Socioeconomic inequality and military service

From McClatchy News Service

By Douglas L. Kriner and Francis X. Shen | Los Angeles Times

Since Sept. 11, 2001, more than 5,000 Americans have lost their lives in the wars in Afghanistan and Iraq — almost 600 of them Californians. This sacrifice, and the sacrifice of all of our brave men and women in uniform, will be honored over the Memorial Day weekend. In honoring their service, we should not overlook a very real though hidden aspect of war: the socioeconomic inequality in who makes the ultimate sacrifice in defense of the nation.
Over the last six years, we have studied this inequality by collecting and analyzing data on the hometowns of more than 400,000 members of the armed forces who died in World War II, Korea, Vietnam and Iraq. By integrating these records with census data, we demonstrate unambiguously that, beginning with the Korean War, disadvantaged communities have suffered a disproportionate share of the nation's wartime casualties, while richer communities have been more insulated from the costs of war. Furthermore, the data suggest that this "casualty gap" between rich and poor communities has reached its widest proportions in the ongoing conflict in Iraq. Although the military uses the term "casualty" in reference to both killed and wounded soldiers, following the standard practice in political science our study uses the term casualty to denote deaths.
Nationally, in the Korean, Vietnam and Iraq wars, communities in the lowest three income deciles suffered 35 percent, 36 percent and 38 percent of the casualties, respectively. Yet communities in the top three income deciles sustained significantly fewer casualties - 25 percent, 26 percent and 23 percent of the casualties, respectively.
More advanced statistical analyses, which account for a variety of other important factors, also offer strong evidence of casualty gaps between communities with different levels of income and education. In Los Angeles, for example, citywide almost 27 percent of residents hold a college degree. By contrast, in the specific L.A. neighborhoods that have lost a young man or woman in Iraq, less than 12 percent of residents graduated from college. Similarly, in New York City, the citywide average median family income is nearly $42,000, while the average in neighborhoods that have experienced an Iraq war casualty is $34,000, 19 percent lower.
Assertions of a casualty gap are not new. In the Civil War, there were cries of a "rich man's war, poor man's fight." But documenting this inequality has proved difficult. Previous studies were limited in scope and produced conflicting findings. This confusion led commentators such as William F. Buckley to describe Vietnam as an "all-American effort" of shared battlefield sacrifice. Our study, however, definitively shows that the burden of war death in Vietnam, Korea and Iraq has not been shouldered equally.
It is possible that the casualty gap is an inescapable consequence of broader social inequity and the military's important role as an engine of opportunity and upward mobility. But the gap also plainly conflicts with a norm of shared military sacrifice that is as old as the republic. George Washington proclaimed that every citizen who enjoys the rights and privileges of citizenship "owes not only a proportion of his property but even of his personal service to the defense of it."
What would happen if the nation openly acknowledged the casualty gap? Would citizens rethink questions of war and peace? To find out, we conducted a series of original public opinion survey experiments with nationally representative samples of Americans. We found that citizens informed about the existence of a casualty gap were significantly more likely to oppose ongoing military operations and less willing to support future ones than were their peers who were not informed about casualty inequalities. For example, in evaluating a hypothetical military mission to halt Iran's nuclear weapons program, respondents told about casualty inequalities in the Iraq war said they would tolerate 40 percent fewer casualties to achieve the mission's goals than would their peers who were not given this information.
These experimental results suggest that if Americans were to learn of wartime inequalities, the public would become more circumspect about future military action. However, the casualty gap is not part of our national dialogue. The reason is clear: Casualty inequalities challenge our fundamental American values. Bringing a frank and honest discussion of the casualty gap into the public sphere could significantly alter the tenor of political discourse in Washington.
We call on policymakers, military leaders and the public to acknowledge and discuss the disproportionate wartime burden borne by America's poorest and most disadvantaged communities. Let us remember the full human costs of military action, including the socioeconomic inequality they underscore, and weigh them carefully when crafting American military policy.
ABOUT THE WRITERS
Douglas L. Kriner is an assistant professor of political science at Boston University. Francis X. Shen is a fellow in the MacArthur Foundation Law & Neuroscience Project and a visiting scholar at Vanderbilt Law School. They are the authors of the recently published book "The Casualty Gap: The Causes and Consequences of American Wartime Inequalities." They wrote this for the Los Angeles Times.

© 2010, Los Angeles Times.

Read more: http://www.mcclatchydc.com/2010/05/28/95003/americas-casualty-gap-we-shouldnt.html#ixzz0pZHUOkex

Did an American Mine Sink South Korean Ship?

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New America Media, News Analysis, Yoichi Shimatsu, Posted: May 27, 2010

BEIJING - South Korean Prime Minister Lee Myung-bak has claimed "overwhelming evidence" that a North Korean torpedo sank the corvette Cheonan on March 26, killing 46 sailors. U.S. Secretary of State Hillary Clinton claimed that there’s "overwhelming evidence" in favor of the theory that North Korea sank the South Korean Navy warship Cheonan. But the articles of proof presented so far by military investigators to an official inquiry board have been scanty and inconsistent.

There’s yet another possibility, that a U.S. rising mine sank the Cheonan in a friendly-fire accident.

In the recent U.S.-China strategic talks in Shanghai and Beijing, the Chinese side dismissed the official scenario presented by the Americans and their South Korean allies as not credible. This conclusion was based on an independent technical assessment by the Chinese military, according to a Beijing-based military affairs consultant to the People Liberation Army.

Hardly any of the relevant facts that counter the official verdict have made headline news in either South Korea or its senior ally, the United States.

The first telltale sign of an official smokescreen involves the location of the Choenan sinking - Byeongnyeong Island (pronounced Pyongnang) in the Yellow Sea. On the westernmost fringe of South Korean territory, the island is dominated by a joint U.S.-Korean base for anti-submarine warfare (ASW) operations. The sea channel between Byeongnyeong and the North Korean coast is narrow enough for both sides to be in artillery range of each other.

Anti-sub warfare is based on sonar and acoustic detection of underwater craft. Since civilian traffic is not routed through the channel, the noiseless conditions are near-perfect for picking up the slightest agitation, for example from a torpedo and any submarine that might fire it.

North Korea admits it does not possess an underwater craft stealthy enough to slip past the advanced sonar and audio arrays around Byeongnyeong Island, explained North Korean intelligence analyst Kim Myong Chol in a news release. "The sinking took place not in North Korean waters but well inside tightly guarded South Korean waters, where a slow-moving North Korean submarine would have great difficulty operating covertly and safely, unless it was equipped with AIP (air-independent propulsion) technology."

The Cheonan sinking occurred in the aftermath of the March 11-18 Foal Eagle Exercise, which included anti-submarine maneuvers by a joint U.S.-South Korean squadron of five missile ships. A mystery surrounds the continued presence of the U.S. missile cruisers for more than eight days after the ASW exercise ended.

Only one reporter, Joohee Cho of ABC News, picked up the key fact that the Foal Eagle flotilla curiously included the USNS Salvor, a diving-support ship with a crew of 12 Navy divers. The lack of any minesweepers during the exercise leaves only one possibility: the Salvor was laying bottom mines.

Ever since an American cruiser was damaged by one of Saddam Hussein's rising mines, also known as bottom mines, in the Iraq War, the U.S. Navy has pushed a crash program to develop a new generation of mines. The U.S. Naval Mine and Anti-Submarine Warfare Command has also been focused on developing counterparts to the fearsome Chinese naval "assassin's mace," which is propelled by a rocket engine.

A rising mine, which is effective only in shallow waters, rests atop a small platform on the sea floor under a camouflage of sand and gravel. Its detection system uses acoustics and magnetic readings to pick up enemy ships and submarines. When activated, jets of compressed air or solid-fuel rockets lift the bomb, which self-guides toward the magnetic center of the target. The blast rips the keel, splitting the ship or submarine into two neat pieces, just as was done to the RKOS Cheonan.

A lateral-fired torpedo, in contrast, "holes" the target's hull, tilting the vessel in the classic war movie manner. The South Korean government displayed to the press the intact propeller shaft of a torpedo that supposedly struck the Cheonan. Since torpedoes travel between 40-50 knots per hour (which is faster than collision tests for cars), a drive shaft would crumble upon impacting the hull and its bearing and struts would be shattered or bent by the high-powered blast.

The initial South Korean review stated that the explosive was gunpowder, which would conform to North Korea's crude munitions. This claim was later overturned by the inquiry board, which found the chemical residues to be similar to German advanced explosives. Due to sanctions against Pyongyang and its few allies, it is hardly credible that North Korea could obtain NATO-grade ordnance.

