How private is your cellphone? How anyone can trace your location from your cellphone
Edward Snowden in the Guardian
This post is a reaction to the recent proof that Verizon (and presumably all other cellular operators) are providing the US government (NSA and private contractors like Booz Allen) with all your phone call metadata which, in the case of cell phones which almost everyone uses, include location information.
Osama bin Laden Courier Abu Ahmed al Kuwaiti found after cell phone call.
The targeted killing program has located and killed many of its targets because they made or received calls on their cell phones, including Osama bin Laden whose courier’s vehicle was identified and followed to the Abbottabad compound because of a cell phone call made by Kuwaiti as shown in a scene from the movie Zero Dark Thirty.
The book Digital Disconnect pointed out that smartphones should be called trackers because they allow the government and private corporations to track your movements.
Searches on the internet make it abundantly clear that the tracking capabilities of cell phones and the ability of governments and private companies to access this information is broadly misunderstood.
The author of this post is a retired engineer with more than ten years working with digital cellular networks and the technology that is now known as WIFI. Any errors in this information is his own.
All cell phone operators are able to trace the approximate location of the cell phone based on the cell that is currently being used during the call. Individual cell phones can be “heard” by more than one cell during use allowing cell phone operators to use the relative signal strengths (the number of bars on your phone) at each cell to calculate your actual real time location using triangulation. Because radio signals are affected by terrain, buildings, and other obstructions, using the cell phone signal strength to determine location is only an approximation. This approximation is usually good enough when the cell phone user is looking for a gas station or a restaurant or a landmark near his location. Smartphones target their searches based on location information.
Smartphones usually include GPS satellite receivers in their devices to enable the cell phone operator to know your exact location. The GPS is so accurate it can determine your location to within a few feet and if you are moving can determine your direction and speed with enough precision that the information could be used to accurately target a missile. The first basis of misunderstanding of the technology is that GPS signals are receive only. The location information from the GPS satellite must still be transmitted to a third party via ground wireless transmission and this requires a smartphone transmission to a central information collector using cellular frequencies or WIFI.
Smartphones have introduced a second independent communication technology, WIFI capability. Now your phone can be transmitting your location via the cell phone network or via WIFI. Since the range for WIFI transmissions is very limited, your WIFI location is within a few hundred yards of the WIFI node. So if your location is determined by the cell phone network, you can be located within a mile or so, if your location is determined by the WIFI node, your location can be known to within a few hundred yards, if your location is determined by GPS, you can be targeted to within a few feet.
If you don’t want your location monitored by third parties what can you do? If you want to use your phone to receive or send phone calls or use WIFI there is nothing you can do short of changing the law and enforcing that law. Sorry.
Can you “turn your phone off” as many web sites suggest? Short of removing the battery, no you can’t. When your screen goes dark, the phone has entered a battery saving standby mode where an incoming call can instantly wake the phone up. Is your phone transmitting location information while it “sleeps”? We don’t know but probably not as this would drain your battery, but the cell phone operator still retains the technical ability to get your location from a sleeping phone without alerting you should they wish to do so.
If you are also connected to a WIFI node things become even more complicated and a definitive answer probably depends on the phone provider software and on the applications that the provider or you have loaded into your phone. Generally, when the phone goes to sleep, WIFI is inoperable, but it is technically possible for a WIFI transmission to wake a sleeping phone without alerting the user. The technical problem is that a sleeping phone can be woken remotely. It depends on secret technical information unavailable to the user. As to downloaded applications anything goes. The Way of the Knife includes a story about Michael Furlong an overweight long time government and military contractor. He ran an operation where spyware was hidden in a cell phone game with information gathered and stored in an illegal database in the Czech Republic. You have no way to know what is hidden secretly inside the software the cell phone provider or you load to your cell phones.
Removing the SIM card may not prevent location transmission because of the emergency call requirements of cell phones in some countries including the US. Wikipedia reports that some US smartphones can make 911 calls without a SIM card. An inactive SIM card will not prevent you from making a 911 call on any cell phone but removing the card may or may not disable transmission. It depends on the phone model.
The assassination books noted that targeted terrorists routinely remove the SIM cards from their phones and use multiple SIM cards and multiple cell phones to avoid tracking, but the manufacturers and operators know this and could easily create phones that transmit location information without SIM cards if they wanted to. One would guess the US government is pressuring manufacturers to include this capability in all new cell phones. If a SIM card has been removed, the transmitted metadata would still include the unique identifier of the cell phone. Cell phones known to have been used by people on the US government’s targeted kill list have not only the phone numbers (associated with the SIM card) but the unique identifying numbers of the physical phones themselves. When one of the targeted cell phones is used, the information, including the location of the phone, is instantly available to the government assassination teams. Many assassinations have resulted from a phone call.
So the best bet at the moment to avoid transmission of tracking information in the US is to do two things:
1) Current Airline FAA regulations absolutely prohibit passengers from transmitting radio signals, specifically cell phone transmissions while flying. Consequently, most cell phones, including smart phones have an “airplane mode” which disables your cell phone transmission. Your cell phone will still allow the camera, music player, GPS and other features to function. So if you want to disappear from tracking monitors, just turn on your phone’s airplane mode.
2) If your phone has built in WIFI, you will need to turn it off to avoid location tracking. Strangely, the airlines are pressuring the FAA to allow the use of WIFI aboard their flights and this seems to be the new trend so turning on airplane mode still leaves WIFI functioning. How the FAA justifies allowing you to use WIFI but not cell phone transmission is one of those mysteries that have almost nothing to do with technology and may be carryovers from the distant past where old cell phone frequencies might interfere with aircraft communications. I doubt interference is possible today if it ever was a problem. Still airplane mode is one of the few remaining options if you want to use your cell phones for some functions while blocking cell phone transmission.
For a general discussion of metadata, the Guardian, which broke the Edward Snowden FISA authorization story posted this What is metadata guide. A recent blog post lists the information currently available and probably collected by the government and its contractors as NSA metadata.
Moyers and Lessig
For a great discussion of Snowden, Privacy, and Congressional corruption which prevents fixing our problems see Bill Moyers’ Big Brother’s Prying Eyes which aired on June 14, 2013.
Lawrence Lessig and Bill explore how we can protect our privacy when Big Government and Big Business morph into Big Brother.
The Way of the Knife, The CIA, A Secret Army, and a War at the ends of the Earth, Mark Mazzeti, 2013
Dirty Wars, the World is a Battlefield, Jeremy Scahill, 2013
Or How the ChickenHawks Dick Cheney and Donald Rumsfeld institutionalized Presidential Assassinations
The political term Chickenhawk is defined in Wikipedia as:
Chickenhawk (also chicken hawk and chicken-hawk) is a political term used in the United States to describe a person who strongly supports war or other military action (i.e., a War Hawk), yet who actively avoided military service when of age.
The term indicates that the person in question is hypocritical for personally dodging a draft or otherwise shirking their duty to their country during a time of armed conflict while advocating that others do so. Generally, the implication is that chickenhawks lack the moral character to ask others to support, fight and perhaps die in an armed conflict. Those who avoid military service and continue to oppose armed aggression are not chickenhawks.
Chickenhawks 1980 and 2000
These two books explore how Dick Cheney and Donald Rumsfeld , hereinafter referred to as CR, transformed the elite special forces (Navy Seals, Delta Forces, and Army Rangers) into the ultra secretive JSOC command, reporting directly to the President with a worldwide license to kill. CR largely insulated W from their decisions under the guise of denyability.
Prior to CR under W, these special forces were primarily famous for two disastrous actions, the aborted 1980 attempt to rescue the Iran hostages under Carter and the even more disastrous 1993 Black Hawk Down incident in Mogadishu Somalia under Clinton. The only group with a more disastrous history than the special forces was the CIA who Congress outlawed from initiating assassinations after the revelations of the Frank Church hearings in 1975. For more on CIA incompetence see Secrets in an Open Society.
A more minor enabling player in these books is the FBI with their proclivities to entrap innocent victims in their notorious sting operations. Two US citizen victims of drone assassinations were driven by previous FBI sting operations, Imam Anwar Awlaki was killed in September 2011 and Buffalo citizen Ahmed Hijazi (Kamal Derwish) was killed in November 2002 along with the alleged mastermind of the USS Cole attack, Abu Ali al Harithi. Awlaki was arrested twice in San Diego when FBI prostitute undercover agents approached him unsolicited. Hijazi was accused of being one of the Buffalo NY “Lackawanna Six” after his assassination. The FBI stings were instrumental in encouraging both men to leave their US homes for Yemen where they were assassinated. For more on FBI methods see Paranoid Ideologues.
The central theme of both books is how American policy in Afghanistan, Iraq, Yemen, Somalia, Pakistan, and elsewhere has actually led to an increase in American insecurity and how policy makers refused to see how their policies were counterproductive. In each case, America either invaded directly to destroy an existing regime, or had proxies (Christian Ethiopians invading Islamic Somalia) destroy the existing regime or undermined the regimes by totally disregarding the country’s sovereignty (Yemen and Pakistan). America always chose the wrong people to form new regimes and these US backed regimes always led to an increased presence of enemies of the US in the countries. For example, al Shabab, a Taliban like group in Somalia, has gone from a nonentity to a major force controlling more and more of Somalia. Unless American soldiers stay in Afghanistan, the Taliban will likely retake control of the country. Our good ally Pakistan likely welcomes this outcome. This universally disastrous foreign policy has cost hundreds of thousands of innocent lives and trillions of US taxpayer dollars. Enemies of the US have multiplied many fold. Yet none of these enemies pose an existential threat to the US, unlike the Soviet Union during the cold war. The disastrous policy of “war on terror” and “the world is a battlefield” is designed to continue forever.
Stanley McChrystal with Obama
CR authorized a secret JSOC facility camp in Iraq, NAMA under McChrystal, where JSOC personnel both captured and “interrogated” prisoners. NAMA was far worse than Abu Ghraib yet Americans were never told about it and its abuses. Tortured prisoners will say whatever the torturers want to hear, in this case WMD and al Queda. That the confessions were untrue didn’t matter to true ideologues CR. When a major insurgency erupted, CR kept insisting it was just a few “dead enders” from the Hussein Baathist era. De-Baathification had created hundreds of thousands of unemployed, trained soldiers, with unlimited weapons. There were plenty of groups willing to exploit these soldiers for their own purposes. A Jordanian terrorist claiming to be associated with al Queda, and working in Iraq, Zarqawi, started chopping off heads, giving CR “evidence” that Hussein had harbored terrorists. The evidence was that Zarqawi had traveled to Iraq for medical treatment once prior to the American invasion. Hussein probably never heard of Zarqawi.
Obama and Brennen Terror Tuesdays
Obama, upon taking office and to everyone’s surprise, kept W’s security team of Petraeus, McChrystal, McRaven, Gates, and Brennen. Early in Obama’s administration, Somali pirates mistakenly boarded an American flagship. They quickly realized their mistake and attempted to escape, taking the captain hostage. A battleship was ordered to the scene. Obama was informed that the planet’s best snipers (the JSOC ninjas) were only 45 minutes away from the battleship. Obama ordered them to the scene and when they reported they had clear shots at the pirates, Obama gave the order to kill. Three shots, three dead Somali pirates. Obama loved it and invited the ninjas involved (members of Navy Seal Team 6) to the White House. Thus was born the era of Obama as assassin in Chief.
