Geithner: “The End of Capitalism as We Know It”

Bill Black flags yet another Geithner moment that deserves to live in infamy.

By Bill 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. Originally published at New Economic Perspectives

Timothy Geithner’s penchant for speaking about things he does not care enough about to get right has led to him uttering many of the most cringe-worthy phrases about the economic crisis. The latest example is in David Axelrod’s new book about the Obama administration’s response to the financial crisis. This column was prompted by Sam Stein’s piece in the Huffington Post about Axelrod’s key points.

Axelrod was “livid” when he found out that Geithner and [Larry] Summers “had quietly lobbied” against an amendment to the stimulus that would have restricted the payment of bonuses at firms that received bailout funds. Those bonuses had become a huge political sore point for the administration, but the finance guys argued that retroactive steps to claw back the money would have violated existing contracts.

“This would be the end of capitalism as we know it’”Geithner told Axelrod, to which Axelrod says he responded: ‘” hate to break the news, Mr. Secretary, but capitalism isn’t trading very high right now.”


This story confirms two pathologies that are well-known about the Obama administration. First, Geithner was a faithful servant of his Wall Street masters when he was Treasury Secretary, just as he was when he was the President of the Federal Reserve Bank of New York. Notice that there is a contradiction in the description of the issue. Preventing banks that received bailouts from paying future bonuses is not “clawing back” bonuses. Clawing back bonuses means recovering bonuses that were improperly paid based on false accounting statements that massively overstated bank income. Neither of the practices I have described would have “violated existing contracts.” The people that “violated existing contracts” were the bankers who massively inflated reported net income in order to collect massive bonuses while the bank suffered huge losses and the bankers that made massive bonuses by leading frauds that ripped off customers. Both forms of fraud invalidate any contractual claim by the managers to bonuses. Bankers should not get paid in full under normal bankruptcy provisions when they run the bank into insolvency (including a liquidity crisis).

The perverse incentives of the compensation systems were a major contributor to the three financial fraud epidemics that bankers led that caused the greatest financial losses of any property crimes in history. It was grotesquely improper and immoral to pay the bonuses. It literally made crime pay. It was (and is today) vital that those perverse compensation incentives (which include the deliberate generation of the “Gresham’s” dynamics that suborn supposed “controls” such as the loan officers and brokers, credit rating agencies, auditors, and appraisers) be ended to make the financial world far less criminogenic. The “sure thing” of “accounting control fraud” (aka “looting”) makes “capitalism” as we know it a disgraceful oxymoron. What “we know” bears no resemblance to “capitalism.” Our largest banks became criminal enterprises virulently opposed to markets, competition, democracy, and customer service. At best, we suffered from crony capitalism, a variant of plutocracy.

Anyone that wants to save “capitalism” must destroy the current corrupt system “we know” that is posing as “capitalism.” To sum it up, there was no greater service that the Obama administration could have done for (real) capitalism than to produce “the end of capitalism as we know it.” Geithner was absolutely right in his diagnosis and absolutely wrong in his response. Wall Street hates “capitalism” – Geithner and Summers acted to save, rather than exorcize, its corrupt doppelgänger.

Geithner and Summers were so wedded to serving the interests of Wall Street – and crony capitalism – that they secretly sabotaged the efforts of progressives (supported in this unusual case by President Obama) to enact a legislative reform of compensation that was (1) legal, (2) economically efficient, (3) essential to restore “capitalism,” (4) essential to justice, and (5) politically popular. Obama discovered that he, and more importantly the American people, had been betrayed by Summers and Geithner – and did nothing. His administration died that day when he failed the most elemental test of leadership and integrity.

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  1. cripes

    That’s exactly how I remember it, and why I was convinced, before Obama took his first oath, that after his cabinet picks he was and would forever be a complete tool of Wall Street. I actually voted for him against the Hillary in the primary (Edwards and Kucinich already gone), but, after reading Adolph Reed. Bill Black and Paul Street et al, before the general I was so disgusted by the man after I couldn’t do it again. Ever.
    Thanks for reminding us.

    Request per your referencing of confidential sources in matters like Greece and elsewhere: while I understand you may not be able to identify individuals providing information, I am not clear why your descriptors are so cryptic.
    Example yesterday, “Varoufakis has said he is pro Eurozone, repeatedly. And I have just had it confirmed privately that he and Syriza regard a Grexit as “unthinkable.”
    Journalistic practice has often used general descriptions such as “an EU official” “IMF bureaucrat” “LA gumshoe” and so forth to give some context to confidential sources.
    Barring libelous allegations that the party is involved in Watergate-style felonies or animal sex, usually this will suffice.
    If you can.

    1. diptherio

      Not to respond for Yves, but this is a blog, which is a different beast than a newspaper. As blogging seems a much more personal pursuit, and one founded on personal relationships, I think that discretion on Yves’ part, in the interests of protecting anonymity and keeping good relations w/ her sources is more important than throwing in some identifying piece of information that doesn’t really do much to inform. “An administration source said…” or “an IMF official reports” doesn’t add much of anything in the way of actual information content. The bottom line is, do you trust Yves to tell you truth and to vet her sources appropriately? If so, a little more minor detail about sources isn’t going to convince you more, and if not, it won’t make you a believer either.

