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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?

I.O.U. John Lanchester, 2009

Here is a concise attempt to explain in layman’s terms what went wrong in the financial crisis. It is particularly interesting since the author lives in London and can give us a view from the global epicenter complete with British wit. Unfortunately dry British humor sometimes doesn’t translate so well for an American reader.

Rogues Neeson <> <> <> Citron <> <> <> Iguchi <> <> <> Hamanaka <> <> <> Kerviel

He brings us up to date on the rogues gallery that began with Nick Neeson the Rogue Trader whose more than $1 billion trading losses single handedly brought down century old Barings Bank. The ever expanding gallery now includes Robert Citron of Orange County and Toshihide Iguchi of Daiwa Bank each losing more than $1 billion. Move up to Yasuo Hamanaka of Sumitomo who clocked in at $2.6 billion and on to the current reigning champion Jerome Kerviel of Societe Generale at $7.2 billion.

Joseph Cassano

Consciously missing from this rogues list is AIG’s London based Joseph Cassano who earned $280 million writing CDS insurance policies for much of the CDO industry.To date bailouts to AIG add up to $173 billion, most of which has gone to Morgan Stanley, Goldman Sachs and other big subprime players in the form of insurance payouts.

He briefly explains how banks work, taking deposits and leveraging them into loans far exceeding the value of the deposits. With the invention of securitization and the use of off shore corporations to hide leveraged positions and avoid taxes, leverage went on steroids sometimes reaching 40 or 50 to 1 times deposits or equity.

Genius David X Li

He spends some time on the geniuses (mathematics and statistics) who came up with models that were presumed to eliminate all risk from investment and brought us LTCM that collapsed in 1998. We are now familiar with the VAR risk index based on the Gaussian bell curve much criticized by Nassim Talib (The Black Swan). Here we meet for the first time Chinese immigrant David X. Li (whereabouts unknown) with a PhD in Statistics from the University of Waterloo who suggested applying the Gaussian copula function to the CDO (subprime derivatives) market. Basically, and without any evidence that CDOs fit the function, Li proposed that the price of the insurance policies, the CDS, be used as the metric to determine the level of risk for any CDO. “On Default Correlation: A Copula Function Approach” In other words he proposed a totally circular measurement in which the price of insurance (CDS supposedly reflecting the actual underlying risk of the securitization) is used to determine the risk of the security! Wow! Yet this unbelievably stupid idea caught fire and suddenly, sub prime securitized mortgages were rated AAA, the same as US Treasuries. If this stuff were fiction no one would believe it for a second. This one dumb idea, allowing subprime junk to receive AAA ratings, more than anything else blew up the entire global financial system. The CDO market which was worth $275 billion in 2000 when Li published his paper exploded to $4.7 trillion by 2006.

To accommodate this massive new market, the industry needed vast numbers of new customers. Here is the the birth of the subprime mortgage market. Governments in the US and Britain played their part by staying away from any regulation under the guise of promoting the “ownership society”. Lanchester summarizes:

…by 2006, 60 percent of subprime applicants were lying about their income by more than 50 percent… By that point more than half of all applications for mortgages were either “piggyback” loans, meaning that they were double loans taken out to buy the same property, or “liar loans” in which the applicants were invited to state their own income, or “no doc” loans in which the buyer produced no paperwork. Gee, what could possibly go wrong?…And as for the idea that those peoples’ mortgage payments were being miraculously transmuted into AAA-grade investments…

Where were the regulators? Here is his summary of American government policy:

* insistance on free movement of capital across borders
* the repeal of depression era regulations seperating commercial from investment banking
* a congressional ban on the regulation of credit default swaps
* major increases in the amount of leverage allowed to investment banks
* a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement
* an international agreement to allow banks to measure their own riskiness
* and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation

So what brought us to this disaster?

The credit crunch was based on a climate (the post Cold war victory party of free market capitalism), a problem (the subprime mortgages), a mistake (the mathematical models of risk), and a failure (that of the regulators).

How do we fix this mess? Lanchester doesn’t know.

The Best Way to Rob a Bank is to Own One, William K Black, 2005

Widow Predator Michael Milken Falls

During the Reagan and 1st Bush administrations, criminals took control of most of the S&L industry and defrauded individual investors (via junk bonds from Drexel Burnham and Michael Milken) and American taxpayers (via FSLIC funds needed to pay depositors of failed S&Ls. These criminals bought politicians (most notoriously the Keating Five plus House speaker Jim Wright), who with the help of the Administrations, gutted regulatory controls and appointed regulators who did not believe in regulation.

Fraud’s Best Friend Speaker of the House

This book, written by an insider who was on the Bank Board responsible for regulating S&Ls and at the FHLB (Federal Home Loan Bank), reveals the details of the fraud schemes, the actors, the politicians, and the regulators who played key rolls in this American tragedy. Written in 2005, after the failure of the world’s largest hedge fund, LTCM, and after the collapse of Enron, but before the current financial crisis, we are finally able to get the details of what went wrong in the 1980’s to lead to the collapse of the entire S&L industry. Will we have to wait 20 years to find out what went wrong this time? This work is hard going at times and uses insider terminology and assumptions but is worth the struggle.

Wrong Stuff John Glenn

It is not a coincidence that most of this story considers companies based in Texas (Bush) and California (Reagan) where efforts to deregulate the S&L industry were most prominent. The most notorious criminal in the disaster, Charles Keating, had his offices in Phoenix. Former astronaut John Glenn was most vocal in support of Keating leading Black to joke that we need to redefine “the right stuff”. Only Glenn and John McCain politically survived the scandal.