Who snatched Leon Panetta’s Body?
Obama had appointed trusted ally Leon Panetta to head the CIA and under Obama the JSOC and CIA were to form a closer working relationship in their “targeted killing” program. This program has been expanded from the W era and has been largely successful in assassinating people on the kill lists although with countless innocent victims. Obama and Panetta announced the closing of the black sites (secret prisons), the end of torture interrogations, and the end of renditions, and then secretly continued all three.
The books recount discussions about the best way to kill a target, with an M16 or a drone strike. The drone strike is seen as more antiseptic but more difficult to confirm the kill. Occasionally, CIA operatives have been sent to strike sites to collect DNA samples and other evidence, but the strikes make such a mess that identification is difficult. Maybe the Ninjas should bring back the head after a kill. The reader is reminded of scenes from the movie “GoodFellas” and discussions among its psychotic characters. Kill or capture? If you capture you need a prison and you are expected to interrogate. Do you hold indefinitely or are you forced to try the “detainee“? Better to just kill the target and be done with it.
Obama condemns US citizen to death without due process >
Anwar’s 16 year old son Abdulrahman also killed by US drone
In the case of Anwar Awlaki, the intelligence community seems to have concluded that his speeches and blogs were protected free speech and they never got evidence, despite Obama’s false statements, that Awlaki was associated with al Queda or ever assisted any terrorist. This conclusion also included analysis of emails between Awlaki and Nidal Hasan the American soldier that killed 13 at Fort Hood Texas. Awlaki posted a blog after the killings supporting Hasan’s actions which may have been the breaking point for Obama. Awlaki was killed simply to silence him. Nothing more. two weeks later a US drone strike “accidentally” killed Awlaki’s son Abdulrahman. Obama press secretary Robert Gibbs comment: “Well I would suggest that he should have a more responsible father.” Unbelievable.
Petraeus sells Obama on Afghan “surge”
When McChrystal was put in charge of the Afghanistan “surge” other military commanders expected the worst and got it. McChrystal reproduced his Iraq operation on steroids. JSOC operators multiplied, black ops prisons like NAMA were created, and targeted killings skyrocketed. Like Iraq, there were virtually no al Queda operating inside Afghanistan. The targets this time were mid level Taliban but the ninjas couldn’t even tell the tribes apart, so the killing of innocents and allies multiplied. Hatred of Americans and sympathy if not support for the Taliban increased. One mistaken raid killed Daoud, an American trained regional head of intelligence, and members of his family. Realizing their mistake, the JSOC team refused to call medical assistance and starting digging their bullets out of the victims body while some were still alive. They died. The team was only able to recover only 17 of the 21 rounds fired in the raid. A dogged British journalist, Jerome Starkey, exposed the coverup and witnessed a scene where a fatigue wearing soldier with the name tag McRaven enacts a ritualistic sheep sacrifice in front of the family by way of apology. Starkey didn’t even know who McRaven was at the time. Another example of foreign policy gone terribly wrong.
Raymond Davis contractor with license to kill
Secret Wars is organized chronologically, jumping from Iraq to Afghanistan to Yemen to Somalia with Awlaki’s story threaded throughout. Toward the end, we finally get to Pakistan where things get really strange. Remember that the CIA and Pakistan’s ISI worked closely through the 1980′s to support the Afghan Mujahedin (see Ghost Wars) in their fight against the Soviet occupation and that Pakistan is a nuclear power. In January 2011 American Raymond Davis killed two Pakistanis at a busy intersection in Lahore. Davis’ rented Honda Civic was carrying enough arsenal to hold off a small army in addition to GPS, satellite communications, night vision equipment, multiple ids and cell phones, ATM cards, makeup and disguises and other trade craft. He would have made James Bond envious. The killed Pakistanis were ISI operatives who were following Davis and he shot them both through the windshield as only a trained assassin would have been able to do. He was in possession of sensitive photos of secret Pakistani military facilities including nuclear storage facilities. His cell phones showed he had made calls to both Tehrik-e-Taliban and Lahkar-e-Jhangvi Pakistani terror groups. Who was Davis working for? Was it the CIA, JSOC or someone we haven’t heard of? People at his obvious level of experience have level after level of cover stor. He was released after admission that he worked for the CIA but the reality is probably deeper. What was he doing at the secret military sites? It seems that the US government has secret plans to secure (i.e. steal) Pakistan’s nuclear arsenal in the event of a coup or other instability inside Pakistan. How wild is that? Why was he calling Pakistani terror groups?
Davis called for backup, calmly photographed the two Pakistani’s he killed, and fled the scene in his Honda. A backup Land Cruiser with false license plates rushed to assist Davis but ran over a motorcycle killing its driver. The Land Cruiser fled but Davis’ Honda was stopped by police two miles from the murders. ISI sent special forces to guard his prison cell and prevent a JSOC style rescue. Had Davis been put with the general prison population he would probably have had his throat slit. The backup team returned to the CIA-JSOC safe house, destroyed all their documents and equipment, and fled to the US Consulate where they were evacuated from the country before Pakistani officials could question them. They have not been identified.
The CIA had followed a courier to Osama bin Laden’s safe house five months prior to the Davis incident and were awaiting confirmation that Osama was there and assassination plans were readied when the Davis incident happened. The US needed to get Davis out of Pakistan before they could initiate the assassination of bin Laden. Thus the negotiations with Pakistan and the ISI took on an urgency it would not have otherwise had. Then the wife of one of the ISI murder victims committed suicide leaving a video statement blaming the US. Davis’s handlers apparently hid his true job from the white house and state department leading both to make embarrassing and false claims about Davis’s job. Afraid that Davis might start talking and needing to proceed with bin Laden’s assassination, top US military officials including Admiral Mullen and Petraeus met in Oman with their Pakistani counterparts in the military and ISI to hash out a solution. A very unusual Sharia court proceeding presented the families of the victims with $2.3 million and Davis was whisked out of the country on a CIA rendition plane.
William McRaven Mr. Cool
Six weeks later Osama bin Laden was assassinated in Abbottabad Pakistan. For bin Laden’s murder, the JSOC ninjas under CIA direction shot and killed bin Laden, brought the entire body to a ship, and buried it at sea. It was not deemed necessary to share confirmation with the American people. Before the mission the team discussed not shooting bin Laden in the head since the reason for sending a team on a dangerous mission 150 miles inside sovereign Pakistan to a house a mile away from a military academy was to confirm the kill.
Matt Bissonnette Seal Team 6 Member
The first team member to encounter a tall man in the house shot him three times in the head. The next team member shot the body multiple times in the chest. Matt Bissonnette’s job was to collect DNA samples (they had DNA from bin Laden’s sister) and when he cleaned off the face he was surprised how young the man was and that his beard was completely black. Bissonnette had surely seen every photo and video of bin Laden in existence yet he didn’t recognize the man in person. Bissonnette remembers thinking at the time that the American people don’t need to see this (the messed up face and head). Even if this is the reason photos were not released there is no security reason why the DNA test results should not have released to the public. Guns were found in the house but none were loaded. Anyone there could have been captured without a fight but the mission was assassination. Four men and one woman were killed in the raid. Others, including children, were injured. Immediately after the raid Brennan said that the team had been in a firefight (false) and that bin Laden had used women as a shield (false). The Obama administration said just trust us then lied about so many aspects of the mission that Bissonnette felt compelled to write his own account No Easy Day. He would not have been privy to the DNA test results. We should trust them that the DNA test results were a match?
Michael Furlong Michele Ballarin
The Way of the Knife includes a couple of characters (for comic relief?). Michael Furlong was an overweight long time government and military person who spoke in fast government-military speak that seemed to bedazzle whoever he met. He ran an operation where spyware was hidden in a cell phone game with information gathered and stored in an illegal database in the Czech Republic. Furlong showed up in Prague during sensitive negotiations over deploying a US missile defense system in the Czech Republic and US government officials had him thrown out the the country.
Michele Ballarin was a wealthy West Virginia Republican socialite who raised Lippizaner horses. She somehow inserted herself into Somali pirate ransom negotiations and pirates on one seized ship raised a sign asking specifically for her. She proposed setting up a food program for refugees in Somalia where she would collect intelligence about everyone who came to get aid that she could feed to US intelligence. The program was not approved.
Blackwater’s Eric Prince appears in both books with activities no less bizarre but certainly not comic. Prince is drawn to unsavory characters around the world like a magnet. He outfitted his own small ship with an incredible arsenal, helicopter, and small speed boats, and offered to escort ships through the Somali pirate area of operations for $200,000 a trip. This was his sanest venture. He lives in Abu Dhabi to be close to the action and avoid taxes.
Digital Disconnect; How capitalism is turning the internet against democracy, Robert W. McChesney, 2013
This book is really depressing. If you are at all suicidal you may want to pass this one up. Mercifully, the book is relatively short. About half the book is given to the death of the forth estate, journalism. McChesney attributes this death, not to the internet, but to the media “consolidation” that preceded the public introduction of the internet. Once a handful of huge corporations got control of newspapers, television stations, and cable operators, they slashed costs, fired the journalists and killed journalism. He estimates that 85% of what passes for news on television and in newspapers and magazines are unattributed press releases from corporations and the government. No one has the staff to fact check or even edit these pieces, rendering the “news” organizations pure distribution channels for the corporation and government, i.e. propaganda arms. The absence of journalism allows unparalleled levels of corruption and scandal to go unreported and unknown by the public. The corporations and government both enjoy operating with complete impunity and secrecy. Add to this Obama’s acceleration of classification of documents and his war on whistle blowers and you have a prescription for producing one of the most ignorant publics in the world.
Wasn’t the internet supposed to give us better journalism by making production and distribution of news free? For 150 years journalism has been supported by an advertising model where sponsors were willing to pay to have their ads appear in targeted magazines, newspapers, and news broadcasts. A funny thing happened with the introduction of the internet. As late as 2000 Google had no idea how it was going to monetize its search service and make Google profitable. For Facebook the date of this discussion was much later. The answer for both was to collect personal information from their customers, give that information to corporate (and government) touts who would pay to have their ads or infomercials delivered to a targeted audience of one. The touts proved to be total agnostics about where their increasingly intrusive information appeared (porn sites or news sites) so long as the target met the appropriate (secret) criteria. Advertisers or propagandists no longer needed to subsidize journalism and journalists today have no viable means to support themselves.
McChesney documents that European countries use public subsidies to support journalism with no apparent cost to democratic government. Germany, followed by Scandinavia have the highest levels of subsidy and are among the most economically egalitarian in the world. With corporate control of government, public subsidy of journalism has no chance in this country. The US used to subsidize news distribution via low postal rates for delivery of newspapers and magazines. McChesney estimates that the equivalent government subsidy in today’s dollars would amount to $35 billion annually, enough to support considerable internet journalism. Instead the government today spends $5 billion a year on defense public relations.