    2. so

      For me, no sources of information can be trusted. I have to “trust my gut”.
      Words describe feelings. I’m a romantic.

    3. Yves Smith Post author

      Please look at the New York Times and Bloomberg. Bloomberg regularly runs stories that if you read carefully are single sourced, as does the Times. And Bloomberg, the Times, and the Wall Street Journal also regularly uses monkiers like “people said” or “a source said”. We are not as far out of line with journalistic practice as you indicate. But more important, our posts virtually never are journalistic in nature. It is very rare that we quote sources of our own, and when we do, it is usually a small element in the post, as opposed to the core information for the piece.

    1. Steven

      I see you beat me to an obvious comment: it WOULD have been “the end of capitalism” or what Black calls “looting” as Geithner and his Wall Street buddies knew it. But you can’t limit the criticism to the ‘usual subjects’. The ‘banksters’ and Wall Street and politicians (WASPs) have been so successful passing themselves off as ‘wealth creators’ because the Western world has allowed them to limit the definition of wealth to their “product” (“debt” – M. Hudson).- a product they can create at will – until they can’t, until there are no ‘greater fools’ to be found. And then the WASPs have to call in Smedley Butler and the Marines.

      Read Nomi Prins’ book “All the Presidents’ Bankers”. Even back when the United States was still a wealthy country, this country’s ‘leaders’ found it easier to finance their ambitions and power lust by employing Wall Street’s ‘debt creators’ than by taxing wealthy constituents. Eventually, of course, the employers became the employed – if that hasn’t been the case all along?

      And then there is the rest of us. As long as the stock market keeps going up, we don’t really give a damn what is happening to our neighbors or the world outside our borders. The temperature in that pot of boiling water is going up. We are getting close to the boiling point.

    2. NoFreeWill

      “What “we know” bears no resemblance to “capitalism.” Our largest banks became criminal enterprises virulently opposed to markets, competition, democracy, and customer service. At best, we suffered from crony capitalism, a variant of plutocracy.

      Anyone that wants to save “capitalism” must destroy the current corrupt system “we know” that is posing as “capitalism.” To sum it up, there was no greater service that the Obama administration could have done for (real) capitalism than to produce “the end of capitalism as we know it.” Geithner was absolutely right in his diagnosis and absolutely wrong in his response. Wall Street hates “capitalism” – Geithner and Summers acted to save, rather than exorcize, its corrupt doppelgänger.”

      Apparently Black is ignorant of the fact that capitalism has always been about looting, from primitive accumulation to imperialism to today’s finanicial warfare. There is no “good” capitalism there to be saved, only the resistance of the people and the competition from communism gave the middle of last century a rosy outlook. The current return to 19th century robber baron style plutocracy and oligarchy is not an aberration, the period of The New Deal was the aberration. What we need is the end of capitalism full stop, if we wish to save a habitable planet for future generations.

      1. MartyH

        The point about Capitalism always being about looting is related to assertions that banking has always been a criminal enterprise and the like. Without discussing whether we do or do not believe those assertions. Bill Black is merely pointing out that they don’t even play by the rules they set up within which the “legally” carry out their activities. A fine line, perhaps, but a telling one. When they can’t even abide by the rules they paid for …


  2. steviefinn

    I have a pet theory on this based on my observations of office politics, in which people have a choice forced upon them that is a fairly black & white case of right & wrong. In my experience most go for the latter & then self justify their actions. I think that once that line is crossed it is a slippery slope downwards & almost impossible to turn around & regain the higher ground. It has happened to one time friends of mine, who gradually preferred the company of those who support them in their behaviour & act in a similar manner.

    After a gap about eight years, I came across such a person, who behind his increased salesman polish & his obvious haste to get away, seemed to me to be a shadow of the person he once was. Obviously this is all small potatoes to Obama, but I think it works the same at all levels & if I was religious I would say that the Devil does it by baby steps.

    1. James Levy

      My observation is who is doing the pushing counts for everything. Our society seems to respond robotically to a certain kind of guy (it’s almost always a guy) who looks the part and speaks with absolute conviction. What they say may be utter balderdash, but our culture immediately gives it great weight. We demand certainty and abhor doubt. No plan can be laid out with its possible risks, downsides, and side effects (the things any reasonable person would want to know and consider). Everything must be, in the immortal words of George Tennant, “a slam dunk.” Reagan, Clinton, and Dubya were effective because they could put forward any half-assed scheme as being self-evidently the only way to go. Carter, for all his faults, was undone not so much by bad policy but by poor salesmanship born, I think, of real doubts (which you could, as his presidency advanced, read more and more clearly on his face). That seed of doubt has made him a better man since he left the Oval Office. But a healthy skepticism and an agnostic “let’s try this and see how it works” attitude are anathema to voters and politicians alike. This half-baked demand for certainty is what’s going to take this country over a cliff.

      1. hunkerdown

        I vaguely recall reading somewhere, perhaps at Dmitry Orlov’s blog, a thumbnail description of British imperialism that went something like: “The Britons figured out that if you appear on the scene looking and acting as if you belong there and start barking orders, people will often follow them.”