The book is centrally concerned with the phenomenon of “control fraud”, fraud where a criminal runs a company and uses the company as a weapon and shield to defraud others and make it difficult to detect and punish the criminal. They have such widespread effects they can threaten the economy of the US and even the world. Black points out that the CEO is in a unique position to defeat any regulatory controls that operate in a normal business environment; they buy and influence politicians and regulatory policy; they find professional assistance of the highest reputations (big 8 accountants, top lawyers, appraisers, etc.) who cover their fraudulent activities with clean bills of health. In this way they can massively overvalue assets to create fictitious income and hide losses. At the same time, they can “lend” to themselves and pay themselves extravagantly while their companies are driven into insolvency. When cornered by regulators, they can “sell” their companies to each other at inflated values and keep going for years.

The S&L meltdown involved criminal elements, particularly bad real estate developers, but occasionally by known mobsters; acquiring failing S&L for no money. Black spends time explaining common fraud techniques of these new owners such as the ADC (acquisition development and construction) Ponzi scheme used primarily to “finance” commercial real estate. The schemes are too complex to understand fully but seem to involve S&L funds being drained to the owning developer in return for hugely overvalued equity stakes in the development which cooperative accountants can use to show that the S&L is profitable with a portfolio of valuable real estate assets. In reality the S&L is insolvent and the FSLIC deposit insurance will be on the hook to make the depositors wholes when the S&L fails. These “loans” are really equity investments and are illegal.

Charles Keating Mugs

The problem for the regulators were many. Congress repeatedly refused to increase the FSLIC pool which meant the Bank Board couldn’t shut down all insolvent S&Ls because they lacked the funds to make the depositors whole. Once the Bank Board itself was under the control of Keating, incompetent regulators sent to examine Keating’s Lincoln Savings couldn’t find enough Ponzi ADC loans to prove that Lincoln was insolvent. Purely by chance, an accountant at ORPOS (Office of Regulatory Policy Oversight and Supervision) stumbled across a $94 million cash payment from Lincoln to Keating’s ACC. This hidden “loan” was completely illegal but beyond that, the size of the cash payment meant that Lincoln needed to show at least $300 million in profits from ADC “cash for trash” transactions with developers. Competent regulators descended on Lincoln, this time armed with information that could put both ACC and Lincoln out of business. They found that Lincoln, far from being profitable as certified by Lincoln’s Big 8 accountants, was insolvent to the tune of $2 Billion. Had the incompetent examiners been able to give Lincoln their clean bill of health, Lincoln could probably have survived for another couple of years at enormous additional cost to taxpayers. One of these regulators bragged about the luxurious private jet that Keating flew him around on while he conducted his “examination”.

The heroes here are Edwin Gray, friend of Reagan, who had the courage to re regulate the S&Ls as Chairman of the Bank Board in the face of enormous pressure from the administration and congress; the accountant and regulators who uncovered the frauds needed to shut down Keating; and author Black himself, who also survived numerous attempts to get him fired and a personal lawsuit for $400 million brought by Keating and his army of high priced lawyers.

Black wrote this book to document the S&L meltdown, but also to advocate his view that all professional who train to work with corporations, whether MBA’s who will work directly for the corporation, corporate lawyers, corporate accountants and auditors, and regulators, need to receive extensive training in fraud detection and criminology. Black now heads the Anti-Fraud Institute at the U of Texas in Austin. So far, almost no school training business professionals includes fraud and criminology training. Black does not believe that we can rely on whistle blowers to uncover fraud within corporations, but must rely on professional regulators trained to detect fraud and illegal activities. Judging from Enron, Madoff, and Stanford, we haven’t learned much from the S&L disaster. Now the first indictments are coming out against employees and executives at Bear Sterns and Countrywide Mortgage. The deluge will follow.

Reagan Bush In 1981 Ready to Dismantle Regulation

Black summarizes his history with this litany of failures of the Reagan and 1st Bush administrations when they took the following actions:

Insisted on deregulating at a time of mass insolvency

Insisted on covering up the scope of the crisis

Barred Pratt (Chairman of Bank Board) from briefing the cabinet finance committee

Argued in favor of running insolvent S&Ls like Ponzi schemes

Repeadely cut the number of examiners

Fought the agency’s use of the FHLB system to double the number of examiners and supervisors at no cost to the Treasury

Opposed Gray’s (the Chairman of the Bank Board and personal friend of Reagan) efforts to reregulate

Refued to allow the FSLIC to obtain any money from Treasury (for deposit insurance losses)

Tried to give Keating majority control of the Bank Board

Appointed Keating’s mole, Henkel, to the Bank Board

Accepted (through Bush) a $100,000 contribution from Keating even after Senator Riegle had returned his contributions in light of the Keating Five scandal

Reappointed Henkel to the Bank Board after he tried to immunize Lincoln Savings violations

Tried (through Don Regan) to embarrass Gray into resigning

Threatened to prosecute Pratt and Gray for closing insolvent S&Ls

Threatened to prosecute FDIC chairman Seidman for closing banks

Reached a deal with speaker Wright to support forbearance and not reappoint Gray

Conducted a criminal investigation of the FHLBSF at Keating’s request

Provided no White House support for the FSLIC recap until Gray left office

Regan testified that while Gray warned of the coming crisis, he, Regan, ignored the warnings

Not only did President Reagan never request a briefing from Gray about the debacle, but they never discussed it personally after Reagan appointed Gray.

President Bush (H.W.) insisted on appointing Wall as director of the OTS (replaces the Bank Board) without the advice and consent of the Senate, which was ruled unconstitutional

Bush appointed Wall OTS director even after he had appeased Keating

A sad history of politicians acting in service of criminal elements.