McChesney spends some time documenting the unprecedented concentration of wealth in this country. He concludes that the secret to accumulating wealth is monopoly, the elimination of all competition. 40% of Americans have only one choice for broadband internet access. A sizable percentage of Americans have no broadband access at all available because the controlling companies have deemed them insufficiently profitable to serve (too poor or too remote). In the early days of electricity and telephones, the government, through subsidies and regulation, made sure almost everyone who wanted it had access to affordable power and phones regardless of where they lived. Today, a few enlightened small municipalities unserviced by the giants have built their own broadband networks. In reaction, ALEC inspired legislation has been passed in 19 states to make community broadband illegal. What a country. The giants have also been allowed to monopolize the public airwaves often warehousing the spectrum with no use. Television broadcasters increasingly move popular broadcasts (sports and entertainment) to their cable subsidiaries or to satellite providers. A large portion of public airways broadcasting today are paid advertisements with no content whatever. And those are the public’s airwaves.
Far from promoting innovation, the monopoly giant corporation is best at suppressing innovation. Television was delayed at least 20 years by American corporations (RCA). Likewise DSL was invented by BellCore in 1988 but it was 20 years before DSL found its way to our house via baby bell Qwest. So much for innovation. Our cell networks are at least a generation behind the rest of the world and provide lousy service at astronomical public cost. We live in the heart of Phoenix and get no usable cellular signal from any carrier at our house so we use IP voice communication over DSL broadband. You don’t even own the right to use the cell phone you paid for on any other service. This restriction on your own property’s use might be challenged in court but don’t hold your breath. If you unlock your own cell phone today you may be breaking the law.
McChesney also spends time on copyrights that never expire and patents that seem endlessly extendable. In addition to corporate consolidation and bigness, copyrights and patents have the become the tool of choice for corporations to preserve their monopoly. Originally intended to protect individual creators, patents and copyrights have now become the exclusive property of the big corporation. Coogle recently acquired Motorola’s moribund cell phone division for 12.5 billion dollars, not because Google wanted to build cell phones (although they may) but for Motorola Mobility’s 17,000 cell phone related patents. Now Google can hold its own in the cutthroat legal patent battles for the mobile phone market.
Speaking of cell phones, one wag has suggested that “smart” phones should be relabeled trackers because with their built in GPS and massive information collection, that’s primarily what they are good for. Cell phone service is among the most unreliable, antiquated, and expensive anywhere in the world, and almost certainly the most intrusive. Did you know that the government actually pays the corporations when they request phone records and other private usage information? And the government retroactively immunized the companies from privacy invasion lawsuits. Opt out of information disclosure? That’s as useless as adding yourself to the government’s “do not call” list. The public can’t read, much less understand the privacy policies of companies like Google and Facebook. The policies along with the information shared are secret. A few executives at these companies have called the sharing process “icky”. If you knew what was going on, it would make you sick. This from the executives themselves who have no intention to stop doing it.
Icons of the New Gilded Age
The internet has reshaped the corporate landscape. Apple, Google, Amazon, Microsoft, and Cisco are now among the richest and most powerful corporations in America. Facebook will soon join them. Google (70% of US market 85% in Europe), Amazon, and Facebook all share a tendency toward monopoly. All hide billions in profits offshore to avoid taxes. Periodically, (last under W) a tax repatriation holiday is declared to allow the corporations to bring their stashed hordes home without paying taxes.
McChesney extensively quotes economists Joseph Stiglitz and Paul Krugman (characterized as apoplectic) and reformed neocon Jeffrey Sachs. His best quote is from former Clinton Treasury Secretary Robert Rubin:
Don’t you see. Too big to fail isn’t a problem with the system. It is the system.
Rubin’s Citibank would have tanked were it not for the government’s bailout. The banks today are bigger than ever. Is there hope? Probably not until the whole country crumbles. The revolution will not be televised (or streamed).
Bull By the Horns: Fighting to save main street from Wall Street and Wall Street from Itself, Sheila Bair, 2012
Hank Ben Sheila Tim Sheila Ben
There were four central regulatory players in the great financial crisis of 2008; Ben Bernanke of the Fed, Hank Paulson of Treasury, Tim Geithner of the New York Fed and Obama’s Treasury secretary, and Sheila Bair of the FDIC. Paulson left Treasury at the end of W’s term and wrote his account of the crisis which this reader has not read. Bair left the FDIC in 2011 and this is her account. Geithner is leaving the Obama administration and will no doubt give us his account. We will have to wait for Bernanke to leave the Fed for his account.
We previously reviewed the Suskind book which featured Geithner ignoring an order from Obama to come up with a plan to break up Citigroup ( Scamming the President ). Bair recalls the meeting in question where the breakup of Citibank is discussed with the President: “Tim seemed to view his job as protecting Citigroup from me, when he should have been worried about protecting the taxpayers from Citi.” Bair says she only learned that Summers was in favor of breaking up Citigroup after reading Suskind’s book. Had she known at the time, she could have insisted that Summers arrange another meeting with the President where she could discuss and advocate using FDIC to resolve Citigroup. She never doubted this breakup could have been done.
This is the first time we learn about the “systemic risk exception” where super majorities of the Fed and FDIC boards declare that putting an institution into an FDIC type resolution would cause “systemic ramifications”. This effectively means that Treasury and the President himself must approve the resolution. Bair says of the NY Fed invoking the exception for Bear Stearns:
In fact, prior to the 2008 financial crisis, the FDIC had never invoked the systemic risk exception. But here we had the NY Fed (Geithner) going out on its own and deciding to bail out a relatively small investment bank, a perimeter player at best…I was concerned about the precedent the NY Fed was setting.
Senator Elect Elizabeth Warren
As Suskind relates, both Geithner and Summers went to great lengths to control access to Obama and the administration had an all boys club atmosphere. Christina Romer, nominal head of the Counsel of Economic Advisers, left the administration early and gets one brief mention in Bair’s account. Bair did have a close working relationship with Elizabeth Warren, newly elected Senator from Massachusetts in Ted Kennedy’s old seat, and Bair still has high hopes for the Consumer Financial Protection Bureau.
Bair is a tough, no nonsense, plain speaking advocate of the public interest. Her fierce and protective support of the FDIC against all critics led her staff to call her “She Bear”. When she arrived at the FDIC in 2006, moral was low and the agency hadn’t closed a bank in three years. The black clouds were on the horizon and the FDIC through its own and other regulators examinations had probably the clearest picture of the looming catastrophe. She launched a major offensive to educate the public and woo the media to the role of the FDIC, the mechanisms of the bank resolution process, and reassure the public that insured bank accounts were perfectly safe.
Tim and Sheila Adversaries
Almost immediately the FDIC was overrun with bank failures; Wachovia, Countrywide, Indymac, Washington Mutual and others. She ran into her first major conflict with Geithner who wanted his client Citigroup, despite their dismal financial condition to acquire Wachovia to add their FDIC insured deposits to Citigroups small deposits. Geithner was furious when Bair continued to press Wells Fargo to purchase Wachovia, which they did without any government assistance or guarantees. Geithner doesn’t fare well in Bair’s account in this book.
Bair does a good job explaining the complex structure of financial regulation in this country. The Fed has certain regulatory functions; the FDIC domain covers any institution with insured deposits; Treasury houses two regulatory agencies, the OCC for mega banks; and the OTS for the thrifts including WAMU, Countrywide, and Golden West. While the Fed and FDIC are more independent, the Treasury is highly politicized and has been under the sway of the financial industry for some time. Citigroup’s Bob Rubin (Clinton’s first Treasury Secretary) mentored both Larry Summers and Tim Geithner and it was under Clinton that Glass-Steagall was repealed and Derivatives declared free from all regulation. And Hank Paulson was former CEO at Goldman-Sachs. The SEC and CFTC are separate and are dependent on annual budget allocations.
When Senator Dodge advocated creating a single unified regulatory agency, Bair talked him out of it because she feared a single agency would more easily fall under the control of the financial industry and become a super OCC. Besides her wars with the Citigroup dominated Geithner, Bair had continuing problems with the OCC, with John Dugan and John Walsh, comptrollers of the currency, and OTS’s John Reich, who opposed Chase’s purchase of WAMU, Reich’s last bank. The OTS is now abolished. None of these were advocating for main street and the public interest.
Reich opposed Wamu sale
Bair strongly advocated using the government through the resolution process to clean up the toxic mortgage backed securities. The FDIC successfully demonstrated simplified methods to modify mortgages en-mass during the cleanup of the thrifts. Bair was a consistent advocate for loan modification as a way to keep people in their homes and minimize the overall losses to the industry and government. She called TARP, which Paulson sold as a fund to buy toxic assets, then used it to bail out the banks and wall street with capital infusions, a case of bait and switch. She explained some of the reasons for the failure of loan modification programs. Mortgages were lumped into securities which were sold with banks providing loan servicing for low flat fees. This meant the banks were understaffed, under trained, and unsupervised. Breaking the securities into tranches meant that holders of the “safest” tranches would not be hurt financially until perhaps 20% of the mortgages defaulted so were incentivized to prefer foreclosure to restructuring loans. When robo signing was uncovered where single bank workers were fraudulently claiming to have examined the loans being foreclosed the issue moved to the front burner but no effective action resulted. Banks still had separate groups working simultaneously on foreclosure and modification of the same mortgage with customers being approved for modification at the same time they are being evicted. To this date, loan modifications are woefully inadequate and the bulk of toxic assets are still looming.
During the debate on Dodge-Frank, there was considerable discussion of FDIC style regulatory resolution verses bankruptcy. Bair uses the infamous case of the Lehman Brothers bankruptcy to prove her case that regulatory resolution is far better. Legal and other fees topped $1.5 billion and to date, creditors have recovered 21 cents on the dollar. The Lehman brand is dead and all employees lost their jobs. An FDIC style resolution results in an instant solution, preserving the brand and jobs. Her staff estimated that an FDIC resolution would have recovered 97 cents on the dollar at Lehman.
Bair is generally positive on Dodge-Frank but worries that the industry will continue to attack and modify the measures. Much of the effectiveness of Dodge-Frank will depend on the regulatory implementation and the jury is still out on much of the new complex legislation.
Bair complains that Sorkin in his book Too Big To Fail and in his columns failed to contact the FDIC to get their perspective and thus misrepresented FDIC positions and actions.
Bair spends considerable time on the Basel II accords which greatly reduced capital requirements for banks allowing the European banks to load up on sovereign debt from Greece, Italy, Spain, and Portugal. Much of the current European financial crisis is attributable directly to Basel II. Bair with a little help from the Fed was able to prevent the US from adopting Basel II. Bair then pushed Basel III to greatly increase capital requirements and to require mega banks to have even higher (9.5%) capital reserves.
Geithner Grilled after Libor Scandal Breaks
Bair notes that the Barclay misconduct in the Libor interest rate fixing scandal from mid 2005 to early 2009 took place at Barclay’s NY trading desk which was subject to Geithner’s NY Fed. The investigation was conducted jointly by the CFTC, UK authorities and the Justice Department. The investigation did not involve the NY Fed. During his appointment hearings for Treasury, Geithner proudly stated “I have never been a regulator, for better or worse.” For once he seems to have been telling the truth. Unfortunately for us, regulating was his Fed job.
