Some (much?) of this is fevered well past where I would go (ie, the stuff on Ford, Reagan, Carter, Obama) however, it's most useful for its collection of some of the sordid history of the Clintons. St Clair is the only one I've seen (doubtless there are others) who has hinted if not made the case that the Clintons purposefully worked to ensure a Republican congress in 1994, 1996 (2000?)so as to be able to resist pressure to enact a progressive agenda.
He also leaves out Clinton's responsibility for WTC 93 and Oklahoma City both of which involved the FBI and perhaps (doubtless!) other government agencies.
St Clair mentions the bombing of Serbia. Has someone done more on Clinton & GW Bush (and GHW Bush?) and the KLA? If it were only GW Bush I could understand the connection to criminal enterprises. But why would three administrations ally themselves against the KLA, especially as GHW Bush had strong connections with the Serbs, their enemies? Nor do I understand why GHW Bush and Clinton allowed the wars in the former Yugoslavia. Many will recall that when Clinton needed to be reelected in 1996, he finally put a stop to it very quickly.
Ronald
PS. St Clair also misses the point I've made elsewhere that Hillary's "mishandling" of the health care initiative was a deliberate and sophisticated operation intended to ensure that no universal single payer option would be allowed.
Ronald
March 24, 2008
Hillary's Berserker Campaign ... for 2012
Blonde Ambition
WWW.Counterpunch.org
http://counterpunch.org/stclair03242008.html
By JEFFREY ST. CLAIR
Hillary Clinton can not win the Democratic nomination for president. The numbers tell the story. Even with robust victories in Pennsylvania, Indiana, West Virginia and Kentucky, Hillary will trail Obama in popular votes and pledged delegates as they enter the convention hall in Denver.
Any other candidate would have been shamed into dropping out long ago. But these are the Clintons and they have no shame.
So why does Hillary persist? Because she hasn't abandoned her aspiration for the White House. Not in 2008, but for 2012. Here's the perverse logic at work.
If Obama defeats McCain in November, it will take an act of treachery beyond anything even the Clintons have ever conjured from their grimoire of political demonology for Hillary to challenge him in 2012. She will be 69 in 2016, almost ready to move into one of the Beverly Nursing Homes, owned by a company she once represented as a corporate lawyer, aggressively protecting the bottom line against such extravagances as healthy meals, clean sheets and proper medical care for the elderly.
Hillary Clinton is the prisoner of an unimpeachable mathematics. So she makes the most of a remorseless situation by doing what the Clintons do best: commit political fratricide. Quite literally, in this case, by knocking off a brother.
In order to realize her vaulting ambition, Hillary must mortally wound Obama as candidate in the fall race against John McCain so that she can run against McCain in 2012.
McCain is at best a one term president. The signs of this are as clear as the scar jagging down his face. McCain, whose resemblance to Lon Chaney becomes eerier by the day, is already an old man, older than Reagan when he was first elected. He is plagued by a cancer he refuses to speak about, a war he refuses to end and an economy that is collapsing beyond the point of recovery. Add to this prospectus, the fact that McCain is prone to the most self-destructive impulses of any American politician since Aaron Burr. His political fate will be sealed before he even swears his oath.
Thus Hillary's berserker strategy against Obama. (For more on "berserkerism" see the SF novels of Fred Saberhagen.)
Down in Mark Penn's dark computer lab, the data culled from pulse polls and focus groups probing the hidden prejudices in the psyche of white America are being packed like shrapnel into political landmines set for Obama: he's unpatriotic, he's un-Christian, he's a Palestinian symp and, yes, he's black. That's three strikes and one head shot.
Exploitation of racial panic is second nature to the power couple Ishmael Reed calls Ma and Pa Clinton. Bill Clinton launched his 1992 campaign by personally overseeing the execution of Ricky Ray Rector, a brain-damaged young black man. He wagged his finger at the rapper Sister Souljah, denouncing her music and political opinions as a danger to young minds. The Clintons pilloried their one-time friend Lani Guinier, for her legal writings on the status of blacks and women and booted Dr. Jocelyn Elders from her position as Surgeon General for her refreshingly candid statements about the utility of condoms and masturbation for sexually active youths.
And that's how they treated people they knew. At a structural level, the Clintons' economic and social agenda, incubated at the conservative Democratic Leadership Council, struck directly at poorest precincts of America, targeting blacks and Hispanics with a fervor not seen since Pat Buchanan and Kevin Phillips crafted the infamous Southern Strategy for Richard Nixon. Hence, the dismantling of welfare, harsh federal crime bills, the refusal to intervene against racial profiling or redress the grievous injustices caused by the racially-motivated sentences handed out for crack cocaine.
The fallout from Ms. Clinton's racially-tinged blitz against Obama will spread far and wide across her party like the toxic particles from a nuclear blast. They've done it all before. The Clintons' reckless first two years in the White House, from the heavy-handed Travel Office fiasco to the fires of Waco and HRC's sophomoric bungling of the health care reform, spurred the GOP takeover of congress in 1994, which they used to their political profit. Then in 1996, Clinton refused to allocate DNC money to tight senate and congressional races, a miserly tactic that allowed the faltering Republicans to retain control of both houses of Congress. It was a cynical decision that many high-ranking Democrats believe constituted a deliberate sabotage of the party's prospects, designed to secure a monopoly-like control of the party apparatus for the Clintons, turning the DNC into their own private PAC.
That's the logic of triangulation. The daisy-cutter tactics of Hillary's current campaign might be called pre-emptive triangulation. The Clintons enrich themselves politically by looting the ruins of their own party.
Look how swiftly her campaign knee-capped her friend Bill Richardson. After working sedulously for Richardson's endorsement only to lose out to Obama, Mark Penn dismissed the governor as "irrelevant." On Good Friday, Clinton intimate James Carville denounced Richardson as "a Judas."
Clinton believes she must destroy the party in order to save it-for herself. But her campaign geared at women and white working class voters relies on a perversion of the past. The recent past at that, as if they believe that the American electorate is blinking out from a kind of political Alzheimer's, where the short-term goes first. Perhaps that's why Penn and his pack of geeks geared their themes to appeal to geezers and grandparents. Clintontime is recast as a glittering epoch of peace and prosperity. Yet this was a decade when Iraq was bombed every three days and a half-million people died under the cruel sanctions regime, when cruise missiles were launched on Sudan and Afghanistan to divert popular attention from blow-jobs and thong-snapping interns, when an illegal air war was orchestrated against Serbia, racking up thousands of civilian casualties and the ongoing bloodbath against peasants in South America known as Plan Colombia, the drug war that keeps on killing.
The Clinton 90s was a time when the economic chasm in America between the rich and everyone else deepened and widened profoundly, under the command of Alan Greenspan and Wall Street maestro Robert Rubin, and the social safety nets protecting the most vulnerable among us where shorn in the name of political pragmatism. The Clintons evoke a nostalgia for a time that never was. If you require objective confirmation of the economic enervation unleashed by the Clinton program consult Contours of Descent, economist Robert Pollin's brilliant dissection of that dismal era.
This coarse reality is transparent to those who lived through it and still suffer the aftershocks of the Clintons' neoliberal program. That's one reason why almost the only blacks to back HRC are encrusted members of Congressional Black Caucus and corporate shills like Andrew Young, who whitewashed Nike's crimes against workers in its Asian sweat-factories. Both camps are old hands at palming political gratuities and walking around money.
Meanwhile, Obama plays the role of willing victim like he spent years studying Italian frescos on the torments of St. Sebastian. He exudes a sense of entitlement nearly as all-engrossing as the Clintons and compounds this with a martydom complex that dramatizes the wounding of each slingshot and arrow lobbed his way.
Although it's not strictly attuned to her peculiar pathology, Hillary could almost call it quits right now, even before she claims Pennsylvania as a scalp. She has fatally toxified Obama and almost certainly secured the White House for her good friend John McCain.
Hillary is following the Reagan model. In 1976, Ronald Reagan bled Gerald Ford through the long winter and spring months, before bludgeoning him the late primary in Pennsylvania. As told in Adam Clymer's new book, Drawing the Line at the Big Ditch: the Panama Canal Treaties and the Rise of the Right, Reagan finally found a theme to his weird internecine challenge in the Panama Canal Treaty. Reagan fell short in the end, but he had hobbled Ford, who stumbled and fell against Carter in the fall election. Carter inherited a stagnant economy, soaring oil prices and a simmering crisis in the Middle East. Reagan easily unseated Carter in the 1980 election. The Clintons are shrewd enough to detect the striking historical parallels here and craven enough to exploit them for their own long-term advantage.
The Clinton war room may still throb to the beats of Fleetwood Mac's "Don't Stop Thinking About Tomorrow." But late at night, when Mandy Grunwald has slipped on her flannels and Mark Penn has powered-down his Cray super-computer, Hillary and Bill will surely toast their strange time-delayed victory to the chords of McCartney's "Live and Let Die."
Jeffrey St. Clair is the author of Been Brown So Long It Looked Like Green to Me: the Politics of Nature and Grand Theft Pentagon. His newest book, Born Under a Bad Sky, will be published this spring. He can be reached at: sitka@comcast.net.
Friday, March 28, 2008
Monday, March 24, 2008
WSJ: New Limits to Growth Revive Malthusian Fears
March 24, 2008
Wall Street Journal
http://online.wsj.com/article_print/SB120613138379155707.html#CX
"Limits-to-growth" theories are getting a second look amid surging raw material costs.
New Limits to Growth
Revive Malthusian Fears
Spread of Prosperity
Brings Supply Woes;
Slaking China's Thirst
By JUSTIN LAHART, PATRICK BARTA and ANDREW BATSON
March 24, 2008; Page A1
(See Corrections & Amplifications item below.)
Now and then across the centuries, powerful voices have warned that human activity would overwhelm the earth's resources. The Cassandras always proved wrong. Each time, there were new resources to discover, new technologies to propel growth.
ECON ONE ON ONE
James Brander, left, a professor of international business at the University of British Columbia's Sauder School of Business and Matthew Kahn, right, a professor at UCLA's Institute of the Environment, discuss limits-to-growth ideas in the context of today's rapid run-up in raw material costs. Plus, share your own thoughts.1
Could Resources Become a Limit to Global Growth?2
Today the old fears are back.
Although a Malthusian catastrophe is not at hand, the resource constraints foreseen by the Club of Rome are more evident today than at any time since the 1972 publication of the think tank's famous book, "The Limits of Growth." Steady increases in the prices for oil, wheat, copper and other commodities -- some of which have set record highs this month -- are signs of a lasting shift in demand as yet unmatched by rising supply.
As the world grows more populous -- the United Nations projects eight billion people by 2025, up from 6.6 billion today -- it also is growing more prosperous. The average person is consuming more food, water, metal and power. Growing numbers of China's 1.3 billion people and India's 1.1 billion are stepping up to the middle class, adopting the high-protein diets, gasoline-fueled transport and electric gadgets that developed nations enjoy.
The result is that demand for resources has soared. If supplies don't keep pace, prices are likely to climb further, economic growth in rich and poor nations alike could suffer, and some fear violent conflicts could ensue.
Some of the resources now in great demand have no substitutes. In the 18th century, England responded to dwindling timber supplies by shifting to abundant coal. But there can be no such replacement for arable land and fresh water.
WSJ's Patrick Barta reports from India on how development threatens to overwhelm the Earth's resources. (March 24)
The need to curb global warming limits the usefulness of some resources -- coal, for one, which emits greenhouse gases that most scientists say contribute to climate change. Soaring food consumption stresses the existing stock of arable land and fresh water.
"We're living in an era where the technologies that have empowered high living standards and 80-year life expectancies in the rich world are now for almost everybody," says economist Jeffrey Sachs, director of Columbia University's Earth Institute, which focuses on sustainable development with an emphasis on the world's poor. "What this means is that not only do we have a very large amount of economic activity right now, but we have pent-up potential for vast increases [in economic activity] as well." The world cannot sustain that level of growth, he contends, without new technologies.
