Monday, May 31, 2010

This Didn't Need To Happen

From the NYT:
SAN FRANCISCO — A 23-year-old man died and nearly a dozen other people were hospitalized on Sunday — some with life-threatening symptoms — after apparently ingesting a batch of tainted drugs at a weekend rave party just south of here, the authorities said.
Why would someone die from tainted drugs? Because these drugs are illegal, and when you make drugs illegal, only criminals make drugs. And criminals just aren't as careful about making safe drugs as they could be. They're more concerned with not going to jail.

So here is another name we can add to to the long list of victims of the Drug War. But it doesn't have to be this way. We aren't going to keep people from doing drugs. We've spent hundreds of billions of dollars over 40 years, and people are still using them. Let's legalize them and regulate them and make them safe.

It's Time To Cut Israel Loose

Last night, Israel attacked a flotilla of ships in international waters who were trying to deliver humanitarian aid to the people of Gaza, the same people whom Israel is slowly starving to death and who have been cut off from the rest of the world by an Israeli blockade. A number of peace activists who resisted this act of aggression were killed, and many more wounded.  By all accounts, this appears to be a war crime, and yet, as in the past, any attempt to sanction or even criticize Israel through the United Nations will be blocked by the United States.

How much longer can the United States unconditionally support Israel? Its actions are universally condemned by the world community with the exception of the US, and it is only our continued military and financial aid which is allowing Israel to act in the manner it does.

The cost of this relationship to the United States can hardly be overstated. Our support for Israel at the expense of the Palestinians is widely acknowledged to be one of the prime reasons for the ongoing radicalization of the Islamic world, and has probably done more to ensure a steady supply of recruits to Islamic terror organizations than anything else we've done, even including our barbarous and criminal invasion and destruction of Iraq.

It is becoming abundantly clear to the citizens of the United States that Israel is a rogue country, and that we simply cannot justify our continued support of it, even as it continues to oppress the Palestinian people, murder them and steal their land. How much longer will it take for the Congress to reach the point where voters are so angry that they can no longer afford to allow the Israeli lobby to dictate the terms of US foreign policy towards Israel?

Israel has reached the point of no return with this attack. It has shown that has every intention of doing whatever it pleases, and that it could care less about the morality of its actions or the effects that they have on its allies.

Israel has been warned repeatedly by the United States and by the world, and it has ignored those warnings. It has exhausted the international goodwill that foolishly allowed it to appropriate land for a new nation in the wake of the Holocaust. It has become a terrorist state, and is guilty of crimes against humanity. It's time to cut it loose.

Saturday, May 29, 2010

Spreading Freedom, One Mutilated Corpse At A Time

The road to freedom and democracy in Afghanistan and Pakistan has hit something of a speed bump.

American commanders, in some sort of misguided attempt to ensure that only actual Taliban members (or perhaps people who have talked to or seen one, or maybe is a relative of or went to school with one) are eligible to be taught the wonders of American values which the US military often delivers by means of Hellfire missiles, are responding to reports that we've also been sharing these values with civilians. Apparently, the official US policy is that we only liberate people who have some connection to the Taliban, and spreading democracy to whole families who are just out for a drive by ripping them into little pieces of meat for the crows and vultures to eat is just not acceptable. For this, you will be written up. The horror!

This sure is some kind of noble war we've got going on over there, where operators of remote controlled drones called Predators sit in quiet rooms safely behind the US border and spread democracy and freedom by firing missiles through remote control at people who look suspicious. Sometimes, they just blow up whole families of innocent people with those freedom bombs, spreading the blasted little pieces of blood and guts and brains all over the shrubbery, and maybe leaving some limbless, frightened people alive who have to sit there covered with those little pieces of blood and guts and brains that until just moments before belonged to the laughing, smiling, innocent bodies of their families.

Now, I know the casual reader of this blog might be concerned that this reasonable suspicion requirement could prevent US forces from murdering a sufficient number of innocent Afghan citizens. The American elite class, particularly those Freedom-and-Democracy-loving Neo-Cons, love nothing better than a good bloodbath to demonstrate the superiority of the American system of freedom and justice and equality for all. And who better to turn into a sort of exploding fountain of body parts than innocent civilians? After all, aren't they the ones whose hearts and minds we are trying to win over?

But not to worry. As US General Stanley McChrystal recently bragged, "We've shot an amazing number of people and killed a number and, to my knowledge, none has proven to have been a real threat to the force."

So you may rest assured that US forces are not being hamstrung too severely in their hunt for harmless civilians to render into paragons of democracy, much the way the spare parts of a steer are rendered into so much bone and meat meal to be used for pet food or glue.

And it seems to be working. We've been trying to get the Afghans interested in American democracy for quite some time, but with little apparent success. Oh, sure, we claimed to have found some, like 12 year old Mohammed Jawad, who the US claimed was so interested in the US that they had to lock him up for 7 years in a cage in Gitmo. But as it turns out, Jawad and most of those like him really weren't interested in the US at all; the US military was just making the whole thing up so that we Americans would think the Afghans cared.

Now, however, the new approach of liberating innocent Afghan souls by splattering the small, remaining fragments of their bones, teeth, hair and other more solid body parts against the walls of their family homes has begun to reap some rewards. Why, just last September an Afghan citizen in the United States showed so much interest in this American method of spreading democracy and freedom that he planned to go all the way to New York City to return the favor, intending to show how he himself had embraced the American method by painting the walls of a New York City subway car with his remains and those of a few dozen of his traveling companions.

Our leaders, of course, are far too modest to take credit for this rapid interest in the American way by Afghan citizens. In typical fashion, they humbly claim that Afghans still actually hate America, and that they hate us for our freedoms, and our clothes and our movies.

But we know better. We know that our great leaders have indeed brought about great change. We know that there are many Afghans who, in the past, were interested only in tending to their flocks or fields. But our leaders have shown them the awesome power of democracy and freedom by shredding small children into even smaller pieces of children, or incinerating grandfathers as they sit telling stories, or of filling the pregnant wives of influential and respected community members with a great multitude of fast moving lead projectiles.

The success of this method is readily apparent. There is a huge rise in the number of previously unenlightened sheep farmers with new-found interest in the United States, and who have recently not only embraced this method of sharing ideals, but have grown determined to share the technique with the rest of Western World.

Being new to this method of spreading liberty and freedom, the Afghans still have some things to learn. For example, their preferred method of delivering their message of freedom, blowing themselves up along with the intended recipient of the message, while certainly brave, is just not as artistic or relaxing as the American method of flying invisible Predator drones high overhead, and then silently delivering their blood-soaked version of Democracy from on high, like some sort of Freedom God. This has the added benefit of keeping the rest of the population in a constant state of heightened anticipation, wondering when their chance to experience liberty will come.

But the Afghans will learn. Our American leaders have made it clear that we will be teaching them these lessons for many years to come, and so it is inevitable that the Afghans will get better at this. Today, there are only failed attempts at spreading freedom in subways; tomorrow, we may have pitched gun battles in shopping malls, as Afghans find new and better ways to return the favor.