Bair is very disappointed in Obama and hopes he will appoint better people in his next administration. The FDIC currently has no head. Would it be too much to hope that Obama might appoint audacious Bair to Treasury?
Subversives: The FBI’s War on Student Radicals and Reagan’s Rise to Power, Seth Rosenfeld, 2012
This is the story of two mad ideologues, J Edgar Hoover and Ronald Reagan, and their all out, illegal, long term war on UC Berkeley. It is based on Rosenfeld’s 30 year battle via the FOIA involving five different lawsuits to compel the FBI to release documents (finally totalling 300,000 pages) from FBI files for UC Berkeley faculty, administration, students, regents, FBI spies, and the Reagans. It reveals FBI abuses going far beyond those uncovered in the Church committee hearings of 1975.
J Edgar Hoover
J Edgar Hoover grew up in a Jim Crow all white section of Washington D.C. becoming a third generation Federal Government bureaucrat. He earned a law degree at George Washington University in 1916 (he never served in WWI) and joined the justice department. His strident anti-communism and disregard for the law evidenced itself early when he ordered thousands of communists arrested without trial in 1920. He managed to deport more than 500 to Russia before the department reigned him in for his disregard for constitutional rights and legal procedure.
He was to continue this practice throughout the rest of his life and the life of the FBI that he directed from 1924 til his death in 1972. The FBI acquired its reputation from its activities during prohibition and the great depression when a number of high profile bank robbers was captured. Hoover was never much interested in organized crime and WWII gave him the opportunity to focus on subversives under an order from FDR. Hoover was to broadly interpret this order and no subsequent President ever canceled the order so Hoover continued it until his death.
Under the order Hoover believed he was authorized to develop and maintain a list of individuals who, in the event of a “national emergency” would be rounded up and detained without trial or any legal proceeding whatsoever. This list ballooned to thousands of individuals many of them associated with UC Berkeley. Hoover ordered that upon his death, all files kept in his office be destroyed and his wishes were carried out destroying the key central evidence for this widespread illegal surveillance program. Hoover routinely ordered his agents to break into offices and homes illegally to photograph files and collect evidence. While there they could plant bugs and tap phones. This practice, going far beyond anything Nixon did at Watergate, was routinely carried out throughout Hoover’s FBI tenure. Hoover knew that none of this information could be admitted in any legal proceeding but it could be used to intimidate the victims or be carefully and secretly leaked to trusted journalists and politicians for their own use in smearing or ruining rivals or political “enemies”.
Hoover was not told about the Manhattan project but did focus a lot of attention on the Lawrence Laboratory at UC Berkeley to determine if Russian spies had been able to penetrate the labs to gain secrets. In typical Hoover fashion, he determined, with no evidence whatever, that Robert Oppenheimer, father of the atomic bomb, was not to be trusted and that he must have leaked information to the enemies. Oppenheimer had been approached by spies and delayed reporting these encountered which caused the AEC to withdraw his security clearance after the war thus effectively ending his career. Hoover’s illegal surveillance meant that actual spies could not be prosecuted. The only victim of Hoover’s methods at UC Lawrence Laboratory was Oppenheimer.
Reagan Testifies at HUAC Hearing
Ronald Reagan came to Hoover’s attention in 1947 when Reagan and his then wife Jane Wyman secretly named 10 Hollywood actors as known communists. Reagan went on from there to provide the FBI secretly with information from the Screen Actors Guild files while he was president. In this way, Reagan undermined the careers of many in Hollywood and helped enforce the black list.
Clark Kerr on the University
The next major character in the book is Clark Kerr, Chancellor of UC Berkeley and President of the UC system. Kerr had developed a reputation as an effective mediator in labor disputes and brought this skill to bear during the loyalty oath crises where a number of distinguished professors refused to sign out of principal and were fired in 1950. The State Supreme Court ruled the oath invalid in 1952 and Kerr worked to get professors who wanted to return reinstated. It was this action that got Kerr named Chancellor of Berkeley and later President of the UC system where he oversaw the development of a new master plan in 1960 to enable the three tier system (community colleges, state universities, and 8 world class universities) to expand to accommodate the baby boom generation.
UC Master Planner
The bulk of the book is an account of UC Berkeley in the 1960′s and its ever escalating campus demonstrations and strikes and the reactions of Hoover and politically ambitious Reagan to these events. Rosenfeld dates the start of this era from the House Un-american Activities Committee (HUAC) hearing at City Hall in San Francisco in 1960. HUAC chose SF because California was the most supportive state for their activities and SF was home to Heart’s SF Examiner and its conservative reporters.
Students at UC Berkeley, Stanford, and SF State planned a demonstration at the Hearing and thousands showed up to occupy the City Hall rotunda. The students sang loudly in the echoing rotunda to disrupt the hearing and on the final day a hot tempered Irish cop ordered fire hoses be turned on the students to force them to leave. Some cops started beating the exiting students and one beaten student was arrested and charged with instigating a riot by attacking a policeman. SF Examiner reporter Ed Montgomery fabricated and printed a story about how this student had vaulted the barriers, grabbed a policeman’s club and assaulted him with it instigating the subsequent riot and police reaction with the fire hoses. Hoover, who had long cooperated with the HUAC saw an opportunity to capitalize on the event and ordered his agents to prepare a brochure entitled “Communist Target–Youth” claiming that communist instigators were responsible for the riot. 300,000 copies were distributed to right wing groups. Right wing groups also prepared a film supporting Montgomery’s account of the event. Unfortunately the trial of the student was a total disaster for the prosecutors. Montgomery refused to testify since he had made the whole story up. Defense attorneys demonstrated via photos that the arrested student was on the other side of the rotunda from the cop, that the cop had actually slipped on water from the hoses, fell, and injured himself. The student was acquitted and Hoover was publicly embarrassed for the many falsehoods in the FBI bochure. Hoover was determined to punish UC Berkeley for this embarrassment.
Mario Savio atop police car
The next event at UC Berkeley was the demonstration that started the Free Speech Movement when police drove a car onto Sproul’s Plaza to arrest a man for distributing leaflets. Students surrounded the car and student Mario Savio jumped on the car and addressed the students for the first time. Mario Savio was a troubled genius who stuttered in normal speech but was a brilliant orator before a crowd. He had just returned from a summer helping to register black voters in Mississippi during the civil rights movement in 1964. His training in Gandhi’s non violence methods and experience in Mississippi were to leave lasting impressions on Savio. He was in the Plaza with the others to watch what happened but suddenly got the impulse to address the crowd. Savio was to be a part of almost every demonstration from FSM to the anti Vietnam war protests to demands for ethnic studies to the People’s Park demonstration in 1969 where police shot and killed one bystander, blinded another, severely injured others, and beat the protestors they arrested while in jail. A police helicopter dropped tear gas on the Plaza which quickly spread to much of Berkeley including hospitals, schools, and private homes. Savio died in 2006 and is remembered by a plaque on the stairs in Sproul’s Plaza. The FBI spent enormous resources tracking a restless Savio so that he could be picked up during a “national emergency”.
Building People’s Park 1969 Mario Savio
Reagan saw the unrest at UC Berkeley as his political opportunity in 1966 when he ran for Governor of California against 3 time incumbent Pat Brown. Hoover was happy to provide Reagan with FBI information on faculty, students, regents, and Kerr who Hoover hated. Making UC Berkeley and its communist controlled demonstrations a major part of his campaign, Reagan soundly defeated Brown and secretly received the FBI at the governors mansion first thing upon taking office. Reagan’s past association with two banned groups would have precluded him from getting a security clearance as regent at UC but Hoover and the FBI hid the information to assure his clearance. How ironic that progressive Oppenheimer would lose his clearance and end his career thanks to the FBI and Reagan would get his only with the assistance of the FBI. Ideology trumps everything. As his first acts in office Reagan proposed that UC students should pay tuition for the first time in history and a conservatively stacked board of regents fired Kerr at Reagan’s insistence. Thus began the decline of the UC system, the envy of the world.
Rosenfeld promoting his book talked a lot about Richard Aoki, a WWII Japanese internee and veteran who acted as an FBI informant and purportedly supplied guns to the black panthers. Aoki denied both charges and we don’t know if the guns were an early FBI sting operation. A better work on Reagan, Nixon, the FBI and the black panthers is reviewed. Today’s FBI seems to utilize sting operations as its primary method in the “war on terror”. In their latest, they offered to provide a deadly drone to a hapless Muslim.
Consent of the Networked; The Worldwide Struggle for Internet Freedom, Rebecca MacKinnon, 2012
WWW and HTML Inventor Sir Tim Berners Lee
The Internet was a product of the open source movement and remains at its core self governing. Most Internet servers run open source Linux and operate using open source Apache. A significant portion of browsers are Mozilla open source Firefox and emails are handled by Mozilla open source Thunderbird. Open source WordPress is acknowledged here as a critical source for bloggers including this one. Wikipedia, a non profit, all volunteer organization has created a reliable source of information on just about any subject that would not have been possible by any private company or government anywhere in the world. This book is about threats to these remarkable achievements posed by corporations and governments and wrestles with the problem of keeping the Internet safe and free. The issues are by no means simple.
Wikipedia’s Jimmy Wales
Focusing particularly on Google and Facebook, MacKinnon likens living under their control and rules as a bit like living under King John in England at the time of the Magna Carta. The king is all powerful and can do anything he wants at any time for any reason. His subjects can only hope for the king’s benevolence. Unfortunately, the king(s) of the Corporate Internet live in Silicon Valley and have very limited life experiences. They are pretty clueless when it comes to imaging the consequences of their Internet policy actions on users, particularly very vulnerable users in Tunisia, Iran, China, and other autocratic places. MacKinnon particularly points out the king(s) attitudes and policies regarding anonymous accounts which they view as an invitation to bad net behavior. They don’t understand that anonymity may be the only way for some to participate in the online world without risking arrest, torture, or death. Yet both Facebook and Google Plus require real world identification (which they do not protect) meaning that dissidents around the world can use these tools only by creating fake identifications and hoping their accounts don’t get removed by the kings. Attempts to create open source social networking software have not been successful because of the dominance of Facebook and Google. Social networkers must go where the users are; they can’t on their own start a whole new country. Facebook is so arbitrary in their policies and constantly change things including the rules of disclosure without warning, notice, or user option. She calls them Facebookistan.
Czar Mark Zuckerberg of Facebookistan
She also highlights problems when Internet companies attempt to do business with autocratic governments and she focuses on China where she worked for years as a CNN reporter. Yahoo set up an in country division to run their services including email. The Chinese government forced the in country Yahoo to hand over dissident emails and several users were arrested, prosecuted, and given long jail sentences. Jerry Yang later apologized, paid reparations to the families, and changed Yahoo policies, but too late to prevent the damage. Google’s struggles to operate in China under the government censorship finally led them to leave China for Hong Kong where they are outside the Great China Firewall.
Regretful Jerry Yang
The threat of US legislation to protect users from arbitrary corporate rule led to the formation of the Global Network Initiative which was joined by Yahoo, Microsoft, and Google. Facebook has repeatedly declined to join. The purpose of the Initiative is to protect user privacy and freedom of expression around the world. But how do the corporate members protect their users in the face of government intervention and rules? Even the US government poses increased threats to privacy.
