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Former Top Regulators Tell Congress to Rein in Big Banks

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Jaisal Noor of the Real News Network interviews Dr. William R. Black, the author of The Best Way to Rob a Bank is to Own One, and an associate professor of economics and law at the University of Missouri-Kansas City.

And these top regulators share one, very odd characteristic:

They’re all Republicans!


More at The Real News

NOOR: So, Bill, what do you have for us this week?

BLACK: Well, some possible good news. There was just a big hearing in front of this massive House Financial Services Committee, which is up to almost 80 members. And the reason it is is because both parties now stick members of their party that are going to be in tough races on the committee because you’re guaranteed to get so many political contributions from the big banks. Well, that’s the bad news.

The good news is that they had witnesses who had an unusual degree of agreement on the fact that things are screwed up and need to be fixed and how to fix them.

And so the big three were Sheila Bair, former chairman of the Federal Deposit Insurance Corporation and the strongest of the regulators under the Bush administration, and continued under the Obama administration for a time; Tom Hoenig, the former head of the Federal Reserve Bank of Kansas City, a real gruff guy who is now the vice-chairman of the Federal Deposit Insurance Corporation. To give you an idea, when he was with a small group of us in Kansas City, he announced that every four years we hold an auction in which we auction off the secretary of Treasury to Wall Street, and that of late Goldman Sachs has always been winning the auctions. So that gives you some idea of his view of the largest banks. And the other one was president Fisher of the Federal Reserve Bank of Dallas, which is also interesting, because in recent times he’s been exceptionally conservative on most issues, but on two issues he’s now said, one, that too-big-to-fail has to end, we’ve got to get rid of the concept that there are these banks that are just too massive to deal with, and in this hearing he has just testified in favor of the return of Glass-Steagall. …

But now you have three very prominent conservative–I think all three of them are Republicans–experts saying we need to bring back Glass-Steagall. And they’re also saying, all three of them, that we need to get rid of too-big-to-fail. And we have a bill in the House that has over 60 cosponsors. Well, the House has, you know, hundreds of members, so that is hardly enough, but that’s a significant thing in terms of cosponsors. It’s the first time we’ve had any real momentum to do something serious about the problems of too-big-to-fail and the problems of the conflict of interest. So, as I said, we actually have some potential good news.

* * *

Lambert here: Well, I don’t know if zapping TBTF and reinstating Glass-Steagall would be enough, at this point, especially given that the environment in which the banksters have created for themselves and all of us is, as Jeffrey Sachs points out, “morally pathological”.

Basically — and I freely admit I don’t see how to do this politically — I don’t see why we can’t have Post Office banks in this country (and let the 1% blow their own money playing the ponies and scamming each other, if that’s what they want to do). The bricks and mortar is already in place — of course, we should open up all the post offices that were closed in the rural areas — and so is a capability to handle money. As a side benefit, any citizen could bank at the Post Office, so all the debanked get the services they should have, and check cashing joints couldn’t prey on them. And while we’re at it, put up municipal wifi towers on the Post Office roofs so that every service area gets covered, so you blanket the whole country with free Internet.

Of course, a lot of people might be uncomfortable with this idea because of the whole United Stasi of America thing we keep hearing about, but that’s going to have to be dealt with anyhow. Besides, given the choice between living in the woods with cash or gold bullion, handing your money over thieves to use against you, and the Post Office, which is worse? Of course, Google and FedEx will hate this idea, but that’s not a bug. It’s a feature. Also too Lloyd, Mike, and Jamie, but who cares what they think? They should be in jail.

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51 comments

    1. psychohistorian

      I 2nd the kudos for the Post Office Bank suggestion.

      If you asked the people of this country I suspect you would get 80% or better support for the idea.

      But we don’t own our country anymore. It belongs to the global inherited rich that own the banks.

    2. Goin' South

      Credit unions? Local. Depositors elect the board. One account, one vote. Not such a bad option.

      1. F. Beard

        Credit unions have government deposit insurance and have access to the Fed, no? So how are they different from banks other than that they “share” the loot with their members?

        The solution to thievery is not for us all to become thieves, no?

      2. diptherio

        Credit Unions have regulations that restrict them from lending to businesses (afaik), which means they can only partially compete with normal banks right now. Also, CUs are “under attack” right now, being threatened with taxes.

