Category Archives: Free markets and their discontents

Bhidé Cites “Rampant, Extensive Criminality” As Proof That Bank Reform Has Gone Down the Wrong Path

I though readers might welcome an antidote from the nonsense that bank industry touts like the Office of the Comptroller of the Currency’s John Walsh routinely puts forth.

I’ve known Amar Bhidé, who is now a professor at Tufts, for thirty years; we both worked on the Citibank account at McKinsey (although never on the same study). He’s long had a reputation for being incredibly smart and iconoclastic.

Amar enjoys annoying people by saying completely commonsensical things that are not acceptable and watching chaos ensue.

Two Supreme Court Rulings Give Big Companies “Get Out of Liability Free” Cards

If you had any doubts that the US has become a corpocracy, two fresh rulings by the Supreme Court should seal any doubt. They are stunningly bad, in that they reduce or gut the reach of well-settled law over large companies, to the degree that it will take very little in the way of effort for companies to organize their affairs so as to escape liability for their actions in areas that affect large numbers of citizens.

The through line in both rulings is the creative and selective use of the notion of corporate “personhood”. That personhood has been the basis for the extension of a whole raft of rights to corporations, including, perversely, the Constitutional right of free speech. Yet the same notion which has been used to confer privileges that companies lack in other countries is at the same time being construed so as to vitiate accountability, when ordinary people find it mighty hard to escape the consequences of their actions. I’m certain the Founding Fathers, who were wary of concentrated power, would be spinning in their graves at the logic and effect of recent decisions on this front.

Alex Andreou: Democracy vs Mythology – The Battle in Syntagma Square

By Alex Andreou, a successful lawyer turned actor living in London. Cross posted from SturdyBlog

I have never been more desperate to explain and more hopeful for your understanding of any single fact than this: The protests in Greece concern all of you directly.

What is going on in Athens at the moment is resistance against an invasion; an invasion as brutal as that against Poland in 1939. The invading army wears suits instead of uniforms and holds laptops instead of guns, but make no mistake – the attack on our sovereignty is as violent and thorough. Private wealth interests are dictating policy to a sovereign nation, which is expressly and directly against its national interest. Ignore it at your peril. Say to yourselves, if you wish, that perhaps it will stop there. That perhaps the bailiffs will not go after the Portugal and Ireland next. And then Spain and the UK. But it is already beginning to happen. This is why you cannot afford to ignore these events.

“Economics Upside Down” or Why “Free Markets” Don’t Exist

This is an instructive interview with Ha-Joon Chang, author of the new book “23 Things They Don’t Tell You About Capitalism.” He debunks some widely accepted beliefs, such at the existence of “free markets” or the necessity of “free trade” for the development of capitalism.

Enjoy!

Michael Hudson: The Financial Road to Serfdom – How Bankers are Using the Debt Crisis to Roll Back the Progressive Era

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College. Cross posted from CounterPunch.

Financial strategists do not intend to let today’s debt crisis go to waste. Foreclosure time has arrived. That means revolution – or more accurately, a counter-revolution to roll back the 20th century’s gains made by social democracy: pensions and social security, public health care and other infrastructure providing essential services at subsidized prices or for free. The basic model follows the former Soviet Union’s post-1991 neoliberal reforms: privatization of public enterprises, a high flat tax on labor but only nominal taxes on real estate and finance, and deregulation of the economy’s prices, working conditions and credit terms.

Steve Keen: Dude! Where’s My Recovery?

By Steve Keen, Associate Professor of Economics & Finance at the University of Western Sydney, and author of the book Debunking Economics. Cross posted from Steve Keen’s Debtwatch.

I initially planned to call this post “Economic Growth, Asset Markets and the Credit Accelerator”, but recent negative data out of America makes me think that this title is more in line with conversations currently taking place in the White House.

According to the NBER, the “Great Recession” is now two years behind us, but the recovery that normally follows a recession has not occurred. While growth did rise for a while, it has been anaemic compared to the norm after a recession, and it is already trending down. Growth needs to exceed 3 per cent per annum to reduce unemployment—the rule of thumb known as Okun’s Law—and it needs to be substantially higher than this to make serious inroads into it. Instead, growth barely peeped its head above Okun’s level. It is now below it again, and trending down.

Kevin O’Rourke on the Irish/Eurozone Mess

This INET video focuses on how Ireland got into its mess as well as the domestic and international political dynamics as to how it is being resolved. There is an interesting tension between the cool talking head style and some of the coded descriptions of the stresses and the stark choices at hand.

Michael Hudson: Replacing Economic Democracy with Financial Oligarchy

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College. Cross posted from CounterPunch.

Soon after the Socialist Party won Greece’s national elections in autumn 2009, it became apparent that the government’s finances were in a shambles. In May 2010, French President Nicolas Sarkozy took the lead in rounding up €120bn ($180 billion) from European governments to subsidize Greece’s unprogressive tax system that had led its government into debt – which Wall Street banks had helped conceal with Enron-style accounting.

The tax system operated as a siphon collecting revenue to pay the German and French banks that were buying government bonds (at rising interest risk premiums). The bankers are now moving to make this role formal, an official condition for rolling over Greek bonds as they come due, and extend maturities on the short-term financial string that Greece is now operating under. Existing bondholders are to reap a windfall if this plan succeeds. Moody’s lowered Greece’s credit rating to junk status on June 1 (to Caa1, down from B1, which was already pretty low), estimating a 50/50 likelihood of default. The downgrade serves to tighten the screws yet further on the Greek government. Regardless of what European officials do, Moody’s noted, “The increased likelihood that Greece’s supporters (the IMF, ECB and the EU Commission, together known as the “Troika”) will, at some point in the future, require the participation of private creditors in a debt restructuring as a precondition for funding support.”