Director MacKinnon Global Network Initiative
Users through a broad coalition of user groups introduced a Charter of Human Rights and Principles in 2011. Here are their 10 Internet Rights and Principles;
1) Universality and Equality
All humans are born free and equal in dignity and rights, which must be respected, protected, and fulfilled in the online environment. 2) Rights and Social Justice
The Internet is a space for the promotion, protection and fulfilment of human rights and the advancement of social justice. Everyone has the duty to respect the human rights of all others in the online environment. 3) Accessibility
Everyone has an equal right to access and use a secure and open Internet. 4) Expression and Association
Everyone has the right to seek, receive, and impart information freely on the Internet without censorship or other interference. Everyone also has the right to associate freely through and on the Internet, for social, political, cultural or other purposes. 5) Privacy and Data Protection
Everyone has the right to privacy online. This includes freedom from surveillance, the right to use encryption, and the right to online anonymity. Everyone also has the right to data protection, including control over personal data collection, retention, processing, disposal and disclosure. 6) Life, Liberty and Security
The rights to life, liberty, and security must be respected, protected and fulfilled online. These rights must not be infringed upon, or used to infringe other rights, in the online environment. 7) Diversity
Cultural and linguistic diversity on the Internet must be promoted, and technical and policy innovation should be encouraged to facilitate plurality of expression. 8 ) Network Equality
Everyone shall have universal and open access to the Internet’s content, free from discriminatory prioritisation, filtering or traffic control on commercial, political or other grounds. 9) Standards and Regulation
The Internet’s architecture, communication systems, and document and data formats shall be based on open standards that ensure complete interoperability, inclusion and equal opportunity for all. 10) Governance
Human rights and social justice must form the legal and normative foundations upon which the Internet operates and is governed. This shall happen in a transparent and multilateral manner, based on principles of openness, inclusive participation and accountability.
MacKinnon includes a chapter on the “copy wars”, the attempts to shut down Internet sites accused of Intellectual Property copyright violations without due process. Youtube, Flickr routinely remove content at the simple request of supposed copyright holders or even governments without warning or notice to the posters. Flickr removed photos of Egyptian government torturers simply at the request of the Egyptian government. No proof of ownership or copyright violations need be proven and no procedures of law need be followed. This is consistently abused by both corporations and governments as they attempt to control or censor content. Lawrence Lessing founded a non profit group the Creative Commons to allow people to control the sharing of information as an alternative to old style outmoded copyright law. The CC, used by Wikipedia and others, means content is free to be copied subject only to acknowledging the source and accurately reproducing the content. There are no monetary or legal trapdoors.
Creative Commons Lessig
MacKinnon also discusses user attempts to engineer around government Internet and other communications shutdowns during times of crisis. We think of China, Egypt, Tunisia, Syria and others, but MacKinnon reminds us that San Francisco’s BART shut down mobile communications during demonstrations protesting the shooting of a citizen by BART security forces in 2011. BART officers killed another man in Oakland in 2009. Attention must be given to the political locations of servers and to alternative communications access means. Egypt used conventional dial access via international calls during their revolution and satellite calls are also accessible. Open source developers are working on decentralized dynamic networks that can reconfigure themselves to maintain network access during government shutdowns or attacks.
An important book that should be read by all Netizens.
Deng Xiaoping and the Transformation of China, Ezra F. Vogel, 2011
A thorough (800 pages) account of the life and impact of Deng on the modernization of China. Deng’s history including his years in France, where he first met Zhou Enlai and Ho Chi Min, and Russia, his roles in the war against Japan and the Civil War against the Guomindang and the early years of the Communist rule of China up to the Cultural Revolution are covered in only 45 pages. The tale really begins in 1967, when Deng, age 63, is placed under house arrest. In 1969 with the plane crash that killed Lin Biao and the first Soviet incursions into Outer Mongolia, Mao has Deng sent to Jiangi province where he was given light factory work in an army controlled facility. He would not be recalled to Beijing until 1974, when Zhou Enlai had again fallen from Mao’s grace and was dying of cancer and Mao himself was fast failing from Lou Gerhig’s disease. After some success in restoring order to the railroads and key provinces, Deng again is attacked by Mao starting in 1975. Zhou Enlai dies in early 1976 and Mao attempts a quiet ceremony only to see Beijing and Tiananmen overrun with spontaneous mourners. On April 5 1976 a massive demonstration is held in Tiananmen Square for Zhou and Deng. Jiang Qing (Mao’s separated wife) and the Gang of Four (so named by Mao) set out to quell the demonstration and continue the criticism of Deng. Hua Guofeng is named Mao’s successor and Mao dies on September 9, 1976. Hua immediately moves to arrest the Gang of Four who are tried and executed for their role in the Cultural Revolution and the purge following the April 5 demonstration. Deng immediately consolidates his power in the military and foreign affairs and quietly sets out to remove Hua. Deng never assumes the titles of leadership and never creates a cult of personality around himself.
The “Four Modernizations” to develop agriculture, industry, national defense, science and technology was formalized by Zhou Enlai in 1963 and underpinned the policies of Deng after 1977. Mao had believed in the need for continuous revolution which resulted in the chaos and tragedies that were the Great Leap Forward and the Cultural Revolution. Mao engaged in perpetual war against the landlords and capitalists. But Mao also attacked the intellectuals and educated Chinese and Deng led in the purges of the Hundred Flowers campaign starting in 1957. By 1977, Deng had come to realize that China would need an educated class to promote education, research, and modernization. Chinese universities had been largely destroyed during the Cultural Revolution, were occupied by the army, and were operating at a secondary school level. Deng moved to normalize relations with the US with a primary goal to send large numbers of Chinese students to US universities. He reformed the Universities to qualify students for admission to foreign Universities. Deng explained that working with your mind was the same as working with your hands and all work should be honored. Asked if Deng wasn’t worried that the students would stay abroad, Deng responded that it didn’t matter because they were still Chinese and would help China wherever they chose to live and work. As it turned out sizable numbers of students did return to China where they played key roles in China’s transformation.
Shenzhen old and new
Deng was famous for his memorable quotes “It doesn’t matter if a cat is black or white, so long as it catches mice.” and “When you open the door, flies will get in.” to explain his openness to economic and market experimentation and willingness to tolerate some corruption if economic progress results. The usual focus is on China’s development of the Special Economic Zones (SEZs) led by Shenzhen near Hong Kong which grew from a sleepy village of 20,000 to a metropolis of several million with tall modern buildings and all infrastructure needed to support modern manufacturing. But equally important to the transformation of China were allowing certain regions to move from collective farming to household farming resulting in huge increases in food production and the promotion of small enterprises at the collective and household level to produce and market products wanted and needed by the people Household farming and small scale enterprise came to produce half of China’s GNP.
Particularly interesting were Vogel’s reasons why China developed so differently from the Soviet Union and Eastern Europe. He points out the China had a long history as a culturally unified area dominated by the Han people. The entire country had a single written language and Mandarin was long the official government spoken language. Mao simplified the written language and made sure all Chinese were taught Mandarin and simplified Chinese writing. Second, China has a long coastline and many deep water seaports unlike the other Communist countries. This advantage makes it far easier to import technology and export products. Transportation in the interior of China was limited but the coastal cities were not held back by this limitation. Third, China had the examples of Singapore, Hong Kong, Taiwan, South Korea, (the dragons) and Japan to study and emulate. Finally, many millions of Chinese were living overseas throughout the developed world. China found these overseas Chinese very ready to assist in the modernization process. Deng was advised by Singapore’s Lee Kuan Yew and Hong Kong shipping magnate Y K Pao and several Chinese American Nobel laureates.
old steel and new
The largest foreign investor in China was Japan. Vogel points out that the eye opening trips made by Chinese leaders to Japan and Western countries in the late 1970s resembled the Iwakura Mission of 1871 in Meiji Japan. Like Japan, these trips served to show the Chinese how far behind they were. This was brought home most tellingly when Deng visited an automated continuous production steel plant in Japan whose production was almost the equivalent of all China’s antique plants combined. With Japan’s technical, financial, and management assistance, China today produces more steel than the US and Japan combined. Deng was equally interested in how Japan had converted from a war production economy during the war to a peacetime, consumer economy so quickly after the war ended.
Deng began his rule with two bold moves. He authorized a lightning strike military invasion of Vietnam to demonstrate that China could threaten Hanoi anytime it chose. Troops took control of all northern county capitals then withdrew to China in only 28 days. Deng calculated that this surprise move would stall Vietnam’s aggressions in Laos and Cambodia and to warn the Soviets to stay away from the southern region, would secure China for at least a decade, giving him time and space to implement his economic reforms. Second, Deng moved immediately to normalize relations with the US so that the Soviets would be detained from aggression, Chinese students could begin study in US universities to close the training gap, and the US could be encouraged to invest in China. Central in Deng’s mind was US education of China’s best students.
Vogel spends a lot of time discussing the Tiananmen Square student uprising of 1989. Deng started his leadership by normalizing relations with the US and wanted to bookmark his regime with normalized relations with the Soviet Union. Gorbachev visited Beijing in late May 1989 to finalize the normalization agreement. Hu Yaobang, as General Secretary was a reformer promoting freedom and democracy much beloved by Chinese university students. Hu was removed from office and criticized for his failure to deal with student demonstrations in 1986. When he died in 1989, the students came to Tiananmen Square to honor Hu much like the earlier mourning demonstrations in honor of Zhou. Hu replaced Zhou in the hearts of the students. Deng desperately wanted to clear the square by the time Gorbachev arrived. He wrote a tough editorial which only strengthened the resolve of the demonstrators. Days before Gorbachev and massive worldwide media arrived in Beijing the students started a hunger strike. Western press which came to cover the Gorbachev visit quickly turned their focus to the demonstrators. Deng tried to clear the square with unarmed soldiers but failed. He waited for Gorbachev and the Western press to leave then sent in heavily armed troops with orders to clear the square at any cost. Estimates of student deaths vary from 400 to several thousand. Zhao Ziyang was removed from power for disagreeing with Deng’s handling of the demonstration.
Factions remained under Deng with the reformers on the right and the conservatives led by Chen Yun on the left. The early success of creating a market economy in China resulted in double digit GNP growth for a number of years in succession. By the late 1980′s the massive growth led to inflation anticipated to be 30% in 1989. Inflation was particularly hard on the mass of Chinese living with fixed incomes. Chen and the conservatives blamed the Tiananmen demonstrations on this inflation and moved too aggressively to contain it bringing the Chinese economy to a hard landing with growth under 4%. The conservatives remained in control until 1992 until Deng, then 87 years old initiated one final movement during his winter vacation in the south. During visits in Shenzhen, Zhuhai, Guangzhou, and Shanghai, Deng spoke out colorfully and strongly for liberalization and expansion of his socialist market economy. Hong Kong media quickly picked up on Deng’s tour and began broadcasting coverage of his talked via television which was now widely available in the regions near Hong Kong. Popular support for his views exploded and his hand picked successor Jiang Zemin quickly changed sides from the Chen led conservatives to the Deng led reformers. In his last movement, Deng thus set the stage for the resumption of the fast growth that continues to this day. From this time forward, inflation fighting measure assured that the economy would have a soft landing and rapid growth continue.
the Steel Factory melts the Iron Lady
The British handover of Hong Kong took place in 1997 just months after Deng’s death. Preparations for the handover occupied a central part of Deng’s attention during his rule. He knew that Hong Kong would be invaluable as a financial and trade center as it had since the revolution in 1949. Deng consistency pressed the one country – two systems approach to dealing with Hong Kong. He continued to develop personal relationships with key Hong Kong businessmen and made sure that the right people from China were appointed to Hong Kong and that Hong Kong leaders were developed to be able to take over when the British administrators left. One of Vogel’s better stories is the visit of Margaret Thatcher (the Iron Lady) to Deng (the Steel Factory) in September 1982. Thatcher was riding high after her victory in the Falken Islands and intended to tell Deng that Britain had decided to keep administering Hong Kong indefinitely. Deng changed her mind for once and all. China would administer Hong Kong and warned Britain not to attempt to drain assets from Hong Kong prior to the handover.