        I like CUs, but they don’t offer a total solution, as of yet. I think a diversity of means is called for in trying to restructure our financial system. A PO Bank could be another brick in the wall, so to speak (only in a good way).

      3. Lambert Strether Post author

        If I were strong on the implementation detail, I’d probably be a banker [pause for laughter]. That said, I think the issues with usury are — and I find myself agreeing with F. Beard here, though I might take issue with this methodology at some other time — fundamentally moral. (Graeber in Debt is very good on this.) And the issues with ungoverned usury are not only moral but extremely dangerous, if slash since they cause slash exacerbate the “endless accumulation” (Wallerstein) of capital in a world that may not be able to bear what we are pleased to call the “externalities” of that accumulation. The world being, after all, round.

    3. Hugo Stiglitz

      We have a PO bank here in Taiwan. Everyone (including myself, an expat)has accounts at the PO. Japan has this tradition as well. It is one means of democratizing banking and money. I cannot imagine this idea getting traction in the US however unless there is a major change in the political-media landscape, but strange thing happen when people’s backs are against the wall.

  1. F. Beard

    A Postal Savings Service is a great idea but it should not make loans nor pay interest. A universal bailout with new fiat, at least until all deposits are 100% covered by reserves, would go a long way to allowing people to pay CASH for autos and homes.

    And since it would be risk-free (being part of the monetary sovereign) government deposit insurance and the legal tender lender of last resort should be abolished.

    If people want interest let them bear the risk. And they’ll be little excuse for interest anyway since the banks will find it difficult to inflate the money supply without the Fed and FDIC.

    But also, because of Stazi like concerns and to optimize money creation we should allow private money creation, especially non-usury based money forms like common stock that “share” wealth and power rather than unjustly concentrate them.

    1. Lambert Strether Post author

      I’m not sure about that. I like the moniker “United States Postal Savings Bank.”

      And I could certainly live with a USPSB that was better than the coffee can in the back yard or a check cashing place; huge win (and also, if this is a goal, something to hold the country together).

      That said, it seems to me that there might be a place for loans for the necessities: (1) car (for now); (2) housing; (3) education. How that fits into the moral aspect of usury — why is usury wrong in addition to what the OT says? — I am not sure.

      And this shades over into a GNP sharing discussion, a fiat money discussion (since of course we can afford this), a “moral hazard” discussion (one could think of interest as a sort of co-pay), and a jubilee discussion.

      1. F. Beard

        That said, it seems to me that there might be a place for loans for the necessities: (1) car (for now); (2) housing; (3) education. Lambert Strether

        Well, a universal bailout with new fiat similar to Steve Keen’s “A Modern Debt Jubilee” would provide the population with a big chunk of CASH to spend on those things or to honestly* lend to others so they can buy them.

        *Honest lending TRANSFERS purchasing power while the current dishonest system CREATES purchasing power as it lends it.

      2. F. Beard

        why is usury wrong in addition to what the OT says? — I am not sure. Lambert Strether

        The OT does ALLOW usury from foreigners (Deuteronomy 23:19-20) but not from one’s fellow countrymen so it appears that usury is a means of subjugation: The rich rules over the poor, and the borrower becomes the lender’s slave. Proverbs 22:7 BTW, the OT allowed foreigners to be enslaved but not fellow Hebrews except for 6 years at most as a well-treated indentured servant.

        But apart from the OT, according to Dr. Michael Hudson and Karl Denninger, the interest tends to compound faster than real economic growth because (according to Denninger) lenders will insist on REAL profits, not just nominal ones and (according to Hudson) real growth is “S” shaped while compound interest is exponentially shaped.

  2. F. Beard

    Of course Republicans want to reign-in, but not abolish, the government-backed counterfeiting cartel since they realize a wise parasite is not TOO GREEDY.

    Democrats, being naive about banking, likely think it is a legitimate business but Republicans? Hardly.

    1. Lambert Strether Post author

      Democrats are about as naive about banks as …. Well, I deprecate the politician-as-prostitute trope because it’s instulting to prostitutes, so make up your own tropes!

