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?
Boomerang, Travels in the New Third World, Michael Lewis, 2011
Kyle Bass, scavenger of nations
In 2008 Lewis interviewed Kyle Bass of Hayman Capital, a Texas hedge fund, who predicted that a number of first world countries, starting with Greece, but including Japan, France, Ireland, Portugal, Spain, Italy, and Switzerland were destined to default on their debts. Bass didn’t know when this might happen but started placing bets with JP Morgan, Morgan Stanley, and Goldman Sachs, figuring these firms had proven too big to fail and would therefore still be around to pay the bets. These bets were pretty cheap, for example $1 million insurance that Greece will default cost him $1100 per year. If Greece negotiated down its debt 70% Bass’s $1100 bet would return $700,000. Not bad. Thus the first chapter of Lewis’ new book would lead one to expect a sequel to his The Big Short. It isn’t.
Instead we are treated to a fast, superficial tour of Iceland, Greece, Ireland, and Germany, complete with annoying pronouncements about stereotypical national culture traits of these countries. Of our own Wall Streeter’s Lewis says;
Billionaire bankster John Paulson
Extremely smart traders inside Wall Street investment banks devise deeply unfair, diabolically complicated bets, and then send their sales forces out to scout out and scour the world for some idiot who will take the other side of these bets. During the boom years a wildly disproportional number of those idiots were in Germany…When Goldman Sachs helped the New York hedge fund manager John Paulson design a bond to bet against – a bond that Paulson hoped would fail – the buyer on the other side was a German bank IKB, along with another famous fool at the Wall Street poker table called WestLB…
In other words, Germans have a national flaw that causes them to believe that Wall Street “banksters” are not scam artists of the first order and to believe that an AAA credit rating actually means something. Shame on them. These German banking idiots are paid a mere €100,000 per year and some were thrown in jail after their losses occurred. Prosecuting bankers, what a concept. German banks, along side British, Danish, and other banks were all big investors and losers in Iceland and Ireland.
Fathers Ephraim and Arsinios
Lewis’ best story concerns two monks, Father Ephraim and Father Arsinios, who found themselves in charge of a deteriorating, badly managed monastery on the peninsula of Mount Athos. They discover a five hundred year old land grant from the Byzantine Empire to a lake that is now under the control of the Greek government. The monks go to Athens and trade “their” lake for €1-2 billion worth of government commercial real estate. The monk’s intend to to use the money from these commercial properties to restore their monastery. How they managed this is still under investigation but there is talk of confessions the monks took from government ministers. In any event, word leaked of the land trades, and public outrage forced the collapse of the decades long rule of the conservative party, bringing to power American born socialist George Papandreou in October 2009.
The Greek government in order to qualify to join the European Union and the Euro-zone had to meet stringent requirements for debt and inflation. They were allowed to join the EU in 2002 and were then able to borrow money at EU rates of 5% where previously the government was paying upward of 15%. Still, when the socialists came to power in 2009 the debt for that year was projected to be a manageable 3.7%. The new socialist finance minister discovered the government was making large numbers of off the books payments bringing the actual 2009 debt to around 14%. The total indebtedness of the Greek government was discovered to be around €1.2 Trillion or about €250,000 for each citizen. This is still better than the $330,000 debt for each Icelander.
Greece also has a problem with revenues – it can’t collect taxes. A majority of Greeks are self employed including all Greek doctors and all report a maximum income of €12,000, below the poverty line but avoiding all income tax. Real estate is valued at a small fraction of its true market value for taxes and Greeks avoid paying sale taxes most of the time. Tax collectors would rather accept bribes than go after a tax dodger. A tax collector that is too diligent may be fired.
Greece’s debt comes from such practices as paying an average of €65,000 for public workers, more than is paid in Germany. The railroad brings in €100 million in revenue and costs €400 million per year to run. For all this money the trains never run on time. One analyst concluded Greece would be better off shutting down the railroad and paying taxi fees. Most government workers retire at age 50 and receive full pensions.
When the EU imposed austerity measures which limited public workers to €4,000 per month, the Greek government responded by creating the 14 month year. The population is so opposed to austerity measures that they engage in violent protests.