Thus, the mystery centers on the USNS Salvor, which happened to be yet right near Byeongyang Island at the time of the Cheonan sinking and far from its home base, Pearl Harbor. The inquiry board in Seoul has not questioned the officers and divers of the Salvor, which oddly is not under the command of the 7th Fleet but controlled by the innocuous-sounding Military Sealift Command. Diving-support ships like the Salvor are closely connected with the Office of Naval Intelligence since their duties include secret operations such as retrieving weapons from sunken foreign ships, scouting harbor channels and laying mines, as when the Salvor trained Royal Thai Marine divers in mine-laying in the Gulf of Thailand in 2006, for example.

The Salvor's presence points to an inadvertent release of a rising mine, perhaps because its activation system was not switched off. A human error or technical glitch is very much within the realm of possibility due to the swift current and strong tides that race through the Byeongnyeong Channel. The arduous task of mooring the launch platforms to the sea floor allows the divers precious little time for double-checking the electronic systems.

If indeed it was an American rising mine that sank the Cheonan, it would constitute a friendly-fire accident. That in itself is not grounds for a criminal investigation against the presidential office and, at worst, amounts only to negligence by the military. However, any attempt to falsify evidence and engage in a media cover-up for political purposes constitutes tampering, fraud, perjury and possibly treason.

Yoichi Shimatsu, former editor of the Japan Times, is an environmental consultant and a commentator on Asian affairs for CCTV-9 Dialogue.

How the GOP Became the White Man's Party

AlterNet / By Robert Perkinson

In this excerpt from Texas Tough: The Rise of America's Prison Empire, Robert Perkinson shows how the Right embraced racial animus as a political strategy.

May 26, 2010 |


Photo Credit: Wikipedia



Publisher's Note: In the latter third of the twentieth century, the United States built the largest penal system in the history of democratic governance. This exceptional prison buildup had surprisingly little to do with crime and a great deal to do with politics, particularly racial politics. Texas Tough traces the entwinement of race, crime, and punishment all the way back to slavery. It argues that mass incarceration developed in the backlash against civil rights, just as Jim Crow took hold in reaction against emancipation and Reconstruction. On the national stage, the punitive turn in U.S. criminal justice policymaking gained forced in the second half of the Johnson administration, just as the civil rights movement cemented its historic gains. Leading the way were two arch-conservatives, a canny southern demagogue from Alabama and a belligerent anti-communist from Arizona. Not only did they help construct a prison nation; they polarized and racialized America's politics in ways that are still thwarting the task of governing two generations later.

No one understood the politics of backlash better than Lyndon Johnson, Texas's most legendary politician since Sam Houston and the White House's most determined champion of civil rights since Ulysses S. Grant. Although Johnson had started out as a segregationist, as president, his social programs extended the New Deal and went further toward alleviating economic inequality than any policy regime before or since. His deployment of federal power in the interest of civil rights retraced the footsteps of Reconstruction and for the first time gave genuine credibility to the age-old American credo, equal justice before the law. "I'm going to be the President who finishes what Lincoln began," Johnson pledged -- and to a certain extent he was. Even as his Great Society ushered new voters into the Democratic Party, however, Johnson increasingly antagonized his traditional white southern base. After the passage of the Civil Rights Act in 1964, he confided to Bill Moyers, "I think we just delivered the South to the Republican party for a long time to come."

The Great Society's fiercest critics indeed came from Johnson's own section of the country, often from his home state. In 1960, he and Lady Bird had been jostled and spit on by a right-wing mob in Dallas. After the passage of the Civil Rights Act, J. Evetts Haley, a wealthy rancher and far-right rabble rouser, denounced the president as a "traitor" to the South whose policies would result in "race and national suicide."

By the mid-1960s, however, neo-Confederate obstructionists were in retreat. A strong majority of white poll respondents nationwide said they accepted the basic justice of civil rights demands; even whites in the South were no longer responding to racial venom with the same fervor they once had. Critics of the Johnson administration, therefore, had to refine and redirect their ire. Anticommunism remained at the ready, but with the president dispatching hundreds of thousands of combat troops to Vietnam, red baiting was losing its zing. A fresh issue on the home front, however, held unusual promise. Not only might it allow the right to tap into smoldering fears and frustrations without resorting to outmoded racist demagoguery, but it suggested a way to reclaim the populist mantle from redistributionist liberals. The issue was crime, and after 1964, it became one of the most divisive forces in American politics.

Since crime had traditionally been a mayoral or at most gubernatorial concern -- with the notable exception of Prohibition -- Johnson was slow to grab hold. "A visitor coming to America for the first time might have been forgiven for assuming that the President of the United States commanded all the city police departments and that control of the courts was his personal responsibility," he explained "[But] crime is a local problem. … The federal government has little or no power to deal with the problem … nor should it have." From the mid-1960s, however, Johnson's foes increasingly ignored his civics lesson. As the president himself was sabotaging his experiment in social democracy by diverting resources and attention to Southeast Asia, the New Right began ravaging it from within in the name of public safety and just desserts.

A pioneer in this effort was George Wallace, the sharp-tongued segregationist who ran four times for president between 1964 and 1976. When first elected governor of Alabama in 1962, he epitomized southern demagogy. In his first inaugural address, he lambasted federal enforcement of civil rights by invoking the Civil War. "From this cradle of the Confederacy, this very Heart of the Great Anglo-Saxon Southland," he thundered, "I draw the line in the dust and toss the gauntlet before the feet of tyranny, and I say segregation now, segregation tomorrow, segregation forever." As most Americans accommodated themselves to legal equality, however, Wallace was one of the first Dixiecratic firebrands to figure out how to talk about race without hurling racial epithets. Instead of "White Man's Government," he championed states' rights, public order, and perceived white victimhood. Crime proved to be especially fruitful terrain, as it enabled him to stoke subterranean fears of integration while assailing what he called the fanciful theories of liberal elites. "If a criminal knocks you over the head on your way home from work," he complained, "he will be out of jail before you're out of the hospital and the policeman who arrested him will be on trial. … Some psychologist will say, well, he's not to blame, society is to blame."

Much of the trouble, in Wallace's view, stemmed from the federal judiciary. "The same Supreme Court that ordered integration and encouraged civil rights legislation," he blasted, is now "bending over backwards to help criminals." Affirmed by an outpouring of national support following a carefully choreographed standoff with the Justice Department over admissions to the University of Alabama, the governor believed he glimpsed the fuming, fearful soul of a nation. "They all hate black people, all of them," he mused, according to NBC news. "They're all afraid, all of them. Great God! That's it! They're all Southern! The whole United States is Southern!"

Crime served as a perfect surrogate for Wallace's brand of racial resentment. As an issue, it had the respectability that old-fashioned "Negrophobia" lacked. It was also an undeniable social problem, even if the ballyhoo surrounding it sometimes outstripped the reality. Over the span of centuries, most historians agree, U.S. crime rates had been steadily declining, culminating in a precipitous drop during World War II. In the 1960s, however, both property and violent crime rebounded. In 1960, there were 9,110 murders and 17,190 rapes recorded in the United States; by 1975, the toll had mounted to 20,510 murders and 56,090 rapes. In per capita terms, the national homicide rate increased by 88 percent. "Today, we are in the midst of a crime wave of unprecedented proportions," warned U.S. News & World Report.

Partisans blamed their favorite villains. Social critics on the left labeled property crime "reparations" and depicted rising illegality as the result of pent-up frustrations in the face of persistent injustice. On the right, Wallace and other foes of social liberalism blamed legalistic permissiveness, moral degeneration, and a "culture of welfare." Academic criminologists put little stock in such explanations. They pointed out that local and state crime reporting became more systematic during the 1960s, thus inflating the numbers. They also noted that the first baby boomers hit their teens and twenties in the 1960s, thereby expanding the most crime-prone demographic. Two other factors stand out to crime researchers in retrospect. First, during the wartime and postwar economic expansion, millions of Americans, many of them low-wage African American workers from the South, moved to cities in search of jobs; more affluent white Americans, in turn, followed the new interstate highway system out to the suburbs, taking resources with them. Second, starting in the late 1960s, the phenomenally productive U.S. economic engine started to sputter, wracked by increasing competition from Japan and Germany, declining profits, inflation, rising unemployment, and finally the oil crisis. Together, stagnation and suburbanization concentrated poverty in the inner cities, where crimes rates climbed most steeply.

Most experts believed that the expansion of civil liberties by the federal courts had little to do with the baby-boom crime wave. Court decisions like Miranda have had as much of an effect on crime rates "as aspirin on a brain tumor," argued a former prosecutor. But public perception was another matter. Opinion polls showed that Americans were becoming increasingly concerned about crime in the 1960s, especially as politicians spotlighted the issue. They also disagreed sharply about what should be done. Ironically, those groups that were most vulnerable and most often victimized, notably women and African Americans, had the least punitive attitudes; they tended to favor preventative and rehabilitative solutions to crime. White men, although they were less often victimized and less personally fearful of crime, favored the harshest penalties.