And let us not forget that we are showing the Pakistanis the American way as well. Our Predator drones are in full effect there as well, and the results appear to be just as promising. Not long ago, a Pakistani citizen who was inspired by the wonderful American gifts of disemboweled children and crispy, smoking, corpses (which inevitably accompany our wonderful family massacres) attempted to return the favor in New York City's Times Square. His generous act of freedom was not, of course, on par with the bloody contributions to justice that America so selflessly and frequently makes, but that will change with time.

And if there is one thing that both Pakistanis and Afghans have, it's time.

Wednesday, May 26, 2010

A Police State

Here's a sad example of the War On People Who Use Drugs:

It's hard to think that we live in anything other than a police state. Here is a man who is on flimsy evidence is suspected of being a drug dealer, but who in fact is actually nothing more than than a marijuana user who a police informant happened to have mentioned.

This man had never shown any signs of violence, and is at home sleeping with his family and their dog. And yet the police somehow find it necessary to show up in force-at least seven paramilitary members, in full battle gear including kevlar and machine guns. They knock once, and when there is no immediate answer from the sleeping family, smash through the front door and begin shooting. The family dog is killed, and a second injured by a stray bullet, but that could just as easily have been the young daughter or the parents who were injured or killed.

And for what? They found a small amount of pot and a pipe. This guy could not have been any more harmless, and yet they sent a bunch of amped cops, armed to the teeth, and obviously ready to shoot something or someone into this man's house in the middle of the night.

Please tell me how this is functionally any different from what East German Police or the KGB did. Sure, you can say those people shouldn't smoke pot, but I guess you could have told the East Germans not to get together and talk politics too.

I realize these cops will say they're just doing their jobs, but at some point you have to wonder why they don't resign out of shame. Perhaps they have none.

Saturday, May 22, 2010

Rand Paul Says He's Not A Racist. Ok, Well Here's A Way To Prove It

There's been plenty of talk about Rand Paul and his indecision about whether he supports the ban on private discrimination that was part of the 1964 Civil Rights Act.

Let's back up to Tuesday night, shall we?

The younger Mr. Paul made clear on Tuesday that the celebration at the Bowling Green Country Club was a Tea Party party. He declared himself a proud member, credited the movement for his success and dismissed speculation that he would abandon its message to appeal to more moderate voters in the general election.
“People are already saying, now you need to weave and dodge,” he said. “Now you need to switch. Now you need to give up your conservative message. You need to become a moderate. You need to give up the Tea Party. You need to distance yourself.” The crowd yelled “No!”

Rand Paul followed that speech up by going on Rachel Maddow's show the next night and weaving and dodging, as he simply refused to give an answer when Maddow asked him whether he thought businesses should be able to refuse to serve blacks. Watch this embarrassing exchange:

Of course, Paul has been saying for quite some time that he thinks the government should not get involved, but all of sudden he is faced with the prospect of having to defend the reality of such a position in front of people who think it's abhorrent. By the next night he was proclaiming his support for a ban on this kind of discrimination.

So much for consistency and being above politics. I guess getting elected is more important.

But I want to follow up on Paul's argument a little more. I've been asking around on libertarian message boards, and, at least among these people, the answer to Maddow's question seems to be a resounding no. Libertarians, quite frankly, believe that Congress does not have the constitutional power to forbid discrimination in private business.

Let's take that argument at face value, for it seems to be the argument that Rand Paul is making. Paul keeps protesting that he is not a racist, but rather someone who just believes in following the Constitution. He talks about how discrimination is terrible, and how he wishes it would all go away, but throws his hands up in the air and says it can't be helped-the Constitution just doesn't allow Congress to interfere. 

Well, I have a suggestion for Mr. Paul. If he really believes that discrimination is terrible, and an affront to humanity, and that he would love to ban it but for the Constitution, then he should promise that his first act as a U.S. Senator will be to sponsor an amendment to the Constitution banning discrimination. This should take care of all of his concerns.

In fact, I think he has a duty. He has now claimed that he is not a racist, that he is opposed to discrimination, and that he supports the Civil Rights Act in its entirety although he thinks that it is unconstitutional. What choice left is there for an honorable man in this situation but to rectify the situation through a Constitutional amendment?

Needless to say, I won't hold my breath waiting for this to happen.

Stating The Obvious

This Dumb Quote Of The Day comes comes courtesy of Pennsylvania Gov. Ed Rendell, on why 30-year senator, long-time member of the establishment elite and opportunistic Democratic convert Arlen Specter lost his bid for a sixth term to relative outsider Joe Sestak:

“In fairness to Arlen,” Mr. Rendell said, “if the economy was ok and there was no anti-incumbent wave, this wouldn’t have been a close election.”

Keeping in mind the fact that Arlen Specter is one of those responsible for the horrible economy, Rendell might as well have said:

"In fairness to my client, if he had not actually committed this crime he probably would have gotten off."

Yes, Mr. Rendell, had Senator Specter actually been a good senator, he may well have won this election.

Friday, May 21, 2010

We Need It; They Don't

Brian Doherty at Reason gets it half right:
What’s wrong with cutting back big government that mostly exists to serve the interests of big corporations?
Here's why in a nutshell. Big corporations don't need government in order to screw us. But we need government if we're going to keep them from doing it.

The BP disaster is the perfect example. Without government, BP would have gone right ahead and done exactly what it did.* With a shitty government, like the one we have, it made no difference.

The only thing that can help us is good government. Can we get it? I don't know, but I know that not having any government at all is not necessarily any better than having bad government.

*Actually, they would have done it long ago, and even more often.

This Should Tell You All You Need To Know

If you still think the "financial reform" that the Senate passed today is going to do anything to rein in the out of control banks that are holding the country hostage, this bit from the WSJ should clear up any confusion you might have:

Among the financial components posting big gains following the Senate's approval of the biggest overhaul of the financial system since the 1930s were J.P. Morgan Chase, up 4.6%, while Bank of America, up 4%, and Goldman Sachs, up 3.7%.

Given that JP's market capitalization is around $150 billion, this means that the news of the Senate passing this bill was worth around $7 billion to JP Morgan.

So much for reform.

Put Your Seat Belts On

At the end of Ron Lieber's write-up of the new financial reform bill comes this gem of a line, which pretty much sums up what Congress is doing:
Lest we forget, the whole point of this bill is to keep something like what went on in the latter half of the last decade from ever happening again. Perhaps the new cops on the beat will sound the alarms sooner when we inevitably go off the rails again in the years to come.
We're not going to actually stop any of this mess from happening again, of course. We're just going to sound the alarm a little earlier so people can brace themselves before the train goes off the tracks and over the cliff.
And that's about as good a summation of the "reform" that Congress is foisting on us as you'll find anywhere.