Americans already are grappling with higher energy and food prices. Although crude prices have dropped in recent days, there's a growing consensus among policy makers and industry executives that this isn't just a temporary surge in prices. Some of these experts, but not all of them, foresee a long-term upward shift in prices for oil and other commodities.
Today's dire predictions could prove just as misguided as yesteryear's.
"Clearly we'll have more and more problems, as more and more [people] are going to be richer and richer, using more and more stuff," says Bjorn Lomborg, a Danish statistician who argues that the global-warming problem is overblown. "But smartness will outweigh the extra resource use."
Some constraints might disappear with greater global cooperation. Where some countries face scarcity, others have bountiful supplies of resources. New seed varieties and better irrigation techniques could open up arid regions to cultivation that today are only suitable as hardscrabble pasture; technological breakthroughs, like cheaper desalination or efficient ways to transmit electricity from unpopulated areas rich with sunlight or wind, could brighten the outlook.
In the past, economic forces spurred solutions. Scarcity of resource led to higher prices, and higher prices eventually led to conservation and innovation. Whale oil was a popular source of lighting in the 19th century. Prices soared in the middle of the century, and people sought other ways to fuel lamps. In 1846, Abraham Gesner began developing kerosene, a cleaner-burning alternative. By the end of the century, whale oil cost less than it did in 1831.
A similar pattern could unfold again. But economic forces alone may not be able to fix the problems this time around. Societies as different as the U.S. and China face stiff political resistance to boosting water prices to encourage efficient use, particularly from farmers. When resources such as water are shared across borders, establishing a pricing framework can be thorny. And in many developing nations, food-subsidy programs make it less likely that rising prices will spur change.
This troubles some economists who used to be skeptical of the premise of "The Limits to Growth." As a young economist 30 years ago, Joseph Stiglitz said flatly: "There is not a persuasive case to be made that we face a problem from the exhaustion of our resources in the short or medium run."
Today, the Nobel laureate is concerned that oil is underpriced relative to the cost of carbon emissions, and that key resources such as water are often provided free. "In the absence of market signals, there's no way the market will solve these problems," he says. "How do we make people who have gotten something for free start paying for it? That's really hard. If our patterns of living, our patterns of consumption are imitated, as others are striving to do, the world probably is not viable."
Dennis Meadows, one of the authors of "The Limits to Growth," says the book was too optimistic in one respect. The authors assumed that if humans stopped harming the environment, it would recover slowly. Today, he says, some climate-change models suggest that once tipping points are passed, environmental catastrophe may be inevitable even "if you quit damaging the environment."
3
Patrick Barta
Resource constraints in fast-growing India are hitting farmers and city-dwellers alike.
One danger is that governments, rather than searching for global solutions to resource constraints, will concentrate on grabbing share.
China has been funding development in Africa, a move some U.S. officials see as a way for it to gain access to timber, oil and other resources. India, once a staunch supporter of the democracy movement in military-run Myanmar, has inked trade agreements with the natural-resource rich country. The U.S., European Union, Russia and China are all vying for the favor of natural-gas-abundant countries in politically unstable Central Asia.
Competition for resources can get ugly. A record drought in the Southeast intensified a dispute between Alabama, Georgia and Florida over water from a federal reservoir outside Atlanta. A long-running fight over rights to the Cauvery River between the Indian states of Karnataka and Tamil Nadu led to 25 deaths in 1991.
Economists Edward Miguel of the University of California at Berkeley and Shanker Satyanath and Ernest Sergenti of New York University have found that declines in rainfall are associated with civil conflict in sub-Saharan Africa. Sierra Leone, for example, which saw a sharp drop in rainfall in 1990, plunged into civil war in 1991.
A Car for Every Household
The rise of China and India already has changed the world economy in lasting ways, from the flows of global capital to the location of manufacturing. But they remain poor societies with growing appetites.
Nagpur in central India once was known as one of the greenest metropolises in the country. Over the past decade, Nagpur, now one of at least 40 Indian cities with more than a million people, has grown to roughly 2.5 million from 1.7 million. Local roads have turned into a mess of honking cars, motorbikes and wandering livestock under a thick soup of foul air.
A local resident takes water from a partially dried-up pond on the outskirts of Yingtan, China. Water shortages have been blamed on global warming, pollution and rising consumption by farmers and cities.
"Sometimes if I see something I like, I just buy it," says Sapan Gajbe, 32 years old, a dentist shopping for an air conditioner at Nagpur's Big Bazaar mall. A month earlier, he bought his first car, a $9,000 Maruti Zen compact.
In 2005, China had 15 passenger cars for every 1,000 people, close to the 13 cars per 1,000 that Japan had in 1963. Today, Japan has 447 passenger cars per 1,000 residents, 57 million in all. If China ever reaches that point, it would have 572 million cars -- 70 million shy of the number of cars in the entire world today.
China consumes 7.9 million barrels of oil a day. The U.S., with less than one quarter as many people, consumes 20.7 million barrels. "Demand will be going up, but it will be constrained by supply," ConocoPhillips Chief Executive Officer James Mulva has told analysts. "I don't think we are going to see the supply going over 100 million barrels a day, and the reason is: Where is all that going to come from?"
Says Harvard economist Jeffrey Frankel: "The idea that we might have to move on to other sources of energy -- you don't have to buy into the Club of Rome agenda for that." The world can adjust to dwindling oil production by becoming more energy efficient and by moving to nuclear, wind and solar power, he says, although such transitions can be slow and costly.
Global Thirst
There are no substitutes for water, no easy alternatives to simple conservation. Despite advances, desalination remains costly and energy intensive. Throughout the world, water is often priced too low. Farmers, the biggest users, pay less than others, if they pay at all.
An underground rail tunnel under construction in New Delhi, India. The nation is adding thousands of miles of rail lines and new roads, along with other infrastructure, using enormous quantities of materials such as steel, copper and aluminum.
In California, the subsidized rates for farmers have become a contentious political issue. Chinese farmers receive water at next to no cost, accounting for 65% of all water used in the country.
In Pondhe, an Indian village of about 1,000 on a barren plateau east of Mumbai, water wasn't a problem until the 1970s, when farmers began using diesel-powered pumps to transport water farther and faster. Local wells used to overflow during the monsoon season, recalls Vasantrao Wagle, who has farmed in the area for four decades. Today, they top off about 10 feet below the surface, and drop even lower during the dry season. "Even when it rains a lot, we aren't getting enough water," he says.
Parched northern China has been drawing down groundwater supplies. In Beijing, water tables have dropped hundreds of feet. In nearby Hebei province, once large Baiyangdian Lake has shrunk, and survives mainly because the government has diverted water into it from the Yellow River.
Climate change is likely to intensify water woes. Shifting weather patterns will be felt "most strongly through changes in the distribution of water around the world and its seasonal and annual variability," according to the British government report on global warming led by Nicholas Stern. Water shortages could be severe in parts Africa, the Middle East, southern Europe and Latin America, the report said.
Feeding the Hungry
China's farmers need water because China needs food. Production of rice, wheat and corn topped out at 441.4 million tons in 1998 and hasn't hit that level since. Sea water has leaked into depleted aquifers in the north, threatening to turn land barren. Illegal seizures of farmland by developers are widespread. The government last year declared that it would not permit arable land to drop below 120 million hectares (296 million acres), and said it would beef up enforcement of land-use rules.
WHERE'S THE WATER?
On Beijing's Outskirts, The Thirst Is Growing4
Many Chinese towns, lacking irrigation systems,
rely on ad-hoc well digging, a practice that is in effect
reducing their ground water levels year by year.
5
Loretta Chao
Well diggers in China are using massive equipment to reach deeper and deeper water supplies.
The farmland squeeze is forcing difficult choices. After disastrous floods in 1998, China started paying some farmers to abandon marginal farmland and plant trees. That "grain-to-green" program was intended to reverse the deforestation and erosion that exacerbated the floods. Last August, the government stopped expanding the program, citing the need for farmland and the cost.
A growing taste for meat and other higher-protein food in the developing world is boosting demand and prices for feed grains. "There are literally hundreds of millions of people...who are making the shift to protein, and competition for food world-wide is a new reality," says William Doyle, chief executive officer of fertilizer-maker Potash Corp. of Saskatchewan.
It takes nearly 10 pounds of grain to produce one pound of pork -- the staple meat in China -- and more than double that to produce a pound of beef, according to Vaclav Smil, a University of Manitoba geographer who studies food, energy and environment trends. The number of calories in the Chinese diet from meat and other animal products has more than doubled since 1990, according to the U.N. Food and Agriculture Organization. But China still lags Taiwan when it comes to per-capita pork consumption. Matching Taiwan would increase China's annual pork consumption by 11 billion pounds -- as much pork as Americans eat in six or seven months.
Searching for Solutions
The 1972 warnings by the Club of Rome -- a nongovernmental think tank now based in Hamburg that brings together academics, business executives, civil servants and politicians to grapple with a wide range of global issues -- struck a chord because they came as oil prices were rising sharply. Oil production in the continental U.S. had peaked, sparking fears that energy demand had outstripped supply. Over time, America became more energy efficient, overseas oil production rose and prices fell.
The dynamic today appears different. So far, the oil industry has failed to find major new sources of crude. Absent major finds, prices are likely to keep rising, unless consumers cut back. Taxes are one way to curb their appetites. In Western Europe and Japan, for example, where gas taxes are higher than in the U.S., per capita consumption is much lower.
New technology could help ease the resource crunch. Advances in agriculture, desalination and the clean production of electricity, among other things, would help.
But Mr. Stiglitz, the economist, contends that consumers eventually will have to change their behavior even more than then did after the 1970s oil shock. He says the world's traditional definitions and measures of economic progress -- based on producing and consuming ever more -- may have to be rethought.
In years past, the U.S., Europe and Japan have proven adept at adjusting to resource constraints. But history is littered with examples of societies believed to have suffered Malthusian crises: the Mayans of Central America, the Anasazi of the U.S. Southwest, and the people of Easter Island.
Those societies, of course, lacked modern science and technology. Still, their inability to overcome resource challenges demonstrates the perils of blithely believing things will work out, says economist James Brander at the University of British Columbia, who has studied Easter Island.
"We need to look seriously at the numbers and say: Look, given what we're consuming now, given what we know about economic incentives, given what we know about price signals, what is actually plausible?" says Mr. Brander.
Indeed, the true lesson of Thomas Malthus, an English economist who died in 1834, isn't that the world is doomed, but that preservation of human life requires analysis and then tough action. Given the history of England, with its plagues and famines, Malthus had good cause to wonder if society was "condemned to a perpetual oscillation between happiness and misery." That he was able to analyze that "perpetual oscillation" set him and his time apart from England's past. And that capacity to understand and respond meant that the world was less Malthusian thereafter.
Write to Justin Lahart at justin.lahart@wsj.com13, Patrick Barta at patrick.barta@wsj.com14 and Andrew Batson at andrew.batson@wsj.com15
Corrections & Amplifications:
China's annual pork consumption would increase by 11 billion pounds if China matched Taiwan's per-capita consumption rate. A previous version of this article incorrectly gave the figure as 11 million pounds.
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Wall Street Journal
http://online.wsj.com/article_print/SB120613138379155707.html#CX
"Limits-to-growth" theories are getting a second look amid surging raw material costs.
New Limits to Growth
Revive Malthusian Fears
Spread of Prosperity
Brings Supply Woes;
Slaking China's Thirst
By JUSTIN LAHART, PATRICK BARTA and ANDREW BATSON
March 24, 2008; Page A1
(See Corrections & Amplifications item below.)