How the Other Half Banks; Exclusion, Exploitation, and the Threat to Democracy, Mehra Baradaran, 2015

In the process of deregulation, several bedrock principles of banking policy were sidelined. First, that banks had unique public responsibilities was rejected. Banks were relieved not only of public serving functions, but even laws protecting consumers from harmful bank products were weakened by the regulators tasked with their enforcement…For example, the two regulators of the national banks, the Office of the Comptroller of the Currency (OTC) and the (OTS). announced that national banks did not have to follow state consumer protection laws–or state laws designed to protect their citizens from predatory financial practices…Here the state laws were “preempted” by exactly zero consumer protection federal laws. most laws affecting banks had a requirement written into them that bank supervisors deciding on bank related issues should only allow an action if it benefits the public. However the question of whether a certain bank action would benefit the public morphed into an inquiry about bank profitability.

Between 1980 and 2000, the assets held by commercial banks , securities firms and the secularization they created grow from 55 percent of GDP to 95 percent.—today, a handful of behemoth banks control most of the country’s assets.

The deregulatory ideology of the new financial oligarchy infiltrated the “Wall Street Washington Corridor” by means of campaign money and ideological capture. An ideological capture of key policy makers– Larry Summers, Robert Rubin, Alan Greenspan, Timothy Geithner, Henry Paulson, and others–who had spent their careers marinating in the industry, working in “captured” regulatory agencies, or captured by extreme laissez-faire ideology, also took place during this era. Demands are rising across the political spectrum, including from Joseph Stiglitz, Simon Johnson, Paul Krugman, Richard Fisher, and even the king of deregulation, Alan Greenspan, for breaking up the banks.

It was inevitable that in an era of deregulated banks, large failures would occur. What was surprising was that the market rules would only be applied when banks were making profits and not when they ultimately failed. Instead of allowing the market to enforce its discipline and allow banks to fail, as the repudiation of the social contract dictated, the government stepped in and bailed out the banking industry…In other words, instead of using the crisis to effect real reform in making like Roosevelt did, these policymakers focused myopically on maintaining bank profitability without requiring anything in return—“the government bent over backward to make the deal attractive for the banks, charging below market interest and eschewing any significant ownership–so shareholders, not taxpayers, would benefit when the banks recovered.

The average American has $15,000 in credit card debit, $33,000 in student loan debt, and $156,000 in mortgage debt. Not only do the majority of the American public borrow their way up the income ladder, but federal mortgage and student loan markets and loose credit policies led to the creation the American middle class…However,in a society built on credit as a means to wealth, a large portion of people at the bottom are currently left out…We cannot tolerate such heavy state involvement in providing credit to the banks while leaving the less well-to-do at the mercy of the modern day sharks These are real people who live and work in cities and towns, poor neighborhoods and wealthy ones, both public servants and blue-color workers. They pay for things that are widely considered essential. They borrow with forethought and with care. They are mainstream ordinary people forced to borrow on the fringe. And fringe lenders (payday loans, title loans, money transfers) are the only ones meeting this large market demand because banks, credit unions, and other mainstream lenders have chosen not to.

Fringe banking has grown exponentially since the 1980’s and hasn’t stopped…”Virtually nonexistent in this country 20 years ago, [this sector] has grown into a $100 billion business. Since the mid 1990’s, the number of payday lenders nationwide has grown over 10 percent annually.” With over twenty thousand stores, the payday lending industry makes $40 billion in loans annually. There are more payday lender storefronts than Starbucks and McDonald’s combined…Banks do give credit in the form of credit cards and overdrafts, but relying on these products as loans can get expensive and banks hide many of their fees and interest rates in small print and do not make them clear up front. Research has shown that payday borrowers who have “credit card liquidity” or the ability to borrow on a credit cared, still opt for payday loans…This is another critical and somewhat ironic, aspect of the alternative financial service industry’s success: its ability to take advantage of the federally sponsored banking system, using its access to clearinghouses and even its banking charters to lend.

But many people are failing. They are failing even as the banks are succeeding, and they are failing because the banks are no longer involved in providing them credit. The government has outsourced the provision of credit to the banking system, and it provides this system with state support and cheap credit–cheap credit that is not flowing out to reach those that need it most. In fact, while the government has provided interest rates to banks at 0 percent, it has allowed interest rates to the poor to skyrocket to triple digits. If the intended result is to help the public with credit, why continue to use the banks as a medium when they are clearly leaving out a significant portion of the population? Why not provide credit directly to those who need it in order to be certain they get it?

A social contract has existed between banks and the government since the early days of the Republic. The government support the banks through trust-inducing insurance, bailouts, liquidity protection, and a framework that allow the allocation of credit to the entire economy. Banks, in turn, operate as the central machinery of the economy by providing transaction services, a medium for trade, and individual and business loans that spur economic growth. This entanglement between the state and the banking system must surely mean that banks should not exclude a significant portion of the public from the bounty of government support. This is not just a banking market problem but a threat to our society’s democratic principles. When the state becomes involved in the banking system, that system cannot create or contribute to such a vast inequality. The supply of credit has always been a public policy issue, with banks functioning as intermediaries. Insofar as the state enables credit markets, all creditworthy Americans deserve equal access to credit, especially because reasonable and safe credit can provide a smoother path both through and out of poverty. If banks are not providing credit to the poor, the state should provide it directly.

The existing post office framework represents the most promising path toward effecting such a public option. American banks long ago deserted their most impoverished communities, but post offices, even two centuries later, have remained–still rooted in an egalitarian mission. There have never been barriers to entry at post offices, and their services have been available to all, regardless of income. And so, it is not unreasonable to suggest that as America’s oldest instrument of democracy in action, the post office can once again level the playing field, and in the process, save itself from imminent demise…The social contract has been breached. Banks enjoy government support but do not serve the entire public. Direct government involvement remedies the breach and bridges the gap in services.