Thursday, May 20, 2010

BP's Priority Is Not Stopping The Leak

It's becoming pretty obvious that BP's top priority at the moment is not mitigating the damage from the gulf oil spill, but trying to find a way to keep from paying for what they've done.
The New York Times is reporting that the EPA has ordered BP to find a new chemical dispersant to use on the gulf oil leak.
Citing worries about a fragile coastal environment, the federal Environmental Protection Agency on Thursday gave the giant energy company BP 24 hours to select a less toxic chemical than the one that it is now using to break up crude oil gushing from a ruined well in the Gulf of Mexico…
In seeking to break up the oil bubbling to the surface from the Deepwater Horizon well, BP has sprayed nearly 700,000 gallons of Corexit chemical dispersants on the surface of the gulf and directly onto the leaking well head, a mile underwater. It is by far the largest use of chemicals to break up an oil spill in United States waters to date.
That's a lot of dispersant. I realize that the United States government is only recently beginning to care about science again, but someone must have an idea of whether these dispersants make sense to use.
The purpose of the dispersants is to break up the crude oil into tiny droplets that will sink into the water rather than float, and thus be more easily diluted by ocean currents, so that oil slicks do not hurt marine life on the surface or affect sensitive shoreline ecosystems.
But all dispersants are types of detergents and at best are mildly toxic, so applying them requires a careful calculation about whether the dispersant-oil mixture will cause more or fewer problems than untreated crude oil would.
Now, you may have heard that BP is refusing to allow scientists to use accurate, modern equipment to measure the flow rate at the wellhead, and is teaming up with the government to try to make its original much lower estimate stick, an estimate that has been widely discredited by independent observers. From an earlier story
BP has repeatedly said that its highest priority is stopping the leak, not measuring it. “There’s just no way to measure it,” Kent Wells, a BP senior vice president, said in a recent briefing.
This is PR bullshit. How can you possibly begin to know how to stop the leak if you don't even know how big it is? There are a whole host of reasons to figure this out, foremost among them being that it's essential to solving the engineering problem. But there are two other reasons that are almost as important. The first is so that we can accurately assess the damage when it comes time to make BP pay for what it's done. The second is so that we can have a much better understanding of the risks involved in drilling these wells, risks that the industry repeatedly lied about.
Yet for decades, specialists have used a technique that is almost tailor-made for the problem. With undersea gear that resembles the ultrasound machines in medical offices, they measure the flow rate from hot-water vents on the ocean floor. Scientists said that such equipment could be tuned to allow for accurate measurement of oil and gas flowing from the well.
Richard Camilli and Andy Bowen, of the Woods Hole Oceanographic Institution in Massachusetts, who have routinely made such measurements, spoke extensively to BP last week, Mr. Bowen said. They were poised to fly to the gulf to conduct volume measurements.
But they were contacted late in the week and told not to come, at around the time BP decided to lower a large metal container to try to capture the leak. That maneuver failed. They have not been invited again.
Ok, so BP is using chemical dispersants that require "careful calculations" in order to determine whether or not their use causes more damage than doing nothing. And yet they refuse to allow independent scientists in to determine the actual rate of flow. 
Now, you may wonder why BP wouldn't want an accurate flow rate. After all, it's obviously something they'll need in order to mitigate this disaster, right?
The problem is that BP has no interest in mitigating this disaster. BP is interested in mitigating how much this disaster is going to cost BP, and that's it. 
From the first story:
Many experts in the field wonder why dispersants are being used at all so far out in the gulf, and why the federal agencies whose approval was required to apply the chemicals signed off on the plan.
Dispersants are conventionally applied to move oil off the surface of the ocean to protect marine life there and to prevent large amounts of surface oil from coming ashore. Yet the well that was left leaking by the sinking of the Deepwater Horizon drilling rig in April is 50 miles from shore, which could be too far for the dispersants to play a helpful role in protecting coastal ecosystems, some experts said.
Why would BP spend millions on dispersants that will have no net benefit to the environment?
Here's your answer:
Recent research shows that rather than degrading the oil so that it disappears — a natural process that occurs over time — the dispersants move it to a different part of the ocean where, in theory, it causes less trouble. As in a shaken bottle of vegetable oil-based salad dressing, “what goes down, eventually comes up” somewhere, Dr. Fingas said.
Huge underwater plumes of dispersed oil have been spotted drifting in the gulf over the last week — a predictable consequence of dispersant use, according to experts including Dr. Fingas, because the oil droplets sink and are carried by underwater currents.
Frederic Hauge, head of the international environment group Bellona, said that the use of dispersants can make it harder to track a spill and to measure the effect of the oil and chemicals, because “you don’t know where it will pop up next.”
So BP is refusing to allow anyone to take the critical measurements of the flow rate from this well, because they know damn well that it a hell of a lot more than 5000 barrels a day. In fact, McClatchy reported today that a scientist testified to a House Energy subcommittee that his estimate of the flow rate was 95,000 barrels (4 millions gallons!) per day. And in order to make sure that no one can prove that this 5000 barrel number is wrong, they're using dangerous chemicals to disperse the oil across the world's seas so that no one will ever be able hold them liable for the true cost of the disaster.
Sure, all that dispersant will just make things worse, but who ever really believed that BP gave a damn about the environment anyway?

Thursday, May 13, 2010

Freddie Mac Executive Lectures Underwater Homeowners About Morality. Really.

Is your mortgage underwater? Are you wondering if you should stop throwing money away in a hopeless cause? Is your mortgage putting you in dire financial straits? Well, don't worry-one of the jackasses who just destroyed our economy is here to lecture you about morality and social responsibility.

Here's a letter that Freddie Mac Executive Vice-President Don Bisenius recently posted on the Freddie Mac web site. It is an insulting and pathetic attempt to convince people with underwater mortgages to keep paying them, even when it's not in their best interests. I felt as though he was talking to me, so I figured I'd respond.

(Freddie Mac, of course, is the secondary mortgage buyer that was rescued by taxpayers after it essentially failed in 2008. It has already taken $52 billion, and the cash drain on taxpayers seems to have no end in sight.)

A Perspective on Strategic Defaults 
Don Bisenius
May 3, 2010 – As the mortgage industry works through a large volume of loan delinquencies, a new and growing concern has emerged: strategic defaults. In other words, borrowers who have the financial means to make monthly mortgage payments, but choose not to do so and, instead, purposely default on their loan.

Yes, this is a huge problem. Foreclosures, whether intentional or not, are often personally traumatic, and not only on affect the borrower, but society in general as they have the effect of lowering home prices for everyone around as well.