Now and then across the centuries, powerful voices have warned that human activity would overwhelm the earth's resources. The Cassandras always proved wrong. Each time, there were new resources to discover, new technologies to propel growth.
ECON ONE ON ONE
James Brander, left, a professor of international business at the University of British Columbia's Sauder School of Business and Matthew Kahn, right, a professor at UCLA's Institute of the Environment, discuss limits-to-growth ideas in the context of today's rapid run-up in raw material costs. Plus, share your own thoughts.1
Could Resources Become a Limit to Global Growth?2
Today the old fears are back.
Although a Malthusian catastrophe is not at hand, the resource constraints foreseen by the Club of Rome are more evident today than at any time since the 1972 publication of the think tank's famous book, "The Limits of Growth." Steady increases in the prices for oil, wheat, copper and other commodities -- some of which have set record highs this month -- are signs of a lasting shift in demand as yet unmatched by rising supply.
As the world grows more populous -- the United Nations projects eight billion people by 2025, up from 6.6 billion today -- it also is growing more prosperous. The average person is consuming more food, water, metal and power. Growing numbers of China's 1.3 billion people and India's 1.1 billion are stepping up to the middle class, adopting the high-protein diets, gasoline-fueled transport and electric gadgets that developed nations enjoy.
The result is that demand for resources has soared. If supplies don't keep pace, prices are likely to climb further, economic growth in rich and poor nations alike could suffer, and some fear violent conflicts could ensue.
Some of the resources now in great demand have no substitutes. In the 18th century, England responded to dwindling timber supplies by shifting to abundant coal. But there can be no such replacement for arable land and fresh water.
WSJ's Patrick Barta reports from India on how development threatens to overwhelm the Earth's resources. (March 24)
The need to curb global warming limits the usefulness of some resources -- coal, for one, which emits greenhouse gases that most scientists say contribute to climate change. Soaring food consumption stresses the existing stock of arable land and fresh water.
"We're living in an era where the technologies that have empowered high living standards and 80-year life expectancies in the rich world are now for almost everybody," says economist Jeffrey Sachs, director of Columbia University's Earth Institute, which focuses on sustainable development with an emphasis on the world's poor. "What this means is that not only do we have a very large amount of economic activity right now, but we have pent-up potential for vast increases [in economic activity] as well." The world cannot sustain that level of growth, he contends, without new technologies.
Americans already are grappling with higher energy and food prices. Although crude prices have dropped in recent days, there's a growing consensus among policy makers and industry executives that this isn't just a temporary surge in prices. Some of these experts, but not all of them, foresee a long-term upward shift in prices for oil and other commodities.
Today's dire predictions could prove just as misguided as yesteryear's.
"Clearly we'll have more and more problems, as more and more [people] are going to be richer and richer, using more and more stuff," says Bjorn Lomborg, a Danish statistician who argues that the global-warming problem is overblown. "But smartness will outweigh the extra resource use."
Some constraints might disappear with greater global cooperation. Where some countries face scarcity, others have bountiful supplies of resources. New seed varieties and better irrigation techniques could open up arid regions to cultivation that today are only suitable as hardscrabble pasture; technological breakthroughs, like cheaper desalination or efficient ways to transmit electricity from unpopulated areas rich with sunlight or wind, could brighten the outlook.
In the past, economic forces spurred solutions. Scarcity of resource led to higher prices, and higher prices eventually led to conservation and innovation. Whale oil was a popular source of lighting in the 19th century. Prices soared in the middle of the century, and people sought other ways to fuel lamps. In 1846, Abraham Gesner began developing kerosene, a cleaner-burning alternative. By the end of the century, whale oil cost less than it did in 1831.
A similar pattern could unfold again. But economic forces alone may not be able to fix the problems this time around. Societies as different as the U.S. and China face stiff political resistance to boosting water prices to encourage efficient use, particularly from farmers. When resources such as water are shared across borders, establishing a pricing framework can be thorny. And in many developing nations, food-subsidy programs make it less likely that rising prices will spur change.
This troubles some economists who used to be skeptical of the premise of "The Limits to Growth." As a young economist 30 years ago, Joseph Stiglitz said flatly: "There is not a persuasive case to be made that we face a problem from the exhaustion of our resources in the short or medium run."
Today, the Nobel laureate is concerned that oil is underpriced relative to the cost of carbon emissions, and that key resources such as water are often provided free. "In the absence of market signals, there's no way the market will solve these problems," he says. "How do we make people who have gotten something for free start paying for it? That's really hard. If our patterns of living, our patterns of consumption are imitated, as others are striving to do, the world probably is not viable."
Dennis Meadows, one of the authors of "The Limits to Growth," says the book was too optimistic in one respect. The authors assumed that if humans stopped harming the environment, it would recover slowly. Today, he says, some climate-change models suggest that once tipping points are passed, environmental catastrophe may be inevitable even "if you quit damaging the environment."
3
Patrick Barta
Resource constraints in fast-growing India are hitting farmers and city-dwellers alike.
One danger is that governments, rather than searching for global solutions to resource constraints, will concentrate on grabbing share.
China has been funding development in Africa, a move some U.S. officials see as a way for it to gain access to timber, oil and other resources. India, once a staunch supporter of the democracy movement in military-run Myanmar, has inked trade agreements with the natural-resource rich country. The U.S., European Union, Russia and China are all vying for the favor of natural-gas-abundant countries in politically unstable Central Asia.
Competition for resources can get ugly. A record drought in the Southeast intensified a dispute between Alabama, Georgia and Florida over water from a federal reservoir outside Atlanta. A long-running fight over rights to the Cauvery River between the Indian states of Karnataka and Tamil Nadu led to 25 deaths in 1991.
Economists Edward Miguel of the University of California at Berkeley and Shanker Satyanath and Ernest Sergenti of New York University have found that declines in rainfall are associated with civil conflict in sub-Saharan Africa. Sierra Leone, for example, which saw a sharp drop in rainfall in 1990, plunged into civil war in 1991.
A Car for Every Household
The rise of China and India already has changed the world economy in lasting ways, from the flows of global capital to the location of manufacturing. But they remain poor societies with growing appetites.
Nagpur in central India once was known as one of the greenest metropolises in the country. Over the past decade, Nagpur, now one of at least 40 Indian cities with more than a million people, has grown to roughly 2.5 million from 1.7 million. Local roads have turned into a mess of honking cars, motorbikes and wandering livestock under a thick soup of foul air.
A local resident takes water from a partially dried-up pond on the outskirts of Yingtan, China. Water shortages have been blamed on global warming, pollution and rising consumption by farmers and cities.
"Sometimes if I see something I like, I just buy it," says Sapan Gajbe, 32 years old, a dentist shopping for an air conditioner at Nagpur's Big Bazaar mall. A month earlier, he bought his first car, a $9,000 Maruti Zen compact.
In 2005, China had 15 passenger cars for every 1,000 people, close to the 13 cars per 1,000 that Japan had in 1963. Today, Japan has 447 passenger cars per 1,000 residents, 57 million in all. If China ever reaches that point, it would have 572 million cars -- 70 million shy of the number of cars in the entire world today.
China consumes 7.9 million barrels of oil a day. The U.S., with less than one quarter as many people, consumes 20.7 million barrels. "Demand will be going up, but it will be constrained by supply," ConocoPhillips Chief Executive Officer James Mulva has told analysts. "I don't think we are going to see the supply going over 100 million barrels a day, and the reason is: Where is all that going to come from?"
Says Harvard economist Jeffrey Frankel: "The idea that we might have to move on to other sources of energy -- you don't have to buy into the Club of Rome agenda for that." The world can adjust to dwindling oil production by becoming more energy efficient and by moving to nuclear, wind and solar power, he says, although such transitions can be slow and costly.
Global Thirst
There are no substitutes for water, no easy alternatives to simple conservation. Despite advances, desalination remains costly and energy intensive. Throughout the world, water is often priced too low. Farmers, the biggest users, pay less than others, if they pay at all.
An underground rail tunnel under construction in New Delhi, India. The nation is adding thousands of miles of rail lines and new roads, along with other infrastructure, using enormous quantities of materials such as steel, copper and aluminum.
In California, the subsidized rates for farmers have become a contentious political issue. Chinese farmers receive water at next to no cost, accounting for 65% of all water used in the country.
In Pondhe, an Indian village of about 1,000 on a barren plateau east of Mumbai, water wasn't a problem until the 1970s, when farmers began using diesel-powered pumps to transport water farther and faster. Local wells used to overflow during the monsoon season, recalls Vasantrao Wagle, who has farmed in the area for four decades. Today, they top off about 10 feet below the surface, and drop even lower during the dry season. "Even when it rains a lot, we aren't getting enough water," he says.
Parched northern China has been drawing down groundwater supplies. In Beijing, water tables have dropped hundreds of feet. In nearby Hebei province, once large Baiyangdian Lake has shrunk, and survives mainly because the government has diverted water into it from the Yellow River.
Climate change is likely to intensify water woes. Shifting weather patterns will be felt "most strongly through changes in the distribution of water around the world and its seasonal and annual variability," according to the British government report on global warming led by Nicholas Stern. Water shortages could be severe in parts Africa, the Middle East, southern Europe and Latin America, the report said.
Feeding the Hungry
China's farmers need water because China needs food. Production of rice, wheat and corn topped out at 441.4 million tons in 1998 and hasn't hit that level since. Sea water has leaked into depleted aquifers in the north, threatening to turn land barren. Illegal seizures of farmland by developers are widespread. The government last year declared that it would not permit arable land to drop below 120 million hectares (296 million acres), and said it would beef up enforcement of land-use rules.
WHERE'S THE WATER?
On Beijing's Outskirts, The Thirst Is Growing4
Many Chinese towns, lacking irrigation systems,
rely on ad-hoc well digging, a practice that is in effect
reducing their ground water levels year by year.
5
Loretta Chao
Well diggers in China are using massive equipment to reach deeper and deeper water supplies.
The farmland squeeze is forcing difficult choices. After disastrous floods in 1998, China started paying some farmers to abandon marginal farmland and plant trees. That "grain-to-green" program was intended to reverse the deforestation and erosion that exacerbated the floods. Last August, the government stopped expanding the program, citing the need for farmland and the cost.
A growing taste for meat and other higher-protein food in the developing world is boosting demand and prices for feed grains. "There are literally hundreds of millions of people...who are making the shift to protein, and competition for food world-wide is a new reality," says William Doyle, chief executive officer of fertilizer-maker Potash Corp. of Saskatchewan.
It takes nearly 10 pounds of grain to produce one pound of pork -- the staple meat in China -- and more than double that to produce a pound of beef, according to Vaclav Smil, a University of Manitoba geographer who studies food, energy and environment trends. The number of calories in the Chinese diet from meat and other animal products has more than doubled since 1990, according to the U.N. Food and Agriculture Organization. But China still lags Taiwan when it comes to per-capita pork consumption. Matching Taiwan would increase China's annual pork consumption by 11 billion pounds -- as much pork as Americans eat in six or seven months.
Searching for Solutions
The 1972 warnings by the Club of Rome -- a nongovernmental think tank now based in Hamburg that brings together academics, business executives, civil servants and politicians to grapple with a wide range of global issues -- struck a chord because they came as oil prices were rising sharply. Oil production in the continental U.S. had peaked, sparking fears that energy demand had outstripped supply. Over time, America became more energy efficient, overseas oil production rose and prices fell.
The dynamic today appears different. So far, the oil industry has failed to find major new sources of crude. Absent major finds, prices are likely to keep rising, unless consumers cut back. Taxes are one way to curb their appetites. In Western Europe and Japan, for example, where gas taxes are higher than in the U.S., per capita consumption is much lower.
New technology could help ease the resource crunch. Advances in agriculture, desalination and the clean production of electricity, among other things, would help.