Turning to Ireland, Lewis describes their three banks as doing little more than investing in commercial and home real estate development in Ireland. The new Anglo Irish bank invested exclusively in large commercial real estate development and their growth and success forced to two older banks to compete. An analyst at Meryl Lynch, Ingram wrote a scathing report on the three bank’s lending practices and was fired for his efforts. Meryl Lynch then published a report stating that all three Irish banks were profitable and well capitalized. Based on this report, the Irish government moved to shore up the banks when they got into trouble. Instead of guaranteeing deposits and letting investors and bond holders go under, the Irish government guaranteed everyone, in effect nationalizing the banks. This left the Irish public on the hook for the entire debt incurred by the three mad banks. In the end, the banks funded development of more offices than Ireland had businesses, and more houses than Ireland had people. It was total madness. Prices were completely disconnected from rents so that an €800,000 house would rent for €800 month. After the collapse, Irish bankers have had to go into hiding as have the Icelandic bankers. They are both afraid and ashamed to be seem in public.
Lewis’ best analysis again concerns Germany. Germans are very disciplined, hate debt and inflation, and demand that their government act accordingly. Germans are also sitting on a massive gold store second only to the US. As the dominant power in the Euro-zone, Germany expects all other Euro-zone members to act responsibly like they do. When these nations include Greece, Ireland, Italy, Spain, and France, this expectation is unlikely to be met. So will the Euro-zone survive? Who knows.
Arnold Schwarzenegger, Governator
At the end of this short book, he goes home to California, the state closest to complete financial collapse. One California professor thinks they are not quite as bad as Greece but close. Lewis quotes some statistics. California spent $6 billion in 2010 on 30,000 prison guards, that’s $200,000 per guard twice the German banker’s pay. A prison guard who started work at age 45 can retire 5 years later at age 50 with full pension. California’s highest paid employee made $838,706 working for the prison system. Yet the prison system is so overcrowded and badly run that courts have ordered reductions in inmates and improvements in prison conditions.
In that same year, California spent $4.7 billion on its higher education system’s 33 campuses serving 670,000 students and once the envy of the world. Tuitions that in 1980 were $776 per year were $13,218 in 2011. California’s debt to its employees alone is approaching $200 billion. Californians share the Greeks hatred of paying taxes. They have created a system of government that is totally dysfunctional and where its citizens can override lawmakers with petitions at any time. City after city are declaring bankruptcy. But Lewis doesn’t have much to say about American national character.
The IMF is now moving to take control of both Greece and Italy. What is probably needed here is a sequel, not to The Big Short, but to Naomi Klein’s The Shock Doctrine. What is likely going on here is a move by the financial giants to seize ownership of the various nation’s most important and productive assets. The joke that Papandreou tried to sell the Greek Islands may actually be what is about to happen. Neo-colonialism may be coming to the Euro-zone.
They Were Divided, Miklos Banffy, 1940 Book Three of The Writing on the Wall, the Transylvania Trilogy, translated into English in 2001
Miklos Banffy The Tolstoy of Transylvania
This book covers events from the time of Austria’s annexation of Bosnia and Herzegovina in 1908 to the start of the Great War (WWI) in 1914. The story is told from the point of view of Count Balint Abady, an Hungarian aristocrat with large land holdings near Kolozsvar (now Cluj-Napoca) in Transylvania (Romania). This is a world well known to the author Banffy, perhaps the richest Hungarian aristocrat in Kolozsvar who was an able diplomat who negotiated the agreement under which Hungary joined the League of Nations in 1920.
The book is about evenly divided between stories and descriptions of the social lives of these Hungarian aristocrats and the meaningless politics of the Hungarian aristocrats in the dual monarchy Austro-Hungarian empire. It is a nostalgic and regretful look back on a world destroyed in the Great War. An English preface to the look likens the Hungarians in Romania to the English in Ireland and says Banffy reminds him of Hardy.