Now, Mr. Bisenius, since you are a longtime executive at Freddie Mac, which paid its executives millions to buy shitty mortgages from anyone that would sell them, you are among the people most responsible for this tragic wave of foreclosures which has crushed the housing market and destroyed the finances of millions of households. You must be planning to write about how bad this situation is, and how sorry you are for your role in it. No doubt this will be accompanied by a letter of resignation, and an offer to return your ill-gotten salary to the taxpayers for helping to preside over such an utter failure. Please continue.
Strategic defaults come from a variety of homebuyers: from real estate investors who sought to profit from rising house prices during the housing boom, to individual families who simply sought shelter. But these homebuyers have certain things in common: their properties reside in regions where house prices have declined considerably, and the amount still owed on the mortgage is far greater than the present value of the house.
Yes, it's terrible. Get on to the resignation, please.
Some in this situation believe they will be forever chained to a large debt owed when they sell the house. And so, even though they have the ability to keep paying the monthly bill, they have decided to walk away from the property without paying off the loan. An intentional foreclosure, if you will.
Makes perfect sense to me. I mean really, Don, did you raise a stink when your buddies at Morgan Stanley walked away from a $2.5 billion loan and handed the keys to its office buildings back to its lender, even though they could have kept paying? I didn't think so.
In essence, these borrowers are weighing the costs and benefits of a strategic default, and coming to a conclusion. 
And in many cases, that very obvious conclusion is that it would be insane to continue to pay their mortgages.
Now, the costs can be considerable. Once a mortgage goes into default, a borrower's credit rating is severely tarnished, making it more expensive, if not impossible, to qualify for any new form of credit. 
Of course, if they continue to pay said mortgage, they will be so broke that they will also find it impossible to qualify for any new form of credit.
In certain states, a borrower's personal assets can be subject to a deficiency judgment. 
Well, that's what Chapter 7 is for. And in most states, that's not the case anyway. And so what? Do you think people don't take this into consideration when they make a rational decision to walk away?
And anything that involves a credit review, such as obtaining auto insurance or getting a new job, can be complicated. These detriments can be in effect for several years. 
That sounds like a threat. 
The benefit: the borrower avoids paying for the lost equity in the house.
So let's recap your cost/benefit analysis, shall we, Don?

The costs of defaulting on your mortgage:

  1.  Your credit score will go down, which will make it harder for you to get new loans that you obviously can't afford in the first place, and which you won't get anyway because you're broke and no one is lending.
  2.  In certain states, you may have to file Chapter 7 in order to protect your other assets, which will also affect your credit score as already discussed.
  3.  Your credit score may affect your ability to get certain jobs- jobs that aren't available anymore anyway ever since institutions like Freddie Mac destroyed the economy.
  4.  It might be a hassle to get car insurance.

These costs are real, but they aren't catastrophic, and for many people will hardly affect them at all.

The benefits:

You could immediately get rid of tens of thousands of dollars of debt. This money could be used for sending your kids to college, or going back to school yourself, or buying groceries or health insurance. 

So is it worth it? I don't know, because every situation is different. What I do know is that you, Don Bisenius, have absolutely no fucking clue either. So sit down, and shut the hell up.

And you seem to realize that too, don't you, Don? Because that's not really your point. And it's also becoming pretty obvious that you have no intention of resigning or refunding your salary to taxpayers.

 I'm deeply disappointed.
Knowing the costs and factoring in the time horizon, some borrowers have made the calculation that it is better to purposely default on the mortgage. While I understand how that might well be a good decision for certain borrowers, that doesn't make it good social policy. 
What the fuck, Don? Did you seriously just start talking about good social policy? When did it become the responsibility of borrowers to worry about social policy? Borrowers have enough on their hands trying to keep your bankster buddies from raping them. Where in the hell do you get off talking about social responsibility? Where were you in the last 10 years-hell, the last 30 years- when the entire financial industry took a giant crap on social responsibility, and destroyed the American economy so that executives like yourself could get obscenely rich at the expense of average Americans, who have lost their jobs and seen their life savings go up in smoke as a result of the free-market bullshit spouted by people exactly like you?
That's because strategic defaults affect many other families and communities. And these costs – or as they are known in economic jargon, externalities – are not factored into the individual borrower's calculations.
Yeah, externalities. I don't suppose anyone on Wall Street factored in the externalities of destroying the financial system either, did they? Did they worry about the millions of jobs that would be lost? Did they worry about the trillions of taxpayer dollars that would get transferred from the poor and middle class to executives like yourself? Did anyone at Freddie Mac give two shits about the fact that the banks they dealt with were pushing fraudulent loans on people who didn't know any better or who couldn't afford them, and paying themselves billions in bonuses as fast as they could, knowing that taxpayers would bail them out when the shit inevitably hit the fan? 

You've  been at Freddie Mac since 1992, Don. What were you doing-napping? Maybe you should have woken the hell up and delivered this speech about social responsibility and externalities to your colleagues and golfing buddies at Goldman and Citigroup and the rest. Maybe you should give it right now to your boss, one Ed Haldeman, who will make $6 million this year presiding over a company that has attached itself to the American economy like a bloodsucking leech.
Let's start with the neighbors. When strategic defaults occur, homes go into foreclosure and sit vacant for some period of time. We know from experience that foreclosures and vacancies drive down the property values of everyone else in the neighborhood. Thus, strategic defaulters, in effect, deplete the personal wealth of their neighbors. Get a critical mass of strategic defaults, and broader communities and regions become affected. Indeed, , the analytic firm, recently said that more strategic defaults could tip a fragile housing market back into one of further price declines. Even more families harmed.
Yeah, and that's all the fault of the borrower. The borrower who was told by everyone in the financial industry that prices would rise forever. The borrower who bought a home cautiously and conservatively, only to watch the banks and Freddie Mac team up to flood the market they live in with thousands of homes which were destined for foreclosure the minute the deal was done. 

Don, if you were the CEO of a company that intentionally spread a fatal and infectious disease among the population, you would blame the contagion on people who didn't just shoot themselves as soon as they found out they were infected in order to keep themselves from passing it on. And then lecture them in a letter not unlike this one.
But that's not all. Should strategic defaults become more common, mortgage guarantors and investors, including Freddie Mac, would need to factor this risk more prominently into their credit policies and prices. 
Now that is a threat.
The likely impact on future homebuyers: the cost of a mortgage will go up and credit terms will be less flexible. Thus, the impact of strategic defaulters on still more families might be more expensive mortgages and loans that are more difficult to obtain. The strategic defaulter does not usually consider these costs.
You think? 

You're telling us we have a moral responsibility to keep throwing our money away on a hopeless and disastrous loan so…other people can get these loans?
Do borrowers considering strategic defaults have other options? They do. For those who have not suffered any disruption in income and have a longer time horizon, simply continuing to pay the bills might be best.
Sure, it might be best for them. Or it might not.  And if it is, I'm sure they'll do it.
Over time, recovering house prices and declining mortgage balances likely will close some, if not all, of the equity gap. 
And you know this….how? Because you have some super power that lets you predict where housing prices will go? Why didn't you use that five years ago? It might have helped save the global economy.
The reality is that you have absolutely no idea where housing prices will be in one year, much less 20. But for a lot of people, everything will have to go just right to break even in 20 years. And if it doesn't, their kids won't be going to college, or they'll find themselves greeting people at Wal-Mart well past retirement age so they can buy groceries and Geritol. 