        Which is exactly why I’m all about debasing status and pomp and pwestige back to its bullion value: a measure and mark of parasitism, arrogance, and complete and utter dispensability.

    2. Doug Terpstra

      This insidious loss of soul is happening to America as a whole. We’ve now come to accept crony capitalism, pervasive fraud, torture, murder and perpetual war as the natural order, the neo-American way. Of course it’s always been so at the top but never trickled down so far that the USG now operates openly as a crime syndicate and the hottub frogs are inured to it. At its terminal stage, I suppose that loss of one’s soul is akin to demonic possession and that Obama is not only a victim of this cancer of the soul, IMO, but has become a kind of walking-dead virus, the master key to anesthetizing the American conscience.

      Glengarry Glen Ross is a great horror flick about this worse than death disease. I also just watched The Wolf of Wall Street (free from the library), a hilarious treatment of the same tragedy.

      1. steviefinn

        Yes Glengarry sums it up brilliantly – I couldn’t watch more than ten minutes of The Wolf, probably as with the Sopranos, I seem to need to have some sympathy with the characters. I thought the Chester character in the Fargo series painted a good picture of a worm turning, only to slide downwards, aided & abetted by a manipulative psychopath – & of course there was Heisenberg.

        1. ambrit

          Ah, the market in action! The embedded video you put up shows me a “Blocked by copyright holder” statement. (Lionsgate, by the way.) It says that Lionsgate has “blocked it in your country.” Have you had to flee the good old US of A?
          Still and all, this is the famous expensive watch scene, right? (I worry about Baldwin. He does this character too well.)

          1. VoxFox

            Also blocked here in Vancouver – corporate home of Lionsgate.
            it’s not the location – it’s the mindset (or ideology).

        2. JerryDenim

          Blocked! But I’m pretty sure I know the monologue; Mamet- Glenngary Glenn-Ross- “My wristwatch costs more than your F*#King car! ….. 2nd prize a set of steak knives, 3rd prize you’re f*#king fired! ” or something to that effect. Great flick, great script, great cast.

      2. Jim A

        You should probably watch Boiler Room too…A friend was selling penny stocks for awhile, and the crookedness and schemes in that movie were very familiar from that friend’s descriptions…Fortunately my friend got out before he lost his soul or the SEC came down. (As in the film, my friend worked in the sort of little fish firm that the SEC will go after on occasion)

  3. ChrisFromGeorgia

    I’d say that Obama’s administration died the day he nominated Geithner for Treasury sec, but that is quibbling.

    1. Lambert Strether

      I’d say it died the day he voted for FISA *** cough *** reform that gave retroactive immunity to the telcos for multiple felonies in Bush’s program of warrantless surveillance, in July 2008. Granted, he wasn’t President yet, but he had promised to filibuster any such bill. You know, the “constitutional lawyer” scam he was running back then.

      1. Doug Terpstra

        The FISA vote was a bad omen, but I managed to suppress reality by rationalizing that pre-election realpolitik required some distasteful compromises. I did the same, ended up voting for the more effective evil, and have regretted it ever since.

    2. Llewelyn Moss

      Yup. Geithner / Summers appointment was Obama’s Tell that he is a Neoliberal scumbag. Only took a few weeks into his 1st administration to stab his voters in the back.

  4. Fiscalliberal

    I have always wondered why SARBOX was not enforced. SARBOX was about identifying risk and was a direct response to ENRON executives who went to jail. ENRON put the responsibility directly on the CEO and corporate board. It had criminal and civil penalties.

  5. ambrit

    The idea is internally consistent. Zombie banks buy a Zombie Administration.
    To mix metaphors, it is indeed time to put a stake through the heart of this vampire system.

  6. Dude

    A fine example in a system which could be tweaked to work for everyone, but instead is tweaked to work for the few at the expense of the many. It may very well be too late to steer the ship off the shoals. Hopefully, and in reality, the only salvation against rising storm surge is the truth of God’s word.

    Geithner may have been an agent of Wall Street, as it can be demonstrated, but also of his father, the Devil.

    @steviefinn, nice response and thanks for the illustration of those who serve mammon rather than truth.

    1. steviefinn

      I was thinking of Mammon the other day in relation to the English Revolution, or the civil war as is preferred by the revisionists who want to take the revolution part out of it. Charles the first believed in the divine right of kings, which is part of the reason why he lost his head. The present elite it seems to me believe in the divine right of finance, whose God is presumably Mammon, who unlike the Christian God ( although very open to interpretation ), doesn’t have any time at all for the less fortunate.

      Incidentally, you Americans sent over insurgents from Massachusetts to aid the Parliamentary forces. They were fundamentalist puritans who had originated from England. The most notable was John Winthrope, the then mayor of Boston, who sent his son & other Harvard students over – another who joined the fight was a mad mullah type hellfire preacher, by the name of William Hook.

      1. Jim A

        Well here in Maryland, it mostly seems to have been a religious war against the Catholics. Certainly when the dust all settled, people seemed content enough to have the Calverts back in power once they had renounced Catholicism and all popery.

