13 Bankers

I just finished reading Simon Johnson and James Kwak's 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown. It provides the most cogent narrative of events that led to the crisis in finance, the crisis itself, and the responses of those in power. There is plenty of blame to go around: Ronald Reagan, Phil Gramm, Bill Clinton, Robert Rubin, Alan Greenspan, both Bushes, and an host of other government figures who bought into the myth of the "efficient market hypothesis," as well as those ruthless sons of Moloch who created the complex financial instruments that maximized the profits of megabanks while destabilizing the world's economies.

Johnson and Kwak are much nicer to Barack Obama than I think warranted, perhaps because they want to persuade him that the regulatory reform bills currently struggling through Congress are inadequate, and that he should really be thinking ahead to breaking up the banks that are "too big to fail." They attribute his timidity to being part of (and entirely surrounded by) the New York—Washington mindset that maintains that bigger is better, not to having been co-opted by the big bucks banks have thrown his way.

Maybe they're right, or maybe they just have some compunction against saying that the President of the United States is a pawn of the oligarchs. Me, I have no such compunction: the President of the United States is a pawn of the oligarchs. There. I said it.

Obama is not a stupid man, and even with Geithner and Summers talking into both his ears at once, he should be able to figure out that "too big to fail" is "too big to exist." Hell, even Alan Greenspan, despite what had to be major cognitive dissonance, came around to that point of view. As anybody who's been paying attention understands — including, of course, the bankers — the megabanks have an implicit government guarantee, just by virtue of their size and systemic importance. That is the only reason they can borrow at significantly lower interest than smaller banks — a fact that should be obvious to all.

Wall Street, naturally, has its knickers in a twist over the very limited reforms the Democrats are trying to enact, and is very likely to shift major chunks of its political contributions over to the Republicans — who remain stubbornly opposed to government doing anything at all. Will that be enough to persuade Obama to stop licking their $2000 shoes, and get serious?

Certainly not until his second term — if he gets one.

.....(later the same day).....

Okay, maybe he's not a total pawn — maybe he's just doing his usual "splitting the difference" routine. Halfway between doing nothing (as the bankers would prefer) and the right thing (breaking up the megabanks into smaller units that could be allowed to fail) is the usual, half-assed, universally unsatisfying compromise. That's what we got for health care, and that's what we'll get for financial reform.

So maybe he's not that much a pawn of the banks. Maybe he's just a pussy with no strong beliefs at all — a pussy who wants to be loved and/or re-elected.

Whatever. If it happens to be respect he wants, he's not getting any from me.

Derivatives

I have to admit I was very pleasantly surprised by the proposed derivatives regulations that came out of the Senate's Agriculture committee — so much so, that I think it would be fantastic if somebody could find a way to assign farm price supports, the next time they come up, to Banking and Finance.

Blanche Lincoln provided real leadership, and Charles Grassley bravely decided to satisfy Iowa voters rather than adhere to monolithic Republican Party discipline. (Well, maybe he had permission.) However it happened, the bill reported out of committee is significantly better than the House version.

Perhaps it's because those farm state Senators have a genuine understanding of the way derivatives are supposed to work. The reason Agriculture is responsible for derivatives is because farmers need futures contracts to manage risk . Those contracts always have been traded openly and, by and large, they have done the job for both farmers and end users of agricultural products. Markets do work, provided they are not diddled by those who look for ways to profit from market failure.

So now it's "wait and see" time again. I don't think the Republicans are dumb enough to filibuster a financial reform bill, but who knows? With enough pressure from Fox News and the minions of Dick Armey, it still could happen.

More important to the final bill, though, is what comes down from the White House. Geithner and Summers have been mouthing some of the "correct" pronouncements lately, but nobody ever should forget just how much money Wall Street has to sling around. A hell of a lot was tossed at Obama during the 2008 campaign, and thanks to the Supreme Court's decision in the Citizens United case, there will be a hell of a lot more to be tossed around in the future.

Financial regulation

On health care, the Obama administration sat back and waited for Congress to come up with something — anything. On financial regulation, the bill came straight from the administration, and it sailed right through the House.

Obama, as I've noted in the past, picked the wrong Bob — Rubin, rather than Reich. That left us with Geithner and Summers, zombie slaves of the financial industry. I'd feel a lot happier about the package from the White House if it had been written by people less ideologically committed to Wall Street. When a bill starts out weak, it only can end up as an even weaker law.