  3. Jack Eviction

    Where’s Dugan or Bowman? Fans will always associate famous regulators names with former and current entities including Chevy Chase Bank, Countrywide, Capital One, etc. Good times. It’s never too late to be of one political party or the other and say we should rein in big banks.

  4. Jack Eviction

    Ellen Brown wrote about delivering Banks Services via the Post Office with examples of where’s it’s successful. The US Postal Savings System was dismantled by the private financial sector, so now that they more blatantly run the country, something similiar would be a tough nut to crack. However, the promise of benevolent information technology is in its power to Democratize. TBTF should collapse in obsolescence.

    1. Lambert Strether Post author

      Yes. I deliberately made the proposal using my own, layperson’s language. It’s been interesting to see the comments, since I think they show the idea has gotten some traction.

      I would imagine enough people have gotten a money order (or a passport) at the Post Office to think… Why the heck aren’t they handling the money part too?

      * * *

      See Terry Pratchett’s Going Postal and Making Money for some interesting writing on stamps, money, an the art of the con (even though Pratchett thinks that money is “backed”).

  5. Conscience of a Conservative

    Post Office Banks sound like a terrible idea. Having the gov’t offer services that already exist, are subsiized by the tax payer and only add to the deficit is the wrong medecine. Besides we already have GSE like big banks(Citi,JP Morgan,BAC,Wells). The answer is not having the gov’t get involved and compete/get in bed with the big four more, but level the playing field with the smaller banks by ending subsidies and breaking up the big banks.

    1. Tokai Tuna

      Sounds terrible the way you’ve inaccurately described it. The Gummint is completely involved in banking as it stands now and will be in the future. The purpose of Post Office Banks would be to serve customers without of predatory or usurious activity. As an alternative to disaster capitalists, gentrification developers, et al and other anti-social behavior, as has been discussed here for years.

      1. Carla

        “The Gummint is completely involved in banking as it stands now and will be in the future.”

        Excuse me, but it’s the other way around: Banking is completely involved in the government.

        And it’s up to the American people to change the future.

        Postal savings banks are one way to begin serving the financial needs of the 99%.

    2. F. Beard

      are subsiized by the tax payer CoC

      If you don’t like government subsidies then you of course agree that government deposit insurance should be abolished. But then where will the population store its fiat risk-free? And how will the population transact with its fiat risk-free? So a risk-free fiat storage and transaction service is a logical NECESSITY for a monetary sovereign like the US.

      But, of course, a Postal Savings Service should make no loans and pay no interest. But it should be free up to normal household limits on account size and number of transactions.

      1. Conscience of a Conservative

        I think you fail to understand deposit insurance. This enables banks to borrow at subsidized rates. Of course you could choose to ignore the subsidiy to the borrower and think of it as a subsiy to the lender but that’s incorrect since banks would have to pay out far more when borrowing if the rate included the possibility of non-payment.

        1. F. Beard

          I think you fail to understand ethics. Borrowers should not be subsidized either.

          And what? You’re trying to bribe the population with low interest rates into supporting a system that steals from them via government privilege?

          The banking system is certainly a brilliant system for corrupting people while enslaving them. If it wasn’t designed in Hell then the Devil is certainly envious of whoever did design it.

        2. F. Beard

          “The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” The Rothschild brothers of London writing to associates in New York, 1863. from http://www.themoneymasters.com/the-money-masters/famous-quotations-on-banking/

    3. diptherio

      The PO would be a good place to create a mutualist bank.

      Mutualists argue that free banking should be taken back by the people to establish systems of free credit. They contend that banks have a monopoly on credit, just as capitalists have a monopoly on land. Banks are essentially creating money by lending out deposits that do not actually belong to them, then charging interest on the difference. Mutualists argue that by establishing a democratically run mutual bank or credit union, it would be possible to issue free credit so that money could be created for the benefit of the participants rather than for the benefit of the bankers. Individualist anarchists noted for their detailed views on mutualist banking include Proudhon, William B. Greene, and Lysander Spooner. ~Wikipedia

      1. F. Beard

        Forget lending. A “mutualist bank” could SPEND its common stock into existence buying goods and services from its members. That avoids a multitude of problems with usury, reserves, capital requirements and ethics.

        As for people’s need for homes and autos NOW, a universal bailout* with new fiat would go a long way toward meeting those needs.