Balint tries his best to maintain his Noblesse oblige to his own serfs and actively promotes the establishment of agricultural cooperatives to allow the Romanian small land holders to collectively cooperate in the production and distribution of their agricultural products. He is forward looking but helpless in the face of the foolish political maneuvers of his fellow political aristocrats. He credits the peace that has held in Europe since 1967 with creating a generation unacquainted with the horrors of war and unprepared to take the necessary steps to prevent it. Italy, Russia, and France are busy trying to expand their empires in North Africa and the Balkans feeling that they have come late to the party of empire. Kaiser Wilhelm in Germany is building up his navy and recklessly challenging England on the seas. Franz Joseph has been emperor of the declining dual empire since 1848 but seems destined to live forever. Efforts to build up their military and even build a navy (with sea-bases where?) come to nothing.
In the end Balint fatalistically rejoins his old regiment in the mobilization and prepares for war. He expects to die and expects the world he has known and loved to be completely destroyed.
Washington is a medical ethicist and bioethicist whose attitude seems to be summed up in this quote from Thomas Browne; “No one should approach the temple of science with the soul of a money changer.”
The Real Henrietta Lacks, unsung hero of Polio vaccine
Who owns our bodies? Apparently not us judging from consistent court rulings. In 1951 tumor cells were extracted without consent from cancer patient Henrietta Lacks for further study. These cells, known as Hela were propagated and sold over and over and are still available for research today. They have generated millions of dollars in fees and have underpinned research breakthroughs and treatments too numerous to mention although their contribution to the development of Salk’s polio vaccine stands out for special mention. Henrietta’s husband had refused to consent to the cell extraction and the family only learned that the Hela line was world famous in 1994 when a son was approached to provide his cells for additional study.
Alistair Cooke’s Body Snatched
Appropriation of body parts without permission continues unabated and is a huge business worth billions today. Among those appropriated without permission were Alistair Cooke, long time host of PBS’ Masterpiece Theater. Some of these bodies including children have found themselves used in auto manufacturers crash tests.
Then in 1980 the Bayh-Dole act was passed to allow the commercialization of patents resulting from government sponsored research. In that same year, 1980, the supreme court ruled that life can be patented leading to a gold rush of patents in plant and animal life. Traditional remedies and medicines known for hundreds or even thousands of years have been patented. Few have been overturned by the courts. A 1980′s patent on a Brazilian psychedelic plant was overturned not because of the plant’s traditional and sacred meaning to a Brazilian tribe but to the 30 year prior writings of Alan Ginsburg and William S. Burroughs. Bio-colonialism is OK but prior documented western “discovery” can be used to invalidate a patent.
While the human genome project itself and its discoveries were placed in the public domain, subsequent work to isolate individual genes responsible for certain diseases were allowed to be patented. That’s right, Alzheimer’s, cancers, and many other deadly diseases are owned and controlled by patent holders. More than 50,000, almost a fifth of all human genes are now patented, more than 36,000 by a single French company, Genset. Many genes were allowed to be patented even though researchers don’t know the gene’s function. These genes patents more than any single cause have stymied, slowed down, or even blocked outright research into tests and treatments of many deadly diseases. At the very least they have dramatically increased the cost of doing research as huge patent licensing fees must be paid.
The pharmaceutical industry was once the most profitable industry ever to exist on the planet. It has now fallen to the third most profitable and profits are in free fall off the cliff. Why? Because drug companies no longer develop important life saving blockbuster drugs like the statins (Zocor is off patent and Lipitor’s patent is expiring), but put their efforts into “me too” drugs and life enhancing drugs like Viagra or cosmetics.
They also pour enormous efforts and resources into defending through litigation and extending their patents with such tricks as combining two drugs whose patents are expiring into a “new” patentable drug, or re-branding a drug for a new purpose such as patenting an existing drug under a new name with FDA approval for use by black people (whatever that means genetically) exclusively. Remember thalidomide the drug that caused all those birth defects back in the 1950s and 1960s. Guess what, thalidomide is back as a relabeled newly patented drug for the treatment of lepers.
It costs upward of $1 million to fight a patent infringement case involving drugs. To prevent “me too” drugs, companies file not only the drug they want to market, but every near derivative they can imagine. One drug patent was surrounded by 1300 similar drug patents to make “me too” drugs virtually impossible to produce. Adding to the mess, some drug patents are 400,000 pages long (not a typo) and the company requesting the patent pays most of the patent office costs. Sounds a lot like the relationship between the ratings agencies and the financial companies who pay them. Imagine litigating over a patent that no one can possibly read or understand.