But Mr. Stiglitz, the economist, contends that consumers eventually will have to change their behavior even more than then did after the 1970s oil shock. He says the world's traditional definitions and measures of economic progress -- based on producing and consuming ever more -- may have to be rethought.
In years past, the U.S., Europe and Japan have proven adept at adjusting to resource constraints. But history is littered with examples of societies believed to have suffered Malthusian crises: the Mayans of Central America, the Anasazi of the U.S. Southwest, and the people of Easter Island.
Those societies, of course, lacked modern science and technology. Still, their inability to overcome resource challenges demonstrates the perils of blithely believing things will work out, says economist James Brander at the University of British Columbia, who has studied Easter Island.
"We need to look seriously at the numbers and say: Look, given what we're consuming now, given what we know about economic incentives, given what we know about price signals, what is actually plausible?" says Mr. Brander.
Indeed, the true lesson of Thomas Malthus, an English economist who died in 1834, isn't that the world is doomed, but that preservation of human life requires analysis and then tough action. Given the history of England, with its plagues and famines, Malthus had good cause to wonder if society was "condemned to a perpetual oscillation between happiness and misery." That he was able to analyze that "perpetual oscillation" set him and his time apart from England's past. And that capacity to understand and respond meant that the world was less Malthusian thereafter.
Write to Justin Lahart at justin.lahart@wsj.com13, Patrick Barta at patrick.barta@wsj.com14 and Andrew Batson at andrew.batson@wsj.com15
Corrections & Amplifications:
China's annual pork consumption would increase by 11 billion pounds if China matched Taiwan's per-capita consumption rate. A previous version of this article incorrectly gave the figure as 11 million pounds.
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Saturday, March 22, 2008
DN: Fed Bails out Banking/Investment Industry, NOT Bear Stearns
Democracy Now
March 20, 2008
Fed Bailout of Bear Stearns First of its Kind Since Great Depression
The nation’s fifth largest investment bank Bear Stearns nearly collapsed last week. It was saved only after the Federal Reserve took extraordinary measures to help JPMorgan purchase the eighty-five-year-old firm. The Fed has become the lender of last resort for other investment banks in a move that marks one of the broadest expansions of the Fed’s lending authority since the 1930s. We speak with Nomi Prins, an author and former investment banker at Bear Stearns, and Max Fraad Wolff, an economist and writer. [includes rush transcript]
Guests:
Nomi Prins, former investment banker turned journalist. She used to run the European analytics group at Bear Stearns. She is the author of two books Other People’s Money: The Corporate Mugging of America and Jacked: How “Conservatives” Are Picking Your Pocket. She is now a Senior Fellow at Demos.
Max Fraad Wolff, economist and writer. He is an instructor at the Graduate Program in International Affairs, New School University. He is a frequent contributor to Huffington Post, Asia Times and the Indypendent.
Rush Transcript
This transcript is available free of charge. However, donations help us provide closed captioning for the deaf and hard of hearing on our TV broadcast. Thank you for your generous contribution.
Donate - $25, $50, $100, More...
Related Links
Nomi Prins: "Ode to Bear, Stearns"
Nomi Prins: "Subprime Lending's Smartest Guys in the Room"
Max Fraad Wolff: "Indebted By Blood"
Max Fraad Wolff: "From Bubble to Rubble: $10 Trillion Home Mortgage Debt Tanks Economy"
AMY GOODMAN: We are seeing some of the worst crises we have seen in decades, whether we’re talking about the economy, whether we’re talking about the war, and those two issues, we’re going to take on today.
JUAN GONZALEZ: Yes, we are. Well, Wall Street and the nation’s economy is in a state of crisis. The nation’s fifth largest investment bank Bear Stearns nearly collapsed last week. It was saved only after the Federal Reserve took extraordinary measures to help JPMorgan purchase the eighty-five-year-old firm.
As part of the deal, the Fed put up $30 billion to guarantee Bear Stearns’s riskiest investments. For the first time ever, the Federal Reserve has become the lender of last resort for other investment banks in an effort to prevent firms from going under. It is a move that marks one of the broadest expansions of the Fed’s lending authority since the 1930s. At least ten investment funds, including the fund Carlyle Capital run by the Carlyle Group, have recently collapsed or been forced to sell assets.
Consumers are feeling the effects of the economic crisis everywhere. Food prices are rising. Gas prices have reached all-time highs. The dollar is weakening. Credit card debt is expanding. Home prices are falling. And foreclosures continue to rise.
AMY GOODMAN: A year ago, Treasury Secretary Henry Paulson predicted the fallout from the subprime mortgage crisis was “largely contained.” But now, Alan Greenspan is admitting the current economic crisis will likely be the most wrenching since the end of the Second World War.
And then, there’s the occupation of Iraq, which has just entered its sixth year. The Nobel Prize-winning economist Joseph Stiglitz projects the war will cost at least $3 trillion.
We’re joined right now by two guests. Nomi Prins is with us. She’s a former investment banker turned journalist. She used to run the European analytics group at Bear Stearns. She is the author of two books: Other People’s Money: The Corporate Mugging of America and Jacked: How “Conservatives” Are Picking Your Pocket. She’s now a senior fellow at the think tank Demos. Max Fraad Wolff is an economist and writer. He is an instructor at the Graduate Program in International Affairs, New School University, here in New York. He’s a frequent contributor to the Huffington Post, Asia Times and The Indypendent.
We welcome you both to Democracy Now! Nomi Prins, this story is personal for you. You worked at Bear Stearns.
NOMI PRINS: Yes, actually, I did. I worked there from 1993 to 2000, so I actually worked there through the emerging market crisis and the Asian crisis and Long-Term Capital Management’s implosion and the start of CDOs, the collateralized debt obligations, that are sort of at the crux of a lot of the hedge fund and credit hedge fund implosions that I believe have had more of an impact on the negative aspects of the economy than the actual level of housing prices. It is a fact that investment banks could leverage and lend and leverage and lend, and so on, to create so much leverage in the market that the market cannot contain it, hence the Fed coming in and actually becoming an investment bank of sorts.
JUAN GONZALEZ: This issue of the CDOs, as you mentioned, these collateralized debt obligations, that really were the underpinning of this increased subprime lending that went on, clearly—we’ve discussed on previous shows that everyone was able to pass the blame onto someone else along the chain from the original broker or the mortgage lender down on the street to the firms on Wall Street. But to what degree is it your sense that those that were packaging these loans knew very well the risky nature of the lending practices that were at the bottom of the scale here at the street level?
NOMI PRINS: It’s not even a question they knew; they actually are predicated on lending practices being risky, because a risky lending practice means that interest rates on a particular lending practice are higher. That means when you package them into CDOs and other types of securities, they look like they have more of a return for investors or hedge funds that then buy them along the way. So there’s a desire for risk in the market.
AMY GOODMAN: What should we understand about Bear Stearns and this bailout?
NOMI PRINS: Two things. One is that this bailout, which is not merely a bailout, it is the Fed acting as an investment banker, as a hedge fund. They are taking $30 billion of risky assets. That’s not merely overstepping, which it also is, the lines between a government body and the public and the banking system; that is taking on additional risks that, instead of admitting should not have been there, should have been regulated away. We should have had not just lending practices, but leverage practices, on Wall Street regulated and transparent and curtailed. It is a way of not having to admit anything and throwing money into a declining economy and an increasing problem in order to look like everything is OK. The statement by Paulson, who used to run Goldman Sachs—it was a large player in the CDO market, after Bear Stearns started it—he is also not taking any blame for the system’s collapse because of its own choice to create these risky assets, to leverage them, to not talk about them, to not describe what is in them and to not show it to the FCC, to the public, to anyone.
JUAN GONZALEZ: I’d like to ask Max Wolff, this issue of government oversight and regulation, people forget now that it was back in the Clinton—in the latter part of the Clinton years that Glass-Steagall was eliminated, and I think Rubin’s last act as—and also a former Goldman Sachs person, right?—his last act before he left the Clinton administration was achieving the end of the Glass-Steagall Act. To what degree did that have an effect on how these kinds of risky investment practices are jumping over into the regular banking system?
MAX FRAAD WOLFF: That’s a great question. I mean, there’s also a debate about whether that was his last act at the Department of Treasury or his first act at Citigroup, because it was Citigroup’s merger that would have been illegal had Glass-Steagall not been repealed.
AMY GOODMAN: Explain Glass-Steagall.
MAX FRAAD WOLFF: Glass-Steagall was a law put in place after the Great Depression that created what they call a firewall or a separation between investment banking and commercial retail banking, the idea being that you want to contain the potential breakout of problems in the financial system so that it can’t spread like wildfire and roughshod across different segments of the industry, more or less like it has across the different segments of the US financial industry in the last, say, ten to twelve months with absolutely devastating results, which is still ongoing. So we can’t sum up the damage done, because each day there’s more damage, a little bit like the war in Iraq. Getting a tally on the damage or cost of Iraq is impossible because it goes up while you’re trying to measure how much it went up the day before, the week before, the month before, the year before. So it’s a bit of a mess.
So, Glass-Steagall is part of an old regulatory framework that has been systematically torn down. The tearing down of that framework has allowed global financial markets to integrate, which has allowed vast savings to pour into the United States, new financial products to be innovated by Wall Street and all kinds of different financial firms, without regulation outside the core of the banking system, which built up and built up and built up and was celebrated and celebrated and celebrated as the efficiency and the genius of the free market, until, of course, with no brakes and no skid marks at the scene of the accident, it hit a brick wall.
The only thing I might add to that is I take a bit of an issue with the description that Bear Stearns was bailed out. Everybody Bear Stearns does business with was bailed out. Bear Stearns was taken out by the Federal Reserve and JPMorgan, which then served Bear Stearns’s still-warm remains to JPMorgan Chase. And they are now devouring them, and it’s being celebrated as a rescue. And for the 30 percent of all shares held by its employees, it is a devastating blow that has taken away retirement plans, hopes for the future, etc., etc. So they bailed out Wall Street—
JUAN GONZALEZ: Very similar to the Enron crisis for the employees who held—
AMY GOODMAN: We have to break. When we come back, I want to ask Nomi about her colleagues at Bear Stearns, those very people that Max is talking about. We are talking about the crisis in the economy today. Max Fraad Wolff, our guest from New School University, and Nomi Prins, former investment banker at Bear Stearns, now journalist. Stay with us.
[break]
AMY GOODMAN: As we look at the economy today, we’re joined by Max Fraad Wolff, economist and writer, a teacher at the Graduate Program at New School University here in New York, also Nomi Prins, author of the book Jacked, as well as Other People’s Money: The Corporate Mugging of America. She is a former investment banker at Bear Stearns, worked there from ’93 to 2000.
Can you talk about what’s happening to the people inside Bear Stearns?
NOMI PRINS: Yeah. I mean to take off also from Max’s point. Inside the firm, for the most part, people have had no control over what has actually happened. They come in, they do their jobs. Like Enron, like WorldCom, like Global Crossing, it’s what they do. So when I was talking to my old friends there and my old colleagues there, I was getting comments like, you know, this is like getting literally punched in the face. This is like—one of the fellows who runs one of the areas said, “You know what? This is literally like having, you know, a child die. It’s like being raped.” It’s all of these things. You know, you leave work on Friday after the stock is down $30, you come in on Monday morning, having heard Sunday that you’re being taken out at $2 a share, and you know. And one of the guys in there who actually kind of was knowing what was going on said, you know, this was the government shutting us down.
So, as Max was saying, a bailout is one way to look at—the Fed bailed part of the banking industry out by shutting down Bear Stearns and coming in there to look like it was saving the day. The reality is, inside the firm, people are having to look for their jobs, people have been losing their retirement as they see their shares go down.
AMY GOODMAN: How many people work there?