        *Combined with a ban on new credit creation and metered appropriately to preclude significant price inflation.

  6. down2long

    Oy, it is nice to see a little movement, but Abandon Hope all Ye Who Enter Here.

    If you want a real taste of just how disgusting the banks have become, check out this Bloomberg piece on B of A offshoring its appraisal reviews to India, while laying off their American workforce that used to do this function (and oh so well, snark.) But at least they were earning money here while causing untold misery.

    Turns out B of A is not alone. The article points out Goldman has offshored a substantial number of jobs to India as well.

    All of this to unload more crap on Fannie and Freddie at huge origination fees, thus further f*cking the system that feeds the TBTF spasmodic esophageal vacuum lifeforce pump.
    These parasites are killing their hosts. It’s time we beat them to the punch.

    Bank of America Corp. opened a unit
    in India to review home-valuation reports as it seeks to rebuild
    share in U.S. mortgages at a lower cost, said four people with
    knowledge of the move.

    http://bloom.bg/14y2Hcw

  7. down2long

    I nominate Moynihan for holiday lamp post décor. Followed in an Appian Way public display motif of Slimin’, Stumpf, Rubin, et. al. all hanging from lamp posts as a reminder, in chic Roman Empire style, of behavioral deterrent décor, aka what happens when you go too far f*cking and plundering the restive masses.

  8. allcoppedout

    We have lots of people in the UK telling us (as though we needed to know) that our banks were corrupt and need to change. My take is similar to Lambert’s.

    First of all, faced with obvious evidence of swindling I’d expect not a Parliamentary report or gaggle of Gops (read Cameron here on “ending” offshore tax havens)promising future reform, but the funding of a squad of cops and prosecutors to investigate and imprison the past perpetrators.

    Of course, Lambert’s call for a proper Post Office with banking for all (much could be on line) – no doubt extended into proper productive investment banking – sounds a lot like National Giro and regional investment banks from the 60′s. I agreed then and agree now.

    The underlying questions have not been dealt with in over 50 years and calls for the abolition of cavalier finance are historic – from kicking over money-lender tables in temples to quotes from Adam Smith and Karl Marx. Nicholas Shaxson and John Christensen have written a book on the Finance Curse, subtitled‘˜‡”•‹œ‡† how oversized financial centres attack democracy and corrupt economies – the PDF is currently here free:–”‡•ƒ––ƒ…†‡‘…”ƒ…›
    ƒ†…‘””—’–‡…‘‘‹‡•
    http://www.taxjustice.net/cms/upload/pdf/Finance_Curse_Final.pdf

    I don’t think it is unreasonable for us to automatically suspect Gop and Tory figures mouthing reform near a popular bandwagon. Or even doubt any politician doing this – Tony Blair as ‘Thatcher in drag’ thinking. I’m struck that something Yves put up on ‘secret service coup involvement with markets’ (roughly) raises something on how incomplete and practically hopeless our critique is. I’d go for a dissolution of the banks much as we once had a dissolution of monasteries – though I’d want this to be other than dispossessing one set of rich to give it to another. My dream is of a practical democracy – something I have to be dreaming to believe in.
    The underlying myth of creation (something all societies have in one way or another)in “banking” is totally at odds with how we think efficient businesses run – and all the dull tomes we use in university classes on that. We need something to break open the current hive in which we are all foragers and nurses providing the essential royal jelly to the queen. If a bee queen dies so does the hive. This is not true of humans. Finance is the means to keep us as insects (or more correctly financialization) – a separate set of rules for the rich they disguise as essential for the reproduction of ‘our’ genes (which is the case for the worker bee but not the human individual).
    If one looks at the opportunity costs of ‘big bang’ both the UK and US might be genuine rivals of German manufacturing now – instead the real case may be all the profit claims of banks may be untrue and masking a real negative figure.

    When push comes to shove in a storm, real value comes from being able to enter a pre-existing shelter. Try building one from derivatives in a hurricane. We need an accounting as badly as the ancient Athens’ treasury – but who can we trust? That ancient event led to a genocide of convenient innocents. History is littered with the powerful promising reform as a delaying tactic until they could get their repressive regimes up to speed. We need to expose more of just how contradictory high-margin finance is to the point where no one can claim it is a necessary way of the world. It amounts to saying ‘we need houses for a couple of billion people – I know, we’ll build one huge glass monstrosity and put all our smartest people in it – that’ll fix the problem’.