        1. steviefinn

          Well they were dead set against the Queen who was a Catholic & the Church of England, which was a pale imitation of Catholicism. Hook who had been forced to leave England due to the purges against Puritans – in which his wife & child died during the passage, swore revenge on the Archbishop of Canterbury who instigated the purges. He was successful in this, due to him becoming Cromwell’s pastor – the Archbishop was beheaded. He later managed to escape King Charles the seconds forces as he was listed with the ” Regicides “, a number of whom were hung drawn & quartered as revenge for the death of the king.

          It was the first conflict in which propaganda played a big part through early printing, but at that time, unlike now, the rebels had more of the public’s ear. i’m waffling on but I love this stuff.

          1. susan the other

            I think it’s very interesting too, but such chaos. Reading up on the English Civil War and Oliver Cromwell is so detailed and volatile, it just evaporates out of my brain. The struggle for power. But also it’s interesting that it comes up in this thread because finance seems to have replaced court intrigue, no?

            1. steviefinn

              I think finance was at the root of the CW too, in as much as it was partly a result of the results from the gradual feudal system of economics to a Capitalist one. At the end of Shakespeare’s time the Aristocracy had started to enclose the Commons, due to sheep being more profitable than humans. People who resisted this were brutally put down with ringleaders often being hung, drawn & quartered. Also there was the rise of an Artisan, small farmer class ( Middle Class ) who also wanted their share of the cake. The King’s efforts to tax people to pay for wars, didn’t help much either.

              Two aspects are often overlooked, the first being that the House of Lords was abolished along with the Monarchy, which diluted the power of the Aristocracy who owned the most land, & how the whole thing was affected mainly by the Scots & the Irish. The main radicals in all of this being the Levellers or Diggers were crushed by everybody else including the mass of the poor who refused to fight for either side, & marched around with banners proclaiming that ‘ We want something for us “. It did move things on in terms of killing the divine rights of Kings, but it was an omelette that cracked a lot of eggs, with the casualty rates worse per capita than in WW1.
              The tragic thing is that it always seems to be the only way to improve the lot of those at the bottom & unfortunately it is very much easier to lose them gains, as we are seeing now.

              1. hunkerdown

                Hung, drawn, and quartered, and the aristocrats are whingeing about pitchforks? Had the ancien regime been dispatched with pliers and a blow torch as befits centuries of mismanagement instead of with a decent beheading, it would not have reconstituted.

                Evidence pro: the head-shrinkers in Peru and Ecuador.

      2. hunkerdown

        And all this time the American media taught me ISIS invented blowback. Suddenly I have a lot less sympathy for the Anglosphere.

  7. tongorad

    More of the the “Obama failed” meme, which is supposed to instill faith in the faithful that a new and improved hope and change merchant is waiting in the wings. Everything’s just a crisis of leadership in this worldview.

    1. Doug Terpstra

      On the bright side, there is no leader on any horizon with anywhere near the unique charlatan genius of Barack Obama. Move over Machiavelli. Future historians (if there are any) will puzzle over the Obama Phenom (and Israel) the way historians today still grapple with the national madness of 1930s Germany.

    2. jrs

      I have a new metaphor: voting as superstition. It’s superstitious to think dancing will bring about rain, or avoiding cracks will keeps one’s mamas back in good condition (“step on a crack, break your mama’s back”).

      Perhaps it’s superstitious to think voting for dummy D or dummy R changes anything, even the tiniest degree more than avoiding those cracks in the sidewalk, and black cats, and throwing salt over one’s shoulders does.

      In other words I’m floating the hypothesis: there is NO relationship whatsoever between voting and policy.

      1. hunkerdown

        Voting as Exceptionalist Mass? Parallels come readily to mind:
        * semi-closed (only if you are not living in felony/sin may you take communion)
        * often preceded by litany and liturgy
        * reinforces a dependency relationship
        * the ballot transsubstantiates into a law^, the act of choosing a master transsubstantiates into self-rule

        ^Only in plebiscites does this occur in any rational sense.

        As to voting, the plebiscite falsifies by existence the strong version of that hypothesis. I might reformulate it more weakly, as: there is NO causal relationship between the outcomes of a representative election and the outcomes of the policy process in which those representatives then participate. Strong evidence exists in the political writings of the Framers that such a state of affairs was by design, to protect the self-proclaimed rights of the landed gentry (themselves) from popular movements, which, being against the landed gentry, are “intrinsically” misguided and disordered.

        Which leaves the policy process with little to preoccupy itself other than its own reproduction and growth.

      2. urban legend

        Except that we know that bowing out by the masses guarantees more of the same. Turnout by the masses — a quantum increase, far more than can be generated by traditional GOTV activities, with tea-party intensity as follow-up — at least offers a theoretical chance to bring about genuine change.

      3. urban legend

        The irrefutable proof that the Geithner-Summers-Obama decision to let the bonuses continue was a disastrous error — indeed, not to claw back all ill-gotten gains, including those that were windfalls not deserved by otherwise innocent recipients — was the 2010 election. The 2014 election only reinforced that. Political success is the sine qua non of governing success at this particular point in our history. It takes real effort to turn an historic and landslide Presidential victory following years of demonstrated Republican ineptitude into the two worst mid-term disasters in 100 years.

