What is the financial sector up to?

If the financial sector does not mostly consist of real banks, taking deposits and lending money to businesses, what do they do? Christopher Ketcham explains, in an article titled "The Reign of the One Percenters," in Orion Magazine:

At one time, the financial sector could be relied upon to allocate capital for the building of things that society needed—projects that also invariably created jobs. But productivity is no longer its purview. Lord Adair Turner, a financial watchdog and former banker in the city of London—the other world capital of finance—recently denounced his class as practitioners and beneficiaries of a “socially useless activity.” Paul Woolley, who runs a think tank in London called the Centre for the Study of Capital Market Dysfunctionality, observed that the “presumption that financial innovation is socially valuable” was a kind of metaphysics. “It wasn’t backed by any empirical evidence,” Woolley told John Cassidy, a staff writer for The New Yorker. Structured investment vehicles, credit default swaps, futures exchanges, hedge funds, complex securitization and derivative pools, the tranching of mortgages—these were shown to have “little or no long-term value,” according to Cassidy. The purpose was to “merely shift money around” without designing, building, or selling “a single tangible thing.” The One Percenter seeks only exchange value, as opposed to real value. Thus foreign exchange currency gambling has skyrocketed to seventy-three times the actual goods and services of the planet, up from eleven times in 1980. Thus the “value” of oil futures has risen from 20 percent of actual physical production in 1980 to 1,000 percent today. Thus interest rate derivatives have gone from nil in 1980 to $390 trillion in 2009. The trading schemes float disembodied above the real economy, related to it only because without the real economy there would be nothing to exploit.

.   .   .

Finance as practiced on Wall Street, says Paul Woolley, is “like a cancer.” There is only maximization of short-term profit in these “financial services”—they are services only in the sense of the vampire at a vein. There is no vision for allocating capital for the building of infrastructure that will serve society in the future; no vision, say, for a post-carbon civilization; no vision for surviving the shocks of coming resource scarcity. The finance nihilist doesn’t look to a viable future; he is interested only in the immediate return.

When reading the above numbers, keep in mind that the annual tax receipts of the United States only amount to about $2 trillion.

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Word for the day: kleptarchy

Kleptocracy, alternatively cleptocracy or kleptarchy, (from Ancient Greek: κλέπτης (thief) and κράτος (rule), "rule by thieves") is a form of political and government corruption where the government exists to increase the personal wealth and political power of its officials and the ruling class at the expense of the wider population, often without pretense of honest service. This type of government corruption is often achieved by the embezzlement of state funds.

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Meet the protesters of Occupy St. Louis – October 14, 2011

I occasionally listen to Rush Limbaugh's radio show because I consider it important to understand how it is that my views differ from those of people who oppose my views. Two days ago, I listened to Limbaugh bloviating about the people who are participating in the Occupy Protests springing up all over the United States.  By  some reports, there are more than 1,000 such protests ongoing, and they are actually occurring all over the world.   Limbaugh announced, without hesitation, that these protesters are mostly unemployed, lazy, dirty, amoral, socially irresponsible and ignorant young people. Those who rely on Rush Limbaugh for their facts might thus be highly likely to object to these protests (including Occupy Wall Street) based on Limbaugh's description of the protesters.  But is the description he gave to his many (though dwindling number of) listeners accurate?  I had an opportunity to check this yesterday at the Occupy St. Louis protest in my hometown of St. Louis, Missouri. Over the past few days, I've been quite occupied at my day job, and it was only while walking back to my law office from the federal courthouse at 4 pm yesterday that I spotted an organized march coming down Market Street in downtown St. Louis.  I would estimate that there were almost 1,000 people marching.  I didn't have my video camera with me, but I did have my Canon S95 pocket camera, so I got to work taking hand-held video and still shots of the protesters.  Here's the finished product, which will allow you to actually meet the types of people who are participating in the Saint Louis Occupy protest.  You can now be your own judge of what these protesters are like: As you can see from the parade route pans and the interviews, none of these people fit the description given by Rush Limbaugh.  Off camera, I asked most of the protesters about their "day jobs," and all of them indicated that they were gainfully employed, and in a wide variety of challenging fields.   These "young" protesters of Occupy St. Louis ranged in age from 20's to their 80's.   The on-camera statements of the people I interviewed show that they are well-informed, thoughtful, highly articulate and good-hearted.  Many of the people I spoke with indicated that they are not going away.  They have been waiting for a good time and place to express their deep concerns about the way our government works, and they have finally found what they've been looking for. In case anyone is concerned that I intentionally skewed my sampling regarding who I interviewed, this was my method:  I simply walked up to someone nearby and asked whether he or she would be willing to give a short statement about why they were attending the protest.   I approached 12 people.  One woman sympathetic to the protest apologized and said she couldn't talk on camera because she was a member of the news media. One man said that he supported the protest, but he'd rather not go on camera.  Another man said he had never been part of a protest before, but he read about this protest recently and then said to himself, "Yeah, these people are right on these issues."   The other nine people I approached agreed to give statements on camera.  I'd like to thank each of these folks for taking the time to talk (I've listed their names in the order in which they appear in my video):