  9. Walter Map

    After the debacle of the Bush years, the only hope the U.S. had left to avoid eventual catastrophe was for Obama to challenge the financial industry and re-establish the controls placed on the banksters which had been imposed in the 1930′s, and cage the beast again.

    He utterly failed to do that. Instead, he jumped into bed with the banksters the moment his election in 2008 was assured, and has been covering for their spectacular larcenies and giving away the country ever since. All policy for the last six years has aimed to prevent the actual collapse of U.S. economy until the financial industry can complete their plunder, and now they are on course to pillage the country until there is nothing left to steal. The U.S. now is little more than a staging ground for military adventurism and a corpse to be bled dry of its remaining wealth.

    Amerika has become the place where dreams go to die, and where your worst nightmares will come true.

    “My mommy always said there were no monsters. No real ones. But there are.”

  10. Mr. Jack M. Hoff

    Thats a super idea Lambert, but not too likeley to be implemented, well at least up until the day when there’s real punishment for the execs in charge of the TBTF nothing will change. Why would it after all? Same principle as why nothing changed from Bush to Obama. When Barry and Nancy told you that any prosecution of Bush was off the table, thats all you should have needed to hear to be able to figure out where this mess is going. Till the day they become the lamp post decor things will continue rotting.

  11. Eleanor

    How about credit unions, which can offer loans? Or a combination of post offices and credit unions?

    1. Inuit Man

      There are 10 million people don’t have bank accounts and the 21 million who use usurious check cashers that are basically run by TBTF. The Postal Bank is about giving low-income people access to a safe banking system, who similarly don’t have access to credit unions. Moving the mail remains important, but keep in mind Congress has been waging yet another bipartisan plutocratic war on the post office, requiring them to prefund retiree health benefits, rent seeking privitization drives, assaults on collective bargaining, the usual avarice driven mistakes, held aloft as sensible efficiences by the usual suspects.

      Most disconcerting is the CFPB’s unitentional endorsement of the parasitical money shops. Making rules, for example, on how to screw people is not the way to prevent them from being screwed in the first place.

      1. Carla

        Fedex and UPS have been trying to kill the U.S. Post Office for decades. Congress is merely doing their bidding with one hand while holding up the flag with the other.

  12. Susan the other

    I vote yes for Postbanks. As it is I do not and will not ever trust another big bank or any other big private financial network of any kind. But I continue to trust the government because we are the government – as soon as we put finance in its proper place. And we will thanks to people like prof. Black. But because of the banksters, all of the banks in the American system – even the small ones – are handicapped and forced to keep patching an old tire, endlessly. Sysiphus anyone? Not me. I’d love to see US Postbanks.

  13. Tom Hickey

    Good suggestion about the post office banks, Lambert. There is another model worth looking at also that is emerging in the undeveloped world, where the only connection people have with the rest of the world is cell phones, which they charge using local solar since they are off the grid — actually, there is no grid.

    Narrow banking is simple. Proved an accessible venue for safe deposits and also one for “retail lending,” including residential mortgages. Government and non-profits can do this easily, and credit unions already are providing this service in the US. In this model government takes the risk and farms out risk management.

    Then let the “big boys” play high stakes games risk-taking games among themselves, shouldering all the risk. Isn’t that what capitalism is supposed to be all about?

    1. F. Beard

      In this model government takes the risk and farms out risk management. Tom Hickey

      Not ethical. Purchasing power MUST be created ethically. Those who create it must take ALL the risk, not manage the entire population’s via government privilege!

      We need to separate risk-free fiat storage and transactions from lending and credit creation. That’s what a Postal Savings Service is about, risk-free SAVING, not lending or investing, which are inherently risky and which should be entirely private decisions.

      Investing should be a conscious decision apart from saving since it involves risk. Let people save at the PSS and invest at purely private banks, if they so choose and bear all the risk.

      One virtue of recognizing that the banking cartel is thievery is that it justifies a universal bailout of the entire population with new fiat. And that would go a long way to allowing people to buy autos and homes with CASH rather than steal each other’s purchasing power via government-backed credit creation.