  8. ep3

    sure, can’t break contracts with bankers/financiers. but we can break them with blue collar pensioners.

      1. Pat

        I’m always amazed at how contracts are meaningless and just a piece of paper for employees, retirees, customers, individual homeowners, etc. But unbreakable regarding our corporate overlords and the MOTU.

        Oh, and in how an employee who takes office supplies is a thief, but a CEO and a BoD who take from the pension funds are fully within their rights. Nope, they are both theft but one is more likely to be victimless and the other is grand.

          1. hunkerdown

            You must admit they’ve done a fine job of getting us to believe we’re essentially beneath them — yet, without all of us feeling obligated to protect them from cause and effect for reasons ranging from irrelevant to false to awful, they wouldn’t reach adulthood.

            Let’s try the human experiment again, with bonobos instead of chimps.

    1. MartyH

      Until you are a CEO who decides that a contract isn’t “in the best interests of the business” and walks away. The line, usually is, “So sue me!

      We have the worthless paper somewhere :-(

      1. hunkerdown

        I have to say I really admire the Russian people’s attitude towards power. Americans threaten and torture and maim to get their way. Russians either get the hell away from you or stop you from doing the thing they don’t want you to do.

        Now, which method of parenting is well-documented to cause people to become dangerous to themselves and others, and which one is well-documented to generate functional, convivial adults?

  9. casino implosion

    The worse the better eh.

    The financial sector is too powerful to control from the outside. They either will destroy themselves and take everything else down with them, in which case those left in the ruins can rebuild, or they will not destroy themselves, in which case the game goes on.

  10. TedWa

    I still would like to know what was said between Bush and Obama during their private meeting to hand over the reigns of power in 2009. Obama came out of that meeting looking changed. I don’t think that’s any excuse by any means, since Obama had already decided he didn’t want a great depression and would do absolutely anything to avoid one, including bailing out the banks with absolutely no strings attached. Even Bush wanted strings attached….

  11. drb48

    Anyone that wants to save “capitalism” must destroy the current corrupt system “we know” that is posing as “capitalism.”

    Have to quibble with that statement. The “current corrupt system we know” IS capitalism. At least as it exists and has always existed in the real world – as opposed to theory and academic papers. And anyone who wants to save our country and the planet – much less the US middle class – must destroy capitalism.

    1. Cassiodorus

      Yeah, much as I appreciate Bill Black, I have yet to read a historical account of his which adequately documents when we had pure, pristine “capitalism” and through what historic mechanism (and when!) that “capitalism” somehow morphed into the corrupt “capitalism” he so declaims. Anyone can go to a decent college library to check out Matthew Josephson’s 1934 classic The Robber Barons, so as to discover for herself or himself how corrupt “capitalism” was in the late 19th century. And before that you had the quaint story of the Panic of 1837. Even that nice Golden Age era, the 1960s, was a scene of corporate plunder — that’s what spending on Vietnam was all about.

      Now, as for what Obama should have done, a fair case can be made that Obama DID what he should have done — conceding, that is, that Obama’s primary loyalty was to the banking interests which keep capitalism going, by lending everyone faith-based money at a nice profit. Never mind, of course, that said banking interests are voraciously parasitic — capitalism is a system of parasites. As long as Obama and his buddies believe in capitalism, that’s what his job was.

      Capitalism is about the predominance of capital, which is a mechanism for extracting value from workers. That’s what the Theory of Surplus Value is about. The capitalists make a profit off of the working class by extracting value from the working class’s collective work-day, each and every work-day, through this phoney-baloney called a “wage,” and by realizing that extraction of value as monetary profit. Is there supposed to be some way of sanitizing that process so that it isn’t “corrupt”?

      1. beans

        I think you are referring to the laissez-faire type of capitalism – not capitalism across the board.
        Whatever you want to call it, the capitalism we presently have reflects the really severe imbalance between the factors of production – capital, raw materials and labor.

        1. Cassiodorus

          So where is this history wherein we’re supposed to believe that the “laissez-faire type of capitalism” and “capitalism across the board” represent two distinct economic systems? When did one end and the other begin?

          Or is it that there’s really only ONE system called capitalism?

          1. susan the other

            It is easier for me to think of capitalism as the lack of a system. “Capitalism” is a word used to pretend that what happens in the name of capitalism is intended and good. When in fact it’s all up for grabs. And all sorts of financial confections are used to dress up capitalism as a system. After all, it has an accounting system, it has a tax system, etc. But it does not have a coherent social system.

            1. cassiodorus

              Capitalism is a system devoted to capital accumulation. Capital, as a term, defines money organized in “for-profit business” to make more money. Karl Marx nailed it pretty well in Chapter 4 of volume 1 of “Capital.” The surface of capital is wage labor — whereas under that surface, as you suggest, “everything is up for grabs,” and exploitation takes place under dark and onerous conditions.

              1. MaroonBulldog

                “Capitalism is ….”–fallacy of misplaced concreteness; reification.

                As if capitalism could be the name given to some measurable, observable phenomenon that exists in the real world. Sorry, but it’s not that. It’s an abstraction, an imaginative representation of the world, a notion that exists only as opinion in ideologically informed minds.,

                “… a system devoted to “–this system is only an imaginary cause; it’s “devotion” is only an imaginary effect. No real actor in the real world ever “devoted” this alleged “system to anything.”