A deep-seated problem exists within our stratified banking system: the state is shoring up a powerful banking industry that is, in turn, excluding those Americans most in need. This is corrupting our democracy, and we ignore it at our own peril.

The Myth of Nornal; Trauma, Illness & Healing in a Toxic Culture, Gabor Mate with Daniel Mate, 2022

If we begin to see such illness itself not as a cruel twist of fate or some nefarious mystery but rather as an expected and therefore normal consequence of abnormal, unnatural circumstances, it would have revolutionary implications for how we approach everything health related.
The current medical paradigm, owing to an ostensibly scientific bent that in some ways bears more resemblance to an ideology than to empirical knowledge, commits a double fault. It reduces complex events to their biology, and it separates mind from body, concerning itself almost exclusively with one or the other without appreciating their essential unity.

My own observations of self and others have led me to endorse fully what a review of the stress literature concluded, namely that “psychological factors such as uncertainty, conflict, lack of control, and lack of information are considered to most stressful stimuli and strongly activate the HPA axis.” A society that breeds these conditions, as capitalism inevitably does, is a super powered generator of stressors that tax human health.

Capitalism is “far more than just an economic doctrine,” Yoval Noah Harari observes in his influential bestseller Sapiens. “It now encompasses an ethic — a set of teachings about how people should behave, educate their children, and even think. Its principal tenet is that economic growth is the supreme good, because justice, freedom, and even happiness all depend on economic growth.” Capitalism’s influence today runs so deep and wide that its values, assumptions, and expectations potently infuse not only culture, politics, and law but also such subsystems as academia, education, science, news, sports, medicine, child-rearing, and popular entertainment. The hegemony of materialist culture is now total, its discontents universal.

“The political system seems to be failing as much as the economic system,” (Joseph) Stiglitz writes in his 2012 book, The Price of Inequality. In the eyes of many, he continues, “capitalism is failing to produce what was promised — inequality, pollution, unemployment, and most important of all, the degradation of values to the point where everything is acceptable and no one is accountable.”

The Swiss bank UBS reported in October 2020 that during the COVID-19 induced market turmoil the international billionaire stratum had grown their fortunes to over ten trillion dollars between April and July of that year. The worlds than richest individual Jeff Bezos had increased his wealth by over $74 billion Tesla owner Elon Musk by up to $103 billion. …the Toronto Star reported. “That’s in the midst of an economic crisis that has left millions of Canadians unemployed or working reduce hours and struggling with bills and our governments are borrowing to fund emergency financial aid for individuals and businesses to stave off even greater hardship.
In the realm of political decision making, a widely circulated U.S. study showed that the views of ordinary people make no difference to public policy: a lack of control on a mass scale. “When a majority of citizens disagree with economic elites or with organized interests, they generally lose.” “Even when fairly large majorities favor policy change, they generally do not get it.”

Scottish labor leader Jimmy Reid:

“Alienation is the precise and correctly applied word for describing the major social problem in Britain today. People feel alienated by society…Let me right at the outset define what I mean by alienation. It is the cry of men who feel themselves the victims of blind economic forces beyond their control. It’s the frustration of ordinary people excluded from the processes of decision-making. The feeling of despair and hopelessness that pervades people who feel with justification that they have no real say in shaping or determining their own destinies.”

Not only does our individual and societal sanity depend on connection so does our physical health. Because we are biopsychosocial creatures, the rising loneliness epidemic in Western culture is much more than just an psychological phenomenon it is a public health crisis.

psychoanalyst Steven Reisner:

“Narcissism and sociopathy describes corporate America. But it’s flat-out wrong to think in twenty-first century America that narcissism and sociopathy are illnesses. In today’s America, narcissism and sociopathy are strategies. And they’re very successful strategies, especially in business and politics and entertainment.”

in what the Wall Street Journal called “an unprecedented plea” editors of two hundred health journals internationally, including the Lancet, the British Medical Journal, and the New England Journal of Medicine, called the failure of political leaders to confront the climate crisis “the greatest threat to global public health.” The harms of climate change include acute and chronic physical illness such as cardiovascular disease and susceptibility to infections, along with mental health challenges. Especially at risk are people with heart or kidney conditions, diabetes, and respiratory ailments. I need hardly mention food and water insecurity, major stressors already affecting millions.

Underlying the active and callous disregard of our Earth’s health is the sociopathology of the most powerful entities, whose planetary poison-pushing removes any hint of metaphor thus this book’s subtitle phrase “toxic culture.” The oil companies pumped billions of dollars into thwarting government action. They funded think tanks and paid retired scientists and fake grassroots organizations to pour doubt and scorn on climate science. They sponsored politicians, particularly in the U.S. Congress, to block international attempts to curtail greenhouse gas emissions. They invested heavily in greenwashing their public image…in 2020 the top hundred or more American corporations channeled their political donations largely to lawmakers with a record of stalling climate legislation…Compared with financial gain the climate is, well, small change.

Historically the idea of race arose from the impulse of European capitalism to enrich itself by subjecting, enslaving, and if necessary, destroying Indigenous people on other continents, from Africa to Australia to North America. Indeed, the word “race” did not exist in any meaningful way until it was created in the late eighteenth century. Psychologically, on the individual level, the “othering” of racism entails an antidote to self-doubt: if I don’t feel good about myself, at least I can feel superior to somebody and gain a sense of power and status by claiming privilege over them.

The brilliant writer James Baldwin once said, “What white people have to do is try and find out in their own hearts why it was necessay to have a n_____ in the first place. If you, the white people, invented him, then you’ve got to find out why.”

For another take on the current worldwide health crisis see Deep Medicine

The China Boom; Why China Will Not Rule the World, Ho-fung Hung 2016

The China Boom <><> <> <> <> Ho-fung Hung

Hong Kong born Hung is a sociologist who has studied capitalism and Chinese history extensively. This book sites the many studies and research about the rise of modern China, its politics, economics, its capitalist development, and its place in the global world order. Here is a short summary of his conclusions.