NOMI PRINS: There’s 14,000 employees. And some of them say, “Well, we’re interviewing in other places.” You know, places like Goldman Sachs and Morgan Stanley are going to sort of pick up the remains of who’s left. But the reality is, the system is in such a devastating state right now that other firms are not going to pick up a lot of these people. And what they have amassed in retirement and in stock is actually worth very, very little.
And many of these people—I have friends in there who actually were at the Left Forum last weekend. You know, this is not just merely people who have run the company into the ground or taken all of the risk. These are people who go into work every day and really are looking at the fact that something happened around them that they have to deal with, much as with lots of other corporate failures.
JUAN GONZALEZ: And what’s the—looking down the road, what’s the potential expansion of this crisis, because other financial institutions have been talked about of having similar problems, having huge exposures on these CDOs? What’s your sense of what’s going to happen in the future?
NOMI PRINS: The CDO market is a $2 trillion market. The write-downs that have related to subprime loans underlying some of those securities have only amounted to about $120 billion. So when you look at the differentiation between what’s valued and what’s out there, you’re talking about a lot of potential catastrophe to come. And again, no discussion of what happened at the source to deregulate the market such that these things could be created. So there is a lot of downside. And the fact is, the banking system itself, through its own steps and with a lack of regulation, has leveraged itself beyond its capacity to take that risk.
AMY GOODMAN: Max Wolff, what’s going to happen? What should happen?
MAX FRAAD WOLFF: Well, I mean, I think it’s always tough to know exactly what’s going to happen. The way I like to do this in other lectures or my classes is to make the following point: there’s an epidemiology to this. And the discussion so far reminds me of the AIDS as “GAIDS” discussion, where we pathologize early victims as deviants who get some just punishment and pretend that it’s not a sort of pathogen entering a population where the sickest and most vulnerable fall first.
The sickest and most vulnerable people in the US money game are highly indebted, low-income consumers who tend to get subprime loans. In the journal—the mainstream journalist discussion, it sounds like there’s subprime people, like they’re born subprime in a special incubator with some kind of deformity. In fact, that’s a FICO credit score. And the poorest people get hit first and hardest by every economic disruption, because poverty means vulnerability in a market economy. So what we’ve seen in the beginning of a turndown of a long boom, a boom that really began in the early ’80s, is the weakest and most vulnerable with the most debt and the least income, the subprime crowd, hit—got slammed first, and then it sort of moves to the population, as “GAIDS” becomes AIDS becomes recognized.
And so, we’re—I think we’re in the early innings of this, maybe a third of the way through—half, if we’re lucky. Now, that doesn’t mean that the pain will continue to be so localized in finance. It’s already spilling out into the US macroeconomy. It is already an international phenomenon. And it’s heavily falling into retail. I expect severe difficulties in retail soon, and I expect greater difficulties in housing markets, because, actually, although it gets less press than I think it deserves, already 40-plus percent of delinquencies and default issue notices are moving out of the strict subprime market into what’s called Alt-A, Alt-B, and then prime—so, in other words, people between subprime and prime, and then cascading over into prime. We know this is a problem, because ten percent of all US homeowners are what we call “underwater”—they owe more than their house is worth. That’s a pretty serious amount.
And so, I see increasing bailouts with willy-nilly rewriting of federal legislation, which was done in those meetings. The JPMorgan-Federal Reserve meetings with Bear Stearns, in effect, redid American financial regulatory law, bumping an inactive Cox-led SEC out of the way, asserting Federal Reserve control in places and ways that had not been asserted before, and therefore front-running Congress and the presidency, which has been sitting on its hands, which is a little bit like the Glass-Steagall situation.
But now we have the Federal Reserve coming in to basically take out, not bail out, one firm to support all the other firms, immediately making available to them all kinds of access to cash and support they never got before, which, by the way, would have saved Bear Stearns, and in so doing—blasé, private meeting, no transparency—rewriting American financial legislation, while the President tells crazy fictional stories about Iraq and the Congress does fundraising for its next election, and is a byproduct that will be told later, what legislation to pass. I mean, it’s kind of surreal at this point.
AMY GOODMAN: I want to thank you both very much for being with us, Max Fraad Wolff, economist, writer, teaches at the New School University here in New York, writes for The Indypendent and Huffington Post and Asia Times; Nomi Prins, former investment banker at Bear Stearns, has written two books, Other People’s Money: The Corporate Mugging of America and Jacked: How Conservatives Are Picking Your Pocket.
March 20, 2008
Fed Bailout of Bear Stearns First of its Kind Since Great Depression
The nation’s fifth largest investment bank Bear Stearns nearly collapsed last week. It was saved only after the Federal Reserve took extraordinary measures to help JPMorgan purchase the eighty-five-year-old firm. The Fed has become the lender of last resort for other investment banks in a move that marks one of the broadest expansions of the Fed’s lending authority since the 1930s. We speak with Nomi Prins, an author and former investment banker at Bear Stearns, and Max Fraad Wolff, an economist and writer. [includes rush transcript]
Guests:
Nomi Prins, former investment banker turned journalist. She used to run the European analytics group at Bear Stearns. She is the author of two books Other People’s Money: The Corporate Mugging of America and Jacked: How “Conservatives” Are Picking Your Pocket. She is now a Senior Fellow at Demos.
Max Fraad Wolff, economist and writer. He is an instructor at the Graduate Program in International Affairs, New School University. He is a frequent contributor to Huffington Post, Asia Times and the Indypendent.
Rush Transcript
This transcript is available free of charge. However, donations help us provide closed captioning for the deaf and hard of hearing on our TV broadcast. Thank you for your generous contribution.
Donate - $25, $50, $100, More...
Related Links
Nomi Prins: "Ode to Bear, Stearns"
Nomi Prins: "Subprime Lending's Smartest Guys in the Room"
Max Fraad Wolff: "Indebted By Blood"
Max Fraad Wolff: "From Bubble to Rubble: $10 Trillion Home Mortgage Debt Tanks Economy"
AMY GOODMAN: We are seeing some of the worst crises we have seen in decades, whether we’re talking about the economy, whether we’re talking about the war, and those two issues, we’re going to take on today.
JUAN GONZALEZ: Yes, we are. Well, Wall Street and the nation’s economy is in a state of crisis. The nation’s fifth largest investment bank Bear Stearns nearly collapsed last week. It was saved only after the Federal Reserve took extraordinary measures to help JPMorgan purchase the eighty-five-year-old firm.
As part of the deal, the Fed put up $30 billion to guarantee Bear Stearns’s riskiest investments. For the first time ever, the Federal Reserve has become the lender of last resort for other investment banks in an effort to prevent firms from going under. It is a move that marks one of the broadest expansions of the Fed’s lending authority since the 1930s. At least ten investment funds, including the fund Carlyle Capital run by the Carlyle Group, have recently collapsed or been forced to sell assets.
Consumers are feeling the effects of the economic crisis everywhere. Food prices are rising. Gas prices have reached all-time highs. The dollar is weakening. Credit card debt is expanding. Home prices are falling. And foreclosures continue to rise.
AMY GOODMAN: A year ago, Treasury Secretary Henry Paulson predicted the fallout from the subprime mortgage crisis was “largely contained.” But now, Alan Greenspan is admitting the current economic crisis will likely be the most wrenching since the end of the Second World War.
And then, there’s the occupation of Iraq, which has just entered its sixth year. The Nobel Prize-winning economist Joseph Stiglitz projects the war will cost at least $3 trillion.
We’re joined right now by two guests. Nomi Prins is with us. She’s a former investment banker turned journalist. She used to run the European analytics group at Bear Stearns. She is the author of two books: Other People’s Money: The Corporate Mugging of America and Jacked: How “Conservatives” Are Picking Your Pocket. She’s now a senior fellow at the think tank Demos. Max Fraad Wolff is an economist and writer. He is an instructor at the Graduate Program in International Affairs, New School University, here in New York. He’s a frequent contributor to the Huffington Post, Asia Times and The Indypendent.
We welcome you both to Democracy Now! Nomi Prins, this story is personal for you. You worked at Bear Stearns.
NOMI PRINS: Yes, actually, I did. I worked there from 1993 to 2000, so I actually worked there through the emerging market crisis and the Asian crisis and Long-Term Capital Management’s implosion and the start of CDOs, the collateralized debt obligations, that are sort of at the crux of a lot of the hedge fund and credit hedge fund implosions that I believe have had more of an impact on the negative aspects of the economy than the actual level of housing prices. It is a fact that investment banks could leverage and lend and leverage and lend, and so on, to create so much leverage in the market that the market cannot contain it, hence the Fed coming in and actually becoming an investment bank of sorts.
JUAN GONZALEZ: This issue of the CDOs, as you mentioned, these collateralized debt obligations, that really were the underpinning of this increased subprime lending that went on, clearly—we’ve discussed on previous shows that everyone was able to pass the blame onto someone else along the chain from the original broker or the mortgage lender down on the street to the firms on Wall Street. But to what degree is it your sense that those that were packaging these loans knew very well the risky nature of the lending practices that were at the bottom of the scale here at the street level?
NOMI PRINS: It’s not even a question they knew; they actually are predicated on lending practices being risky, because a risky lending practice means that interest rates on a particular lending practice are higher. That means when you package them into CDOs and other types of securities, they look like they have more of a return for investors or hedge funds that then buy them along the way. So there’s a desire for risk in the market.
AMY GOODMAN: What should we understand about Bear Stearns and this bailout?
NOMI PRINS: Two things. One is that this bailout, which is not merely a bailout, it is the Fed acting as an investment banker, as a hedge fund. They are taking $30 billion of risky assets. That’s not merely overstepping, which it also is, the lines between a government body and the public and the banking system; that is taking on additional risks that, instead of admitting should not have been there, should have been regulated away. We should have had not just lending practices, but leverage practices, on Wall Street regulated and transparent and curtailed. It is a way of not having to admit anything and throwing money into a declining economy and an increasing problem in order to look like everything is OK. The statement by Paulson, who used to run Goldman Sachs—it was a large player in the CDO market, after Bear Stearns started it—he is also not taking any blame for the system’s collapse because of its own choice to create these risky assets, to leverage them, to not talk about them, to not describe what is in them and to not show it to the FCC, to the public, to anyone.
JUAN GONZALEZ: I’d like to ask Max Wolff, this issue of government oversight and regulation, people forget now that it was back in the Clinton—in the latter part of the Clinton years that Glass-Steagall was eliminated, and I think Rubin’s last act as—and also a former Goldman Sachs person, right?—his last act before he left the Clinton administration was achieving the end of the Glass-Steagall Act. To what degree did that have an effect on how these kinds of risky investment practices are jumping over into the regular banking system?
MAX FRAAD WOLFF: That’s a great question. I mean, there’s also a debate about whether that was his last act at the Department of Treasury or his first act at Citigroup, because it was Citigroup’s merger that would have been illegal had Glass-Steagall not been repealed.
AMY GOODMAN: Explain Glass-Steagall.
MAX FRAAD WOLFF: Glass-Steagall was a law put in place after the Great Depression that created what they call a firewall or a separation between investment banking and commercial retail banking, the idea being that you want to contain the potential breakout of problems in the financial system so that it can’t spread like wildfire and roughshod across different segments of the industry, more or less like it has across the different segments of the US financial industry in the last, say, ten to twelve months with absolutely devastating results, which is still ongoing. So we can’t sum up the damage done, because each day there’s more damage, a little bit like the war in Iraq. Getting a tally on the damage or cost of Iraq is impossible because it goes up while you’re trying to measure how much it went up the day before, the week before, the month before, the year before. So it’s a bit of a mess.
So, Glass-Steagall is part of an old regulatory framework that has been systematically torn down. The tearing down of that framework has allowed global financial markets to integrate, which has allowed vast savings to pour into the United States, new financial products to be innovated by Wall Street and all kinds of different financial firms, without regulation outside the core of the banking system, which built up and built up and built up and was celebrated and celebrated and celebrated as the efficiency and the genius of the free market, until, of course, with no brakes and no skid marks at the scene of the accident, it hit a brick wall.