But don't worry about that; listen to Don Bisenius, an executive at a corporation that was so good at predicting the future, they've been taken over by the government and have already had to beg taxpayers for $52 billion, even before their recent $10.6 payoff.
According to the Federal Reserve, while the housing bust wiped out $8 trillion in home equity, $1 trillion came back in 2009. The point here: time might be your best ally.
Guess what? The $1 trillion that already came back was the stuff that shouldn't have been devalued. That other $7 trillion was the bubble; and it's gone and will take years to come back at historical housing appreciation rates. There is a reason people can't pay back all these loans. The homes just aren't worth that much.
Another alternative: if Freddie Mac owns the loan, a family might be able to refinance up to 125 percent of the current property value. In other words, if a family's home equity has been completely wiped out and the mortgage balance is as much as 25 percent more than the home is worth, we can help.
Well, if you're so worried about the social effect, then get out there and start modifying the principal on these loans. But Freddie Mac isn't doing that. They have great programs for the few people that can actually qualify for them. But the Making Home Affordable Program has been a colossal failure, because no one wants to do the only thing that will help, which is to reduce the principal. The banks won't do that because it would force them to start telling the truth about how much these mortgages are really worth, and that would put a damper on the bonus parties. How's that for social responsibility?
What about families who need to move? We can help here, too. Freddie Mac has an array of solutions that help certain borrowers avoid the cost and stigma of foreclosure, such as short sales and deeds in lieu of foreclosure. And we continue to work on additional solutions that address would-be strategic defaulters while minimizing the impact on neighbors.
"An array of solutions that help certain borrowers…" Just not the ones who really need the help.

"Avoid the…stigma of foreclosure." You want to help people avoid the stigma? Stop writing asinine letters accusing them of ruining society. Like this one.
In the end, borrowers considering a strategic default should recognize the damaging impact their actions can have on others. While a personal financial strategy might argue for a strategic default, entire communities and future homebuyers can be harmed as a result. And that is why our broader social and policy interests will be best served by discouraging strategic defaults.
So borrowers should sacrifice their own financial interests in order to make sure that you continue to get paid, while you and the people like yourself who are responsible for the mess collect billions of dollars of taxpayer funded bonuses and lecture struggling families about wasting money on college funds and groceries when they could be paying their mortgages.

Are there some borrowers who are at fault? Sure, but most people just didn't know any better. And how could they? They aren't financial experts like you are, Don. They're teachers and waitresses and mechanics and soldiers who didn't know any better than to listen when you and your friends in the business told them to buy now or they'd miss out on the chance to buy a home forever. And even the worst of the speculators and house flippers weren't doing anything worse than your banking buddies still are today. The only difference is that they lost their investment, while Freddie Mac got bailed out and you and your friends got to keep your jobs and fancy cars.


There are two important points that I want to make. 

First, there is no moral requirement to pay off a mortgage. It makes my blood boil when I hear bankers lecturing people about living up to their responsibility, especially when those same bankers wouldn't think twice about defaulting on commercial loans they no longer view as profitable. It is not a moral issue.

What do you think happens when you get a mortgage? Do you think the bank is relying on your good word that you will pay them back? If they are, then I guess you have a moral responsibility to pay keep paying. But that's not how it works. You don't promise to pay them back. You promise to either a) pay them back or else b) let them take the house. You have the option. If it makes more sense to pay it, then pay it. If it makes more sense to walk away, then walk away. That's it. 

The second point is that there is no such thing as a strategic default. It's just a default. No one ever makes every payment that they possibly could. Have you ever heard of a borrower who stopping eating and sold all of his possessions in order to make payments as long as he possibly could?

Of course not. People make payments until it no longer makes sense for them to make them anymore. For some people, that moment comes when they have to choose between food and the mortgage. For others, it's the car. For the more prescient among us, it's the ones who make the decision right around the time they realize the choice is between paying the mortgage or giving up what little hope for future financial freedom they still have.

But I guess you won't get the coveted Don Bisenius Social Responsibility Medal Of Honor unless you starve the family and live without electricity.

Thanks for the morality lesson, jackass.

Tuesday, May 11, 2010

Just A Little While Longer...We Promise

American commanders, worried about increased violence in the wake of Iraq's inconclusive elections, are now reconsidering the pace of a major troop pullout this summer, U.S. officials said Tuesday.
The withdrawal of the first major wave of troops is expected to be delayed by about a month, the officials said. Waiting much longer could endanger President Barack Obama's goal of reducing the force level from 92,000 to 50,000 troops by Aug. 31.
We will never leave there, will we? I suppose the only intriguing question left at this point is how Obama's most blindly loyal supporters will excuse yet another broken campaign promise-this time, the very important promise to end the war and bring the troops home.
More than two months after parliamentary elections, the Iraqis have still not formed a new government, and militants aiming to exploit the void have carried out attacks like Monday's bombings and shootings that killed at least 119 people — the country's bloodiest day of 2010.
Of course, we had an opportunity to allow Iraqi's elections and democracy soon after our invasion. They wanted elections, but the United States refused to let them have them because it was worried that they would elect people who weren't interested in just handing over all of Iraq's oil to Bush's friends. So we denied them the democracy that Bush claimed we were spreading, and ruled them by decree from the safety of the Green Zone. And Iraq proceeded to burn. 
The threat has prompted military officials to look at keeping as many troops on the ground, for as long as possible, without missing the Aug. 31 deadline. A security agreement between the two nations requires American troops to be out of Iraq by the end of 2011.
A lot can happen between now and then. The neo-cons are alive and well, and they have no intention of allowing America to give up its conquest in Iraq. They'll need those bases for the next war in Iran. Is there any reason to believe they won't remove the  new government from power with the excuse that it cannot maintain the peace, and forcibly install another puppet government in its place? And would anyone then be surprised to find out that that puppet government asked the Americans to stay a little longer?
I know I wouldn't.

He's Just One Of Us


This man truly has no shame. Not to mention a really inflated sense of self. This ad is like an SNL sketch. I don't know if you could even come up with a parody of it, but I sure hope someone tries.

Also, he was against the fence before he was for it.