Amid the late twentieth-century rise of global neoliberalism, under which the United States and Europe shifted to financial expansion, debt-driven consumption, and reliance on imported manufactured goods from low-wage countries, China eschewed central economic planning and absorbed substantial foreign-capital accumulated during the industrial takeoff of its Asian neighbors, particularly those of Chinese diasporic origins, turning itself into a dynamic center of export-driven capitalism…It is apparent that China has no intention of or capacity for transforming the global neoliberal order because the China boom has been relying heavily on transnational free trade and investment flow. China also makes significant contribution to the perpetuation of U.S. global dominance through its addiction to U.S. public debt.

Mao and Deng

..SOEs (State Owned Enterprises) and state control of the marketing of agricultural products as a means to speed up rural surplus extraction and industrial capital accumulation began in certain KMT (Kuomintang) controlled areas before 1949. What the CCP (Chinese Communist Party) did after 1949 was to expand this state-owned sector to the whole economy and to collectivize agriculture, turning the state into the sole agent of capital accumulation. As a consequence, China managed to build an extensive network of heavy industries and infrastructure despite its international isolation in 1949-1979. It also successfully defended its sovereignty and geopolitical security vis-a-vis both the United States and the Soviet Union. The Mao period in China represented the culmination of a century of the state elite’s quest for state-led industrialization…the expansion of KMT-controlled state enterprises, the successful land reform, and the rise of state-directed rural cooperatives that facilitated agriculture-to-industry surplus transfers in Taiwan can be seen as a mild variation of SOEs and the People’s Commune in Mao China. This continuity attests to Immanuel Wallerstein’s provocative formulation that “actually existing socialist countries” emerging in mid-twentieth century were always part of the capitalist world system and that their socialist system has been little more than a strategy of rapid capital accumulation and industrial catch up under the strong hands of mercantilist states.

In retrospect, many Deng and post-Deng reform measures would not have been that successful had it not been for the legacies of the Mao era. The SOEs and infrastructure constructed in Mao times, though moribund and unprofitable at the advent of reform, were important foundations for the capitalist takeoff during the reform period. For example, many foreign companies investing in China did not start from scratch but began as joint ventures with preexisting SOEs. At the same time, many SOEs developed into sizeable transnational capitalist corporations with financial and policy support from the state, though ownership changed from the state by itself to other combinations — for example public listing but with the government owning a majority share. Most of China’s biggest corporations today originated in the Mao era or were built on state assets developed in that era…It is not surprising that many other former socialist countries in Russia and Eastern Europe have also witnessed a similar predominance of state corporations.

Other Mao-era legacies include the restriction of rural-urban migration by means of the household registration system and public investment in rural education and rural health care in the People;s Communes. These policies created a generation of literate and healthy rural laborers available in great numbers for private, export-oriented enterprises as well as TVEs (Township and Village Enterprises) from the 1980s on. The self reliance policy in the Mao period prevented the large-scale external borrowing in the 1970s that many other developing or socialist countries indulged in, thus sparing China from the international debt crisis in the 1980s that brought large setbacks to the developing world and the Soviet bloc.

China has not challenged U.S. global dominance despite its leader’s postures and its nationalist press’s rhetoric. On the contrary, it has been a key force in helping perpetuate U.S. global dominance. China’s SOEs have been transformed into U.S. style capitalist corporations, many of them with the aid of Wall Street financial firms, and floated in overseas stock markets such a Hong Kong and New York. China’s export-oriented growth relies on the United States and Europe, the two biggest markets for its manufactured goods, and China’s exports to both places have been paid for mostly in U.S. dollars. The massive flow of U.S. dollars into China in the form of trade surplus impels China to invest addictively in U.S. Treasury bonds as the most liquid and largest US dollar-denominated store of value.Since 2008, China has replaced Japan as the biggest foreign creditor to the United States, and such financing enables the United States to continue living and fighting beyond its means. This investment in U.S. Treasury bonds in turn facilitates the perpetuation of the global dollar standard, which has been the single most important foundation of U.S. global power. The foreign exchanges brought in by China’s export sector have been the foundation of the state banks’ profligate creation of liquidity that fuels fixed-asset investment. In short, the China boom relies on the global free market instituted and warranted by the United States. It is thus far from China’s interest to undermine the global neoliberal status quo and U.S. leadership in it.

Any readjustment of the structure of capitalist development in China will have to involve an increase in domestic consumption’s share in GDP and a corresponding reduction in export and investment’s share…such restructuring must be associated with a profound redistribution of wealth and income that will let average households share a larger slice of the pie of the expanding economy, reducing the advantages that the state has been offering to the export sector and state enterprises, both of which have been protected by the entrenched interests in the political process. Such readjustment, coupled with the cleaning up of existing bad debts in the system, will inevitably bring a slowdown in economic growth through either a disorderly hard landing or an orderly soft landing…Although such a slowdown is inevitable and normal in the adjustment and rebalancing process, it is unknown whether existing political institutions in China can withstand it.

Going Big, FDR’s Legacy, Biden’s New Deal, and the Struggle to Save Democracy, Robert Kuttner, 2022

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Economics Nobel Laureate Joseph E Stiglitz wrote the forward

The (Great) Depression should have taught us that markets are not stable and efficient–high levels of unemployment could persist for a very long time. We should not have to have had the Great Recession (2008) to relearn the lesson…We should not have had to watch the anemic recovery from the Great Recession, the result of too little fiscal policy and too much reliance on monetary policy, to have relearned that lesson.