The only thing I might add to that is I take a bit of an issue with the description that Bear Stearns was bailed out. Everybody Bear Stearns does business with was bailed out. Bear Stearns was taken out by the Federal Reserve and JPMorgan, which then served Bear Stearns’s still-warm remains to JPMorgan Chase. And they are now devouring them, and it’s being celebrated as a rescue. And for the 30 percent of all shares held by its employees, it is a devastating blow that has taken away retirement plans, hopes for the future, etc., etc. So they bailed out Wall Street—
JUAN GONZALEZ: Very similar to the Enron crisis for the employees who held—
AMY GOODMAN: We have to break. When we come back, I want to ask Nomi about her colleagues at Bear Stearns, those very people that Max is talking about. We are talking about the crisis in the economy today. Max Fraad Wolff, our guest from New School University, and Nomi Prins, former investment banker at Bear Stearns, now journalist. Stay with us.
[break]
AMY GOODMAN: As we look at the economy today, we’re joined by Max Fraad Wolff, economist and writer, a teacher at the Graduate Program at New School University here in New York, also Nomi Prins, author of the book Jacked, as well as Other People’s Money: The Corporate Mugging of America. She is a former investment banker at Bear Stearns, worked there from ’93 to 2000.
Can you talk about what’s happening to the people inside Bear Stearns?
NOMI PRINS: Yeah. I mean to take off also from Max’s point. Inside the firm, for the most part, people have had no control over what has actually happened. They come in, they do their jobs. Like Enron, like WorldCom, like Global Crossing, it’s what they do. So when I was talking to my old friends there and my old colleagues there, I was getting comments like, you know, this is like getting literally punched in the face. This is like—one of the fellows who runs one of the areas said, “You know what? This is literally like having, you know, a child die. It’s like being raped.” It’s all of these things. You know, you leave work on Friday after the stock is down $30, you come in on Monday morning, having heard Sunday that you’re being taken out at $2 a share, and you know. And one of the guys in there who actually kind of was knowing what was going on said, you know, this was the government shutting us down.
So, as Max was saying, a bailout is one way to look at—the Fed bailed part of the banking industry out by shutting down Bear Stearns and coming in there to look like it was saving the day. The reality is, inside the firm, people are having to look for their jobs, people have been losing their retirement as they see their shares go down.
AMY GOODMAN: How many people work there?
NOMI PRINS: There’s 14,000 employees. And some of them say, “Well, we’re interviewing in other places.” You know, places like Goldman Sachs and Morgan Stanley are going to sort of pick up the remains of who’s left. But the reality is, the system is in such a devastating state right now that other firms are not going to pick up a lot of these people. And what they have amassed in retirement and in stock is actually worth very, very little.
And many of these people—I have friends in there who actually were at the Left Forum last weekend. You know, this is not just merely people who have run the company into the ground or taken all of the risk. These are people who go into work every day and really are looking at the fact that something happened around them that they have to deal with, much as with lots of other corporate failures.
JUAN GONZALEZ: And what’s the—looking down the road, what’s the potential expansion of this crisis, because other financial institutions have been talked about of having similar problems, having huge exposures on these CDOs? What’s your sense of what’s going to happen in the future?
NOMI PRINS: The CDO market is a $2 trillion market. The write-downs that have related to subprime loans underlying some of those securities have only amounted to about $120 billion. So when you look at the differentiation between what’s valued and what’s out there, you’re talking about a lot of potential catastrophe to come. And again, no discussion of what happened at the source to deregulate the market such that these things could be created. So there is a lot of downside. And the fact is, the banking system itself, through its own steps and with a lack of regulation, has leveraged itself beyond its capacity to take that risk.
AMY GOODMAN: Max Wolff, what’s going to happen? What should happen?
MAX FRAAD WOLFF: Well, I mean, I think it’s always tough to know exactly what’s going to happen. The way I like to do this in other lectures or my classes is to make the following point: there’s an epidemiology to this. And the discussion so far reminds me of the AIDS as “GAIDS” discussion, where we pathologize early victims as deviants who get some just punishment and pretend that it’s not a sort of pathogen entering a population where the sickest and most vulnerable fall first.
The sickest and most vulnerable people in the US money game are highly indebted, low-income consumers who tend to get subprime loans. In the journal—the mainstream journalist discussion, it sounds like there’s subprime people, like they’re born subprime in a special incubator with some kind of deformity. In fact, that’s a FICO credit score. And the poorest people get hit first and hardest by every economic disruption, because poverty means vulnerability in a market economy. So what we’ve seen in the beginning of a turndown of a long boom, a boom that really began in the early ’80s, is the weakest and most vulnerable with the most debt and the least income, the subprime crowd, hit—got slammed first, and then it sort of moves to the population, as “GAIDS” becomes AIDS becomes recognized.
And so, we’re—I think we’re in the early innings of this, maybe a third of the way through—half, if we’re lucky. Now, that doesn’t mean that the pain will continue to be so localized in finance. It’s already spilling out into the US macroeconomy. It is already an international phenomenon. And it’s heavily falling into retail. I expect severe difficulties in retail soon, and I expect greater difficulties in housing markets, because, actually, although it gets less press than I think it deserves, already 40-plus percent of delinquencies and default issue notices are moving out of the strict subprime market into what’s called Alt-A, Alt-B, and then prime—so, in other words, people between subprime and prime, and then cascading over into prime. We know this is a problem, because ten percent of all US homeowners are what we call “underwater”—they owe more than their house is worth. That’s a pretty serious amount.
And so, I see increasing bailouts with willy-nilly rewriting of federal legislation, which was done in those meetings. The JPMorgan-Federal Reserve meetings with Bear Stearns, in effect, redid American financial regulatory law, bumping an inactive Cox-led SEC out of the way, asserting Federal Reserve control in places and ways that had not been asserted before, and therefore front-running Congress and the presidency, which has been sitting on its hands, which is a little bit like the Glass-Steagall situation.
But now we have the Federal Reserve coming in to basically take out, not bail out, one firm to support all the other firms, immediately making available to them all kinds of access to cash and support they never got before, which, by the way, would have saved Bear Stearns, and in so doing—blasé, private meeting, no transparency—rewriting American financial legislation, while the President tells crazy fictional stories about Iraq and the Congress does fundraising for its next election, and is a byproduct that will be told later, what legislation to pass. I mean, it’s kind of surreal at this point.
AMY GOODMAN: I want to thank you both very much for being with us, Max Fraad Wolff, economist, writer, teaches at the New School University here in New York, writes for The Indypendent and Huffington Post and Asia Times; Nomi Prins, former investment banker at Bear Stearns, has written two books, Other People’s Money: The Corporate Mugging of America and Jacked: How Conservatives Are Picking Your Pocket.
Elliott Abrams assualt on Palestinians, Arabs & Muslims
from
Elliott Abrams' Uncivil war
MARK PERRY and ALISTAIR CROOKE
Conflicts Forum, 7 January 2007 www.fromoccupiedpalestine.org
Is the Bush administration violating the law in an effort to provoke a Palestinian civil war?
Deputy National Security Advisor, Elliott Abrams — who Newsweek recently described as “the last neocon standing” — has had it about for some months now that the U.S. is not only not interested in dealing with Hamas, it is working to ensure its failure. In the immediate aftermath of the Hamas elections, last January, Abrams greeted a group of Palestinian businessmen in his White House office with talk of a “hard coup” against the newly-elected Hamas government — the violent overthrow of their leadership with arms supplied by the United States. While the businessmen were shocked, Abrams was adamant — the U.S. had to support Fatah with guns, ammunition and training, so that they could fight Hamas for control of the Palestinian government.
While those closest to him now concede the Abrams’ words were issued in a moment of frustration, the “hard coup” talk was hardly just talk. Over the last twelve months, the United States has supplied guns, ammunition and training to Palestinian Fatah activists to take on Hamas in the streets of Gaza and the West Bank. A large number of Fatah activists have been trained and “graduated” from two camps — one in Ramallah and one in Jericho. The supplies of rifles and ammunition, which started as a mere trickle, has now become a torrent (Haaretz reports the U.S. has designated an astounding $86.4 million for Abu Mazen’s security detail), and while the program has gone largely without notice in the American press, it is openly talked about and commented on in the Arab media — and in Israel. Thousands of rifles and bullets have been poring into Gaza and the West Bank from Egypt and Jordan, the administration’s designated allies in the program.
***
From:
A CounterPunch Special Report
Thoughts on the Attempted Murder of Palestine
The Siren Song of Elliott Abrams
By KATHLEEN CHRISTISON
Former CIA analyst
http://www.counterpunch.org/christison07262007.html
"Coup" is the word being widely used to describe what happened in Gaza in June when Hamas militias defeated the armed security forces of Fatah and chased them out of Gaza. But, as so often with the manipulative language used in the conflict between the Palestinians and Israel, the terminology here is backward. Hamas was the legally constituted, democratically elected government of the Palestinians, so in the first place Hamas did not stage a coup but rather was the target of a coup planned against it. Furthermore, the coup -- which failed in Gaza but succeeded overall when Palestinian Authority President Mahmoud Abbas, acting in violation of Palestinian law, cut Gaza adrift, unseated the Palestinian unity government headed by Hamas, and named a new prime minister and cabinet -- was the handiwork of the United States and Israel.
The Fatah attacks against Hamas in Gaza were initiated at the whim of, and with arms and training provided by, the United States and Israel. No one seems to be making any secret of this. Immediately after Hamas won legislative elections in January 2006, Elliott Abrams, who runs U.S. policy toward Israel from his senior position on the National Security Council staff, met with a group of Palestinian businessmen and spoke openly of the need for a "hard coup" against Hamas. According to Palestinians who were there, Abrams was "unshakable" in his determination to oust Hamas. When the Palestinians, urging engagement with Hamas instead of confrontation, observed that Abrams' scheme would bring more suffering and even starvation to Gaza's already impoverished population, Abrams dismissed their concerns by claiming that it wouldn't be the fault of the U.S. if that happened.
Abrams has been working on his coup plan ever since with his friends in Israel. As part of this scheme, the U.S. also urged Abbas -- again making no secret of this -- to dissolve the Fatah-Hamas unity government formed in March this year, form a new government, and call for new elections. Abbas acceded to U.S. demands with embarrassing alacrity after Hamas took Gaza. In a further gratuitous turn of the screw, he has appealed to Israel to turn up the heat on Hamas in Gaza by stopping delivery of fuel to Gaza's power plant and keeping the Rafah border crossing point from Egypt closed so that none of the thousands of Palestinian waiting at the border to return home will be able to enter.
Elliott Abrams' Uncivil war
MARK PERRY and ALISTAIR CROOKE
Conflicts Forum, 7 January 2007 www.fromoccupiedpalestine.org
Is the Bush administration violating the law in an effort to provoke a Palestinian civil war?
Deputy National Security Advisor, Elliott Abrams — who Newsweek recently described as “the last neocon standing” — has had it about for some months now that the U.S. is not only not interested in dealing with Hamas, it is working to ensure its failure. In the immediate aftermath of the Hamas elections, last January, Abrams greeted a group of Palestinian businessmen in his White House office with talk of a “hard coup” against the newly-elected Hamas government — the violent overthrow of their leadership with arms supplied by the United States. While the businessmen were shocked, Abrams was adamant — the U.S. had to support Fatah with guns, ammunition and training, so that they could fight Hamas for control of the Palestinian government.