Such differences help explain George Wallace's potency. His hyperventilating style never got him elected to national office, but Wallace secured a legacy by splitting votes, by coaxing white voters, especially in the South but also in northern cities with growing black populations, away from their traditional homes in the Democratic Party. Wallace mapped out a racially charged "southern strategy" that his ideological heirs followed to victory. The ultimate beneficiary, of course, was not the party of Jefferson Davis, where Wallace began and ended his career, but that of Abraham Lincoln.

Barry Goldwater, the archconservative senator from Arizona was one of the first Republicans outside the South to recognize the potential of Wallace's right-wing racial populism. The Democrats increasingly had a lock on the black electorate, he acknowledged, but this represented an opportunity rather than a liability. "We're not going to get the Negro vote," he told a southern audience, "so we ought to go hunting where the ducks are." To Goldwater, this meant bagging frustrated, fearful white voters not by hurling racial slurs but by honing a message of states' rights and crime control. "The abuse of law and order in this country is going to be an issue," Goldwater pledged at the start of his rousing 1964 presidential bid, which ultimately won Wallace's endorsement. "At least I'm going to make it one."

Goldwater placed crime fighting front and center when he accepted the Republican nomination at San Francisco's Cow Palace. "Security from domestic violence, no less than from foreign aggression, is the most elementary and fundamental purpose of any government," he bellowed, "and a government that cannot fulfill this purpose is one that cannot long command the loyalty of its citizens." Here the candidate privileged martial over social governance and chained street crime to the cold war. In both cases, he argued, the enemies were socialist ideas. "If it is entirely proper for the government to take away from some to give to others," he mused, conflating progressive taxation with theft, "then won't some be led to believe that they can rightfully take from anyone who has more than they? No wonder law and order has broken down, mob violence has engulfed great American cities, and our wives feel unsafe in the streets." Goldwater thus wielded crime as a dagger to strike at the heart of social democracy. In his view, Johnson's myriad antipoverty programs not only failed to prevent crime; by cultivating a pathological culture of dependency and permissiveness, they actually caused crime.

Such obdurate pronouncements proved too ideological for the 1964 electorate. When a journalist asked Goldwater what it might feel like to become president one day, he had replied, "Frankly, it scares the hell out of me." Voters agreed, and he picked up just 52 of 538 electoral votes. Even as the Arizona senator fell far short in his drive for national power, however, he proved an able revolutionary within his own party. Unlike any politician since Prohibition, he made crime a galvanizing national campaign issue. By winning five ex-Confederate states plus his own, he proved that Republicans could compete in the "solid South," and he shifted the party's center of gravity to the Sunbelt. Proclaiming famously that "extremism in defense of liberty is no vice," he drove liberals like his primary opponent Nelson Rockefeller into Republican exile. Within a single election cycle he repositioned the Grand Old Party as the standard bearer of opposition to civil rights. Only two years earlier, poll respondents had perceived almost no difference between the two major parties when it came to race. By late 1964, however, Americans overwhelmingly identified Democrats with civil rights and Republicans with a go-slow, states' rights approach. The sea change was apparent at party gatherings, where the conservative journalist Robert Novak was dismayed to hear a new cadre of GOP activists conversing freely about "niggers" and "nigger lovers." Under Goldwater's leadership, he concluded, the Republican Party "was now a White Man's Party."

James K. Galbraith: Why the 'Experts' Failed to See How Financial Fraud Collapsed the Economy

Galbraith to senators: "I write to you from a disgraced profession. Economic theory ... failed miserably to understand the forces behind the financial crisis."
May 15, 2010 |


Editor's Note: The following is the text of a James K. Galbraith's written statement to members of the Senate Judiciary Committee delivered this May.

Chairman Specter, Ranking Member Graham, Members of the Subcommittee, as a former member of the congressional staff it is a pleasure to submit this statement for your record.

I write to you from a disgraced profession. Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis. Concepts including "rational expectations," "market discipline," and the "efficient markets hypothesis" led economists to argue that speculation would stabilize prices, that sellers would act to protect their reputations, that caveat emptor could be relied on, and that widespread fraud therefore could not occur. Not all economists believed this – but most did.

Thus the study of financial fraud received little attention. Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students. Economists have soft- pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble. They continue to do so now. At a conference sponsored by the Levy Economics Institute in New York on April 17, the closest a former Under Secretary of the Treasury, Peter Fisher, got to this question was to use the word "naughtiness." This was on the day that the SEC charged Goldman Sachs with fraud.

There are exceptions. A famous 1993 article entitled "Looting: Bankruptcy for Profit," by George Akerlof and Paul Romer, drew exceptionally on the experience of regulators who understood fraud. The criminologist-economist William K. Black of the University of Missouri-Kansas City is our leading systematic analyst of the relationship between financial crime and financial crisis. Black points out that accounting fraud is a sure thing when you can control the institution engaging in it: "the best way to rob a bank is to own one." The experience of the Savings and Loan crisis was of businesses taken over for the explicit purpose of stripping them, of bleeding them dry. This was established in court: there were over one thousand felony convictions in the wake of that debacle. Other useful chronicles of modern financial fraud include James Stewart's Den of Thieves on the Boesky-Milken era and Kurt Eichenwald's Conspiracy of Fools, on the Enron scandal. Yet a large gap between this history and formal analysis remains.

Formal analysis tells us that control frauds follow certain patterns. They grow rapidly, reporting high profitability, certified by top accounting firms. They pay exceedingly well. At the same time, they radically lower standards, building new businesses in markets previously considered too risky for honest business. In the financial sector, this takes the form of relaxed – no, gutted – underwriting, combined with the capacity to pass the bad penny to the greater fool. In California in the 1980s, Charles Keating realized that an S&L charter was a "license to steal." In the 2000s, sub-prime mortgage origination was much the same thing. Given a license to steal, thieves get busy. And because their performance seems so good, they quickly come to dominate their markets; the bad players driving out the good.

The complexity of the mortgage finance sector before the crisis highlights another characteristic marker of fraud. In the system that developed, the original mortgage documents lay buried – where they remain – in the records of the loan originators, many of them since defunct or taken over. Those records, if examined, would reveal the extent of missing documentation, of abusive practices, and of fraud. So far, we have only very limited evidence on this, notably a 2007 Fitch Ratings study of a very small sample of highly-rated RMBS, which found "fraud, abuse or missing documentation in virtually every file." An efforts a year ago by Representative Doggett to persuade Secretary Geithner to examine and report thoroughly on the extent of fraud in the underlying mortgage records received an epic run-around.



When sub-prime mortgages were bundled and securitized, the ratings agencies failed to examine the underlying loan quality. Instead they substituted statistical models, in order to generate ratings that would make the resulting RMBS acceptable to investors. When one assumes that prices will always rise, it follows that a loan secured by the asset can always be refinanced; therefore the actual condition of the borrower does not matter. That projection is, of course, only as good as the underlying assumption, but in this perversely-designed marketplace those who paid for ratings had no reason to care about the quality of assumptions. Meanwhile, mortgage originators now had a formula for extending loans to the worst borrowers they could find, secure that in this reverse Lake Wobegon no child would be deemed below average even though they all were. Credit quality collapsed because the system was designed for it to collapse.

A third element in the toxic brew was a simulacrum of "insurance," provided by the market in credit default swaps. These are doomsday instruments in a precise sense: they generate cash-flow for the issuer until the credit event occurs. If the event is large enough, the issuer then fails, at which point the government faces blackmail: it must either step in or the system will collapse. CDS spread the consequences of a housing-price downturn through the entire financial sector, across the globe. They also provided the means to short the market in residential mortgage-backed securities, so that the largest players could turn tail and bet against the instruments they had previously been selling, just before the house of cards crashed.

Latter-day financial economics is blind to all of this. It necessarily treats stocks, bonds, options, derivatives and so forth as securities whose properties can be accepted largely at face value, and quantified in terms of return and risk. That quantification permits the calculation of price, using standard formulae. But everything in the formulae depends on the instruments being as they are represented to be. For if they are not, then what formula could possibly apply?

An older strand of institutional economics understood that a security is a contract in law. It can only be as good as the legal system that stands behind it. Some fraud is inevitable, but in a functioning system it must be rare. It must be considered – and rightly – a minor problem. If fraud – or even the perception of fraud – comes to dominate the system, then there is no foundation for a market in the securities. They become trash. And more deeply, so do the institutions responsible for creating, rating and selling them. Including, so long as it fails to respond with appropriate force, the legal system itself.

Control frauds always fail in the end. But the failure of the firm does not mean the fraud fails: the perpetrators often walk away rich. At some point, this requires subverting, suborning or defeating the law. This is where crime and politics intersect. At its heart, therefore, the financial crisis was a breakdown in the rule of law in America.