The simplistic neoliberal ideology, which triumphed in both parties…held that downsizing government, including deregulation, privatization, and outsourcing government activities to the private sector, would lead to greater prosperity, (and)…all would benefit. Some half century later, we should declare this neoliberal experiment has been a failure, with lower growth and the benefits of that limited growth going overwhelmingly to those at the top.

Jimmy Carter, Bill Clinton, and Barack Obama each embraced neoliberal ideology to devastating effect. Biden is the first president since 1984, including Republicans that has not appointed Robert Rubin (of Goldman Sachs and Citigroup) or a protege of Rubin, like Larry Summers, to the inner circle of power.

Bill Clinton and Barack Obama took the Democratic Party deeper into the neoliberal wilderness, obsessing about budget balance, making alliances with Wall Street, and driving working-class voters into the arms of the Tea Parties and then Trump.

Stunningly, Biden jettisoned the entire set of neoliberal orthodoxies that had hobbled Democratic presidents since Jimmy Carter. Gone was the idea that deficits necessarily caused high interest rates and inflation. Gone was any illusion that we needed tax breaks for the rich in order to promote private investment. Public investment was needed at a large scale precisely because private investment had failed to serve the real economy and had enriched mainly manipulators, traders, and monopolists…It fell to Biden and his economic team to revise the globalist ideology in favor of coherent policies to rebuild American leadership in industry, technology, and supply chains, sacrificing free trade norms where necessary.

There is immense latent public support for the use of activist government to better the situation of ordinary people. Foreign policy adventures, such as Vietnam, Iraq, and Afghanistan, can serve as distractions from domestics issues that play to Democratic strength, and can wreck the unity of the coalition needed to pursue domestic progressivism. So, obviously, can racism and continuing legacy of slavery and segregation. But the big challenge is political economy.

Biden needs to go beyond what even FDR achieved in containing a corrupted capitalist system, because that system today is the wellspring of so much policy failure, and so much political and economic inequality, as well as the corruption of too many Democratic leaders, all of which kindles support for Trumpism.

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In the standard Roosevelt narrative, FDR restores hope. And he then goes about restoring the economy, using powers of government to put people back to work, and devising new public entities to accomplish what the private sector had bungled. He increases the prestige of the public sector and public solutions. He uses public deficits to restore purchasing power. He virtually invents a national system of social insurance with the Social Security Act. He puts government on the side of worker’s right to organize with the Wagner Act, and then regulates wages and hours directly with the 1938 Fair Labor Standards Act.

Ordinarily, the Treasury Department is the home of the most conservative officials of an administration. Democratic presidents, seeking to reassure financial markets typically place Wall Street veterans at the Treasury. This was the practice of Johnson, Carter, Clinton, and Obama. But the Roosevelt Treasury was the home of radicals. The most radical was Harry Dexter White, the top U.S. government architect of the postwar global financial system. White was a close collaborator of the the chairman of Bretton Woods conference, John Maynard Keynes.

The Democratic defensive unease on national security policy combined with the unfinished business of racial justice to destroy Johnson’s presidency. The Vietnam debacle also shattered the New Deal coalition and the hopes of progressive Democrats for half a century.

As the Obama administration and the Fed did the bidding of the biggest banks, (Elizabeth) Warren and the oversight panel would become one of two sources of loyal opposition, calling for a far more radical, Rooseveltian approach. The other was the FDIC, which was the last regulatory hawk in laissez-faire Washington, because its trust fund had to be tapped to pay depositors when an insured bank failed. The chair of the FDIC was a tough and savvy regulator named Sheila Bair…The financial collapse should have set up Obama to orchestrate a resurrection the the New Deal–the containment of the toxic tendencies of private finance, the expansion of government to do what markets could not, and the use of the crisis as an object lesson…Most of what he did propped up the banking system rather than cleaning it out or seriously re-regulating finance. Obama’s obsession with deficit reduction made the recovery far too slow.

The serial forms of deregulation that finally crashed the economy in September 2008 had been building and accumulating for several decades. Three earlier crashes, harbinger of the general collapse of 2008, had been contained because the degree of leverage, opacity, conflicts of interest, deregulation, non-supervision, and above all interpenetration had not quit reached the level of the early 2000s. But each was a clear warning that went unheeded.

The 1990s S&L collapse saw the conviction of more than a thousand executives. The Crash of hedge fund Long Term Capital Management in 1998 led to no reforms. The dot-com and energy crash of 2000 also led to no reform.

Kuttner spends some time on the explosion of private equity and the toxic effect on nursing homes, newspapers creating “news desserts” throughout the country, and retail.

Kuttner also talks about the the collateralized loan obligation CLO that have replaced the discredited CDO behind the 2008 crash The US market for CLOs excedes $850 billion in 2022.

If the New Deal proposition is that government can be effective in solving problems and helping ordinary people, climate change makes that harder to pull off, because worsened climate events are baked in for years to come. Even if Biden does everything right, the everyday experience of extreme climate events will intensify.

Kuttner concludes with a discussion of the importance of the upcoming 2022 midterm elections. Only three Presidents over the last 100 years have seen their party increase its control of both houses of congress in the midterm elections; Roosevelt in 1934 because of the popularity of his programs; Clinton in 1998 because the Republicans overreached in trying to impeach him; and George W. Bush in 2002 because of the shock of the 9/11 attacks. Can Bidden become the fourth in 2022?

To Govern the Globe, World Orders & Catastrophic Change, Alfred W. McCoy, 2021

Indeed, the Iberian (Spain and Portugal) vision of expansive sovereignty — acquisition of terrain by conquest and oceans by exploration — would continue under Dutch and British hegemony, illustrating the capacity of these global systems to survive the empires that created them…Thanks to the British and Dutch decisions to strip their colonial subjects of civil liberties and carry the transatlantic slave trade to new heights, the Iberian hierarchy of human inequality would, in all its cruelty and tragedy continue.