The conditionality for the new “reformed” loan package is that Greece must initiate a class war by raising its taxes, lowering its social spending – and even private-sector pensions – and sell off public land, tourist sites, islands, ports, water and sewer facilities. This will raise the cost of living and doing business, eroding the nation’s already limited export competitiveness. The bankers sanctimoniously depict this as a “rescue” of Greek finances.

Goldman Subpoenaed Over Levin Committee Hearing Findings

On the one hand, this is just a subpoena of Goldman from the Manhattan DA’s office, but on the other, after all the crisis investigations, we finally have a prosecutor somewhere deciding to take some abuses during the crisis seriously enough to see if they add up to a legal case. (Yes, the SEC did file a suit against Goldman on one synthetic CDO, one transaction out of 25 in its Abacus program, which Goldman settled for $550 million, but this was litigation on one deal, not on broader patterns of misconduct).

And it came not out of the splashy but designed not to accomplish much FCIC, but the quieter and more tenacious Senate’s Permanent Subcommittee on Investigations. I hardly ever do media briefings, but I was on the blogger call for both reports, and the contrast was night and day. The FCIC briefing was softball PR, with Phil Angelides and Brooksley Born (who by definition had not done the work and therefore were not big on detail) leading the call. The Senate call was led by staffers who demonstrated impressive command of the products and industry economics and transmitted information at a very high bit rate.

Not surprisingly, the information request comes from a local prosecutor. The DoJ continues to be missing in action.

Bill Black: Bad Cop; Crazed Cop – the IMF and the ECB

By Bill Black, an Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One. Cross posted from http://neweconomicperspectives.blogspot.com/2011/05/in-praise-of-sorkins-praise-of.html“>New Economic Perspectives

Greetings again from Ireland. One of the many mysteries about the current crisis is why anyone listens to the IMF or anyone that supported its anti-regulatory policies. Prior to the crisis, even the IMF had begun to confess that its austerity programs made poor nations’ financial crises worse. In the lead up to the crisis the IMF was blind to the developing crises. It even praised nations like Ireland during the run up to the crisis, missing the largest bubble (relative to GDP) of any nation, an epidemic of banking control fraud, and the destruction of any pretense to effective Irish banking regulation.

Crises reveal many deficiencies and one of the most glaring was the European Central Bank (ECB).

Jean Pisani-Ferry on Europe’s Tiger and German Nightmares

This INET interview with Jean Pisani-Ferry gives a useful overview of how Greece and Ireland came to have sovereign debt woes and the viability of the remedies proposed for each. Pisani-Ferry argues, as many other economists do, that austerity measures will not succeed in Greece because they will prove to be politically unsustainable.

Stephanie Kelton: What Happens When the Government Tightens its Belt?

Yves here. This post is certain to annoy some readers. Note that Kelton does not address under what circumstances it is desirable to have the government run a surplus versus a deficit, merely what the implications are. Bill MItchell is rather forceful on this matter:

The US press was awash with claims over the weekend that the US was “living beyond” its “means” and that “will not be viable for a whole lot longer”. One senior US central banker claimed that the way to resolve the sluggish growth was to increase interest rates to ensure people would save. Funny, the same person also wants fiscal policy to contract. Another fiscal contraction expansion zealot. Pity it only kills growth. Another commentator – chose, lazily – to be the mouthpiece for the conservative lobby and wrote a book review that focused on the scary and exploding public debt levels. Apparently, this public debt tells us that the US is living beyond its means. Well, when I look at the data I see around 16 per cent of available labour idle in the US and capacity utilisation rates that are still very low. That tells me that there is a lot of “means” available to be called into production to generate incomes and prosperity. A national government doesn’t really have any “means”. It needs to spend to get hold off the means (production resources). Given the idle labour and low capacity utilisation rates the government in the US is clearly not spending enough. The US is currently living well below its means. But the US government can always buy any “means” that are available for sale in US dollars and if there is insufficient demand for these resources emanating from the non-government sector then the US government can bring those idle “means” into productive use any time it chooses.

Michael Hudson: Breakup of the euro? Is Iceland’s rejection of financial bullying a model for Greece and Ireland?

Yves here. This piece describes how voter opposition may derail rule by bankers via IMF, European Commission, and ECB austerity programs in Europe.

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College. Cross posted from CounterPunch.

Last month Iceland voted against submitting to British and Dutch demands that it compensate their national bank insurance agencies for bailing out their own domestic Icesave depositors. This was the second vote against settlement (by a ratio of 3:2), and Icelandic support for membership in the Eurozone has fallen to just 30 percent. The feeling is that European politics are being run for the benefit of bankers, not the social democracy that Iceland imagined was the guiding philosophy – as indeed it was when the European Economic Community (Common Market) was formed in 1957.

Wikileaks: Saudis Warned About Oil Speculators in 2007 and 2008

Kevin Hall of McClatchy wrote about Wikileaks releases showing that the Saudis were concerned about oil market speculation leading to unduly high prices in 2007 and 2008. In 2008, we wrote that the Saudis said they did not see tightness in the market, and they also warned that prices were excessive. The Wikileaks thus confirm that these statements were not just PR, to shift blame from them as the historical swing producer, but were consistent with their private communications.

Paul Jay of the Real News Network interviewed Kevin Hall (hat tip reader Philip Pilkington):