Ask yourselves: is it possible for mortgage originators, ratings agencies, underwriters, insurers and supervising agencies NOT to have known that the system of housing finance had become infested with fraud? Every statistical indicator of fraudulent practice – growth and profitability – suggests otherwise. Every examination of the record so far suggests otherwise. The very language in use: "liars' loans," "ninja loans," "neutron loans," and "toxic waste," tells you that people knew. I have also heard the expression, "IBG,YBG;" the meaning of that bit of code was: "I'll be gone, you'll be gone."

If doubt remains, investigation into the internal communications of the firms and agencies in question can clear it up. Emails are revealing. The government already possesses critical documentary trails -- those of AIG, Fannie Mae and Freddie Mac, the Treasury Department and the Federal Reserve. Those documents should be investigated, in full, by competent authority and also released, as appropriate, to the public. For instance, did AIG knowingly issue CDS against instruments that Goldman had designed on behalf of Mr. John Paulson to fail? If so, why? Or again: Did Fannie Mae and Freddie Mac appreciate the poor quality of the RMBS they were acquiring? Did they do so under pressure from Mr. Henry Paulson? If so, did Secretary Paulson know? And if he did, why did he act as he did? In a recent paper, Thomas Ferguson and Robert Johnson argue that the "Paulson Put" was intended to delay an inevitable crisis past the election. Does the internal record support this view?

Let us suppose that the investigation that you are about to begin confirms the existence of pervasive fraud, involving millions of mortgages, thousands of appraisers, underwriters, analysts, and the executives of the companies in which they worked, as well as public officials who assisted by turning a Nelson's Eye. What is the appropriate response?

Some appear to believe that "confidence in the banks" can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit. As you pursue your investigations, you will undermine, and I believe you may destroy, that illusion.

But you have to act. The true alternative is a failure extending over time from the economic to the political system. Just as too few predicted the financial crisis, it may be that too few are today speaking frankly about where a failure to deal with the aftermath may lead.

In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case. Thank you.
James K. Galbraith is the author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too, and of a new preface to The Great Crash, 1929, by John Kenneth Galbraith. He teaches at The University of Texas at Austin.

We're Living in a Theater State -- Plug in and Be Lit up by the American Hologram

TV and movies keep us in an entertained stupor, awed, mislead, and most importantly, distracted.

May 16, 2010  |  

Ajijic, Mexico -- I've spent most of this week watching American television and movies. I leave the TV on all night long. I toss and turn with my bad back, and bad lungs, catch a rerun episode of Two and a Half Men, or CSI, and conk out again. Then I awaken to the U.S. morning talk shows. It's a grueling regimen, only for the strong. Or the lonely. For periodic relief, I switch to Mexican television (be patient, I really am going somewhere with this). Mexican TV is not one iota better than US television, but is veeerrry heavy on the booty. More than heavy. Astronomical. Think all-but-bare tits and ass close-ups every fifteen seconds, straight through commercials, dramas, comedy shows, history shows, and even the news where possible.  Every show but the bullfights and that old nun who comes on at ten PM, who invariably drives me back to the U.S. channels.

Ahhhh … Safely in the American national illusion, where all the world's a shopping expedition. Or a terrorist threat. No matter, as long as it is colorful and wiggles on the theater state's 400 million screens. Plug in and be lit up by the American Hologram.
This great loom of media images, and images of images, is so many layers deep that it has replaced reality. No one can remember the original imprint. If there was one. The hologram is a hermetic snow globe, a self-referential circuitry of images, and a Möbius loop from which there is no logical escape. Logic has zilch to do with what is going on. The smallest part holographically recapitulates the whole, and vice versa. No thinking required, we just cycle and recycle through an aural dimension. Not all that bad, I guess, if it were not generated by forces out to fuck every last pair of eyeballs and mind plugged into it.
The investing class has put thousands of billions into movies, TV and other media to keep the hologram lit up over the past six decades. Which is to say, keep the public in an entertained stupor, awed, mislead, and most importantly, distracted. But the payoff probably runs in the trillions.
For the clear-eyed citizen, there is a growing inner horror and despair in all this, with nowhere to turn but the Internet. The Net is a cyber reality, no more real than the hologram, and indeed a part of the hologram, though not quite yet absorbed and co-opted by capitalism. We take what relief we can find.
However, for the unquestioning rest, the hologram, taken in its entirety, constitutes the American collective consciousness. Awareness. It enshrouds every citizen, defining through its permeation the daily world in which we all operate. Whether we love or hate it, there is no escape. Go live in a shack in the woods. Call that escape. But everything in the outside world continues to run in accordance with the humming energy of the hologram. There is no cutting our umbilical link to the womb of this illusion, this mass hallucination. There is only getting a longer umbilical cord, closing your eyes, and pretending that what the rest of the nation does has no effect on you. We were all born and raised in that womb. We can no more divorce the neurochemistry and consciousness it shaped in us, than we can deny that we had an earthly mother and are of her tissue. Our consciousness is born of the hologram's connective neural and electrical tissue.
That common womb of American consciousness is dying. Slowly or rapidly, depending on how you assess the global ecocide and peak everything, it is dying. There will be resuscitations along the way, more massive infusions of money, fear and the rawest sort of fantasy fed to a mood and commodity drugged public. Still, its condition is terminal, because the hyperdrive consumer culture it was built to sustain, is itself unsustainable. Its appetite ate the world. In fact, so voracious is its appetite that even if our "consumer economy," (legalized feudal theft) sees a recovery, and resumes the level of growth required just to keep capitalism alive, it will die just that much faster. It is not in capitalism's DNA to care about the death of the earth. Nor is it in the brain chemistry of an American satiated on prime beef and sailing across the landscape at 70 miles per hour in a $40,000, steel exoskeleton from General Motors, to care. Hominid gratification is what it is -- hard wired -- and there is no circumventing it.
The system has just begun its crash, and already we are seeing an armed infantilized nation wail, hurl blame and do horrific things, the worst of which we do to one another (excluding sending predator drones after Middle Eastern school kids). Surveillance, witch hunts, destruction of civil liberties, and the government inching toward star chamber trials for those who do not display correct traits. Citizens embracing totalitarianism as stability in the face of the ultimate instability -- the death of the planet.
The political regime or philosophy does not exist which can turn this scenario around. Slow it down, maybe, but put things in reverse, nope. Not when six billion mouths are munching at one end of the last noodle, and at the other end a fraction of a billion well armed technological people want the entire noodle. Not when life is already so damned cheap you can buy a girl slave in Haiti for twelve bucks, or 50 child slaves for your Asian sweatshop for less than the cost of a new car. Or an American working man for half of what it takes to support a family, then throw his ass over the company fence when he's no longer needed. Or bury him in mines as he cries out in Jesus' name, blow him up in Iraq, and Stelazine his kids minds and souls under the hot lights of the hologram, readying them for "the labor market." Schenectady or Soweto, life is dirt-cheap and getting cheaper everywhere on the planet.
Meanwhile, gangster capitalism needs that hologram to maintain the illusion that life is not cheap, and that Jennifer Anniston's ass can be yours in mind and dream (Personally, I'm a Julianna Margulies fan -- The Good Wife"). And most of all, "The Gram" is required to keep its captives deluded and sated enough to remain productive and consuming -- not to mention hating the right people -- right up to the last moment before total collapse, and they are no longer needed. The higher owning/investing class is safe, no matter what happens. Oh sure, as Edward Bellamy wrote, a few of them topple from their high perch on humanity's coach during the hell bent journey, but their class remains.
What happens to the rest of us in that great, sweating, moaning throng who have drawn the coach these centuries? What will remain for us on ruined plains of collapse?
Here is what I believe will remain. Reality and the truth, and the opportunity for spiritual evolution, which, in the end, I think will include most people. And much suffering. The reality of the world has always involved suffering. Despite the ballyhoo of modern science and technology, just as much suffering remains, more actually, given our increased numbers on the planet. Suffering happens to individual human beings and there are far more of those now. Of course, fat cat NGOs and governments deal in percentages and rates, so they will not have to account for the increased millions of miserable beings. We have more humans suffering -- and not just from poverty either, think of depleted uranium, toxic waste, sweatshop slavery -- than we had humans on earth a couple hundred years ago.
The hologram has, and still does, prevent Americans from grasping any of this. Instead, the hologram allows us to believe that life can exist without suffering. We actually achieved that state for a while, too, by forcing the suffering on unseen people elsewhere. We accepted the hologram's one voice to the many as truth (not that we had much choice, The ‘Gram was all we knew), then let our souls and national character necrotize in the warm bath of self-gratification and statist hubris.
Nasty picture ain't it? One surely painted by a bitter, sick old man who hates America. Years ago, my fellow countrymen used to ask if I hated America. They finally quit asking me when I started answering, "Hell fucking yes!" But I don't hate Americans. In fact, while I do not believe in "hope" -- that superstitious, childish wishing upon a star -- I do believe America is once again, for all the wrong reasons, the last best hope of the world. If we do not succeed in destroying it first.
Clearly, we have taken an unimaginably disastrous course, and intend to take everyone else out with us. Yet we have only done what most of the world's nations would have done, given such brute power and wealth for such a time. Perhaps more accurately, done what most of the world's governments and leadership would have. So long as nations have hierarchical leadership, they will have escalating hierarchical greed, power hunger and destructive folly -- and therefore, eventually approach hierarchical evil at some point. It may be an old saw, but power does corrupt.
Study us. See how an essentially good people (although the Native Americans would never agree) went wrong. After all, we were born the same unblemished child as everywhere else on the planet. And even now, given what has happened, one cannot fully indict all the "little people," past or present. My granddad was a decent guy until the day he died. So were my dad and mom. And I try to be. But all of us can be rendered blind by faceless machines not entirely of our own creation, and then made submissive beasts to the coarsest among us. Ask any German. Or Hutu. We can be manipulated to believe that the rules do not apply to us, as in the cult of American exceptionalism. Arrogance is experiential and environmental in cause. I've been there and back several times in my life, and I am sure of that. Human experience can make and unmake arrogance. Ours is about to get unmade.
Inside most Americans is a globally brattish child. Thanks to our endowed natural resources (since squandered) and to armed national theft abroad, the American has not suffered enough to become a responsible adult on the planet. I suggest that others learn from our example and do differently while they still have the chance. Take heart that they may yet live in a country where capitalism's nihilistic dynamo has not built up such a head of steam. There are still some left, but as near as I can tell -- and mind you, I don't know shit -- their leadership is caught up in the same elite games and traps. National leadership is its own moral and spiritual trap.
Who am I to give advice? Nobody. But this is the Internet, and any dick brain with a keyboard may do so.
My advice is to resist pride in anything said to be national, whether it be prosperity, healthcare, culture, competence, social cohesion and identity, or whatever. Pride and courage do not live in the same house. Courage, which has little to do with blood and guts, but everything to do with sacrifice, chooses to dwell alongside humility.
Again, what will be left after the big collapse? Perhaps after a period of terror, violence and chaos, when the undeniable on-the-ground truth becomes apparent, through ecological disaster, war and other events, a more positive national cathexis will occur. If it does, it probably will not resemble anything we can conceive of in these times. If we can get past the terror involved from our present apprehensive vantage point, it is easy to see why positive national, even global cathexis may be unavoidable.
Cause for well-reasoned optimism exists. Its way the fuck out there, but it's there. Not that it is something to cling to, or even pursue. Clinging and desire are the cause of all suffering in the first place. Doing so only prolongs suffering, personal, national or planetary. The Buddhists are right about that one. So are the Baptists when they say "The world gets right when the people get right."
The big problem at the moment though, for us as sentient beings, is:

What to do when I get out of bed each day? Give money to the Democrats? Move out of the country? Stay and fight the bastards?

Throwing money at frauds and fools doesn't work. Moving to Mexico or Canada takes money in a time when money and jobs are scarce everywhere. As for staying and fighting, really fighting, there is not one person reading this who is going to go strangle the sleazy fucks having martinis on Wall Street with their pet Senator. Nobody reading this is going to instill genuine physical fear, which is the only thing such lizards might respond to. We are left to work within the system, as per the hologram's directive. Their system. Ha!
The answer, to me at least, is to do the most obvious thing first. And I do mean obvious in the most mundane sense. Like fixing breakfast with all the contemplative awareness possible. Seriously. The tiniest right action, the action in complete unself-conscious natural awareness, connects to all the rightness in the universe. And the universe is always right. Because it owns all of our asses, plus black holes, and those teensy pinholes in time that physicist say make you an immediate neighbor of Shakespeare and mastodons -- only you don't know it. It owns the molecules of the ages. Everything.
This proposition is unappealing to Americans and just about everyone else in the western world. To be perfectly honest, a big screen TV, the Internet, and tickets to a Rams game are more accessible and immediately gratifying. Right action in the moment does not light up your neural pleasure centers like cheap sex or jalapeno Doritos. However, I am trying to do it anyway, at least until the opportunity for cheap sex presents itself. When it does, it will most likely be the right action for that moment. Funny how things work.
In any case, by the mundane right action of breakfast, I mean fixing breakfast to locate one's heart in that particular day. Then proceeding toward the least harm one can discern to do, with full knowledge that we always do harm, whether we intend to or not (the world is full of subtle unintended violence). Eliminate whatever suffering in sentient beings one encounters, whether it be in bums, dogs, kids, plants, or the rich fucker next door moaning over his enormous tax bill. To him that is suffering. There's no sliding scale about this shit. I once worked for a guy who bawled when some kid keyed his Porsche. Misery is relative.  Compassion is sublime.
Besides, this is what the heart is designed for -- to serve as a compass for the spirit, regardless of how one defines spirit or denies its existence. What the hell, we gotta call the best in ourselves and in our species something, so we can connect with it. The mind has some terrible limitations in doing that sort of thing. As in, it cannot. Necessary as rationalization is for survival, reason ain't everything. In the big picture, it is a small ingredient. Merely an asset, a monkey tool.
Even thinking seems ultimately to lead to the value of non-thinking, which is to say, pure human existence and consciousness. Pure unadulterated duration. This is the most fearless plain, the one on which all things are manifest as they really are, in their purest form, before social and personal hallucinations settle over them like a shroud.
In such times as these, that hard bright plain is bitch to find, much less travel. For sure it starts with the moment called now.
And right now, good god, it's two AM! Time for the nightly Law and Order rerun on Mexican TV.
Hologram take me home.

Joe Bageant is author of the book, Deer Hunting With Jesus: Dispatches from America's Class War Random House Crown), about working class America. A complete archive of his on-line work, along with the thoughts of many working Americans on the subject of class may be found on his website.

The Point of Maximum Danger

  The is a very nice precis for the current problems.  I will take exception to Robert Brenner's analysis (author of The Economics of Global Turbulence) where he argues that this is part of a classically Marxist "general decline of global capitalist profit.  This is actually the ongoing result of exposing the traditionally developed nations of Europe and the US to competition from areas where people work (as Bob Dylan said.."almost for nothing"--it's much cheaper down, in a South American town, where the miners work almost...see above).  This rush to move production to more efficient areas has led to a recession in Europe and the US from which there is no logical  recovery.  Our purported efficiency in high tech is belied by the rise of China and India and even the satellite link of professionals who can do programming and medical  work cheaply and effectively.  There is no "high tech" solution, basic manufacture is mainly gone, and the American family has no hope of cashing in on the rising value of their homes.  Unlike  the  Great Depression where all the American industrial capacity was there but not utilized, now that capacity is gone, and the home price gamble the fueled the decade beginning in 2000 is gone.  Still, the article, below is a lengthy but informative review of what happened.  Worth a read.

                       By Mike Whitney

May 18, 2010 "Information Clearing House" - -- Debt woes in Greece have sent bond yields soaring and increased the prospect of sovereign default. A restructuring of Greek debt will deal a blow to lenders in Germany and France that are insufficiently capitalized to manage the losses.  Finance ministers, EU heads-of-state and the European Central Bank (ECB) have responded forcefully to try to avert another banking meltdown that could plunge the world back into recession. They have created a nearly-$1 trillion European Stabilization Fund (ESF) to calm markets and ward-off speculators. But the contagion has already spread beyond Greece to Spain, Portugal and Italy where leaders have started to aggressively cut public spending and initiate austerity programs. Belt-tightening in the Eurozone will decrease aggregate demand and threaten the fragile recovery. We are at a critical inflection point.

From American Banker:

 "Bank stocks plunged last week under the theory that banking companies will take large losses in Europe. The theory is correct. Banks will get hurt," Richard Bove of Rochdale Securities LLC wrote in a research note.
Bove wrote in a separate report last week that "big American banks have a bigger stake in this drama than thought." He estimates that JPMorgan Chase has $1.4 trillion of exposure across all of Europe alone, while Citigroup Inc. has $468.4 billion.

Analysts said large U.S. banks have opaque ties to the region through their overseas counterparts. U.S. money-center banks trade derivatives, orchestrate currency swaps and handle other transactions with large European banks. U.S. banks may not hold a lot sovereign debt in Europe, but those European institutions do. If Greece defaults, that could create a crisis of confidence in the European banking market that would spread to large U.S. banks.

