bush speechwriter David Frum called attention to the comments of Chris Hitchens, who referred to  Glenn Beck's recent rally in Washington DC as the Waterworld of White Pity.

At the last “Tea Party” rally I attended, earlier this year at the Washington Monument, some in the crowd made at least an attempt to look fierce and minatory. I stood behind signs that read: “We left our guns at home—this time” and “We invoke the First Amendment today—the Second Amendment tomorrow.”

But Beck’s event was tepid by comparison: a call to sink to the knees rather than rise from them. It was clever of him not to overbill it as a “Million”-type march (though Rep. Michele Bachmann was tempted to claim that magic figure). The numbers were impressive enough on their own, but the overall effect was large, vague, moist, and undirected: the Waterworld of white self-pity.

Then we have Les Leopold pointing out how our bailed out billionaires think they deserve more tax breaks (or a medal) for their greed and stupidity. They are now whining about being asked to pitch-in some of their government escorted (or taxpayer subsidized?) profits so that the larger American economy can recover.

While 43.6 million Americans live in poverty, the richest men of finance sure are getting pissy. First Steve Schwartzman, head of the Blackrock private equity company, compares the Obama administration's effort to close billionaires' tax loopholes to "the Nazi invasion of Poland."

Then hedge fund mogul David Loeb announces that he's abandoning the Democrats because they're violating "this country's core founding principles" -- including "non-punitive taxation, Constitutionally-guaranteed protections against persecution of the minority, and an inexorable right of self-determination." Instead of showing their outrage about the spread of poverty in the richest nation on Earth, the super-rich want us to pity them?

Why are Wall Street's billionaires so whiny? Is it really possible to make $900,000 an hour (not a typo -- that's what the top ten hedge fund managers take in), and still feel aggrieved about the way government is treating you? After you've been bailed out by the federal government to the tune of $10 trillion (also not a typo) in loans, asset swaps, liquidity and other guarantees, can you really still feel like an oppressed minority?

Soaring unemployment, rising poverty levels, collapsing home prices, evaporating middle-class wealth, broken promises, pathetic white pity rallies, and a whiny elite class that think they've suffered enough ... All of these developments help to explain why the Democrats find themselves facing a pissed off electorate in November.

To be sure, this is exactly how the Republican Party wanted this electoral season to play out. Why else would they have become the Party of No? The GOP clearly understands that it's hard to reward a party when their policies helped bail out Wall Street, but had the effect of pretty much leaving Main Street to fend for itself.

At the end of the day, President Obama deserves much of the blame for trying to negotiate with a political party that told the country at the beginning that 60 vote filibusters would be the norm in the Senate, and then acted in a way that confirmed Rush Limbaugh's wish for him - and, by definition, for the country - to fail (whatever happened to Country First?).

With George W. Bush and his failed policies still a recent memory, this is the only strategy the GOP had. They knew it. People like me knew it. Unfortunately for the country, President Obama is still figuring this out ... and it appears this may cost him big in November.

- Mark

REVERSING AMERICA'S DECLINE ... LET'S BEGIN WITH WALL STREET

The decline of the American Empire is occurring as we speak. It is also increasingly anchored to a nation that embraces the financial smoke and mirrors peddled by Wall Street.

But Wall Street isn't really interested in helping the economy - or our nation - manufacture exportable goods like wind, solar, and other Green technologies of the future. Instead, they're focused on "investing" in the production of increasingly useless (and damaging) derivative markets, accounting discounts (see the S&L mess), structured investment vehicles (capital arbitrage), and other "innovative" market instruments that produce quick payouts and bonuses for Wall Street executives.

As a result, the real economy is being held hostage to the quick financial gains that Wall Street can make in what Peter Drucker called the symbolic economy. The problem here is that the practices embraced in the symbolic economy are little more than accounting gimmicks. They not only create a casino mentality, which contributes to market bubbles, but allows Wall Street executives to use creative accounting to extract wealth, as opposed to building it.

Think about it this way, between 2002 and 2008 about $1.4 trillion in subprime mortgages were issued. However, Wall Street then took these simple mortgage contracts, bundled them up into securities, sold them, and then made huge bets on them. In the process they created about $14 trillion in "securitized" bets (e.g. CDOs/CDSs) which dwarfed the actual value of mortgage contracts. In oversimplified terms, it would be the same as if you were able to bet $1.4 million based on the value of your $140,000 house ... even though you hadn't paid off the mortgage!

The absurdity of these bundled market bets was made clear when housing prices began to collapse, like a house of cards ...

If we channel the financial ghost of Joseph Schumpeter it's easier to say that we're no longer living in a world where Wall Street is interested in helping to build monopolies. They just want to play it.

As always, the proof is in the pudding.

Right before the market collapsed in 2008 the financial sector (investment banks, commercial banks, etc.) accounted for 40 percent of corporate profits. After the market collapse (2009) it accounted for about 36%. Much of this figure is due to the fact that the services sector (which includes insurance, finance, etc.) has grown, and now represents more than 50% of our nation's economy, which is up from 30.2% in 1960.

All of this means that the primary characteristics of the market have changed. We no longer produce real durable goods & services that other countries seek. Instead we are the kings of producing empty symbolic goods & "services" that can't compete with the technologies of the future currently being developed in places like China, Brazil, and Asia. This has occurred because our nation's market players have increasingly found it easier to make derivative bets, play with the tax code, game regulatory agencies, cut examiner budgets, and secure favorable legislation from congress so that their market instruments - rather than real investments in durable goods - can prosper.

The rest of America, if we are to read into Wall Street's actions, can eat crack.

Among the many problems that have emerged from our borrow and spend, tax cut, and deregulation orgy over the past thirty years include:

(1) Massive debt loads for our country ($13 trillion and counting).

(2) The GOP's continued embrace of jihad-like tax cuts for the rich policies (necessary for placing financial bets, and to win elections) and deregulation (necessary for looting our nation's wealth).

(3) The financialization of our economy (finding out how to produce CDO-squared derivatives isn't an espionage task other nations will send their spies out to pursue).

(4) A casino like mentality that focuses on extracting wealth for a few rather than creating wealth for the nation.

How do we fix this mess? Among the many solutions I like, which I've commented on before, include:

(1) Reregulating our financial sector (Europe is actually leading the way here).

(2) Creating a consumer protection agency with teeth (let's start by naming Elizabeth Warren to head the agency).

(3) Tax claw backs (to get back some of the ill-gotten gains).

(4) General tax increases on the top 2% of the nation (who actually did little for their increased wealth over the previous 30 years, beyond securing favorable legislation), and

(5) Enacting the Tobin Tax (a small tax on fast-paced, high-frequency trading, which feed a Casino mentality).  

There's more, but I'll leave it at that for now.

Zach Carter has an interesting article that discusses some of the background information necessary for understanding what needs to be done, and how we can scale back our bloated financial sector. It's real simple stuff. Check it out.

- Mark