    2. F. Beard

      Moreover, government-backed credit creation is inherently discriminatory since the “non-creditworthy” are not allowed to borrow or must pay higher rates YET bear any price inflation caused by the newly created purchasing power. And, until relatively recently, being “non-creditworthy” could simply mean one lived in a Black neighborhood! (Google “redlining”)

      And money lent into existence has deflation built in to it since the principal is destroyed as it is repaid and the interest (which can be several times the principal!) is transferred to those with a lower propensity to consume.

    3. Lambert Strether Post author

      Now you see how “Wifi on the post office” roof fits in neatly!

      * * *

      Actually, I see this too; I didn’t when I wrote the post!

      No ATM fees!

  14. Sagebrush

    “And we have a bill in the House that has over 60 cosponsors.”

    I think most members cosponsor bills that scare the Wall Street banks so they can sell Nay votes on final passage and get fat campaign contributions. Past history shows, Democrat or Republican, they sure as hell aren’t going to really go against the big bank agendas.

    1. Lambert Strether Post author

      As Black says: “Both parties now stick members of their party that are going to be in tough races on the committee because you’re guaranteed to get so many political contributions from the big banks.”

      Then again, if our politicians aren’t honest, they won’t stay bought! So there’s that.

  15. MaroonBulldog

    “There are 10 million people who don’t have bank accounts,” and there are 10 million reasons why they don’t. But a lot of those reasons may have to do with a calculations that bank accounts are subject to levy and garnishment to satisfy judgment creditors. And a lot may have to do with recongnition that bank accounts create paper trails of income that is derived from illegal activities and/or not reported to taxing authorities. 10 million people sounds like a big number, but in population percentage terms, it’s not. There might well be 10 million people trying to hide money from the sherrif or the tax collector. Such persons will not sign up for USPS savings account.

    1. Carla

      “There are 10 million people who don’t have bank accounts,” and there are 10 million reasons why they don’t. But a lot of those reasons may have to do with a calculations that bank accounts are subject to levy and garnishment to satisfy judgment creditors” and etc.

      Well, I’ll betcha that of the 250-300 million Americans who DO have bank accounts, very few of them understand that when we deposit money in a bank, it is no longer our money. It becomes a liability of the bank. Our money, AS our money, is GONE. If the bank can produce it when the depositor wants it back, more’s the better, as we say.

      Yes, of course, we have the FDIC, which in the next major crash might be able to cover what–you folks on this blog know better than I–one percent of insured deposits?

      It’s taken me a while, but now I understand why Beard rants and raves about this.

      1. F. Beard

        Rant and rave? Well, it is a target rich environment. :)

        But my parents and by extension my siblings and myself were blighted by the Great Depression and in my father’s case back trouble from a 500 lb bomb in WWII.

        And why? Because of a money system “conceived in inequity and born in sin?”

  16. ChrisPacific

    New Zealand did it around 15 years ago with Kiwibank:

    http://en.wikipedia.org/wiki/Kiwibank

    It’s generally considered to have been a big success, except by the other banks, who say it’s anti-competitive and hurts the market. (However they are still posting record profits).

  17. mac

    SOO, What do you think of Credit Unions? I have not “banked” with a Bank since 1992. I have accounts at 2 Credit unions, one I have had since 1970.

    1. F. Beard

      Purely private credit creation is ethical and unavoidable anyway. But government must not be involved in diluting the purchasing power of ALL for the benefit of only SOME – even if the SOME are so-called “creditworthy.”

      But why beg for the “privilege” of being in debt? The entire nation sans a very few has being cheated by what in essence is a government-backed counterfeiting cartel and DESERVES RESTITUTION.

      So:

      1) Ban further credit creation, at least until the banks are completely divorced from government privileges. This, by itself, would cause massive deflation so …
      2) Counteract the deflation of 1) with a universal, metered bailout with new fiat at least until all deposits are 100% covered by reserves.

      There. Now the population has far less need to borrow because much of its debt has been transformed into EQUITY.

      I’m getting tired of this. The population seems to care more about the ability of some to sodomize in public than about basic economic justice. Why the heck should I care? But it’s been instructive.

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