"Obviously, the European banks have exposure to Greece. The U.S. banks have loans out to those banks," said Keith Davis an analyst with Farr Miller & Washington. "There are a number of different ways they can have exposure — it's not hard to imagine how a wildfire can spread." (Europe's debt  Crisis, US Banks Exposure", Paul Davis and Matt Monks, American Banker)

  China and the United States have begun to hunker down and pursue deflationary policies. China has already been blindsided by a steep 14.5% rise in the renminbi over the euro in the past 4 months which is beginning to hurt exports. But China's leaders are also trying to unwind a real estate bubble that was created by loose monetary policies and the massive $600 billion fiscal stimulus package. Rather than drain liquidity by raising interest rates, (which would strengthen the renminbi) China is tightening lending standards to put more pressure on speculators. It's a circular strategy to deal with a serious problem. This is from The People's Daily online:

 "On April 16, the State Council rolled out a series of measures to curb the domestic housing market amid concerns over asset bubbles. These measures include a 30 percent down payment for first time buyers for houses larger than 90 square meters, 50 percent down payment and lifting mortgage interest rate for second home buyers. The government has also imposed a temporary ban on mortgage applications for third or above home buys and cross-city purchases.  Shanghai will be the third region after Beijing and Shenzhen to have rules governing property buys, said Sun."  the people's daily online, Shanghai property curbs soon.

  By tapping on the brakes, China will likely limit the fallout from the burst credit bubble,  but will also slow investment which is the main driver of growth. That leaves the experts divided about what the future holds in store;  many now believe that China is headed for a "hard landing".   Here's an excerpt from hedge fund manager Hugh Hendry with a particularly grim forecast:

"The composition of China's growth has undergone a potentially treacherous change: in the absence of expanding foreign demand for its exports, it has instead come to rely on a massive surge in domestic bank lending to fuel its growth rate. Indeed, when measured relative to the size of its economy, the 27pc point jump in bank loans to GDP is unprecedented; at no point in history has a nation ever attempted such an incredible increase in state-directed bank lending.

“What a turnaround: from an export juggernaut to a credit addict. Who would have thought it necessary back in 2001, the year everything all started to work out for China?....China has become the world's biggest creditor, after amassing nearly $2.3 trillion of foreign exchange claims on us. However, the specter of a creditor nation running persistent trade surpluses has ominous historical portents. It has happened only twice before, with the US economy in the Twenties and with the Japanese economy in the Eighties.” ("China: Hugh Hendry warns investors' infatuation is misguided" UK Telegraph)

China's economy is reeling from over-investment, under-consumption, and razor-thin profit margins. A slowdown in China will only deepen the downturn in the EU by reducing the amount of liquidity in the system.  This will lead to tighter credit and falling demand. Deflationary pressures continue to mount.

Developments in China and Europe come at a bad time for the United States, where recovery is so weak that the Federal Reserve hasn't raised rates from zero in more than 14 months or sold any of the assets in its $1.7 trillion stockpile of "toxic" inventory. If there was even a flicker of light at the end of the tunnel, the Fed would have raised rates by now. As it stands, Fed chair Ben Bernanke has refused to sell any of the mortgage-backed securities (MBS) he purchased from underwater banks. He's worried that even a small auction--of say $20 or $30 billion--would divert liquidity from the markets and send stocks into a nosedive. Bernanke's timidity underscores the severity of the slump. He's not taking any chances. 

The recent uptick in Personal Consumption Expenditures was the result of government transfers, otherwise PCE remained flat.  Obama's $787B fiscal stimulus has not restored consumer spending to pre-crisis levels or created the foundation for a self-sustaining recovery.  By the end of the third quarter, the stimulus will diminish  (excluding another asset bubble) and the contraction will resume. The stock market bubble--largely engineered by Bernanke's  monetization program (QE) and liquidity injections--has not decreased unemployment, increased economic activity, or halted encroaching deflation. Here's an excerpt from Gluskin Shef's chief economist David Rosenberg who gives a good summary of the economy:

  "There are classic signs indeed that the recession in the U.S. ended last summer ... But the depression is ongoing...Real organic personal income is nearly $500 billion lower now than it was at the peak 16 months ago and this has never occurred before coming out of any technical recession....

Outside of the lagged impact of all the government stimulus and the impact of inventory accumulation, the economy is not growing.....if you take the government data at face value, the past four quarters have averaged a mere 1.38% in terms of real final sales, which goes down as one of the very weakest post-recession trajectories in recorded history....the government has done everything it can to perpetuate a consumer spending cycle even though such expenditures command a record of over 70% of GDP.....Moreover, once the foreclosure moratoria is over, and the government no longer tries to play around with market forces and allow for price discovery, home values are back on a downward track, now evident in all the data series. There is... an excess of five million vacant housing units across the U.S. acting as a continued dead-weight drag on house prices....

The National Federation of Independent Business small business survey is showing that economic growth is stagnant at best." ("Why the depression is ongoing", David Rosenberg, Gluskin Sheff & Associates)

Nearly-$800 billion in fiscal stimulus has barely pushed the economy into positive territory. Apart from inventory restocking, GDP measured a mere 1.38% (as Rosenberg notes) "one of the very weakest post-recession trajectories in recorded history." In the US, consumers face an uphill slog; meager employment opportunities, mushrooming personal debts, flat wage growth, and dwindling access to credit. Consumers are too strapped to pull the economy out of the muck and Wall Street knows it.  That's why Bernanke has defended high-risk debt-instruments and securitization so ferociously,  because they represent the only means of maintaining profitability in a stagnant economy. The battle over derivatives is the battle for the future of capitalism itself.

No one has written more brilliantly or persuasively about the stagnation that grips mature capitalist economies that UCLA historian Robert Brenner. In the introduction to his 2006 book, "The Economics of Global Turbulence", Brenner explains the structural flaw inherent to capitalism which inevitably leads to crisis. Here's an excerpt (although the piece should be read in its entirety):

  "The fundamental source of today's crisis is the steadily declining vitality of the advanced capitalist economies over three decades, business-cycle by business-cycle, right into the present. The long-term weakening of capital accumulation and of aggregate demand has been rooted in a profound system-wide decline and failure to recover the rate of return on capital, resulting largely--though not only--from a persistent tendency to overcapacity, i.e. oversupply, in global manufacturing industries.  From the start of the long downturn in 1973, economic authorities staved off the kind of crises that had historically plagued the capitalist system by resort to ever greater borrowing, public and private, subsidizing demand. But they secured a modicum of stability only at the cost of deepening stagnation, as the ever greater buildup of debt and the failure to disperse over-capacity left the economy ever less responsive to stimulus...."

To deal with pervasive stagnation, Brenner says that the Fed embarked on a plan that would use "corporations and households, rather than the government, would henceforth propel the economy forward through titanic bouts of borrowing and deficit spending, made possible by historic increases in their on-paper wealth. themselves enabled by record run-ups in asset prices, the latter animated by low costs of borrowing. Private deficits, corporate and household, would thus replace public ones. The key to the whole process would be an unceasing supply of cheap credit to fuel the asset markets, ultimately insured by the Federal Reserve." ("What's Good for Goldman Sachs is Good for America: The Origins of the Current Crisis", Robert Brenner, Center for Social theory and comparative History, UCLA, 2009)

The present crisis is not accidental. The system is performing as it was designed to perform. The low interest rates, lax lending standards, leverage-maximizing derivatives, even blatant securities fraud have all been implemented to overcome the basic structural flaw in capitalism --it's long-term tendency to stagnation. Naturally, this lethal policy-cocktail has generated greater systemic instability and increased the likelihood of another meltdown.

GREAT DEPRESSION PART TWO?

There are many similarities between today's crisis and events that took place during the Great Depression. As journalist Megan McArdle  points out, the Great Depression also had "two parts"; the stock market crash of 1929 followed a year and a half later by the deeper dip in 1932. Phase 2 of the Depression began in Europe. Here's an excerpt from the article: 

   "The Great Depression was composed of two separate panics....the economic conditions created by the first panic were eating away at the foundations of financial institutions and governments, notably the failure of Creditanstalt in Austria. The Austrian government, mired in its own problems, couldn't forestall bankruptcy (and) the contagion had already spread. To Germany. Which was one of the reasons that the Nazis came to power. It's also, ultimately, one of the reasons that we had our second banking crisis , which pushed America to the bottom of the Great Depression, and brought FDR to power here." ("Why Should You Be Freaked Out About Greece? Remember, The Great Depression Had Two Parts", Megan McArdle, businessinsider.com)

With the implementation of austerity programs throughout Club Med (Greece, Portugal, Spain, and Italy) German surpluses will shrivel and the EU's GDP will shrink. Efforts to cool China's economy will have equally damaging effects on global growth by choking off liquidity and slowing overall investment. The constraints on spending will adversely impact fiscal stimulus in the U.S. and accelerate the rate of deterioration. The political climate has changed in the U.S. and there's no longer sufficient public support for a second round of stimulus. Without another boost of stimulus,  the economy will lapse back into recession sometime by the end of 2010.