Oddly enough, I find myself in agreement with the likes of Richard Shelby and John Cornyn on at least one point: it is time to revisit the 1995 repeal of Glass-Steagall, one of the most unfortunate legacies of Robert Rubin's time in the Clinton administration. Commercial banks and investment banks should, once again, be separate — if for no other reason than to reduce the overall size of the largest institutions. Even if that were done, though, there are some institutions which would need further whittling down to ensure that there no longer are any that are "too big to fail."

At this time, the biggest banks have an unfair competitive advantage over smaller banks, in that they can borrow money at lower rates. They get those lower rates because it is assumed that government will not allow them to fail, no matter what pledges come out of Congress and the White House — and they use their surplus profits not to invest in productive businesses, but to place bets in the high-stakes casino Wall Street has become over the past fifteen years.

I can see absolutely no reason for synthetic CDOs to exist. They are nothing but side bets on real economic activity, but bets large enough to disrupt the financial system and create crises. Credit default swaps on synthetic CDOs were a large part of what brought down AIG, and made its government bailout necessary. If the very rich want to make bets on whether bonds they don't own will or will not default, let them open their own betting parlor and gamble with their own money — not with our pension funds.

Other derivatives must be openly traded, on an exchange like the one provided for in the bill now before the Senate Agriculture Committee, but with no exceptions for companies that are particularly large or well-connected. Markets cannot operate properly when they operate in secret.

Naturally, I don't expect much of the current effort to improve financial regulation, but hope it might be a step in the right direction. Yes, my fingers are crossed — but I'm not holding my breath.

Elizabeth Warren???!!! :-)

About a minute ago, NPR mentioned Elizabeth Warren as a possible nominee for the Supreme Court. I jumped up and down, yelled "Whoopie," and came directly here to post.

Elizabeth Warren actually cares about the poor. Elizabeth Warren has offered more valuable insights into the disintegration of the American middle class than almost anybody. Elizabeth Warren is brilliant, articulate, and (from my perspective) hot. (Okay, I've had a big crush on her since I read The Two-Income Trap six years ago, and then saw her on the Daily Show.)

Needless to say, she won't get the nomination. The GOP would never let her be confirmed — and the Obama administration would never stop sucking up to Wall Street long enough to give her a chance. Personally, I think that's dreadful — but dreadful is par for the course these days.

Sigh. (I do a lot of sighing these days.)

Mine Safety

29 are dead at the Upper Big Branch Mine. Massey Coal's stock price is down a few points. People are talking about "mine safety."

Uh huh.

One very important safety measure was missing at Massey's Upper Big Branch — unionization. If there are safety problems, you can't count on rank-and-file miners — just trying to get by in a rough economy — to do anything at all to bring it to the attention of the alleged regulators. Who wants to get fired — right?

The UMW is not the union it used to be, but it's still a hell of a lot better than nothing. I don't know if the UMW could have prevented the carnage at Upper Big Branch, but I think the miners there would have had a hell of a lot better chance if somebody — anybody — was paying real attention to safety factors.

Labor continues to cling to Obama. Maybe it's genuine hope, maybe it's desperation. One way or the other, labor should not be taken for granted.

Without labor, the Democrats are dead.

Out in the "stans"

I'm a little more pissed than usual today. Either pardon my profanity, or stop reading now.

First, a note on Kyrgyzstan — apparently, the autocratic asshole we've been supporting in order to keep our airbase (serving Afghanistan) open has been forced out of power. The new autocratic asshole now taking over is making nice with the Russians, so it's likely to cost us a good deal more (in bribes) to keep the base open.

When you consider that there is no real strategic purpose for "winning" in Afghanistan, it's all a goddamned waste. I was willing to give McChrystal a chance a couple of months ago, but he's blown it. We're still killing as many (or more) civilians as ever, the locals continue to hate our guts, and even our official asshole buddy Hamid Karzai is shitting on us (and probably is, as Peter Galbraith suggested, strung out on the dope that is Afghanistan's primary export.)

I've written to my Congressdork and both Senaturds, urging them to reject further financing for the war in Afghanistan. They'll ignore me, of course. Fuck all three of them. None will ever get another cent in campaign contributions from me. (I'll let you all know the contents of the form letters they send me within the next month or so. They always reply, inevitably with bullshit.)

Let's just pay the warlords more than Al Qaeda can to buy their cooperation, and get out of there. If there's one thing we know about Afghan "leaders," it's that they can be bought.