In The Footsteps Of Tyrants

Another one of our freedom-loving allies in the Middle East continues to show us the way:
CAIRO—Egypt's government on Tuesday extended the country's controversial emergency law for another two years, saying it would limit its use—a promise dismissed by human-rights activists who warned the law would continue to be used to suppress dissent.
The emergency law, in place since the 1981 assassination of then-President Anwar Sadat by Islamic militants, gives police broad powers of arrest and allows indefinite detention without charge. Democracy advocates and human rights groups have long said the law is used to silence critics and ensure the ruling party's lock on power in this top Mideast ally of the U.S., pointing to the arrest of bloggers, political activists and others.
Does this sound familiar?
After an attack by Islamic militants, a government uses the incident to take a hard turn to the right and gives its law enforcement agencies broad powers to arrest people suspected of being terrorists, or of providing support for suspected terrorists, or really of doing anything that the government doesn't like. The people arrested under these new powers can be held in indefinite detention, without any charges, and without any trial. This government has also used the incident to rationalize the torture of its prisoners.
The United States has done all of these things, and the only thing that seems to separate it from Egypt, at this point, is the government's reluctance to use violence to stifle free speech.
But at this rate, how long will it take them to cross this line? They are already up against it; their prosecutions of whistleblowers and their attempts to silence Wikileaks are but two disturbing examples.
An overt campaign to keep real journalists from reporting on the actions of government may seem far-fetched, but we must remember that both the current and previous administration have been among the most non-transparent in history, and already tightly control the flow of information to the select group of friendly lap-dog media elites it knows it can control. 
And consider that, 10 years ago, the idea of the United States openly torturing prisoners, spying on its own citizens, locking people in solitary confinement without trial at their pleasure and claiming the power of its president to assassinate its own citizens at will would have seemed equally far-fetched. And yet, to a large percentage of the population, this seems perfectly acceptable today. 
Freedom of the press won't be destroyed overnight, of course. The government isn't going to just take over TV stations and newspapers. It might start by employing  (as Glenn Greenwald reports) Obama confidant Cass Sunstein's proposal to infiltrate organizations who promote "false conspiracy theories" about the government, which, of course, would include any theory that does not agree with the government's official claims.
Next might come a few arrests of bloggers who are sympathetic to the grievances of Islamic terrorists. They could be charged with "providing material support to terrorism," a law so broad that the Humanitarian Law Project fears is could be used against them for promoting peace talks with groups like the Tamil Tigers. Those arrests will have the effect of silencing much of that sort of criticism.
And the more critics are silenced, the easier it will get for the government to restrict the press even further. Many Americans won't even notice it happening; the mainstream media, run by members of the same elite class of people who run the government and corporate America, will continue to serve up the same official party line, and to distract us with their endless tales of meaningless Washington intrigue and political horse races. Their willingness to create their own version of the truth will become less and less constrained as competing journalists are either frightened into silence or marginalized by being denied access to information.
And this is how democracies die. When the voters are denied the information that they need in order to make  informed decisions, the whole system becomes a sham. Even worse, they are often unaware that they are not getting the truth, and are even more unlikely to ever remedy the situation. We can only hope that Americans start taking an interest in their democracy before it's too late to save it.

Monday, May 10, 2010

The Terrorists Have Won, Part 2469

The following is an excerpt from a piece by British attorney Gareth Peirce in the London Review of Books.
One young American citizen, Syed Fahad Hashmi, was due to stand trial this month in Manhattan. He has been subjected to every coercive and unconstitutional practice at issue in the still outstanding extraditions in the three years since he was flown from the UK to the US. Before his transfer to the US, Hashmi was held in Belmarsh Prison in the same conditions as all other prisoners, accused of an offence that if tried in the UK would have merited at most a sentence of two or three years; since his extradition, he has been kept in total isolation in a tiny cell. He has not seen daylight since arriving in this New York prison.
The Anglo-American adversarial process is intended to rest on a guarantee of fairness, an equality of arms between prosecution and defence. Hashmi, under the disabilities that years of solitary confinement inevitably create, even for the strongest and fittest, faced a prosecution based on the evidence of a co-operating witness who pleaded guilty in the US to engagement in terrorist activity in Pakistan, including the use of explosives and the attempted murder of the country’s then president. The witness, having served the shortest of prison terms in the US, and having given evidence against others in a cluster of trials in a range of jurisdictions, claimed that Hashmi, a student in England, let him leave a suitcase in his London flat in which there were combat clothes and lent him his phone, on which he, the witness, rang a suspected terrorist in the UK. This was enough to secure his extradition. For this, the co-operating witness goes free and his victim stands trial on charges of providing material support for terrorism. On the eve of that trial, having maintained his innocence for three years, but faced with the prospect of a 70-year sentence, Hashmi changed his plea to guilty.

And that effective life sentence would be served under the most horrifying conditions imaginable- in total isolation, without any human contact or sunlight, and deprived of any stimulation or distraction of any kind. Imagine the door closing on a small white room, with no books or television or phone or anything else to do but stare at a white wall until you drive yourself mad. And imagine realizing that this is where you will spend the rest of life.

If that is not one of the worst forms of psychological torture imaginable, then I am at a loss as to how else to describe it.

And after three years of enduring this torture, and being told that if you do not confess you be found guilty anyway by an American kangaroo court, and that this will be your fate, how can you possibly find the strength to continue to maintain your innocence?

The entire piece must be read by anyone who still believes that the United States criminal justice system is anything more than a total farce, and who believes that we have any right to lecture Iran or China or anyone else on the subject of human rights.

Break Up Goldman and The Rest

Today's WSJ:

NEW YORK—Goldman Sachs Group Inc., facing securities fraud charges leveled against it by the government, on Monday warned that future litigation costs could cut into profits


Analysts have estimated that a settlement of the SEC's current complaint could range between $1 billion and $5 billion.
"We are involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses," the company said in a filing with the SEC. "Given the range of litigation and investigations presently under way, our litigation expenses can be expected to remain high."

It sounds as though Goldman is assuming that the current SEC charges will not be the only ones, and that evidence turned up during the course of this current investigation could lead to new charges.

Goldman said the challenges would not be material to the overall business, but that legal costs and potential settlements could trim operating results. The company spent about $500 million on legal costs in 2009.

What this means is that they expect to pay the fines as a business expense, and don't have any real expectation of having to do anything differently in the future.

Lloyd Blankfein, Goldman's chairman and chief executive, said Friday during the company's annual meeting that the investment bank will look into ways the company can confront the current scrutiny over its business practices. He was re-elected to the board, and shareholders voted down a proposal to split the chairman and CEO posts.

"The last few weeks have been ... difficult and disappointing," Mr. Blankfein told shareholders on Friday. "Questions have been raised that have gone to the heart of our most fundamental value: How we treat our clients."

Well, the evidence coming out in this case seems to provide an answer to that question. Apparently, they treat their customers like shit. They use them like chumps by selling them crappy products designed to fail so that they can collect insurance payments when they do.

He has been criticized for not disclosing the SEC investigation sooner. The company, which was hit by the government complaint last month, said it did not originally believe the SEC investigation would have a material effect on business.

Right. Why would having the SEC formally charge you with defrauding your own clients have any material effect on your business?

Goldman, which emerged from the financial crisis with record earnings in 2009, also disclosed in the regulatory filing that its traders did not lose money during the first quarter. The firm reported that it made more than $100 million daily for 35 days during the quarter.

Let's talk about these profits for a minute, and look at the big picture. How could anyone who believes in the efficiency of markets possibly defend a company making these kind of profits? Forget about whether you think they're obscene, and never mind the fact that most of that money will go towards buying private planes and yachts for the Goldman folks.

Think about this: in an efficient market, these kinds of profits simply wouldn't be available. In an efficient market, other firms would move in and offer the same services for far less, and still make a decent profit. In fact, in an efficient market, these profits would be approaching zero, as Goldman's competitors continued to undercut them.

This is obviously not happening, and this is obviously not an efficient market. There are many reasons why Goldman's competitors cannot compete with them, and it's not just because of some special technical skill or ability that Goldman has that they don't. Those kinds of edges never last long in that kind of business.

But Goldman has other advantages, some of which it shares with a few other huge banks that are making similar profits.

It has much cheaper funding through the Fed discount window than smaller banks do. This cheaper funding is directly paid for by taxpayers.