What can happen once a patent is granted for a drug? One drug capable of eliminating sleeping sickness was never marketed for that purpose but was re-branded as a facial creme to remove women’s facial hair. Not enough money in sleeping sickness? Several effective cancer drugs were not marketed because of low projected revenues and the university inventors were unable to override the company decision. Those drugs sit on the shelf useless.
Available cancer drugs have been singularly disappointing resulting in an overall extension of average American lifespans a mere four months. Yet a single course of cancer drug treatment can cost $200,000 to $300,000 each. In one case, the Canadian health system, unable to reach an acceptable price agreement with the manufacturer, paid $218,000 for one Canadian patient to travel across the border for treatment in the US. We now learn that speculators often corner the market and horde these expensive drugs in order to hold doctors-patients-hospitals hostage for incredible additional markups. Oh the wonders of unfettered capitalism.
Unable to get American consents for drug studies, companies increasingly are testing drugs in Africa and Asia where they ignore consent requirements and feel free to use placebos where they would be required to use the best available treatments for their comparisons. That’s OK, their test subjects won’t be able to get the test drug anyway after the study ends. This is The Constant Gardener on steroids. See also The Body Hunters. And if the patients or their families sue with government help as in a case in Nigeria where 11 children died during a test and many other were disabled for life, the drug company “lost” all its records yet once a settlement was negotiated was able to identify its test subjects through DNA tests. Very mysterious record disappearance. The drug was never FDA approved fortunately.
But avoiding the need for consent is not limited to poor countries but is practiced domestically as well. One company had developed a blood hemoglobin substitute whose early tests showed up bad side effects. Needing another large clinical study to proceed the company came up with a novel idea. They kept supplies of the “blood” in EMT vehicles operating in whose areas contained mostly poor, primarily black and Hispanic populations. Whenever the EMT team picked up a patient who had lost blood they administered the artificial hemoglobin rather than the usual saline solution on the trip to the hospital. The company’s thin justification for avoiding the need for consent was that the subject was unconscious (sometimes), that no family members were present (sometimes) and that treatment was urgently required. (No, saline would have stabilized the subject til arrival at the hospital.) Once in the hospital, the company extracted blood samples three times a day for the study. If a subject asked why they were told it was a normal part of their treatment. In other words the subjects were never informed that they were in the study, of the known risks and side effects of their treatment, they were lied to throughout. The FDA did not approve the hemoglobin substitute.
For those that think the horrors of the Tuskegee syphilis experiments on black soldiers is ancient history, think again. After the military grade anthrax samples were mailed to important congressmen and newsrooms, a drug company rushed to develop a vaccine for anthrax. While the vaccine was in testing and after significant problems such as loss of vision and hearing and miscarriages had already surfaced, the DOD determined to vaccinate more than 100,000 troops with the non-FDA approved drug. Thousands of soldiers refused and were dishonorably discharged from service at great cost to themselves and the military. A pregnant soldier asked to be transferred but her commanding officer not only denied the transfer but forcibly had her vaccinated as an example. She miscarried. The FDA never approved the vaccination but the soldiers learned they had no legal recourse either against the military or the drug company. Today thousands of former soldiers suffer from the side effects.
Also on the subject of bio-colonialism, researchers are increasingly descending on isolated groups of people whose isolation give them a limited gene pool and therefore makes them useful for isolating particular disease’s genetic causes. Thus Easter Island, Hawaiians, a 2000 year old group of Jews in India are recruited for studies for which they are unlikely to benefit. An interesting example is Iceland where an Icelandic researcher formed his own company and set out to collect samples and information promising financial rewards and medical breakthroughs beneficial to Icelanders. Icelanders love genealogy and can track their ancestry often back to a Viking. They also keep extensive medical records tracing back for generations. Thus the researcher was able to put together a uniquely valuable data base with cell samples. Unfortunately breakthroughs and profits eluded him and the company fell into bankruptcy where control of the valuable data was lost. The information has now been sold to drug companies and insurance companies (Did you know your disqualifying pre-condition originated with some ancient viking?) The possible horrors are hard to contemplate.