                “Capital … defines …. money.” Well, no, it doesn’t. Capital is an accounting notion. First, you add up all the bookkeeping values of the legal claims that your business proprietor or association owns against the world–and call them assets. Then you add up all the bookkeeping values of the legal claims that all the world owns against the assets of your proprietorship or business association–and call them liabilities. Then you subtract the bookkeeping value of the liabilities of the liabilities from the bookkeeping value of the assets and determine whether the difference so obtained is a positive number or a negative number. If it’s a positive number, it’s capital. Its only a bookkeeping number. There may be money corresponding to it somewhere in the business; there may not. There may be “value” assoiated with it, in the since that someone esle would pay to buy the current capitalist out, or there may not.

                  1. MaroonBulldog

                    “Capital is an accounting notion.”

                    Corporation laws prescribe rules that require corporate managers to account for capital. My discussion describes the calculation prescribed by those rules. These statutes define “capital” as a technical term, a term of art. In my use of the term, that’s what “is” is.

                    Maybe I should have described the other case, for clarity. If the difference so obtained is negative, (liabilities exceed assets) there is no capital, and the corporation is bankrupt. A corporation can be bankrupt even if all of its assets are cash, as long as the claims of creditors exceed the amount of the cash.

            2. hunkerdown

              It’s a system of systems, with the common premise that the personal accumulation of surplus is a valuable public service.

          2. MaroonBulldog

            Major premise: Whatever has a history cannot have a definition
            Minor premise: “Capitalism” has a history.
            Conclusion: “Capitalism” cannot have a definition.

            Because it can’t, it doesn’t. The word bears many meanings. Or, as some wise person once said, mastiffs and poodles are very different animals, but they are both called dogs.

            Illustration (1) (Baumol, Litan, and Schramn): state-guided capitalism, oligarchic capitalism, big-firm capitalism, entrepeneurial capitalism–(and crossover combinations like the big-firm/entrepeneurial capitalism that these authors posited to prevail in the United States circa 2007). All called “capitalism”.

            Illustration (2) (Anatole Kaletsky): Capitalism 4.0, which superseded Capitalism 3.0, an so forth. “Capitalism” comes and goes in different “releases”.

            Illustration (3) “Crony capitalism”: does this term bear the same significance to you when you read it in the differing works of David Stockman, Luigi Zingales, and Bill Black? Is it a “deformation” or a “corrupt doppelganger” of “Capitalism”, or is it a otherwise merely a crossover combination of the “oligargchic” and “state-guided” forms proposed by Baumol et alia?

            Can anyone converse intelligently about “capitalism” without first coming to common understanding of the referent they have in mind? I didn’t think so.

            Free your mind: think like Nietzsche.

            1. cassiodorus

              Perhaps it’s fun to be contrary and say that “capitalism is not that.” But that way lies glossolalia. There can be subcategories of capitalism without the word “capitalism” being a free-floating signifier.

              1. MaroonBulldog

                When the words “capitalist” and “capitalism” were coined, they did not anticipate any supposedly definite use or meaning that Karl Marx would later make of them.
                “Capitalist” first coined in French by A.R.J. Turgot in 1769-70; first attested use in English by William Godwin in 1794. “Capitalism” first attested use in English when coined by William Makepeace Thackery”. Detonations and connotations have changed a lot since then.

            2. jrs

              When I’m being most careful about it I call it the “existing [dominant as there are niches that aren’t] economic system”. The downside is it prevents generalization over time, that of course is also the upside.

              But sure win lefty points by calling it capitalism (and they’ll know your referencing the current system), at the same time get in fights with those who have an idealized definition of capitalism which probably never has existed, and who maybe can be converted if you don’t start out arguing about “capitalism” (it’s not that most of the right can be converted, just that a few might). But are you any closer to actual dialogue and to understanding and examining and making sense of a system by using the term.

          3. jrs

            That may never have existed, but maybe neither does the lack of distinction make anything clearer. In other words can say manufacturing capitalism be differentiated from financial capitalism or have we always had finance capitalism even in the 19th century? See one doesn’t need to glorify the 19th century to argue that finance capitalism may be it’s own beast.

            Maybe there is not only one system called capitalism.

        2. financial matters

          I think unbridled capitalism naturally exploits all three of these factors of production through slavery, servitude, spoiling water sources, suppressing wages etc and society needs protection by democratic means. Unemployment insurance, social security, environmental protection laws, better financial distribution such as not privatizing essential services.

          Bill Black plays a big role in this protective function by emphasizing not allowing fraud to usurp these democratic processes.

          1. MaroonBulldog

            Devious and designing persons will always find ways to force or bypass safeguards and perpetrate fraud, so fraud will be with us forever. In particular, we will encounter the agency problem and control fraud as long as we have enterprises in which management and control are divided from ownership; we will encounter regulatory capture as long as we have regulators regulating such enterprises; and we will observe that domestic corrupt practices unfold just like Foreign Corrupt Practices Act practices–capture will enable control fraud, and control fraud fund capture; both the managers and the regulators will corrupt each other in a spiraling cycle of extortion and bribery.