While those closest to him now concede the Abrams’ words were issued in a moment of frustration, the “hard coup” talk was hardly just talk. Over the last twelve months, the United States has supplied guns, ammunition and training to Palestinian Fatah activists to take on Hamas in the streets of Gaza and the West Bank. A large number of Fatah activists have been trained and “graduated” from two camps — one in Ramallah and one in Jericho. The supplies of rifles and ammunition, which started as a mere trickle, has now become a torrent (Haaretz reports the U.S. has designated an astounding $86.4 million for Abu Mazen’s security detail), and while the program has gone largely without notice in the American press, it is openly talked about and commented on in the Arab media — and in Israel. Thousands of rifles and bullets have been poring into Gaza and the West Bank from Egypt and Jordan, the administration’s designated allies in the program.
***
From:
A CounterPunch Special Report
Thoughts on the Attempted Murder of Palestine
The Siren Song of Elliott Abrams
By KATHLEEN CHRISTISON
Former CIA analyst
http://www.counterpunch.org/christison07262007.html
"Coup" is the word being widely used to describe what happened in Gaza in June when Hamas militias defeated the armed security forces of Fatah and chased them out of Gaza. But, as so often with the manipulative language used in the conflict between the Palestinians and Israel, the terminology here is backward. Hamas was the legally constituted, democratically elected government of the Palestinians, so in the first place Hamas did not stage a coup but rather was the target of a coup planned against it. Furthermore, the coup -- which failed in Gaza but succeeded overall when Palestinian Authority President Mahmoud Abbas, acting in violation of Palestinian law, cut Gaza adrift, unseated the Palestinian unity government headed by Hamas, and named a new prime minister and cabinet -- was the handiwork of the United States and Israel.
The Fatah attacks against Hamas in Gaza were initiated at the whim of, and with arms and training provided by, the United States and Israel. No one seems to be making any secret of this. Immediately after Hamas won legislative elections in January 2006, Elliott Abrams, who runs U.S. policy toward Israel from his senior position on the National Security Council staff, met with a group of Palestinian businessmen and spoke openly of the need for a "hard coup" against Hamas. According to Palestinians who were there, Abrams was "unshakable" in his determination to oust Hamas. When the Palestinians, urging engagement with Hamas instead of confrontation, observed that Abrams' scheme would bring more suffering and even starvation to Gaza's already impoverished population, Abrams dismissed their concerns by claiming that it wouldn't be the fault of the U.S. if that happened.
Abrams has been working on his coup plan ever since with his friends in Israel. As part of this scheme, the U.S. also urged Abbas -- again making no secret of this -- to dissolve the Fatah-Hamas unity government formed in March this year, form a new government, and call for new elections. Abbas acceded to U.S. demands with embarrassing alacrity after Hamas took Gaza. In a further gratuitous turn of the screw, he has appealed to Israel to turn up the heat on Hamas in Gaza by stopping delivery of fuel to Gaza's power plant and keeping the Rafah border crossing point from Egypt closed so that none of the thousands of Palestinian waiting at the border to return home will be able to enter.
Monday, March 17, 2008
Paul Craig Roberts: How to End the Subprime Crisis
Here's Roberts' last line:
However, greed and ideology won over sound advice. The result is a crisis that, if mishandled, will be calamitous.
Since Bush and Cheney want calamity in the US as they want it in Iraq, and everywhere else, they will run far and fast from any remedy to the crisis. In this case, they don't have to run. All they have to do is to do what they are now doing, nothing; and to sit on any positive movement or ideas.
March 11, 2008
How to End the Subprime Crisis
www.counterpunch.org
By PAUL CRAIG ROBERTS
Reforms often do more harm than good. This is currently the case with the “mark-to-market” rule, which is imploding the US financial system by requiring financial institutions to value subprime mortgages at their current market values.
This makes a big problem for balance sheets. These financial instruments became troubled prior to a market being established for them, as they were marketed direct from issuers to investors. Now that they are troubled and with their true values unknown, no one wants them. Their lack of liquidity assigns them a low value.
The result is tremendous pressure on balance sheets. The plummeting value of subprime derivatives is pushing institutions that own them into insolvency, destroying their own stock values and forcing the financial institutions to sell untroubled liquid assets, thus resulting in an overall decline in the stock market.
The solution is to suspend the mark-to-market rule. Instead, allow financial institutions to keep the troubled instruments at book value, or 85-90% of book value, until a market forms that can sort out values, and allow financial institutions to write down the subprime mortgages and other troubled instruments over time.
Suspending the mark-to-market rule would take pressure off the stock market and make it unnecessary for the Fed to lower interest rates in an effort to force liquidity into the economy through an impaired banking system. The problem is not a general lack of liquidity, but liquidity for poorly conceived new financial instruments. Low US interest rates could worsen the crisis by accelerating the dollar’s decline. Now that inflation has raised its head, more liquidity from the Fed adds to the economic distress.
It is mindless to allow a “reform” to cause a financial crisis, but that is what is happening. Unfortunately, there are people who argue that anything less than financial armageddon would create a “moral hazard.”
It is certainly true that securitized subprime mortgage instruments were a bad idea, that a lot of people who should have known better opened floodgates to greed and fraud, and that “somebody should pay.” But it shouldn’t be the general public and the economy that pays.
It is also true that without the Federal Reserve’s irresponsible low interest rate monetary policy, which produced a housing boom, the subprime instruments would not have been created, or at least not in such amounts. Rapidly rising real estate prices were expected to make the risky loans good. What were issuers and the Federal Reserve thinking?
No doubt but that greed, fraud, and bad policy all played their roles. But at the heart of the problem is a 1999 “reform” that repealed an earlier reform known as the Glass-Steagall Act.
In 1933 the Glass-Steagall Act separated commercial banking from the securities business. It prevented securities speculation from destroying bank capital and shrinking bank deposits from bank failures and runs on banks by depositors. Congress and President Bill Clinton foolishly repealed the Glass-Steagall Act in 1999.
The repeal of the 1933 law was driven by profit lust in the banking industry and by “free market” ideology, which claims the unfettered marketplace is always superior to regulation. In pushing the repeal forward, Congress and Clinton ignored warnings from the General Accounting Office that the banks needed to build up their capital levels before being permitted to enter a broad range of securities businesses. The GAO also noted that there were no regulatory structures in place to monitor the new financial networks that would result from removing the wall between commercial and investment banking.
However, greed and ideology won over sound advice. The result is a crisis that, if mishandled, will be calamitous.
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com
However, greed and ideology won over sound advice. The result is a crisis that, if mishandled, will be calamitous.
Since Bush and Cheney want calamity in the US as they want it in Iraq, and everywhere else, they will run far and fast from any remedy to the crisis. In this case, they don't have to run. All they have to do is to do what they are now doing, nothing; and to sit on any positive movement or ideas.
March 11, 2008
How to End the Subprime Crisis
www.counterpunch.org
By PAUL CRAIG ROBERTS
Reforms often do more harm than good. This is currently the case with the “mark-to-market” rule, which is imploding the US financial system by requiring financial institutions to value subprime mortgages at their current market values.
This makes a big problem for balance sheets. These financial instruments became troubled prior to a market being established for them, as they were marketed direct from issuers to investors. Now that they are troubled and with their true values unknown, no one wants them. Their lack of liquidity assigns them a low value.
The result is tremendous pressure on balance sheets. The plummeting value of subprime derivatives is pushing institutions that own them into insolvency, destroying their own stock values and forcing the financial institutions to sell untroubled liquid assets, thus resulting in an overall decline in the stock market.
The solution is to suspend the mark-to-market rule. Instead, allow financial institutions to keep the troubled instruments at book value, or 85-90% of book value, until a market forms that can sort out values, and allow financial institutions to write down the subprime mortgages and other troubled instruments over time.
Suspending the mark-to-market rule would take pressure off the stock market and make it unnecessary for the Fed to lower interest rates in an effort to force liquidity into the economy through an impaired banking system. The problem is not a general lack of liquidity, but liquidity for poorly conceived new financial instruments. Low US interest rates could worsen the crisis by accelerating the dollar’s decline. Now that inflation has raised its head, more liquidity from the Fed adds to the economic distress.
It is mindless to allow a “reform” to cause a financial crisis, but that is what is happening. Unfortunately, there are people who argue that anything less than financial armageddon would create a “moral hazard.”
It is certainly true that securitized subprime mortgage instruments were a bad idea, that a lot of people who should have known better opened floodgates to greed and fraud, and that “somebody should pay.” But it shouldn’t be the general public and the economy that pays.
It is also true that without the Federal Reserve’s irresponsible low interest rate monetary policy, which produced a housing boom, the subprime instruments would not have been created, or at least not in such amounts. Rapidly rising real estate prices were expected to make the risky loans good. What were issuers and the Federal Reserve thinking?
No doubt but that greed, fraud, and bad policy all played their roles. But at the heart of the problem is a 1999 “reform” that repealed an earlier reform known as the Glass-Steagall Act.
In 1933 the Glass-Steagall Act separated commercial banking from the securities business. It prevented securities speculation from destroying bank capital and shrinking bank deposits from bank failures and runs on banks by depositors. Congress and President Bill Clinton foolishly repealed the Glass-Steagall Act in 1999.
The repeal of the 1933 law was driven by profit lust in the banking industry and by “free market” ideology, which claims the unfettered marketplace is always superior to regulation. In pushing the repeal forward, Congress and Clinton ignored warnings from the General Accounting Office that the banks needed to build up their capital levels before being permitted to enter a broad range of securities businesses. The GAO also noted that there were no regulatory structures in place to monitor the new financial networks that would result from removing the wall between commercial and investment banking.
However, greed and ideology won over sound advice. The result is a crisis that, if mishandled, will be calamitous.
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com
Robert Parry: Did Hillary Clinton fabricate her role in the S-Chip Program?
consortiumnews.com
http://www.consortiumnews.com/Print/2008/031608b.html
Clinton's Child-Health Hype
By Robert Parry
March 17, 2008
A centerpiece of Hillary Clinton’s case for her candidacy – that she rebounded from the disaster of her health-care plan in 1994 to help enact a popular state-by-state program for children’s health insurance three years later – looks to be largely a fabrication.
At most, Clinton appears to have been a quiet supporter within her husband’s White House for the so-called S-CHIP program, which was fashioned through bipartisan compromise in the U.S. Senate against initial Clinton administration opposition.
Nevertheless, in debates and speeches over the past several months, Clinton has presented her S-CHIP role as proof of her key argument that the way to achieve progress in Washington is through hard work and determination.
“You know, when I wasn’t successful about getting universal health care, I didn’t give up,” Clinton said during the Feb. 26 debate in Ohio. “I just got to work and helped to create the Children’s Health Insurance Program. And, you know, today in Ohio 140,000 kids have health insurance.”
In speeches, Clinton alters her references to the S-CHIP program to cite the number of children covered in whatever state she’s in. Her story often receives warm applause and the nodding of heads. Sometimes, mothers of sick children are brought to Clinton’s campaign appearances to thank her.
However, according to people familiar with the history of the S-CHIP program, Clinton’s account is essentially false or – at least – a gross exaggeration.
In her memoir, Living History, the S-CHIP law merited only a brief reference at the end of a long paragraph in which she asserts, “I worked behind the scenes with Senator [Ted] Kennedy to help create the Children’s Health Insurance Program.”
However, according to a Boston Globe examination of the program’s history, Clinton “had little to do with crafting the landmark legislation or ushering it through Congress.” The Globe article by Susan Milligan quoted key participants in the law’s passage as having little or no recollection of any legislative role by the then-First Lady.
“The [Clinton] White House wasn’t for it,” said Sen. Orrin Hatch, R-Utah, who worked with Sen. Kennedy, D-Massachusetts, to write the law and to win passage. “We really had to rough them [President Bill Clinton and his advisers] up. … She may have done some advocacy [privately] over at the White House. But I’m not aware of it.”
President Clinton fought the original S-CHIP plan in 1997 because he feared it might disrupt a budget deal he was crafting with Republican leaders who then controlled Congress. However, Kennedy – recruiting Hatch and other Republicans – managed to forge a bipartisan consensus behind the bill, which passed later that year.