China’s efforts to reassure the residents of Hong Kong received a big setback after the Tiananmen Square repressions and individual residents continued to leave Hong Kong for Canada and other destinations taking as much wealth with them as possible. For all the drama, the handover went smoothly and Hong Kong continues its role today as financial center and trading center for China and Hong Kong’s residents continue to prosper.
Modern Shanghai Bund
What about Shanghai, China’s largest manufacturing center when Deng took over? Shanghai was initially excluded from the SEZ creations because of its size and complexity and because Deng was worried that the SEZs would be seen as a recreation of the colonial past with the foreign concessions. Shanghai was allowed to modernize later and Deng’s successor Jiang Zemin made his reputation in Shanghai.
It is difficult for those in China an abroad who became adults after Deng stepped down to realize the enormity of the problems Deng faced as he began this journey; a country closed to fundamentally new ways of thinking; deep rifts between those who had been attacked during the Cultural Revolution and their attackers; proud military leaders who were resistant to downsizing and budget reductions; public animosity toward imperialists and foreign capitalists; an entrenched conservative socialist structure in both the countryside and the cities; a reluctance by urban residence to accept over 200 million migrants from the countryside; and dissension as some people continued to live in poverty while others became rich…It is doubtful that anyone else had the combination of authority, depth and breadth of experience, strategic sense, assurance, personal relationships, and political judgement needed to manage China’s transformation with comparable success.
Another reason to study this work is for the insights it gives into the inner workings of the political system, the campaigns, the training and promotion of leaders, the complex intrigues between ruling cliques. Deng watched events unfold as labor unions struck in Poland, Nicolai Ceausescu was overthrown in Romania, and as Gorbachev set out to reform the communist party only to see the collapse of the entire Soviet system. Deng was determined to keep a strong single communist party with adherence to the thought of Lenin, Marx, and Mao (with Deng as the high priest of interpretation). At the same time he believed that leaders should experiment, make mistakes, admit their mistakes, correct their mistakes, and experiment again. He carefully avoided the Kruschev mistake of critizing Stalin, finding quotes from Mao that he was correct 70% of time, in other words Mao made mistakes such as the Great Leap Forward and the Cultural Revolution, for which Mao accepted responsibility (he did?), corrected, and moved on to new experiments.
Deng believed that training leaders, giving them freedom to experiment, judging the results (did the cat catch mice? were the flies tolerable?), correcting mistakes, including changing leaders if necessary is the key role of the communist party leadership. Deng believed that reform and economic transformation could only be accomplished by the selection of the proper leadership at the national and regional levels. Deng and his cohort were the second and last generation to have experienced the wars as leaders. Deng was determined to force his cohort of old revolutionaries to retire with him and to pass the reigns to a much younger generation of leaders who grew up in very different conditions. We have now seem several and are about to see the next changing of the guard as the next generation assumes power in a peaceful transfer. All this is the rightful legacy of Deng.
Republic Lost, How Money Corrupts Congress and a Plan to Stop it, Lawrence Lessing, 2011
Lessing makes a compelling case that the republic a government responsive to the will of its citizens has been lost. Since 89% of Americans believe that Congress is broken, this seems like a simple job. But Lessing, the lawyer, goes out of his way to complicate the case, relying on the legal practice of judges recusing themselves to avoid even the appearance of bias if they have a financial or other conflict of interest with a party appearing before them. Since today’s judges including supreme court justice Clarence Thomas seldom recuse themselves in the face of obvious financial bias, this seems a strange argument that congress should refuse all the money because it doesn’t look and smell right to us.
Our system of corruption which creates a mutual dependency between funders (rich individuals and corporations and their lobbies) and the government including Congress is now a very sophisticated set of methods used to get around whatever is the current definition of corruption (quid pro quos) to enable money to “legally” corrupt the government. Lessing is concerned that current academic studies have failed to scientifically identify this corruption but doesn’t point out the obvious that the studies are too simplistic to identify and track the way that corruption works. Lessing himself points out obvious corruption that one would think would prove scientifically that corruption exists; the killing of legislation before it ever comes before either house for a vote; the hiring of congressmen for multi million dollar contracts immediately after their work as congressmen has succeeded (Medicare Part D no negotiation drug pricing, Comcast merger, etc. etc. Half of former congressmen and their staffers go to work on K street or giant corporations. The maintenance of massive corporate welfare subsidies with agricultural subsidies going to many members of congress itself. The inability of Congress to do anything except support the status quo. Financial reform must be acceptable to the financial community as it exists today. Health care reform must be acceptable to the health care industry as it exists today. I don’t think Lessing needs to worry that Americans are going to identify with the corruption deniers.
Lessing is convinced that this state of affairs prevents the government from confronting any of the major problems confronting the country – man made climate change, dependence on carbon based energy; runaway health care costs; self induced health risks due to obesity and Type II diabetes; runaway foreign policy and defense spending; financial markets heading headlong for the next cliff they can find; etc. etc. To meet these challenge, a Congress that can’t even fund the government it itself created. His solutions: Focus on a single issue – get dependence creating money out of politics. Make sure politicians are dependent only on the citizen voters and no one else. He calls this Strike the Root. His strategies to accomplish this?
1. Get Congress to pass a bill to publicly fund elections. Chance – 0%
2. Create a group of bogus candidate to threaten the seats of any congressman who won’t support strategy 1. Chance 5%.
Hope Obama Does the Right Thing
3. A trans-formative president. Lessing clearly thought Obama was going to be this trans-formative figure. Lessing was a colleague of Obama at the University of Chicago, so has known him before Obama entered politics. His disappointment is all the sharper as a result of what he thought of as a friendship. He spends a considerable time quoting presidential candidate Obama to us simply to highlight the contrast between that man and the president.
Obama as Lucy
Lessing likens Obama to Lucy who pulls the ball away from Charlie Brown every time he comes to kick it. Like us, Charlie never learns, and continues to try to kick the ball – he is fooled every time by Lucy’s empty promises. Adding insult to injury, he calls Reagan the professor for developing and acting on a set of (flawed) principals that he codified in the late 1970′s. Obama seemingly has no principals governing his actions. Lessing sites the current example of Buddy Roemer as a possible trans-formative figure though Roemer has no chance of getting nominated much less elected. Chance 2% (Obama really, really disappointed Lessing!)
4. Create an Article V Constitutional Convention with 34 states supporting such a convention. This convention would propose an amendment to the constitution to public fund elections. This is the strategy most commentators have focused on. There is even activity out there now trying to move this strategy along. Lessing chance? 10%.
Fate of Congress?
Looks like we are truly and finally doomed doesn’t it. His best bit though is probably the most revealing. Lessing says that King George III at the time of our revolution, King Louis XVI at the time of the French revolution, and Czar Nicholas II at the time of the Russian revolution all had public approval rating higher than our Congress’s current level of 11%. Sounds like a revolution is primed and ready. How it may happen is anyone’s guess.
With Liberty and Justice for Some, Glenn Greenwald, 2011
Federalist Authors Madison, Hamilton, Jay
Greenwald begins with a look at the founding fathers grappling with the question of how to constrain the absolute power of a monarch by creating a system, as Thomas Payne, noted, where the King is law. John Adams said in 1776; “The very definition of a republic is ‘an empire of laws, and not of men’…Good government is an empire of laws.” Payne and Franklin noted that the law must be equally applied to everyone, poor and rich, weak and strong, powerless and powerful. Hamilton in Federalist paper 71 noted that the president must be subordinate to the laws, and Madison in Federalist paper 57 emphasized that law must be applied equally to the politically elite. If not government will degenerate into tyranny. Washington as president declared that there would never be immunity for wrongdoing by high government while he was president; “The executive branch of this government never has, nor will suffer, while I preside, any improper conduct of its officers to escape with impunity.” Then in Marbury vs Madison in 1803, the Supreme Court clarified the roles of the three branches of government; Congress enacts laws, the president executes them, and the courts say what the law is. The court ruled that the executive branch had the duty to enforce the law on all citizens including high level officials of the executive branch itself. So what happened.
Nixon Suffered Enough
According to Greenwald, Gerald Ford Pardoned Richard Nixon in 1974, Nixon declared in an 1977 interview with David Frost that; “When the president does it, that means it is not illegal.”, the FBI wiretapper of Martin Luther King, Mark Felt (Deep Throat) was pardoned by Reagan in 1981, and Bush 41 pardoned Caspar Weinberger and stopped further prosecutions and investigations of Iran Contra crimes that would have implicated both himself and Reagan in 1992 after Bush had already lost election to Clinton, and Bush 43 commuted the conviction of Scooter Libby in 2007. Clearly the law no longer applies to high level government officials since 1974.
Then in 2005 it was revealed that the Telecoms had been cooperating with the administration in illegal wiretaps of American citizens. As court cases proceeded, the Telecoms put in an extraordinary lobbying effort to get Congress to enact a law giving them retroactive immunity from prosecution for this illegal activity. Obama promised a filibuster to defeat the wildly unpopular law, then instead voted to prevent a filibuster and voted for the law which passed overwhelmingly in the face of widespread public outrage and protest. Encouraged by this bizarre retroactive law, the banks in 2010 sought and got a retroactive law to protect them from their fraudulent foreclosure activities and bring to a stop the massive lawsuits that were moving through the courts.
Obama look forward not backward
Greenwald then explores the extraordinary efforts taken by Obama to thwart and prevent any investigations of illegality by Bush 41 and his administration. Some have come to light in the Wikileaks releases such as the pressure on Spain to stop prosecutions of torturers. A result is that both W and Cheney have publicly confessed to ordering torture. Obama’s actions amount to illegal interference and coverups making him and his administration accomplices in the crimes themselves. These actions pale compared to his torture of Bradley Manning on US soil, his assassinations and hit lists and other illegal activity.
Thomas Drake Get That Guy
At the same time Obama has used extreme effort to prosecute whistle-blowers such as NSA whistle-blower Thomas Drake who exposed serious waste, abuse, and possible illegality at NSA. Obama has also moved against whistle-blower Shamai Leibowitz, an FBI linguist who leaked illegal activity and who was sentenced to a prison term even though the judge sentencing him was not allowed to know the nature and content of the leaks or how the leaks might impact national security. The pinnacle of this terrible legacy of suppression is the pursuit of Wikileaks and its founder Julian Assange. The administration has driven the organization into hibernation through illegal cyber attacks and illegal banking restrictions.