While government grants still fund the vast majority of research on disease and treatment, the drug companies have dominated the control and marketing of the resulting breakthroughs. Drug companies also include the government subsidies when justifying high drug prices. A Pharma sponsored study put the average cost per drug at $800 million which they round to a billion in talking points. Ralph Nader’s group, using Pharma’s own numbers puts the actual cost at about $100 million, still serious money.
The patenting mess has drawn the universities and other institutions into a dependency on marketing their patents and research that has totally compromised their role as independent investigators. One researcher assembled the worlds most valuable collection of cells and materials to study Alzheimer’s only to see his University of Washington sell the collection to Pfizer. He and his subjects were unable to reverse the sale. In one court case, Duke argued that their university researchers should be protected in their investigations only to have the court rule that since Duke patents research and sells licenses they are indistinguishable from any other corporation and their employees cannot be expected to have special privileges. Universities are no longer special. Further, virtually all researchers whether in the University or elsewhere are on the take from the drug companies.
Professional journals such as JAMA and the New England Journal of Medicine have been compromised to the point they are little more than paid drug ads. Journal articles are ghost written by drug employees with the named authors having no access to the underlying research numbers. Because everyone qualified is on the take, independent peer review of articles is no longer possible. The big danger in all this is that drug companies are able to hide and lie about the actual clinical trial results and cover over or minimize side effects. Thus doctors who rely on journals to keep up with medical advances are mislead as to the true risks of the drugs they prescribe.
Even worse, doctors are on the take to the tune of $6 billion a year with an additional $2 billion in junkets. How can a patient rely on a corrupted doctor’s recommendations for treatment?
Drug companies also contribute financially to the FDA’s operating costs. This gives them the power to remove FDA officials who may oppose approval. The FDA has moved from denying approval of questionable new drugs to requiring larger warning labels as if this will prevent or limit the drug’s inappropriate use. When a drug is pulled by the FDA it often is re targeted and relabeled and reintroduced with FDA approval such as the infamous thalidomide.
Lula da Silva announces Brazil’s HIV march-in
Governments all have the ability to require “compulsory licenses” for critical drugs like those for HIV. Brazil shocked Pharma in 2007 by announcing a compulsory license for Merck’s HIV efavirenz. India has long ignored drug patents and have become proficient as reverse engineering patented drugs. Brazil’s action has set off a chain reaction among other governments causing the drug industry to start to rethink its pricing policies for poor countries. In the last 20 years only 4 drugs have been developed for diseases unique to poor countries. One of those is sold only as a vaccine for visitors to those poor areas not for the residents themselves.
The Gates Foundation, WHO, and other groups are experimenting with a new model where entire governments in poor countries guarantee a market for a drug to treat diseases like sleeping sickness or malaria. It is hoped the guarantee will finally induce drug companies into manufacturing drugs for these diseases. International organizations are also encouraging drug companies to think of pricing tiers for poor countries and are helping to police the illegal re-importation of the cheap drugs. The actions of Brazil and India are encouraging this trend but counter pressures come from WTO attempts to enforce intellectual property rights, i.e. patents.
There have also been a few cases where gene patents have been overturned, most famously for the seven ovarian cancer patents on the genes BRAC1 and BRAC2. This case has been appealed and will likely end before the supreme court. Still this temporary limited victory gives Washington hope that things might be reversing and ever optimistic, she looks forward to the day when Bayh-Dole will be eliminated and the plant and animal and gene patent rulings reversed. Dream on. At least patents expire after twenty years unless companies figure cleaver ways to extend them so research and development may be able to resume after this wasteful interregnum.
Sacks quotes Supreme court justice Oliver Wendell Holmes Jr.; “I like to pay taxes. With them I buy civilization.” Hence the title of his book and its subtitle “Reawakening American Virtue and Prosperity.” Fortunately, Holmes, who died in 1935, would not live to see the death of his ideal in the current age of unfettered greed.