Asked by the Globe about Hillary Clinton’s role, Hatch responded: “Does she deserve credit for S-CHIP? No, Teddy does, but she doesn’t.”
Bay State Plan
The Globe reported that Kennedy patterned the S-CHIP plan after a Massachusetts program that started in 1996. Kennedy met with two Bay State health-care advocates, Dr. Barry Zuckerman of Boston Medical Center and John McDonough, then a Democratic state legislator.
McDonough said Kennedy developed the national S-CHIP concept after that meeting.
“I don’t recall any signs of Mrs. Clinton’s engagement,” said McDonough, who has not endorsed a presidential candidate. “I’m sure she was behind the scenes, engaged in lobbying, but it is demonstrably not the case” that she was a driving force behind the bill.
Rep. Henry Waxman, a California Democrat who was then the ranking Democrat on the House Energy and Commerce Committee that handles health legislation, also had no recollection of Hillary Clinton weighing in.
“I don’t remember the role of the [Clinton] White House,” said Waxman, who is uncommitted on this year’s presidential race. “It [the S-CHIP bill] did not originate at the White House.”
In response to the Globe’s inquiries, Clinton campaign advisers did not spell out what Clinton did to enact the law, but one aide, Chris Jennings, said “at every step of the way, she was always pushing” for expanded healthcare for children.
The Clinton campaign also suggested that politics might be influencing the questions about Clinton’s S-CHIP role, since Sen. Kennedy has endorsed Barack Obama and Sen. Hatch is supporting John McCain, the presumptive Republican nominee. [Boston Globe, March 14, 2008]
Still, while it’s common for politicians to highlight their roles in passing popular legislation, Sen. Clinton has woven the enactment of S-CHIP as a central thread in her campaign narrative. It explains how she would govern and why voters should embrace her vision that pluck and hard work can conquer all.
In Clinton’s narrative, she picked herself up from her failed health-care plan, learned some lessons, and then pushed through a slimmed-down measure (S-CHIP) that has produced important results for millions of American families.
If that story is essentially false, then she is misleading voters not only on her credentials as a bipartisan crafter of legislation but on her notion that she can bring about change through her burn-the-midnight-oil tenacity.
Barack Obama has offered a competing vision, that his ability to rally public enthusiasm for change – and his distance from the bitter partisanship of the Clinton Years – will let him transcend Washington’s divisions and achieve real progress on domestic priorities.
Though there may be merit to both approaches, neither Democratic candidate has articulated what may be the most important element in overcoming Republican resistance – winning a landslide that carries in large Democratic majorities in the House and Senate.
However, the likelihood that either Obama or Clinton will have the “coattails” needed to achieve a filibuster-proof Senate or a dominant House majority has faded over the past several weeks with the length and negativity of the Democratic nominating race.
The disclosure that Hillary Clinton hyped her role in passing the S-CHIP law is only going to raise new doubts about the honesty and integrity of the onetime Democratic frontrunner.
Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book, Neck Deep: The Disastrous Presidency of George W. Bush, was written with two of his sons, Sam and Nat, and can be ordered at neckdeepbook.com. His two previous books, Secrecy & Privilege: The Rise of the Bush Dynasty from Watergate to Iraq and Lost History: Contras, Cocaine, the Press & 'Project Truth' are also available there. Or go to Amazon.com.
http://www.consortiumnews.com/Print/2008/031608b.html
Clinton's Child-Health Hype
By Robert Parry
March 17, 2008
A centerpiece of Hillary Clinton’s case for her candidacy – that she rebounded from the disaster of her health-care plan in 1994 to help enact a popular state-by-state program for children’s health insurance three years later – looks to be largely a fabrication.
At most, Clinton appears to have been a quiet supporter within her husband’s White House for the so-called S-CHIP program, which was fashioned through bipartisan compromise in the U.S. Senate against initial Clinton administration opposition.
Nevertheless, in debates and speeches over the past several months, Clinton has presented her S-CHIP role as proof of her key argument that the way to achieve progress in Washington is through hard work and determination.
“You know, when I wasn’t successful about getting universal health care, I didn’t give up,” Clinton said during the Feb. 26 debate in Ohio. “I just got to work and helped to create the Children’s Health Insurance Program. And, you know, today in Ohio 140,000 kids have health insurance.”
In speeches, Clinton alters her references to the S-CHIP program to cite the number of children covered in whatever state she’s in. Her story often receives warm applause and the nodding of heads. Sometimes, mothers of sick children are brought to Clinton’s campaign appearances to thank her.
However, according to people familiar with the history of the S-CHIP program, Clinton’s account is essentially false or – at least – a gross exaggeration.
In her memoir, Living History, the S-CHIP law merited only a brief reference at the end of a long paragraph in which she asserts, “I worked behind the scenes with Senator [Ted] Kennedy to help create the Children’s Health Insurance Program.”
However, according to a Boston Globe examination of the program’s history, Clinton “had little to do with crafting the landmark legislation or ushering it through Congress.” The Globe article by Susan Milligan quoted key participants in the law’s passage as having little or no recollection of any legislative role by the then-First Lady.
“The [Clinton] White House wasn’t for it,” said Sen. Orrin Hatch, R-Utah, who worked with Sen. Kennedy, D-Massachusetts, to write the law and to win passage. “We really had to rough them [President Bill Clinton and his advisers] up. … She may have done some advocacy [privately] over at the White House. But I’m not aware of it.”
President Clinton fought the original S-CHIP plan in 1997 because he feared it might disrupt a budget deal he was crafting with Republican leaders who then controlled Congress. However, Kennedy – recruiting Hatch and other Republicans – managed to forge a bipartisan consensus behind the bill, which passed later that year.
Asked by the Globe about Hillary Clinton’s role, Hatch responded: “Does she deserve credit for S-CHIP? No, Teddy does, but she doesn’t.”
Bay State Plan
The Globe reported that Kennedy patterned the S-CHIP plan after a Massachusetts program that started in 1996. Kennedy met with two Bay State health-care advocates, Dr. Barry Zuckerman of Boston Medical Center and John McDonough, then a Democratic state legislator.
McDonough said Kennedy developed the national S-CHIP concept after that meeting.
“I don’t recall any signs of Mrs. Clinton’s engagement,” said McDonough, who has not endorsed a presidential candidate. “I’m sure she was behind the scenes, engaged in lobbying, but it is demonstrably not the case” that she was a driving force behind the bill.
Rep. Henry Waxman, a California Democrat who was then the ranking Democrat on the House Energy and Commerce Committee that handles health legislation, also had no recollection of Hillary Clinton weighing in.
“I don’t remember the role of the [Clinton] White House,” said Waxman, who is uncommitted on this year’s presidential race. “It [the S-CHIP bill] did not originate at the White House.”
In response to the Globe’s inquiries, Clinton campaign advisers did not spell out what Clinton did to enact the law, but one aide, Chris Jennings, said “at every step of the way, she was always pushing” for expanded healthcare for children.
The Clinton campaign also suggested that politics might be influencing the questions about Clinton’s S-CHIP role, since Sen. Kennedy has endorsed Barack Obama and Sen. Hatch is supporting John McCain, the presumptive Republican nominee. [Boston Globe, March 14, 2008]
Still, while it’s common for politicians to highlight their roles in passing popular legislation, Sen. Clinton has woven the enactment of S-CHIP as a central thread in her campaign narrative. It explains how she would govern and why voters should embrace her vision that pluck and hard work can conquer all.
In Clinton’s narrative, she picked herself up from her failed health-care plan, learned some lessons, and then pushed through a slimmed-down measure (S-CHIP) that has produced important results for millions of American families.
If that story is essentially false, then she is misleading voters not only on her credentials as a bipartisan crafter of legislation but on her notion that she can bring about change through her burn-the-midnight-oil tenacity.
Barack Obama has offered a competing vision, that his ability to rally public enthusiasm for change – and his distance from the bitter partisanship of the Clinton Years – will let him transcend Washington’s divisions and achieve real progress on domestic priorities.
Though there may be merit to both approaches, neither Democratic candidate has articulated what may be the most important element in overcoming Republican resistance – winning a landslide that carries in large Democratic majorities in the House and Senate.
However, the likelihood that either Obama or Clinton will have the “coattails” needed to achieve a filibuster-proof Senate or a dominant House majority has faded over the past several weeks with the length and negativity of the Democratic nominating race.
The disclosure that Hillary Clinton hyped her role in passing the S-CHIP law is only going to raise new doubts about the honesty and integrity of the onetime Democratic frontrunner.
Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book, Neck Deep: The Disastrous Presidency of George W. Bush, was written with two of his sons, Sam and Nat, and can be ordered at neckdeepbook.com. His two previous books, Secrecy & Privilege: The Rise of the Bush Dynasty from Watergate to Iraq and Lost History: Contras, Cocaine, the Press & 'Project Truth' are also available there. Or go to Amazon.com.
Friday, March 14, 2008
Xymphora: Hillary and the race card
Hillary trying to ensure a McCain victory. Even Hillary's not that powerful. If she were , she'd have more effective means, such as election fraud which she's benefited from in at least two states, NY and NH, that I'm aware of. (She probably won NY but certainly not by the official margin. See the NYT article and my forthcoming blog.) --RB
http://xymphora.blogspot.com/
3.13.08
Hillary's two-part strategy
by Xymphora
It is impossible to continue to pretend that the Clinton race-baiting isn't a conscious strategy of the campaign. They can do the math. She can't possibly obtain enough elected delegates. She needs to convince the superdelegates that Obama is unelectable, and the only way to do that is to make it appear that race will be enough of an issue that it will lead to a McCain win over Obama.
The deeper, more Machiavellian, strategy is also based on mathematics, her age. McCain won't run again. Obama, if he wins, will. She'll be too old to run if she has to wait through two more terms. He only hope is to ensure that McCain beats Obama, and then run against the new Republican candidate in 2012. She therefore has to make race a big issue, to make sure that McCain wins. It is not a 'suicide pact': she is intentionally attempting to make sure that McCain wins so that she can run in 2012.
The Clintons' strategy is risky as it runs the risk of backfiring. They are basically insulting Americans by assuming Americans are racists. Even racists don't like to have somebody make that kind of insulting assumption! Here's an idea: why doesn't she throw caution to the winds, switch parties, and run as McCain's VP? Do you think her elderly female fans would follow her, on the assumption that the bigger deal is that she can then run as the super bipartisan (and MWFTJP) candidate in 2012? Too crazy, right?
http://xymphora.blogspot.com/
3.13.08
Hillary's two-part strategy
by Xymphora
It is impossible to continue to pretend that the Clinton race-baiting isn't a conscious strategy of the campaign. They can do the math. She can't possibly obtain enough elected delegates. She needs to convince the superdelegates that Obama is unelectable, and the only way to do that is to make it appear that race will be enough of an issue that it will lead to a McCain win over Obama.
The deeper, more Machiavellian, strategy is also based on mathematics, her age. McCain won't run again. Obama, if he wins, will. She'll be too old to run if she has to wait through two more terms. He only hope is to ensure that McCain beats Obama, and then run against the new Republican candidate in 2012. She therefore has to make race a big issue, to make sure that McCain wins. It is not a 'suicide pact': she is intentionally attempting to make sure that McCain wins so that she can run in 2012.
The Clintons' strategy is risky as it runs the risk of backfiring. They are basically insulting Americans by assuming Americans are racists. Even racists don't like to have somebody make that kind of insulting assumption! Here's an idea: why doesn't she throw caution to the winds, switch parties, and run as McCain's VP? Do you think her elderly female fans would follow her, on the assumption that the bigger deal is that she can then run as the super bipartisan (and MWFTJP) candidate in 2012? Too crazy, right?
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