Of course the Obama administration has prosecuted no one for the massive fraud leading to the financial meltdown of 2008. Obama again falls back on the weak “lets look forward” explanation while we all know the illegal behavior is being repeated right now with no change. The next financial crisis is inevitable.
But while the law no longer applies to government and private elites, laws continue to be applied in ever more draconian ways to the poor and dispossessed. The US can now boast that 25% of all the worlds prisoners are held in American jails, a depressing number of them for minor offenses like marijuana possession. When the Obama administration bailed out AIG, it make sure that 100% of CDS obligations to Goldman would be paid by the taxpayers while simultaneously requiring that auto bailout worker take drastic cuts in pay, benefits, and retirement. No executive bonus or pay was ever restricted or limited by Obama.
Greenwald concludes by showing how this two tier system of law and justice has allowed a massive redistribution of wealth to the top 1%. Does he have any remedies or suggestions about how to fix this mess? No. O’Bummer!
Confidence Men, Wall Street, Washington, and the Education of a President, Ron Suskind 2011
The title is intended as a play on the word “confidence”, used to describe the primary motivations of Tim Geithner, Ben Bernanke and Larry Summers in dealing with the financial crisis as in “the proper role of government is to restore confidence in the financial institutions”. The second intended meaning of Suskind is how this small group of men manipulated, conned, scammed the President into following their policies and not the policies actually desired if not ordered by the President. Pretty strong stuff.
The book is a long rambling story telling of events from the long run for President, through the financial meltdown and the first years of the Presidency with an emphasis on the financial crisis but with excursions into health care reform and the auto bailout. It is so rambling that sometimes Suskind gets his facts mixed up as when he says health care insurers have revenues totaling $12 billion of the $2.5 trillion industry (page 193). Insurers profits alone exceed $12 billion! He sometimes loses the narrative as when he implies that Obama has already decided on an insurance mandate at the first health care summit where he gave the last word to insurance lobbyist Karen Ignagni. Then later in the book when health care reform again comes up for discussion it seems Obama has not decided on a mandate. And then Obama campaigned promising a public option. But here the problem may not be with the storyteller but with the man himself and this reader suggests this book is best seen as an imperfect study of the enigma that is our President.
After all, it doesn’t take a genius to figure out how these key players would act given their outsized egos, their personalities, and their history. Summers is a bully with highly toned rhetorical debating skills who is not embarrassed to dominate a discussion on subjects he knows nothing about. As Treasury Secretary in 1999 he was the moving force behind the Clinton administration dismantling of Glass-Steagall to allow Citibank to merge with Travelers Insurance bring Solomon and Smith Barney, two wall street investment banks into the Citi fold. He also made sure that the derivatives market would remain unregulated. These acts make Summers next only to Fed Chair Greenspan the most culpable enablers of the financial meltdown. It is equally revealing that Summers existed totally in the shadow of Bob Rubin so long as Rubin was Treasury Secretary for Clinton. Bullies know their place in the kicking order.
Geithner is a lifelong public servant who spend time in Washington and New York. At the New York Fed he was the shoe shine boy of wall street and the bankers who called him the “boy scout” behind his back. He and Bernanke together with former Goldman CEO ($750 million compensation) Hank Paulson engineered the bank rescue plan and further consolidation of finance as Wachovia, Washington Mutual, Bear Sterns, and Merill Lynch were swallowed up by the big banks. Geithner is not a public servant, he is a servant of Wall Street. It also turns out he is a tax cheat, failing to pay the IRS $34,000. Either he is cheating or he is incompetent, great choice! Incidentally, it seems Geithner’s father at the Ford foundation met Obama’s mother at least once in Indonesia. From Wikipedia;
From January 1981 to November 1984, Dunham (Barack’s mom) was the program officer for women and employment in the Ford Foundation’s Southeast Asia regional office in Jakarta. While at the Ford Foundation, she developed a model of microfinance which is now the standard in Indonesia, a country that is a world leader in micro-credit systems. Peter Geithner, father of Tim Geithner (who later became U.S. Secretary of the Treasury in her son’s administration), was head of the foundation’s Asia grant-making at that time.
Bernanke Lavishes free $14 Trillion on Wall Street
Ben Bernanke was touted as an expert on the Great Depression when he became Chairman of the Fed at the beginning of the meltdown. He was at all the merger and bailout meetings but we only now are learning the extent to which the Fed was secretly lending money to troubled institutions throughout the period. Recent Freedom of Information material acquired by Bloomberg is finally starting to shed some light on the extent of the exposure of the public in Fed lending to the banksters. The Fed has secretly loaned a peak of $1.2 Trillion to Wall Street and the banks including many European banks. Yes, public money has been loaned to European firms. That $1.2 trillion is the same total as all delinquent and foreclosed US home loans. Suskind put the figure at $3.5 trillion from 2007 to 2009. This brings the total Fed issuance to $14 trillion. If that money is used to purchase Treasuries at 3% this free money would yield the banks about $350 billion. So much for lessons on the Great Depression.
But the problem is not these characters who would be expected to act as they have. The important question is how did the President come to appoint them to positions where they could do more damage. Even Bernanke could have been replaced in 2009 when his first term ended.
President elect with Paul Volcker and Austan Goolsbee
Suskind characterized this question as Team A verses Team B. Team A, led by venerable Paul Volcker, was with Obama from the beginning of his candidacy and in-so-far as Obama’s superior knowledge of the workings and problems in the financial sector secured him election, it is thanks to Team A education and advice. On team A were Volcker, Austan Goolsbee, Robert Wolf (CEO of UBS and eyewitness of the meltdown meetings), Robert Reich, Stanley O’Neill, and William Donaldson. All expected significant rolls in the new administration, with Volcker as Treasury Secretary.
Obama Picks Team B
So how and why did Obama go with team B led by Geithner and Summers? We don’t have a clue. Byron Dorgan, Senator from North Dakota put it most eloquently; “You’ve picked the wrong people…I don’t understand how you could do this. You’ve picked the wrong people.” We voters all felt the same way. Where’s our change?
Daschle Master of Congress Left Behind
But Obama was not done yet. He needed to choose between longtime master of the senate, the low key, soft spoken, extremely tough Tom Daschle, and the brash, volatile, inexperienced, caustic, egotistical fourth ranked representative Rahm Emmanuel for his Chief of Staff, doorkeeper to the President. Tough choice right? We’ll go with the much hated in Congress Rahm. What is this man doing to himself? And even worse, Obama spent so much political capital getting Geithner appointed despite his personal tax problems that Obama loses entirely the services of Dacshle, who has a minor problem in failing to report the use of a lobbyist provide car while in Washington. Dacshle could have been confirmed before Geithner but not after. So Obama trades Dacshle for Geithner.
During this transition period, Obama is reading up on FDR who in his first hundred day in office passed the Emergency banking and Glass-Steagall acts, establishes the FDIC to insure deposits, created the Civilian Conservation Corps and the Tennessee Valley Authority. He passed the Farm Credit, Truth in Securities, and the National Recovery Acts, and others. The basis of the entire New Deal were in place within 100 days of FDR assuming office. While detractors point out that full recovery did not happen until WWII started, there was never doubt in Americans minds that the country was back on track early in 1933. Obama assumed office with no plans whatever; none; nada! So much for the legacy of FDR. And he appoints a team guaranteed to continue undermining the FDR legacy.
Two million people showed up in the freezing cold to watch the Obama inauguration and hope. Elizabeth Warren first met Obama at a campaign event in Chicago. Afterward Obama talked about being inside the bubble; “I haven’t been living in this bubble very long. I’m in it now, but not that long ago I had a real life.”
“And she (Warren) would wonder, replaying that last conversation in her head, if it was really about the bubble or the character of the man inside the bubble, and if in Chicago she had seem what she hoped to see, rather than what was really there.”
There are a lot of us wondering this same thing now.
Elizabeth Warren will not head Consumer Financial Protection Bureau
See Warren As TARP Oversight Chair Take on Geithner
You can’t run a policy based on a misdirection or a fiction. I don’t know what the president is thinking. I don’t see the president. He meets with bankers. He doesn’t meet with me. But if he’s involved in this at all, he’s got to know that his angry words at Wall Street, and their recklessness and dangerous incentives in compensation, about how they do their business in ways utterly divorced from what’s actually good for the economy – that he can’t just say that sort of thing and then just dump money in their laps and be credible. Tim and Larry’s whole plan is just like Argentina’s in the 1980s. There was this giant hole marked “Banks” and the government just dumped money in that hole, as much as they had, while they lied about it. That’s what Larry thinks, that the U.S. is Argentina.”
Elizabeth Warren, who was the driving force in establishing the Consumer Financial Protection Bureau to which Obama failed to make its first head and which was crippled at its inception by placing it in the Federal Reserve – toothless. This leads Suskind to another startling theme that links Obama, Summers, Emmanuel, and Geithner, their seeming inability to deal with women professional as equals. Suskind suggests that Summers was fired from the Presidency of Harvard not only because he suggested that women were genetically unsuited to science, but because during his tenure only four women were promoted at Harvard. Hillary, as a world recognized force of nature is the sole exception, viewed not as a woman, but as a power base. Suskind suggests that Christina Romer was given a “safe” ie. non threatening to Geithner and Summers appointment in a nod to gender equality.
Rubin Tanks Citigroup – Obama Wants to Dismantle Citi
Citigroup, under the leadership of Bob Rubin (himself now toxic in Washington) loaded up with toxic CDOs late in the game, was insolvent and ready to go under. Sheila Bair of FDIC tells the White House she is ready do an FDIC resolution of the bank, something the FDIC has been doing successfully since 1933 without a single mishap. Geithner panics because, of course, Citi is “too big to fail”, but Bair points out that at heart Citi is a bank, unlike the Wall Street firms they were dealing with in the past so of course the FDIC knows exactly how to resolve it.
The White House has been discussing the coming implosion from the start and Obama has centered on a “Japan or Sweden” theme. Japan repeatedly bailed out its financial institutions without insisting they clean up their toxic assets leading to the “lost decade” when Japan stopped growing economically. Sweden nationalized its banks, cleaned out the toxic assets, restructured and then closely moved to privatize the banks as they regained their feet. Sweden quickly recovered economically. Obama made it absolutely clear he favored Sweden.
Shiela Bair Ready to Resolve Citibank
When Bair announced her intention, Obama held a meeting at which he indicated his desire to restructure the entire banking industry. Having made his wishes known he left the meeting to have dinner with his family (dinner is more important than restructuring the financial system!) As soon as Obama leaves, Rahm says restructuring the entire industry is a non-starter because Congress will never approve the funds necessary. Note that he waits for Obama to leave before scuttling the entire plan. Obama comes back and Summers tells him they can’t afford the restructure the entire industry. Obama says, OK, we’ll start with Citi and when we show that works we can ask Congress for money for the rest of the industry. New decision, new plan. By this time Summers and Romer are in favor of the restructuring.