Sacks begins by citing the guiding economic principles of his mentor Paul Samuelson of MIT whose textbook Economics, first published in 1948 has been used in most introductory economics courses including this reader’s ever since.
Markets are reasonably efficient institutions for allocating society’s scarce economic resources and lead to high productivity and average living standards.
Efficiency, however, does not guarantee fairness (or “justice”) in the allocation of incomes.
Fairness requires the government to redistribute income among the citizenry, especially from the richest members of the society to the poorest and most vulnerable members.
Markets systematically underprovide certain “public goods” such as infrastructure, environmental regulation, education, and scientific research, whose adequate supply depends on the government.
The market economy is prone to financial instability, which can be alleviated through active government policies including financial regulation and well-directed monetary and fiscal policies.
Sachs goes on to give the reasons why income inequality is at historic high levels, and yet taxes on wealth are historically low, why government is doing virtually nothing about redistribution and is providing almost none of the things government is uniquely required to provide like support for research, education, environmental regulation, infrastructure, etc. The picture is predictable awful.
He joins other writers disillusioned with an Obama that he supported. He details how health care “reform” was decided in secrecy in negotiations with the insurers and pharmaceuticals and in complete disregard for public option that wanted at least a public option. He goes on to show how Obama and lawmakers disregard public opinion in issue after issue, from environmental reform to energy policy to banking re regulation and wall street makeover. The voters are clearly the disenfranchised as the administration and Congress listen only to powerful interests and the elites.
But Sachs is ever the optimist and in part 2 he attempts to demonstrate that things can change for the better. He goes through an obscure numbers exercise to show that things can improve with modest changes – no need for radical overhaul. Unfortunately his exercise doesn’t really address the fundamental problem of income redistribution and the proper role of government called for by Samuelson. But how can even the modest goals be met in our current state of political paralysis? Sachs suggests maybe a third political party will arise miraculously from the ashes to save us. Yeah right. Or maybe the Millennials (those born after 1992 with their inadequate and partial educations thanks to our dysfunctional governments) will save us. American society does everything it can to destroy the future prospects for the next generation and then expects them to come save us from ourselves?
This reader enjoyed the clear, simple writing to explain where we are and how we got here, but the solutions, unfortunately are also simple (as in retarded).
Most accounts of our current political paralysis starts in the 1970s or with the election of Reagan and focus on the role of the Neocons and their greedy corporate masters. This history starts with the outbreak of the Great War (WWI) and asks the question: What happened to the once powerful and independent liberal class, the Democratic party, the labor unions, the academics and intellectuals, the liberal media, the arts, music, and theater to allow the total takeover of the corporate masters and their war machine? Hedge’s answer:
The liberal class has ossified. It has become part of the system it once tried to reform. It continues to speak in the language of technical jargon and tepid political reform, even though the corporate state has long since gutted the mechanisms for actual reform. The failure of the liberal class to adjust to the harsh, new reality of corporate power and the permanent war economy, to acknowledge its own powerlessness, has left the liberal class isolated and despised. The liberal class has died because it has refused to act as if anything has changed. It ignored the looming environmental and economic collapse. It ignored the structural critique that might pull us back from the horrific effects of climate change and a global depression. Our power elites and their liberal apologists lack the ideas and the vocabulary to make sense of our new and terrifying reality.
This situation has left the entire country disenfranchised and Hedges joins the growing list of writers who supported the Obama election hoping for change, and are now totally disillusioned. The timidity of Obama and the liberal class to stand up to the Corporate elites is both frightening and astounding. He fears the disenfranchised, in their disillusion, will be manipulated by demagogs and does not rule out a fascistic takeover. he quotes Jaron Lanier:
The preponderance of them (the disenfranchised) are located in rural areas and in the Red States, the former slave states. And they are connected (via the Internet) and get angrier and angrier What exactly happens? …There is a potential here for very bad stuff to happen.
This reader would have liked Hedges to start a little earlier, with the progressive movement and Teddy Roosevelt (TR) that brought the robber barons under control and broke up Standard oil. Government control expanded and incomes were better distributed. This short progressive era also saw the first American colonies in Cuba and the Philippines and the use of gunboat diplomacy to open Japan and persuade Columbia to allow an independent Panama in exchange for a little 100 mile corridor called the Panama Canal zone.
