The value of public anger

Glenn Greenwald finds virtue in public anger:

[The] anti-anger consensus among our political elites is exactly wrong. The public rage we're finally seeing is long, long overdue, and appears to be the only force with both the ability and will to impose meaningful checks on continued kleptocratic pillaging and deep-seated corruption in virtually every branch of our establishment institutions. The worst possible thing that could happen now is for this collective rage to subside and for the public to return to its long-standing state of blissful ignorance over what the establishment is actually doing . . .

It's a universal dynamic that elites want to keep the masses in a state of silent, disengaged submission, all the better if the masses stay convinced that the elites have their best interests at heart and their welfare is therefore advanced by allowing elites -- the Experts -- to work in peace on our pressing problems, undisrupted and "undistracted" by the need to placate primitive public sentiments.

Consider that it is now well established that emotions are not incompatible with rationality.

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Matt Tabbi’s take on the economic meltdown

I've long-admired Matt Tabbi's thought-process and writing style. This week at Rolling Stone, Tabbi weighs in on what he thinks is really going down in Washington DC and on Wall Street:

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations. The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess . . . .

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

In the process of writing this article, Tabbi shows no mercy for AIG or any other company dabbling in CDO's (collateralized-debt obligations) or CDS's (credit-default swaps). This feels right to me: Showing no mercy to those who dabbled in speculative financial instruments as if they were conservative investments. After all, those financial "gurus" who made these decisions were highly educated people with legions of financial and accounting experts working for them. They should have known better. They have no excuses. Nor does the federal government have excuses. Case in point: Who was regulating AIG? One inept guy.

Among other things, the GAO report noted that the entire OTS had only one insurance specialist on staff — and this despite the fact that it was the primary regulator for the world's largest insurer!

I don't know enough about economics to really weigh in on this crisis. I am highly suspicious about the need for these "bailouts," however. I do know that this money is already gone and that there is almost no accountability for the money we've paid out. I do know that the government has almost no hope of tracing the use of the trillions it is spraying out, almost all of it to proven irresponsible politically-connected financial bigshots. And I do know enough to understand that far too many prominent economists are looking and acting bewildered. I also suspect that many Wall Street power brokers, the same ones that got us into this mess, are still in charge. I know enough to understand that many people who seem to be well-positioned to understand this mess are looking clueless. I hope I'm wrong in all my assumptions.

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The big problem with legalized usury

In his recent article called "Infinite Debt" (in the April 2009 issue of Harper's Magazine), Thomas Geoghegan connects the dots to point out the terrible consequences of having a nation devoid of interest caps. First of all, this situation is something extraordinarily new. The law against usury had "existed in some form and every civilization from the time of the Babylonian empire to the end of Jimmy Carter's term." In many ways, however, it no longer exists in the United States.

Here's what happened: the financial sector bloats up. With no law capping interest, the evil is not only that banks prey on the poor (they have always done so) but that Capitol rushes out of manufacturing and into banking. When banks get 25% to 30% on credit cards, and 500 or more percent on payday loans, capital flees from the honest pursuits, like auto manufacturing. Sure, GM is awful. Sure, it doesn't innovate. But the people who could have saved GM and Ford went off to work at AIG, or Merrill Lynch, or even Goldman Sachs. All of this used to be so obvious as not to merit comment. What is history, really, but a turf war between manufacturing, labor and the banks? In the United States, we got rid of manufacturing. We got rid of labor. Now it's just the banks.

Geoghegan explains that this is why the middle-class is shrinking. In 2003, financial firms accounted for 40% of the profits that accrue to US corporations. Geoghegan points out that this is more than double the share of the financial industry (18%) when Ronald Reagan left office. As Geoghegan explains, "we use our credit cards to help liquidate our own jobs, the kind we used to have in Michigan and Ohio. By little teaspoons, the people who go into debt for kitty litter pull a bit more capital out of one sector and pour it into another." Geoghegan correctly explains that the dam broke when the United States Supreme Court issued its opinion in Marquette National Bank v. First of Omaha Service Corporation, a decision issued in 1978. In that case, the Court held that Minnesota could not cap the credit card of a Nebraska bank because that bank was subject to the National Banking Act of 1864. Therefore, only the state where the bank is located (headquartered) can set the interest rates charged by that bank. In other words, all you need is a few disreputable states (such as Nebraska) for there to be effectively no interest cap on any bank in the United States willing to set up its headquarters in that state. Given that banks can now charge all kinds of hidden fees and penalties, in addition to interest rates at 25 to 50% (or even 500% for payday lenders), they no longer really want us to pay off those loans. Rather, "they want us to be irresponsible, or at least to have a certain amount of bad character." To put this on perspective, think of the terrible old banker, Mr. Potter, featured in the Christmas classic, It's a Wonderful Life. Mr. Potter drove a very hard bargain. He wanted everyone to actually ay off their loans. What's fascinating is that Mr. Potter was lending out money at the exorbitant rate of 2%. But now Mr. Potter would have more choices. If you could charge 35%, he might not necessarily think, "the law must be repaid"-at least not right away. And if he can charge 200%, he actually may not want the loan ever to be repaid. Therefore, we have a terribly bloated financial sector that employs immense numbers of people to do... what do they do? I do remember only about 1/3 as many people working in the financial sector 30 years ago (or so it seemed). It didn't seem like we needed these kinds of folks back then, certainly not so many of them. I really wonder whether most of these people are adding any value to society by doing what they do, or whether they are simply participating in an insane "arms race," by which they fight to get ahead of each other in order to suck vast amounts of money out of the lives of regular folks. Sounds like it's time to starve the beast by putting a 20% cap on all interest rates. That's what Geoghegan recommends.

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