It has much cheaper funding from institutional investors. This is because those investors realize(even if taxpayers don't) that if Goldman fails, taxpayers will rescue it, as they've already done. Smaller banks, of course, are simply put into receivership.

Goldman acts as a member of a oligopoly, and so has very little competition. And with no competition, you get obscene profits and inefficient markets.

Goldman does not have to worry about long-term profitability. Goldman is concerned with making money today; if it makes money today, its traders and executives make millions. It can do this by making extremely risky bets. Like betting on Russian Roulette, these bets will eventually turn catastrophic. But at that point, the people at Goldman will have already been paid. And the gun is pointing at the taxpayer's head anyway.

Goldman owns the government, along with the rest of Wall Street. This means that they don't have to worry about the government passing any pesky laws that would prevent them from destroying the global economy for the sake of some bonuses, or of declining to bail them out with taxpayer money when they fail. The US Treasury department and the SEC, in fact, are full of people who used to work for them, and who are planning to go back to work for them once they've finished their little stint of infiltrating the enemy camp.

All of these are reasons to require that Goldman and the other top five banks be broken up. There is no advantage to having banks with more than $100 billion in assets, and the disadvantages become more glaringly obvious every single day.

Breaking these banks up would not be anything radical or unprecedented. It was done with Standard Oil, and it was done with AT&T. Last time I checked, this didn't result in the end of the oil or phone industries.

Sunday, May 9, 2010

Excusing Obama

BP, Deepwater, Obama, Salazar

Debcoop at Open Left has a new post up trying to make sure everyone knows that Republicans are to blame for the oil spill, and not Obama.

The NY Times thinks that President Obama has not responded aggressively enough to this spill. Let's be clear:
No way is this oil spill Barack Obama's fault.

Seriously? As Paul Rosenberg points out (also in a post on Open Left!), Obama appointed an Interior Secretary (Ken Salazar) with deep ties to the oil industry. Salazar was confirmed in January of 2009. The BP permit for the Deep Horizon well was approved 3 months later in April, with zero meaningful oversight.

Since then, 26 additional well permits have been handed out in exactly the same way, by the exact same Interior Secretary. As Rosenberg says, these permits were simply rubber stamped, and the oil companies were allowed to simply assert that there would be no environmental impact. (Read Rosenberg's post if you want to get a good idea of what the Interior Department does to make sure disasters like the BP catastrophe don't happen.)

Now, you may argue that we can't expect the president to know all of the intricacies of deep sea drilling, and that it is true. But you simply cannot excuse him for appointing an Interior Secretary with the record that Ken Salazar has.  

And in case you think he just didn't know any better, just last month Obama approved a massive expansion of offshore drilling, which would have been done using the exact same regulatory process, by the exact same department-a process that could best be described as simply signing whatever drilling applications the oil corporations filled out, and then going back to sleep.

This is not some case of Obama making the passive and innocent mistake of not realizing that the Secretary of the Interior was in charge of regulating activity that could (and did) result in a massive environmental catastrophe. No, this is worse. Obama actively planned to allow a huge expansion of this activity, and he either did not bother to look into the risks of such activity, or did look into it and saw nothing or didn't care. And we know this because his administration has continued to issue rubber stamp permits, just like the one that BP got, even after the BP explosion!

None of these explanations are acceptable, nor the actions excusable. They are precisely the kind of thing that we would be (rightly) excoriating Bush/Cheney for, and yet here is DebCoop, on Open Left of all places, excusing this behavior.

This is exactly the kind of sycophantic drivel one would expect to find on the pages of the White House web site or some Democratic Party hack's blog, and yet it is making it's way onto the pages of

The fault lies with the ideology and mores of the Republican party and its theory of government.

Which are, it is becoming painfully obvious, no different from the ideology and mores of President Obama.

Their solution to this country's energy's future is to drill anywhere and everywhere.

This might be more relevant to your case if Obama had not- just last month!- approved a plan to pretty much just drill anywhere and everywhere.

Friday, May 7, 2010

Is Government The Problem?

Have you heard about the big oil leak off of the coast of Louisiana? The one that is threatening to destroy what's left of the wetlands that are the only barrier between a major American city and the ocean? The same wetlands that oil companies have been destroying for years by building pipelines and canals through?

Well, it turns out that the oil companies were warned repeatedly about the possibility that precisely what happened would, well, happen.

WASHINGTON — Federal regulators warned offshore rig operators more than a decade ago that they needed to install backup systems to control the giant undersea valves known as blowout preventers, used to cut off the flow of oil from a well in an emergency.

The warnings were repeated in 2004 and 2009. Yet the Minerals Management Service, the Interior Department agency charged both with regulating the oil industry and collecting royalties from it, never took steps to address the issue comprehensively, relying instead on industry assurances that it was on top of the problem, a review of documents shows.

Anyone who paid any attention to the Bush administration's attitude towards regulation during the last decade would hardly be surprised. That attitude could be summed up as: "There will be no regulation."

In the intervening years, numerous blowout preventers and their control systems have failed, though none as catastrophically as those on the well the Deepwater Horizon drilling rig was preparing when it blew up on April 20, leaving tens of thousands of gallons of oil a day spewing into the Gulf of Mexico

Agency records show that from 2001 to 2007, there were 1,443 serious drilling accidents in offshore operations, leading to 41 deaths, 302 injuries and 356 oil spills. Yet the federal agency continues to allow the industry largely to police itself, saying that the best technical experts work for industry, not for the government.

This is how adversarial relationships work, you see.

When the government charges you with a crime, if you hire a lawyer who is smarter than the prosecutor, the government just lets your defense lawyer write the prosecution's case.

In tournament chess, the player with the most experience gets to make his opponent's move as well as his own.

Hell, I don't understand why bank robbers aren't allowed to write the laws on bank robbery, since they arguably know more about the subject than anyone.

(Actually, the banks do write the laws governing banking, and that's pretty much the same thing.)

The free-market fraudsters, of course, want you to believe that regulation by government is bad because they'll just fuck it up. And they'll use this case as evidence, because in this case, they did fuck it up.

But what they won't tell you is that they fucked it up because the free-market fraudsters told them to.

They ran the government almost singlehandedly for eight years. Their goal was to let corporate interests do whatever the hell they wanted to, and to hand them money for doing nothing whenever possible. And they succeeded.

Are you an investment bank that wants to gamble in an unregulated derivatives market with a notional value equal to 40 times the size of the entire US economy? Go right ahead, and we'll bail you out with taxpayer money when you implode.

Are you an international drug company that feels like marketing dangerous pharmaceuticals to people who don't need them? We'll slap you on the wrist and send you back out to kill again.

Are you a defense contractor who's tired of having someone in the government making sure you're not ripping off the Pentagon? We'll just tell those in charge of watching to close their eyes.

Are you an oil company that doesn't want to spend a few more bucks on safety equipment to prevent catastrophic environmental disasters that will affect millions of average Americans? We'll just tell the inspectors to defer to your best judgement, as though you actually have the welfare of the American people in mind when you despoil their land.