In the years following the (Dutch) East India Company’s founding in 1602, the city’s (Amsterdam) dynamism led to a host of financial innovations that soon made it… “the clearinghouse of world trade”. The new Bank of Amsterdam took deposits, transferred funds trans nationally and later stored vast quantities of precious metals in its vaults, helping make the city “Europe’s reservoir of gold and silver coin.” The Chamber of Maritime Insurance offered coverage for dozens of dangerous destinations, while the newspaper Amterdamsche Courant gave the city’s merchants critical information about the prices of goods arriving from those distant shores. Amsterdam also built the world’s first stock exchange, where up to five thousand met to trade more than four hundred commodities around a central courtyard that became “the nerve center of the entire international economy.”

William III Mary II

William’s (of Orange) reign also witnessed a modernization of the British economy along Dutch lines, exemplified by the founding of the Bank of England, the London Stock Exchange, and a profusion of private banks, insurance companies, and joint stock firms.

Coal was the catalyst for an industrial revolution that fused steam technology with steel production to make Britain master of the world’s oceans

Each step in slavery’s eradication was foreshadowed by a new stage in Britain’s use of coal-fired energy–including the introduction of steam power in mills and mines by the time Parliament banned the slave trade in 1807; the development of mobile steam engines for land and sea transport prior to the Later, abolition of West Indies slavery in 1833; and the adoption of coal powered steam power in almost all British industries by the 1850’s, when the Royal Navy’s anti-slavery patrols reached their coercive climax. Later, new forms of fossil energy — electricity and internal combustion engines — would render even the coerced labor of the imperial age redundant.

By the end of the nineteenth century, the Swedish physicist Svante Arrhenius would publish the first report on the capacity of industrial emission to cause global warming. By countless hours of painstaking manual calculations, he predicted with uncanny prescience and considerable precision “the temperature in the arctic regions would rise about 8 degrees to 9 degrees C., if the [carbon dioxide] increased 2.5 or 3 times its present value.”

Britain was the world’s preeminent power for more than a century, but its dominance nevertheless evolved through two distinct phases. From 1815 to 1880 it largely oversaw an “informal empire” with a loose hegemony over client states worldwide. In the period of “high imperialism” from 1880 to 1940, however the empire combined informal controls in countries like China, Egypt, and Iran with direct rule over colonies in Africa and Asia to encompass a full half of all humanity.

Parliament rescinded mercantilist laws that had protected British commerce for centuries, starting with the abolition of the (British) East India Company’s monopolies on Asian trade.

British engineers built the world’s first major central power plant at Deptford, London in 1888, capable of lighting two million electric bulbs. As electrical plants spread quickly, their generators were powered by the first coal-fired steam turbines…tying a knot between coal and electricity that persists to this day.

By century’s end (19th), discoveries (Iran, Indonesia, Burma) had created a sufficient supply of oil to enable a shift from steam to internal combustion engines in ships, trains, automobiles, and ultimately, aircraft.

Eleanor Roosevelt Universal Declaration of Human Rights

In fulfilling this commitment to human rights (The UN’s Universal Declaration of Human Rights 1948), the United States would face some exceptional challenges. Unlike earlier imperial powers, it was, after all, a former colony with a long history of slavery and a succeeding system of racial segregation that would compromise its commitment to those principle at home. As its global power grew during these postwar decades, Washington would cultivate anti-Communist allies among authoritarian leaders in Asia, Africa, and Latin America, tacitly endorsing torture and repression in their lands. Even as the US practiced racial segregation at home and backed ruthless dictators abroad, civil society groups worldwide would continue to fight for human rights, just as African Americans would struggle for their civil rights at home, making this universal principal a defining attribute of Washington’s world order, almost in spite of itself.

By the time Washington’s world order was fully formed in the late 1950’s, the unequal power of its nuclear-armed bombers, its countless overseas military bases, and its covert interventions in the affairs of countless nations coexisted tensely with a new world order, epitomized by the UN, that was meant to protect the sovereignty of even small states and promote universal human rights. This underlying duality of Washington’s version of world power would manifest itself in numerous contradictions during its 70 years of global hegemony.

Washington’s visionary world order took form at two major conferences — at Breton Woods, New Hampshire, 1944 where 44 Allied nations forged an international financial system exemplified by the World Bank, and at San Francisco in 1945, where they drafted a charter for the UN that created a community of nations. The old order of competing empires, closed imperial trade blocs, and secret alliances would soon give way to an international community of emancipated colonies, sovereign nations, free trade, and peace through law. In essence, the UN charter’s many clauses rested on just two foundational principles that would soon become synonymous with Washington’s world order; inviolable national sovereignty and universal human rights.

Between 1945 and 2000, the US intervened in 81 consequential elections worldwide, including eight times in Italy, five in Japan, and many more in Latin America. Between 1958 and 1975, military coups, many of them American sponsored, changed governments in three dozen nations — a quarter of the world’s sovereign states — fostering a distinct “reverse wave” in the global trend toward democracy.

George Kennan supported covert operations

George Kennan, State Department official later called the creation of the CIA with authorization to conduct covert operations “The greatest mistake [he] ever made.

President Truman tried to limit the newly created CIA to intelligence gathering only with no authorization for covert activities. Allen Dulles maneuvered Frank Wisner into position as OPC Chief and by 1952 OPC was operating 47 overseas stations and employed 3000 people. It specialized in the black arts of espionage sabotage, subversion, and assassination. When Eisenhower became president in 1953, Kermit Roosevelt led the overthrow of the elected President of Iran and installation of the Shaw.