            It’s particularly tragic because crony capitalistic economies in which such practices prevail–“oligarchic capitalism” and “state-guided capitalsim” come to mind– tend not grow or generate common wealth for the benefit of consumers, employees, suppliers, or investors. Managers and regulator expropriate and share the profits that could otherwise drive growth in such systems.

            There will always be work for short sellers, plaintiffs’ lawyers, forensic accountants, and Bill Black. I hear the Chinese employ executioners to deal with such corruption as well.

            1. financial matters

              The financial independence part seems to be especially difficult to achieve. It’s probably easier to intuitively understand labor and land.

              I think that’s one reason the euro currency problem and how it ties into austerity is generating so much interest.

              People sense a chance to get back control over what they should have control over.

              1. MaroonBulldog

                Joint stock corporations have been around since the Dutch invented them in the 17th century. Shareholders haven’t found very good ways to get back control over them yet. In 1932, Berle and Means published “The Modern Corporation and Private Property,” in which they went so far as to assert that such shareholders had forfeited the right to have joint stock corporations manged in their interests, by entrusting their assets to managers who could not reasonably be expected to manage the firms in their interests. That was hardly a new insight. Adam Smith expressed his own distaste for joint stock corporations, for just such reasons, in 1776 in “The Wealth of Nations.”

                Shareholders settle for what they can get. Managers dole out little enough to induce them to settle. Economists invented the term “satisfice” to describe the process by which managers buy off shareholders from suing them. John Kenneth Galbraith made the term popular around 1968 in “The New Industrial State.”

                1. financial matters

                  I think the stock market has lost any real value. Mazzucato seems to be on a better track with trying to get value out of public financing which can have more of a long term focus. Getting control back over huge corporations will definitely not be trivial. But their abuses of labor and the environment are at least getting a lot of attention.

                  1. MaroonBulldog

                    A share of stock represents a stockholder’s right to receiver performance of whatever obligations the corporation law, corporate articles, and corporate bylaws collective say the corporation owes to the shareholder. This right to receive such performance is the only property interest that a shareholder owns in a corporation. The last time I looked (earlier today), such property rights still had value, because people were willing to give money to purchase them on stock exchanges.

                    I don’t understand what you mean by “Getting control back over huge corporations….”—“getting control back” suggests to me a thought that someone other than management had control in the past, that management somehow usurped from these other parties. My experience in business, my study of corporate law and finance, and my reading in economic history all suggest to me that shareholders never had such control at any time in the past. Management takes control in the very act of establishing the corporation and creating the governing articles and bylaws.

                    1. financial matters

                      I think it’s gotten worse with high frequency trading, extensive share buy backs, much emphasis on things such as options/merger activity to maximize management compensation at the expense of shareholders and even the business itself.

                      It may have value in terms of what QE has done to inflate prices but most people seem to see it in that sense rather than a real investment in a real product.

                      This is where I think Mazzucato is interested in trying to change the playing field back to that type of value. I think public banking can play a role here also.

                2. Kyle


                  “Shareholders settle for what they can get.”

                  Only in a bubble economy. What you’re seeing in the stock market of today is too much money chasing too few opportunities. This being the result of excessive financialization of the market place…it’s a bubble. The majority of players are momentum players, very few value investors.

      2. Kyle

        I think that the best distinction can be rendered by the difference in actions deemed to be in the interests of the state under the general welfare clause vs actions deemed to be indifferent to or opposed to state interests. One of the best illustrations of these differences, I think, would be the role of privateers vs pirates. Both have similarities with corporations operating under articles of incorporation such as letters of marque or the lack thereof. But even a sole proprietor is a capitalist.

        See the connecting link for pirate or piracy at the above link.

        1. MaroonBulldog

          If a sole proprietor is a capitalist, how about a sole proprietor who doesn’t have any employees–like, say, a lawyer or accountant who works out of a home office and makes house calls, is that sole proprietor a capitalist? And what if the only assets invested in the business are the unamortized balance of the annual license and the unexpired premium for errors and omissions insurance? If those assets exceed tje proprietors liabiities, is that enough capital to make the sole proprietor a capitalist?

          1. Kyle

            Hi MaroonBulldog,

            Nice try! I take it that you have a background in accounting. I’d made the statement that you’re questioning in light of a mom and pop sole proprietorship such as a hardware store. Notwithstanding your arguments in relation to internal accounting and controls, the real question would have been whether the sole proprietor invested capital assets in the hopes of making a profit. Or did you intend to make a distinction between industrial capitalism and financial capitalism where the former produces real goods and the latter attempts to get reproduction by rubbing two dollars together?

            What did you think of my above comparisons to privateers/pirates? What would you argue there?

      3. juliania

        There’s plenty of documentation from Bill Black on what would constitute, if not ‘pristine’ capitalism but a far better form of it than ‘capitalism as we know it today’. The Savings and Loan crisis, commonly termed, took place when adequate safeguards were in place to rectify excesses, and Mr. Black has written much to describe that process.