Over and over again, you will hear that government is incompetent and can't do anything right.

But here's the thing. People don't suddenly get stupid when they work for the government. The government invented the atomic bomb. It predicts the weather. It built the interstate highway system. It put a man on the fucking moon 40 years ago, using a computer that probably had less power than your $30 mp3 player. It sure as hell can figure out when BP is blowing smoke up its ass, if its told to do so!

And that's the thing. It has been told not to figure that out, over and over again. Regulators have been told not to regulate derivatives, so they did not. Regulators were told not to pay attention to the billions and billions of dollars of Iraqi reconstruction funds that were handed out to Halliburton on pallets of cash for work that was never done, so they did not. The Department of the Interior was told not to argue with BP about whether they were doing enough to prevent this kind of disaster, so it did not.

And now we have one more disaster on our hands; one more in a long line of disasters that could have been prevented by government, but were not because the free-market fraudsters and their paid-for politicians made sure that government would not be allowed to interfere in the making of money, unless they were just going to be handing more of it out.

The sad thing is that this has been a long time coming. It's not just the Bush administration; it started with Reagan's bullshit line that government was the problem, and continued through Bush I and Clinton, and then was accelerated in a frenzied looting of the American public during the eight long years of Bush II. And Obama doesn't seem to even know where to begin to fix it, and I have no idea if he even wants to.

But after a 30-year long evisceration of government's ability to govern, there really isn't much left there institutionally. The free-marketers would have you believe that government is bigger than ever, but it's not. It spends more than ever, but instead of using that money to actually do things, it just hands it over to corporations and tells them to do whatever they want with it.

It's going to be a big challenge to get the regulatory arm of government rebuilt. It will take time, and it will take money. Rich people who run oil companies will have to pay more in taxes. But it must be done, and the sooner we start on it, the better.

Wednesday, May 5, 2010

Will The Greeks Reject The Shock Therapy?

Over the last 30 years, as Naomi Klein has thoroughly documented in "Shock Doctrine",  numerous governments have used crises to ram through deeply unpopular "free market" reforms that have really been little more than thinly disguised efforts to make massive social spending cuts and to direct vast sums of lower and middle wealth to the corporate/government elite.

They've done this in times of crisis because, without some catastrophe to frighten and shock them, the citizenry would never go along with the plans. Whether it's been hyper-inflation in South America, Yeltsin's attack on the Russian Parliament or the millions of pounds of ordinance dropped on Bagdad in the Shock and Awe campaign, these crises have always done the trick. And the trick is to force severe austerity measures on all the citizens of already stressed nations. 

Today, it's Greece's turn. Greek sovereign debt has risen to unsustainable levels, and, without a bailout from the EU, Greece is headed towards default.

So, naturally, the EU has decided to bail them out. And, just as naturally, they are calling for austerity measures, which will mean severe cuts in the pensions, salaries, and jobs of ordinary Greek citizens, all while taxes are being raised.

If you just read the headlines, you'd think that this bailout is a great thing for all of Greece. And you would be wrong. The money from this bailout will go to paying off the banks and institutions that made bad decisions and lent Greece more money than they should have. These are banks which are based in the countries which are organizing the bailout, so in essence these countries are bailing out their own banks at the expense of the Greeks. These banks screwed up royally, but they'll get paid off in full. It's the average Greek citizen which will get screwed.

Now, you may have heard that Greek pensions, salaries and social spending levels are unsustainable, and that the people who are protesting because the pensions they were promised won't be there should realize that the deal they had was too good to be true, and shouldn't expect it to be honored. And there may be a shred of truth in that statement. 

But the institutions that lent Greece money, and banks like Goldman Sachs that actively enabled Greece to get around it's debt limits, should realize that when you lend people more money than they can afford to repay, you shouldn't expect that deal to be honored either.

In other words, there are two parties to this mess. The first is the Greek citizen, who has gotten perhaps too good of a deal when it comes to social benefits. (This, of course, is open to interpretation. If Greece bothered to collect taxes on the rich, these benefits would be a lot more affordable.)

The second party comprises the institutions that lent Greece money, all of which have made massive amounts of money in fees and interests, and whose executives have paid themselves handsomely for lending money to a country that was already too far into debt.

The first party is expected to accept new taxes and deep and painful wage cuts, social service cuts, pension cuts, and cuts in virtually every public sector in a country that relies heavily on public spending. These cuts will be catastrophic for the Greek economy, as the massive reduction in income will lead to reduced aggregate demand and a deflationary spiral which will push the country into the abyss and which will be extremely difficult to recover from, and that could easily take a decade or more to do so.

But they will be asked to do this so that the second party, the banks and institutions that enabled this crisis in the first place, can get their shitty loans paid back in full.

Does this sound like a raw deal? It does to me, and, apparently, it does to the Greeks as well, who are taking to the streets by the thousands to protest the austerity measures just announced by the government. In fact, the NYT is reporting that three people were just killed in the firebombing of a bank in Athens.

Of course, many (including leading economists) have criticized these banks, saying that they should have known better than to lend Greece money. But that misses the larger point, which is that they knew that the IMF or the European Central Bank would make sure that they were made whole, no matter how insane their lending standards. So it wasn't that they didn't know better; it was that they didn't care. They expected that the Greek people would be forced to pay for their mistakes and the mistakes of the Greek leaders. (As Yves Smith points out, the moral hazard implicit in this bailout is one of its worst features. It will encourage banks to continue to lend to countries at unsustainable levels, secure in the knowledge that the IMF will bail them out and make the citizens of the countries pay with their livelihood or lives.)

The Greeks understand that this is not about bailing them out. It's about making them pay for the mistakes of others, and about transferring vast sums of Greek wealth to the financial elite, in a process which will destroy the Greek economy and impoverish its people.

And for what? To stave off a sovereign debt default which is coming anyway? To ensure that they can remain in the very currency union which is currently preventing them from using monetary policy to escape the clutches of the IMF and the ECB?

This is not a case of figuring out some way forward that is best for everyone. As always, this is about large financial institutions and their executives getting preference over the middle class and the poor. There is absolutely no reason on earth why bondholders shouldn't take a hit, but taxpayers should. 

But this is how it's done. A country is frightened into believing that the end of the world is coming if they don't agree to massive social spending cuts. The money that is saved by making these cuts is then transferred to the people who made foolish loans to that country's government, hoping to make a killing, but assuming they would be bailed out either way. And then the massive cuts in spending lead to a widespread unemployment, reduction in demand, and an accompanying economic meltdown. 

But by this time, of course, the bankers have their money.

This is happening right now in the United States, with the debt hysteria that is being whipped up by bondholders who can't wait to slash social security and unemployment, but who wouldn't even consider cuts to the bloated military trough their rich buddies feed from. 

Greece needs to reject the bail-out package. It should default on its debt; it has no moral obligation to pay it. This will require them to withdraw from the currency union, but so what? It has been a disaster for them anyway. And with debt repudiation, Greece will at least have a chance to start anew.

Let's just hope that the protesters can be successful without further bloodshed.