This short progressive period ended under liberal president Woodrow Wilson, former President of Princeton University, who aided and abetted the corporate and banking interests who wanted the US to enter WWI so it would have a seat at the table in determining the future of Germany and Europe and the fate the Ottoman Empire at war’s end. To this end, the corporate and media powers created the first modern propaganda machine under George Creel, silencing opponents of war (most Americans and their Congressional representatives). With the German U boat sinking of the Lusitania, Wilson was able to push his war resolution through Congress and launch America into the new era of the perpetual war state.
The propaganda machine created such memorable slogans and “The war to end all wars” and “the war to make the world safe for democracy”, both patently false. At the end of the short war, the propaganda machine instantly turned to vilify Russian communism blaming the Germans and lower East Side Jews for fomenting the revolution.
America entered a decade long period of unfettered capitalist madness culminating in the stock market crash of 1929 and the start of the Great Depression with its massive worldwide suffering. Two elections in 1932 were to seal the fate of the world for the next several decades; the US election of FDR and the German election of the Nazi party with Hitler as Chancellor. It is the latter model that Hedges fears for America’s future.
With FDR, the US entered another short progressive period, this time with major gains by labor unions. Even socialists were elected to office and there was a flourishing of art, literature, and theater directed at the mass of the working public. Hedges sites particularly, the musical “The Cradle will Rock” first produced in 1937. He also sites the writings of John Steinbeck. This progressive era was again cut short by war with FDR committing America to a two front war against Japan and Germany.
Once again, the propaganda machine was instantly turned against the Soviet Union at the end of the war and we entered the long not so cold war with misadventures in Korea and Vietnam. The unamerican activities hearings intimidated and silenced broad swathes of liberal artists and intellectuals at a time when they should have been speaking loudest. With a brief renaissance of the civil rights movement and consumer and environmental movements under Ralph Nader the country quickly reverted to corporate control.
Rosenthal Pandering to the Advertisers – Nader Fourth Most Powerful American
Hedges has a particularly bitter feeling for the New York Times and its then executive editor, right wing Abe Rosenthal who oversaw the marginalization of Nader and instituted a policy which seems to still be in place that Noam Chomsky was never to be sited in the Times. Hedges himself was forced out of the Times for speaking the truth after 15 years work in the Middle East. Even legendary reporter Sydney Schanberg (The Killing Fields) was forced out by the Times because he insisted on reporting the truth about New York. Hedges believes both Malcolm X and Martin Luther King would have been marginalized into irrelevance by the media had they lived a couple of years longer. Today the best the Times can do is offer Tom Friedman and his second Iraq war and benefits of globalization corporate cheer leading.
Greatest Living American Intellectual
Unions marginalized themselves by cozying up to management and cutting sweatheart deals undercutting their own membership. Universities turned the process of tenure from protecting the academic freedom of deserving members to a process of ensuring tepid work and conformity. Many disciplines became meaningless closed loops of obscurity such as the followers of Derrida whose language and work can have meaning only to those inside the loop. Theater has become meaningless extravaganza that few can afford to attend. Art has become a commodity to be manipulated by museums and the wealthy and is more about celebrity than any possible meaning.
Living an exemplary life
Hedges only glimmer of hope lies with the continuing works of Ralph Nader and Noam Chomsky. He also considers Howard Zinn’s life a meaningful example of honesty and protest, a man who believed history should be told from the point of view of its victims. His A People’s History of the United States remains an important legacy. As far as journalism is concerned, Hedges has little positive to say. Nader, though, sites Amy Goodman of Pacifica’s Democracy Now as the only place he turns today when he has something to contribute. Democracy Now was the only reliable source of the information during the Arab Spring and is now the most reliable source of information on the Occupy Wall Street movement.
The Truthful Journalist
We can only hope that meaningful change will come out the Occupy Wall Street movement. The alternative, fascistic scenario is too awful to contemplate. What is clear to Hedges is that the liberal class is incapable of fixing itself. It sold its soul to the corporate masters and is dead.