        I was in Washington D.C. briefly functioning as a Kelly Girl substitute for Clarke Clifford’s vacationing receptionist during the Kennedy years, my closest brush with power at I believe the height of that lawyer’s career wheeling and dealing with the top brass. Then during the Vietnam debacle and in his declining years, something went very wrong and that man’s career went down the tubes. So did capitalism until the measures were taken in which Bill Black played such a part. He reminds us of the difference between real capitalism and the bogus chicanery – real capitalism is harnessed by responsible government, or it should be.

        “. . .Anyone that wants to save ‘capitalism’ must destroy the current corrupt system “we know” that is posing as ‘capitalism. . .’ ”

        Well said, Mr. Black. I remember how it was. I was sad for Clarke Clifford in his declining years, but those were effective measures then, and they would be effective measures now.

        1. jrs

          I think he’s arguing with Randians (because there are so many on the blog, I guess) who long for some warm fuzzy capitalism that never had any government interference.

          But that’s not what making distinctions in various phases of “capitalism” (or perhaps more accurately the dominant economic system) is about, it’s basically about trying to use words correctly, that is with precision and realizing systems can morph and become more in one direction or other etc.. The map is not the territory.

        2. jrs

          I am of course sympathetic to the argument that NO form of capitalism can help humanity with the deeper levels of mess it’s in now (environmental crises etc.).

        3. Jeremy Grimm

          I like your answer Juliania.

          What I like about capitalism, the “better form” of capitalism you refer to is how it gives a place for people driven to build an enterprise. I came away from reading Veblen’s “Theory of the Leisure Class” with a sense of several sets of very different motives driving human actions. A few sets of drives came to mind then —
          people driven to make or build things
          people driven to help others
          people driven to manage and control to make processes work smoothly — Veblen’s technocrats
          people driven to create enterprises …
          people driven to exploit and control others — I identify these with Veblen’s leisure class.

          I know that’s very simplistic and sophomoric, but I retain this vague notion of different motivations driving people even into my later years.

          To me, the “better form” of capitalism allows freedom and provides means for almost all these different types of person to do what they feel driven to do. I think the “better form” of capitalism does this in part by controlling people who want to exploit and control others. In stark contrast the laissez-faire type of capitalism glorifies and gives free reign to the sociopathic instincts of those driven to exploit and control others. The “better form” recognizes that other forces than economic gain drive the actions of the better part of humankind.

          I recall a quip about how “Soviet Russia gave communism a bad name.” I think Howard Zen said this in a recorded talk I listened to. In the same way, today’s America gives capitalism a bad name.

    2. MartyH

      drb48 and Cassiodorus (that follows) and so many others, skewering Black or any of the others that use similar tropes is amusing but non-productive. “Capitalism” is a term like “Christianity” or “The Middle Ages.” It has and has had many meanings. It is a platitude of the moneyed class and a snarl-word to the poor. Define it at your peril … almost nobody will agree with Your definition. <smirks>

      Black makes the mistake of leaning on a popular plaint but then, who anywhere really wants to tackle the job of clarifying what an idealized and proper “Capitalist” system would look like? The Rothbardian/Randian thread that claims that privately funded mechanisms can “control” the market merely invite rule by the most wealthy … in many ways not all that different from where we are. I have been looking for that better description … one with a workable plan for getting there. And I’ve come up mostly empty.

      Sorry for the “Rothbardian/Randian” ellision … neither would forgive me for including them in the same sentence together.

  12. JerryDenim

    Thanks for this little trip down memory lane. Ahh yes, the golden days of the imperial Obama administration. March 2009, I remember it like yesterday. I think I can feel my blood beginning to boil now. Larry Summers jowls flapping on multiple news channels, droning on about “abrogation” and “sanctity of contracts” and poor little ole’ victimized Jake DeSantis and his vomit-inducing NYT op-ed about how the big, bad world was so unfair and how he truly deserved his AIG retention bonus because of his hard, honest work, civic duty, volunteerism and blah, blah, blah.

    Exorbitant bonuses paid to a bunch of losing gamblers with ill-begotten or tax-payer funds is sacrosanct, but pensions for regular Americans who put in 30, 40 years on the job is a superfluous burden to be discharged to the PBGC when those contractual obligations interfere with profits. (A.K.A. stock-goosing, exorbitant executive compensation, bonuses etc.) Yep got it. One rule of law for financiers, another for the little people.

    To think those out-of-touch, spoiled brat, sociopaths got away with it all and are still living large at the expense of everyone else…. criminy.

    1. jrs

      They had to play the “sanctity of contracts” argument when it could still be played, BEFORE they went for the pensions. Like they had to play bribery as “free speech” before it became obvious we live in a right-less post-constitutional police state what “free speech” is a bit of a joke. The temporal relationships of these things is important.

      But then there’s a new generation raised (most Americans are) believing all the rhetoric, rinse, brainwash and repeat. Still though maybe all those ideologies are well beyond their sell by date. “sanctity of contracts” spit, you must be kidding me. “fee speech” spit stuff it up your free speech zone …

  13. morgan

    You have the tag on here as Banana Republic and I crazily thought it was the old retailer that had cargo pants and camp shirts but went out of business.

    I guess talking about Geithner though there is some solace – he’s out of a government job at a country that’s getting close to becoming a Banana Republic in the Encyclopedia Britannica entry of the word.

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