The Pope's Little Problem

I was researching a possible video with the working title of "Vic Solves the Pedophile Priest Problem" when I ran into the survey commissioned by the U.S. Conference of Catholic Bishops. Granted, there is no valid reason to assume that findings for the U.S. apply to Ireland, Germany, or other areas involved in the widening scandal, but I think they are, nevertheless, pretty interesting.

For one thing, the data show that roughly three quarters of the accused were not actually pedophiles — they more properly should be referred to as ephebophiles (also known as hebephiles or, in the terminology of the Stonewall era, chicken hawks.) Ephebophiles are not interested in little boys, but only in larger, postpubescent big boys. In many jurisdictions around the world, that means the priests who diddled a good many of them — the sixteen- and seventeen-year-olds — were just gay. (Actually, in the Pashtun regions of Pakistan and Afghanistan, diddling adolescent boys is just a prerogative of being rich and powerful — neither gay nor perverse in any way.)

Mind you, this does not mean I approve of pedophile/ephebophile priests — whatever the age of their lovers. After teaching high school for thirty years, I know that sixteen-year-olds will have sex with whoever's available, whenever they're horny enough — but just the same, they shouldn't be led to believe that letting the priest lick their ding-dongs will put them on the path to heaven.

The real scandal, of course, is the cover-up — the cover-up, as always, being more damaging than the initial offense. They won't come right out and say it, but what the Catholic leadership wants us to understand is that Benedict wasn't officially infallible before he became Pope. Whatever he did when he was just an archbishop, or Prefect for the Congregation of the Doctrine of the Faith, or a member of the Hitler Youth, didn't actually count — no matter what the New York Times has to say about it.

Anyway, I do have a solution for "the Pope's little problem," but you'll have to wait for the video if you can't figure it out on your own. As you may have noticed, my "simple solutions" always are eminently rational, truly simple, and never adopted (unless the U.S. actually is buying the opium from Marja.)

Wait and see.

Ahmed Wali Karzai

Ahmed Wali Karzai, Hamid Karzai's kid brother, is the foremost Afghan capitalist. Yes, his reputation for corruption, dishonesty, graft, and outright thievery is the stuff of legend, but none of that disqualifies a man from the ranks of the world's great capitalists. A guy's gotta do what a guy's gotta do.

According to yesterday's Times, U.S. officials have decided to leave him in place in Kandahar, his seat of power (and also a center of Taliban activity), when we invade it sometime in the near future — all the moralistic talk about fighting corruption notwithstanding. It seems State has decided that we've pissed off Hamid Karzai enough lately, and that the military (and probably the C.I.A. as well) think Ahmed Wali might be useful.

Well, of course he'll be useful, and of course he'll be happy to work with us. Greedy, self-interested bastards always are happy to "work with" anybody tossing billions of dollars around. Needless to say, he can't be trusted — a history of vote rigging, dope smuggling, money laundering, seizure of other people's property, and an host of other traditional capitalist modi operandi does not inspire great trust. The trick will be to use him to best advantage.

Since he's been paying off the Taliban for years — to lay off his properties, opium shipments, etc. — it's been suggested that he'd be good person to help "turn" some of the "less radical" Taliban, and bring them into the government's camp, but I have a better idea.

A much more effective way to use him would be as a go-between to help the United States buy all the local opium production, at premium prices. What better way to win the hearts and minds of the locals than to become the best customer for their most important crop?

I know. I've said it before, but I think it bears repeating. The best way to curry favor in Afghanistan while cutting off the flow of heroine to the United States and the rest of the world is to buy the raw material — the raw opium — before it is processed. Ahmed Wali's influence extends throughout Kandahar province, and well into Helmand. That's a majority of the opium production in the country.

You may recall that a decision was made not to destroy the opium crop when we took Marja. What's happening to that opium? Nobody seems to be asking that question — at least nobody being quoted in the Times. Could it be that the Obama administration already is following my suggestion? It would be nice.

In the meanwhile, though, the Russians are royally pissed by all the Afghan heroin currently making its way onto the streets of Moscow. Was a commitment to help reduce the heroin flow part of the agreement to reduce our nuclear arsenals? We'll never know.

So let's use Ahmed Wali Karzai to best advantage — to stop the opium before it leaves Afghanistan. We will not be able to persuade the Afghans to replace their most important cash crop with, say, potatoes or winter wheat. Buying all their opium not only will keep it off world markets, but will make us their most important trading partner. It's a lot cheaper than fighting a never-ending war.