President Petraeus?

by Kelley B. Vlahos, May 18, 2010
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Spotting Gen. David Petraeus in a photo chatting up a little old lady shouldn’t make one recoil with odd feelings of discomfort.

Except that the little old lady is none other than the indomitable 87-year-old Gertrude Himmelfarb, mother of Bill Kristol (who is at Petraeus’ elbow) and wife of the late Irving Kristol, godfather of neoconservatism. The photo was taken on May 6, the night Petraeus spoke at the Washington neoconservative confab – the annual American Enterprise Institute gala – as a recipient of the 2010 Irving Kristol Award.

The general’s in Washington, and we’re not sure he wants to leave.

If “The Washington Scene” photo gallery of attendees doesn’t give you a case of acid reflux, his speech will. Especially the part where he gives AEI luminaries Kimberly and Frederick Kagan – or “Team Kagan” – primary credit for the Iraq Surge (which is kind of sad for retired Gen. Jack Keane, a former fellow Army officer often referred to as Petraeus’ mentor, who was much more involved in the original AEI “surge” blueprint than Fred’s wife Kimberly was).
(Peter Holden/AEI)

Petraeus:

“In the fall of 2006, AEI scholars helped develop the concept for what came to be known as ‘the surge.’ Fred and Kim Kagan and their team, which included retired General Jack Keane, prepared a report that made the case for additional troops in Iraq. As all here know, it became one of those rare think-tank products that had a truly strategic impact.”

What we have here is a four-star general, grinning in that aw-shucks way under the weight of his medals and epaulettes, politicking and fiercely working a crowd on multiple levels, each more audacious than the other.

First, as commander of U.S. Central Command, he is managing his image as the Iraq War’s savior and maintaining the illusion that the so-called Surge saved Iraq and preserved our pride as a nation. Then, like a well-dressed traveling salesman, he’s selling war – long-term military intervention in the GWOT AOR (that’s the Global War on Terror Area of Operations, which is, of course, global). And, as many have speculated of late, he is selling himself – as a potential Republican candidate for commander in chief.

The Christian Science Monitor weighed in on his AEI appearance:

“With former Vice President Dick Cheney and members of the Bush-era glitterati known as the neocons looking on, Petraeus accepted AEI’s annual Irving Kristol Award, named after the giant of neoconservatism – a conservative ideology with roots in American liberal thinking that eschews realist foreign policy in favor of an activist and interventionist approach to the world. …

“The late Mr. Kristol’s son, Bill Kristol, noted in a tribute to the award’s three decades of honorees that none has ever gone on to become president. He then added to applause and laughter, ‘Perhaps this curious and glaring omission will be rectified.’

“Rather than simply letting that moment pass, Petraeus said upon taking the podium that in mulling over the theme for his speech, ‘It never crossed my mind, Bill, to talk about what you were suggesting.’

“The line was delivered with a smile.”

The guy may have an ego as big as Tajikistan, but he’s no fool. Before him sat the shining, open faces of some of the most powerful political donors in the country. That those faces included Cheney, Paul Wolfowitz, and Richard Perle – the very people responsible for the worst war policy in modern American history – was inconsequential. Without that war policy, Petraeus wouldn’t be where he is right now – “King David” sitting on the throne of a trillion-dollar enterprise. And he probably won’t become the Republican nominee without some heavy lifting from the star-maker machinery at AEI, which would enjoy nothing more than to get its own pocket general into the White House.

This mutually beneficial relationship is already off to a great start. Thanks to “Team Kagan,” AEI’s Bill Kristol and Charles Krauthammer, and a battery of sycophantic pundits and mainstream journalists, Petraeus’ lack of authentic exceptionalism has been transformed into an unshakable “warrior-scholar” persona with his own “legacy” – the Petraeus Doctrine, an updating of old counterinsurgency practices of questionable long-term efficacy, which numerous subordinates and civilian devotees, not just the general, had a hand in engineering.

Never mind that the “success” of the doctrine as played out by the Iraq Surge was derived mostly from the super-concentrated use of superior firepower and the bribing of 90,000 Sunni insurgents to stop fighting U.S. forces (and never mind that the effects of that doctrine are unraveling in Iraq at this very moment). This effective PR strategy on Petraeus’ behalf glosses over all that and succeeds in getting – for now – what both the general and his neoconservative admirers want: sustained public patience for a Long War against “terror” that reflects U.S. military predominance in U.S. foreign policy, extending as a result to a growing deference to the military and its leaders in American domestic politics, too.

Given these lofty expectations, it’s no surprise he’s been stateside, more often in his political AOR than his CENTCOM one. Like any good pol, Petraeus knows he must win the hearts and minds of the wider Washington establishment, which is all too open to his advances. Among the Beltway Bandits we call the defense contracting industry, the warhawks in Congress, and the mushy Democratic center – so responsive to Petraeus’ righteous COIN formula, with its “population-centric” and “whole of government” themes – the court of Washington is just swooning over King David.

Take his April 13 visit to the Wilson Center for International Scholars, a respectable galaxy of conventional establishment thinkers. His visit was so exciting that pundit-celebrities like Sam Donaldson and congressional committee chairs like Rep. Jane Harmon (D-Calif.) condescended to sit in the audience, sucking up time by throwing out outrageous softballs during the obligatory Q&A and allowing the pampered Petraeus to avoid any controversy that might diminish the myth or dull his star.

So he gets away with saying stuff like this: “Now, is there political drama in Iraq right now? Oh, absolutely. And again, we’ve occasionally talked about this as being Iraqracy, not democracy, and it is.”

Or this:

“The truth is, though, that I used to use the phrase that when you conduct an endeavor like Iraq or Afghanistan – when you launch an operation like that – you have to recognize that there’s a half-life. And there’s a half-life of how long it is that they really are happy to see you.

“And they were happy to see us in Iraq. Again, I – again – and it didn’t matter. Shia, Sunni, Kurds were all delighted to have us there. No one loved Saddam, and seeing him gone was great.

“But then what you do, how you act, how you carry out your mission has a great deal to do with how long that half-life lasts.

“And there will be, by the way, individual half-lives; different half-lives in different parts of the country, depending on how the individual units and leaders and all the rest of that carry out their tasks.

“You can actually put time back on the half-life. I would argue that that half-life had run out in certain areas of the country – long since, actually, when we launched the surge –and that we were able to actually get back to the point where the Iraqis were happy to have us because we now helped them get rid of al-Qaeda. …

“By the way, they will never truly applaud. No one, no country, I don’t think, ever truly welcomes foreign forces on their soil. Although, again, over time there are factors that can mitigate that. The strategic agreement reached with Iraq was of enormous importance because it recognized their sovereignty….”

Right – the Iraqis were so satisfied with the status of forces agreement that kept tens of thousands of U.S. forces in their country that Prime Minister Maliki is still afraid to put the issue to a nationwide referendum.

But let’s put Petraeus’ confusing half-life metaphors and elastic conception of Iraqi happiness aside for a moment. His speeches tend to concentrate on the past more than they do on current events, but when he does talk about military strategy moving forward it is in gratingly broad strokes, strange euphemisms, boring PowerPoints, and sleight-of-hand. Just like a politician, his tone is indulgent, like he’s always talking to a classroom full of national security novices. Yet, caught up in his aura and typical Washington etiquette, no one demands more. In fact, his audience is ready to close ranks when someone does. Like this man, whose question was ignored completely during the Wilson Center love-in (I apologize for what appears to be a poor transcription [.pdf] of the exchange, but I think the spirit of it comes through):

Question: “My name Amin Mahmoud [phonetic]. I’m with the Alliance of Egyptian-Americans.

“You mentioned moderate states, mean like Egyptian probably include that. And in my opinion, they are a dictator countries, and supporting dictators, plus supporting Israel. Continue the same policy of 60 years, supporting only government. And you increase extremist in these countries. […]”

Petraeus: “First of all, I’m not sure I completely understand it. But if you’re asking about our policy toward the political process in Egypt or something like that, I will defer that to the – to our policymakers and try to stay in the military lane, if I could…”

[Crosstalk]

Question: “Of course. But you [inaudible] extremist, and supporting dictators and support Israeli policy in the area will increase that. That’s related to you…”

[Crosstalk]

Moderator: “There’s a lady who was about ready to ask a question. And then [inaudible] have your concluding question.”

There are plenty of critics who say that Petraeus is neither a true warrior nor a scholar. Some call him “King,” but his calculating career trajectory, minimal direct combat experience, and political appetite suggest he is a courtier before anything else. Boston University professor and ace COIN critic Andrew Bacevich wrote a piece in The American Conservative in 2007 called “Sycophant Savior,” describing Petraeus as a political general of the “worst kind,” in that during the Surge, the politics of pleasing the court of Washington and advancing his own career became tantamount to executing and winning the war.