  • Al Vitale
  • Fred Raines (a retired economics professor, who said that he compiled the statistics displayed on one of the signs appearing on the video)
  • Apollonia Childs
  • Chrissy Kirchhoefer
  • Curtis Roberts
  • Michel Kiepe
  • Jeff Schaefer
  • Matt Ankney, and
  • Frances Madeson
Based on the above video, there is no lack of intellectual moorings for this protest. The focus is that our government, including politicians of both major parties, has been substantially bought by big business, and many destructive things are flowing from the consequent misuse of government power. About a dozen protesters have have formed a camp in Kiener Plaza, a public gathering spot across the street from the towering downtown headquarters of Bank of America. I was told by several protesters that some of the camping protesters had been evicted from the camp over the past week, but that the intent is nonetheless maintain a presence in Kiener Plaza indefinitely. The Bank of America building has been the geographical focus of other recent protests, including this one in August, 2011. (A payday loan protest by a group called GRO occurred at this same bank last year--here's video).  I should note that most of the people who work in the huge Bank of America building work for companies other than the Bank of America, yet the building remains a symbol of what has gone so very wrong with the political process. I'd also like to mention that the St. Louis Police, who were out in the hundreds, were courteous and professional.   The protesters were there merely to protest-to get their message out.  There were no untoward incidents that would distract from the central message of the protests. For more on yesterday's protest, see this description by St. Louis blogger Gloria Bilchik at Occasional Planet. See also, this post by another St. Louis blogger, Adam Shriver at St. Louis Activist Hub.

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In The Tradition of Great American UnAmericanisms

Herman Cain is the latest in a long line of political mouths calling a populist movement UnAmerican. He says Occupy Wall Street is an assault on capitalism and that capitalism and the free market system are what have made America what it is. Can’t argue with that, but his intended meaning is other than reality. Setting that aside for a moment, though, it’s his statement that protests in the street are UnAmerican that I take greatest issue with. I’ve been hearing that from more or less conservative people since I was old enough to be aware of political issues. During the Vietnam era, the antiwar movement gained the hatred of Middle America not because they were wrong but because they were unruly, in the street, loud, and confrontational. “You should work within the system,” people said, “that’s not the way to do it.” Except it was clear that working within the system was not achieving results. The system is so constructed that those who understand where the controls are can make it respond regardless of general public sentiment. The system is often The Problem, and today we have another example. But more fundamentally than that, it was a failure to recognize that people in the street is very much a part of the system. What do we think “freedom of assembly” is all about?

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Paul Krugman sums up the epicenter of the Wall Street Protests

Paul Krugman applauds the protesters who, in his words, are "angry at the right people." Here is the short story of the reason for the protests:

In the first act, bankers took advantage of deregulation to run wild (and pay themselves princely sums), inflating huge bubbles through reckless lending. In the second act, the bubbles burst — but bankers were bailed out by taxpayers, with remarkably few strings attached, even as ordinary workers continued to suffer the consequences of the bankers’ sins. And, in the third act, bankers showed their gratitude by turning on the people who had saved them, throwing their support — and the wealth they still possessed thanks to the bailouts — behind politicians who promised to keep their taxes low and dismantle the mild regulations erected in the aftermath of the crisis. Given this history, how can you not applaud the protesters for finally taking a stand?

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