Geithner is terrified of restructuring Citi and has Treasury working feverishly on bank stress tests as an alternative to determine the real state of health of the industry. Industry insiders roll their eyes because the big unknown of course are the extent of toxic CDOs which are usually kept off the books to deceive investors and regulators and will not be uncovered by stress tests. Geithner simply wants to buy time and is determined to pump money to shore up confidence. He never seriously considered a resolution of citibank.
Bizarrly, Shiela Bair, government’s only expert on the resolving of banks is never consulted. Summers and Romer seem to think the ball is in Geithner’s hands but unknown to them, Geithner uses the excuse that the FDIC is too leak prone to discuss the possible restructuring of Citi. Geithner is, of course, doing nothing to plan for Citi’s restructure. When Obama asks how the plan is coming Geithner only talks about stress tests. Geithner is directly defying the express wishes and orders of his President. Nothing happens and Citi is never restructured. Bair is never brought into the loop. Welcome to Japan (or are we now Argentina) – so long Sweden. Geithner keeps his job as Treasury Secretary after monumental insubordination.
After this, Summers felt free to “re-litigate” every decision Obama thought he had made. Obama finds himself facing the same decisions over and over. More insubordination.
What is happening here is what seems increasingly to happen to Presidents, both Republican and Democratic, they are being managed by the staff that is supposed to support and implement their wishes. Only the President is elected by the people and only he has the mandate to govern. But in the modern Presidency including Clinton, W, and Obama, the staffs have taken the central policy development role and have their own constituencies. This has been true of three Treasury Secretaries to three Presidents; Rubin under Clinton, Paulson under W, and Geithner under Obama. Who do these guys work for and who do they serve? Certainly not their Presidents. The isolation is increased with a Summers who controls what the President sees and who he hears and with Rahm who arbitrarily dictates what is legislatively possible. Generally nothing is said to be possible. A President who can assemble two million citizens on the Washington Mall can pass any legislation he wants to, at least for a while. And it was Rahm’s job to figure out how to pass the President’s wishes into law, not to tell what can’t be done. Dacshle would have figured it out. So who is Obama and why has he allowed all this to happen – not happen.
Volcker reflects on Obama;
I think Obama understands everything intellectually, very easily, near as I can see. What we don’t know is whether he has the courage to follow through. He understands it, but does he feel it in the belly? I don’t know.
Volcker was vehemently oppossed to Gethner’s stress test idea because it puts the government into the position of choosing winners and losers. Finally fed up, Volcker agreed to appear before Barney Frank’s committee to give his opinion and Volcker pulled no punches. Glass-Steagall needed to be restored;
The point is not only the substantial risks inherent in capital market activities. There are deep seated, almost unmanageable, conflicts of interest with normal banking relationships – individuals, businesses, investment management clients, seeking credit, underwriting, and unbiased advisory services. I also think we have learned enough about the challenges and distractions for management posed by the risks and complexities of highly diversified activities.
Summers opined to many senior staff members in widely quoted terms;
We’re home alone. There’s no adult in charge. Clinton would never have allowed these mistakes.
Then there was the treatment of the many women on the staff. As Anita Dunn recalled;
This place would be in court for a hostile workplace…Because it actually fit all of the classic legal requirements for a genuinely hostile workplace to women.
Obama, Summers, Geithner, and Emmanuel are all implicated in creating this hostile workplace.
Early in his term Obama brings a group of Congressional leaders of both parties to the White House to discuss the budget. Out of nowhere, Obama blurts out to the Republicans present “I’m prepared to give you tort reform. What will you give me?” What does tort reform have to do with the budget? This leads one participant to think of the movie Dave, where an actor look alike is brought into the White House to impersonate a secretly comatose President.
Obama assembled a team, led by M&A banker Steven Rattner, to deal with the auto industry crisis. So it is no surprise the team approached the auto industry totally from the perspective of a financial acquisition where 17 out of 20 firms end up being liquidated. The team called saving Chrysler rather than liquidating it and collaterally destroying the suppliers and dealers as a side effort of liquidation “a close call”. No one in the room was looking out for the worker, the industry retiree, the jobs.
For the next 200 pages, Obama and the white house virtually disappear – in a book about the presidency!
The banks and Wall Street are back to normal behavior with over $35 trillion in outstanding credit default swaps by 2011. The repo (daily refinancing of off the books securities) is fully up and running. Profits are at record levels as are compensations to the top executives. Then the Goldman scandal revealed by the SEC that hedge fund manager John Paulson was creating derivatives designed to fail that Goldman could then sell to suckers, like German Banks while they purchased CDS insurance against these same CDOs, reigniting the public furor at wall street’s unethical and illegal behavior. Goldman made $3.7 billion in 2007 from Paulson’s hand crafted weapons of mass destruction. This was on top of the previous disclosure that large amounts of TARP funds had flowed through AIG directly to Goldman as 100% payment for CDS insurance claims. No haircut for Goldman!
Larry Fink $9 trillion toxic asset cover guy
Meanwhile Treasury handed off $9 trillion in toxic troubled mortgage assets to Blackrock to manage. $5.5 trillion came from Freddie and Fannie and the rest came largely from the Lehman bankrupcty and from the AIG CDs insurance payouts. Blackrock was paid $300 million a year to manage these “assets”. Suskind doesn’t pursue this but the reader thinks this means that the government and the Obama administration are the direct owners of a heck of a lot of mortgages. How many houses are still occupied? Are restructured loans being offered? Are these loans being foreclosed on? What is the state of the paperwork on these loans? Are they fragments or tiers of CDOs or can whole mortgages be reconstructed? It seems there is a potential here to do a lot of good for people and the economy. It looks like Geithner and Treasury may be sitting on this toxic stuff just like Wall Street and banks so no one has to recognize the losses entailed.
The Dodd-Frank bank reform bill passes which promises to do nothing for bank reform. Even the Volcker rule has been neutered. Deriratives, those weapons of mass destruction, may be moved to separate subsidiaries but no clearinghouse and no exchange required. Obama, who was MIA during its development publicly praises the bill.
Gary Gensler, Scourge of Wall Street
Suskind spends some time on Gary Gensler, formerely of Goldman and now chair of the obscure regulatory agency Commodities Futures Trading Commission CFTC. As a condition of his senate approval Gensler had to promise Maria Cantwell (and Bernie Sanders) that he would push for derivatives to be traded through an exchange and with a formal clearinghouse.
He meets Voightman who ran Lehman’s mortgage finance arm and asks him when he knew the mortgages were in trouble. Voightman said that by August 2005 10% of mortgagees were failing to make their first payment. But he said Goldman saw mortgage underwriting standards deteriorate in 2004 and demand for CDOs skyrocketed. Goldman quickly realized someone was needed to take the short side or “downside” to assure the liquidity of these CDOs. “Goldman did that as fast as was humanly possible, and then some.” Goldman anticipated the financial collapse in 2004!
Gensler studlied Morgan Stanley’s financials and discovers they have an $80 billion derivatives book of which $55 billion is uncovered – un-collateralized; roughly 60%. Wall Street hasn’t changed its behavior at all. Digging further he came across figures from the Basel Committee on Banking Supervision whose conclusions supported that Morgan was not alone. Goldman, JP Morgan, insurance companies, and others have an over the counter derivatives book of $400 trillion of which more than half is unsecured or un-collaterized – there is nothing in reserve when these unregulated derivatives blow up. The next financial collapse is primed and ready.
Gensler finds a former colleague is working for Senator Blanche Lincoln and works with them to develop a bill to require regulation of derivatives. Her bill passes committee. The bill fails, Lincoln attempts to attach it to other bills but it ultimately disappears. Gensler is called the most dangerous man in Washington by Wall Street, he receives death threats, one threatener is arrested, and Gensler is assigned a security detail. Wall Street plays hardball to protect their sacred compensation which largely depends on unregulated derivatives. Gensler’s initiatives missed Dodd-Frank but Gensler is still out there trying to reign in those derivatives. Obama is MIA.
Bernanke’s first term ends in 2009 and Geithner recommends that Obama retain him. Summers, who thought he had an understanding with Obama that he would be the next Fed Chairman, is furious. He acts out like a little kid, throwing tantrums, and demanding new perks if he is to stay. He fortunately decides to leave. At the end we go through the complete staff reorganization at the White House. Only Geithner remains, but alongside Bernanke, that is all Wall Street needs. Imagine Geithner’s payoff once he leaves office in five years – unless the next financial meltdown has already begun.
Don’t Prosecute Wall Street or Bank Executives
Missing from the book are some pretty significant details. Attorney General Eric Holder is mentioned once as a member of the committee to select a VP. Occupy Wall Street (and Michael Moore) wonder why there have been no arrests or prosecutions of Walls Street “banksters” for their frauds leading to the financial meltdown. The executives themselves maintain that they broke no laws, but their attorneys, as reported by Suskind, are actually advising them that their activities “would be hard to prosecute” – slightly different than not breaking any laws. The book also reports someone suggesting that a few hundred “perp” walks would do wonders to reform the behavior on Wall Street. The answer has to be that Obama or his administration has instructed Holder that there will be no prosecutions of Wall Street or the bankers, under the cover of “confidence”. This would be consistent with Summer’s and Geithner’s “do no harm” wimpy non approach to financial reform. (Just paper over the problem with money!) This is a major and key oversight for Suskind. Criminal prosecutions would have changed the entire dynamic for this wimpiest of administrations.
The SEC should have also figured in this book even if only to call attention to their lack of action. Finally (after the book is published) the SEC has announced fraud prosecution against top executives in Fannie Mae and Freddie Mac, which are both under control of the government. There is unlikely to be criminal charges coming out of this SEC action. To see how regulators are supposed to act in a financial crisis see William Black.
The environment doesn’t even get a mention in this book it is so far down the list of Obama’s priorities. We know he embraces “drill baby drill” and was only momentary delayed by the BP Gulf disaster from approving new drilling leases (including some to BP). We know he overrode the EPA to soften air control standards. We know he is delaying action of international climate change carbon emissions commitments. We know he delayed a decision on the oil sands pipeline as a political expediency to get him through the next election before he has to make a choice. The Republicans are attempting to force him into a decision before the election knowing any decision will anger some of Obama’s constituents. Wimp-in-chief.
We know Obama is secretly rebuilding the nuclear arsenal at enormous public expense. We know that Obama ordered that there would be no prosecutions of the W officials for war crimes. “Let’s Look Forward. Move on.” Obama promised to close Guantanamo, then failed to do so. Obama promised to end torture, then tortures American citizen Bradley Manning in America. Not satisfied with torture, both Obama and Biden publicly declare Manning guilty of leaking the secrets, declare him a terrorist, leaving a fair trial for Manning impossible anywhere.
Adding to this outrage, Obama becomes “Assassin-in-Chief” ordering Osama Bin Laden killed illegally by having the military violate the territory of Pakistan to shoot, extract, and then dispose of the body at sea. What happened to due process, the rule of international law, the example of Nuremberg and Japan after WWII. He then expands on this assassin persona by killing American Citizen Anwar al-Awlaki in Yemen. He also assassinated al-Awlaki’s innocent 16 year old American son. Who is this Harvard trained law professor guy?