“George Washington, U.S. Grant, and Dwight D. Eisenhower were all “political generals” in the very best sense of the term. Their claims to immortality rest not on their battlefield exploits – Washington actually won few battles, and Grant achieved his victories through brute force rather than finesse, while Ike hardly qualifies as a field commander at all – but on the skill they demonstrated in translating military power into political advantage. Each of these three genuinely great soldiers possessed a sophisticated appreciation for war’s political dimension.

“David Petraeus is a political general. Yet in presenting his recent assessment of the Iraq War and in describing the ‘way forward,’ Petraeus demonstrated that he is a political general of the worst kind – one who indulges in the politics of accommodation that is Washington’s bread and butter but has thereby deferred a far more urgent political imperative, namely, bringing our military policies into harmony with our political purposes.”

According to Bacevich, if Petraeus had really believed the Surge, i.e., COIN, was working in 2007, the general would have asked for more troops, demanding that Congress fish or cut bait when it came to the nation’s investment in the GWOT. But he didn’t, knowing full well the political ramifications of angering the Joint Chiefs, the White House, and in Congress, the antiwar Democrats and the Republicans, who clearly wanted war off the table ahead of the 2008 elections.

“Yet the anger and embarrassment would have been salutary. A great political general doesn’t tell his masters what they want to hear. He tells them what they need to hear, thereby nudging them to make decisions that must be made if the nation’s interests are to be served. In this instance, Petraeus provided cover for them to evade their responsibilities.”

Petraeus has done nothing but sharpen this unflattering image in the intervening years, particularly since he was promoted to CENTCOM chief, effectively putting subordinates in charge of the war fighting – Gen. Raymond Odierno in dealing with the evolving mess in Iraq, and Gen. Stanley McChrystal overseeing the whack-a-mole quagmire in Afghanistan – while he hustles and flows through the speakers’ circuit back home.
(The Hill)

Lucky for him, the mainstream media appears too bedazzled to even examine whether he is baldly using his position to game out a future political run. Even reliable war critics like George Will appear under a spell. In a recent column, Will wrote of Petraeus: “His voracious appetite for knowing things is the leitmotif of his career.” If this is the best the often withering Will can muster, then Petraeus needn’t worry about media scrutiny, at least not yet.

The fact he remains a blank slate in terms of where he stands on everything that is not defense-related will quickly become an issue if decides to throw his helmet in the ring. That he has reportedly described himself as a “Rockefeller Republican” and named egomaniac Rudy Giuliani and corporate cutthroat Jack Welch as leaders who inspire him suggests that when one peels back the uniform, there may be nothing but another ambitious, mediocre politician waiting inside.

But if Petraeus is really courting the presidency as assiduously as he has cultivated the vacuous Washington elite, it may be that this war – the victory of which has remained overly redefined and elusive for almost a decade – will be his ultimate Achilles heel. Gen. Dwight Eisenhower at least had the victory of World War II when he became the nation’s 34th president. Invoking the legacies of great generals who became presidents, as Petraeus often does, won’t get him into the pantheon any sooner.

“Our first president [George Washington] once captured very eloquently the feelings of those who serve our nation: ‘I was summoned by my country,’ he said, ‘whose voice I can never hear but with veneration and love,’” said Petraeus during his AEI speech.

Something besides his own narcissism may indeed be summoning the four-star to Washington – though it isn’t clear that a groundswell from the American people has anything to do with it. But his recent pandering to AEI and the lip-smacking response from Kristol & Co. should make anyone who still maintains a thread of common sense and an institutional memory very concerned.

Chomsky: How the Tea Partiers Are Getting Screwed by Their Own Ideology

by Noam Chomsky
From Alternet.org


'We should not underestimate the depth of moral indignation that lies behind the furious, often self-destructive bitterness about government and business power."

On Feb. 18, Joe Stack, a 53-year-old computer engineer, crashed his small plane into a building in Austin, Texas, hitting an IRS office, committing suicide, killing one other person and injuring others.
Stack left an anti-government manifesto explaining his actions. The story begins when he was a teenager living on a pittance in Harrisburg, Pa., near the heart of what was once a great industrial center.
His neighbor, in her ’80s and surviving on cat food, was the “widowed wife of a retired steel worker. Her husband had worked all his life in the steel mills of central Pennsylvania with promises from big business and the union that, for his 30 years of service, he would have a pension and medical care to look forward to in his retirement.
“Instead he was one of the thousands who got nothing because the incompetent mill management and corrupt union (not to mention the government) raided their pension funds and stole their retirement. All she had was Social Security to live on.”
He could have added that the super-rich and their political allies continue to try to take away Social Security, too.
Stack decided that he couldn’t trust big business and would strike out on his own, only to discover that he also couldn’t trust a government that cared nothing about people like him but only about the rich and privileged; or a legal system in which “there are two `interpretations’ for every law, one for the very rich, and one for the rest of us.”
The government leaves us with “the joke we call the American medical system, including the drug and insurance companies (that) are murdering tens of thousands of people a year,” with care rationed largely by wealth, not need.
Stack traces these ills to a social order in which “a handful of thugs and plunderers can commit unthinkable atrocities—and when it’s time for their gravy train to crash under the weight of their gluttony and overwhelming stupidity, the force of the full federal government has no difficulty coming to their aid within days if not hours.”
Stack’s manifesto ends with two evocative sentences: “The communist creed: from each according to his ability, to each according to his need. The capitalist creed: from each according to his gullibility, to each according to his greed.”
Poignant studies of the U.S. rustbelt reveal comparable outrage among individuals who have been cast aside as state-corporate programs close plants and destroy families and communities.
An acute sense of betrayal comes readily to people who believed they had fulfilled their duty to society in a moral compact with business and government, only to discover they had been only instruments of profit and power.
Striking similarities exist in China, the world’s second largest economy, investigated by UCLA scholar Ching Kwan Lee.
Lee has compared working-class outrage and desperation in the discarded industrial sectors of the U.S. and in what she calls China’s rustbelt—the state socialist industrial center in the Northeast, now abandoned for state capitalist development of the southeast sunbelt.
In both regions Lee found massive labor protests, but different in character. In the rustbelt, workers express the same sense of betrayal as their U.S. counterparts—in their case, the betrayal of the Maoist principles of solidarity and dedication to development of the society that they thought had been a moral compact, only to discover that whatever it was, it is now bitter fraud.
Around the country, scores of millions of workers dropped from work units “are plagued by a profound sense of insecurity,” arousing “rage and desperation,” Lee writes.
Lee’s work and studies of the U.S. rustbelt make clear that we should not underestimate the depth of moral indignation that lies behind the furious, often self-destructive bitterness about government and business power.
In the U.S., the Tea Party movement—and even more so the broader circles it reaches—reflect the spirit of disenchantment. The Tea Party’s anti-tax extremism is not as immediately suicidal as Joe Stack’s protest, but it is suicidal nonetheless.
California today is a dramatic illustration. The world’s greatest public system of higher education is being dismantled.
Gov. Arnold Schwarzenegger says he’ll have to eliminate state health and welfare programs unless the federal government forks over some $7 billion. Other governors are joining in.
Meanwhile a newly powerful states’ rights movement is demanding that the federal government not intrude into our affairs—a nice illustration of what Orwell called “doublethink”: the ability to hold two contradictory ideas in mind while believing both of them, practically a motto for our times.
California’s plight results in large part from anti-tax fanaticism. It’s much the same elsewhere, even in affluent suburbs.
Encouraging anti-tax sentiment has long been a staple of business propaganda. People must be indoctrinated to hate and fear the government, for good reasons: Of the existing power systems, the government is the one that in principle, and sometimes in fact, answers to the public and can constrain the depredations of private power.
However, anti-government propaganda must be nuanced. Business of course favors a powerful state that works for multinationals and financial institutions—and even bails them out when they destroy the economy.
But in a brilliant exercise in doublethink, people are led to hate and fear the deficit. That way, business’s cohorts in Washington may agree to cut benefits and entitlements like Social Security (but not bailouts).
At the same time, people should not oppose what is largely creating the deficit—the growing military budget and the hopelessly inefficient privatized healthcare system.
It is easy to ridicule how Joe Stack and others like him articulate their concerns, but it’s far more appropriate to understand what lies behind their perceptions and actions at a time when people with real grievances are being mobilized in ways that pose no slight danger to themselves and to others.

Noam Chomsky is Institute Professor & Professor of Linguistics (Emeritus) at the Massachusetts Institute of Technology, and the author of dozens of books on U.S. foreign policy. He writes a monthly column for The New York Times News Service/Syndicate.