Throughout its rise to world power from 1820 to 1870, Britain increase its share of gross world product by just 1 percent per decade, while America’s rose by 2 percent during its accent from 1900 to 1950. By contrast, China was increasing its slice of the world pie at an extraordinary pace of 5 percent from 2000 to 2020.

…the accounting firm PriceWaterhouseCoopers calculated that China’s economic output had already surpassed America’s in 2014 and was on a trajectory to become 40 percent larger by 2030.

Across Europe, hypernationalist parties like the French National Front, Greece’s Golden Dawn, Alternative for Germany, and the British Independence Party won voters by cultivating nativist reactions to just such trends, often attacking the economic globalization that had become a hallmark of Washington’s world order. Simultaneously, a generation of populist demagogues won power in nominally democratic nations around the world — notably Viktor Orban in Hungary, Vladimir Putin in Russia, Recep Tayyip Erdogan in Turkey, Narendra Modi in India, Rodrigo Duterte in the Philippines, and of course, Donald Trump in the United States.

While a weakening of Washington’s global reach seems likely, the future of its world order is still unclear. At present, China is the sole state to have most (but not all) of the requisites to become a new global hegemon. Its economic rise coupled with its expanding military and growing technological prowess under the “Made in China 2025” program, has given it many of the elements fundamental to superpower status…Yet, as the 2020s began, no state seemed to have both the full panoply of power to supplant Washington’s world order and the skill to establish global hegemony. Indeed, apart from its rising economic and military clout, China has a self referential culture, recondite non roman script (requiring 4000 characters instead of 26 letters), nondemocratic political structures, and a subordinate legal system that will deny it some of the chief instruments for global leadership.

Successful imperial transitions driven by the hard power of guns and money also require the soft power salve of cultural suasion if they are to achieve sustained and successful global domination. During its near century of hegemony from 1850 to 1940, Britain was the exemplar par excellence of soft power, espousing an enticing political culture of fair play and free markets that it propagated through the Anglican church, the English language and its literature, mass media such as the British Broadcasting Corporation, and it virtual creation of modern athletics (including cricket, soccer, tennis, rugby, and rowing). Similarly, US military and economic domination after 1945 was made more palatable by the appeal of Hollywood films, civic organizations like Rotary international, and popular sports like basketball and baseball. On the higher plane of principle, Britain’s anti-slavery campaign invested its global hegemony with moral authority, just as Washington’s advocacy of human rights lent legitimacy to its world order…China still has nothing comparable. Both its communist ideology and its popular culture are avowedly particularistic.

China has been a command economy state for much of the past century, and as such has developed neither the legal culture of an independent judiciary nor an autonomous rules-based order complementary with the web of law that undergirds the modern international system.

Xi Jiping – Zhōngguó (China) is translated as Middle Kingdom

If, however, Bejing’s potentially immense infrastructure investments, history’s largest by far, succeed in unifying the commerce of three continents, then the currents of financial power and global leadership may indeed flow, as if by natural law, toward Beijing. But if that bold project falters or ultimately fails, then for the first time in five centuries, the world could face an imperial transition without a clear successor as global hegemon.

From scientific evidence, it seems clear that, for the first time in seven hundred years, humanity is facing another cumulative, century long catastrophe akin to the Black Death of 1350 to 1450 that could once again rupture a global order and set the world in motion…If the “Chinese century” does indeed start around 2030, it is unlikely to last long, ending perhaps sometime around 2050 when the impact of global warning becomes unmanageable. With its main financial center at Shanghai flooded and its agricultural heartland baking in insufferable heat, China’s days as a global power will be numbered.

Given that Washington’s world system and Beijing’s emerging alternative are largely failing to limit carbon emissions, the international community will likely need a new form of collaboration to contain the damage. In the years following the Paris climate accord, the current world system — characterized by strong nation-states and weak global governance at the UN — has proven inadequate to the challenge of climate change. The 2019 Madrid climate summit failed to forge a collective agreement for emission reduction sufficient to cap global warming to 1.5C, largely due to the obstruction of major emitters like Australia, Brazil, China, India, and the United States. Any world order, whether Washington’s or Beijing’s that is based on primacy of the nation-state will probably prove incapable of coping with the political and economic crisis likely to arise from the appearance of some 275 million climate refuges by 2060 or 2070.

The Price of Peace; Money, Democracy, and the Life of John Maynard Keynes, Kachary D. Carter, 2020

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Three Conscientious Objectors in 1915 Bertrand Russell, John Maynard Keynes, Lytton Stratchey

As a freshman at Cambridge University, Keynes was invited to join a secretive club, the Apostles, a sort of graduate seminar and dinner party where one member would present a paper. Keynes represented a new generation of Edwardians, leading a sexual revolution with Lytton Strachey, contrasting with the older Victorians like Bertrand Russell. Stratchey wrote of Keynes to Leonard Woolf in 1905, “He analyses with amazing persistence and brilliance. I never met so active a brain (I believe it’s more active than either (G.E.) Moore’s or Russell’s)…he perpetually frightens me.” Bertrand Russell wrote: “Keynes’s intellect was the sharpest and clearest that I have ever known. When I argued with him, I felt that I took my life in my hands, and I seldom emerged without feeling something of a fool.” An artistic grouping, Bloomsbury was born around 1905 at the house where Virginia (Woolf) and her sister Vanessa lived. Apostles Keynes, Leonard Woolf, Lytton Stratchey, E.M. Forster, Clive Bell and others moved to London. In 1906 Keynes took a job at the India Office where he worked on Indian currency and monetary policy.

In 1914, as WWI started, an obscure genius known to some in government from his India Office days, John Maynard Keynes, was summoned to London by Treasury and the Bank of England. Witnessing banker’s pursuit of their own narrow concerns during a bank run crisis, where Bankers focused on their own short-term pecuniary profit, abandoning all thought of “the honour of our old traditions or future good name”, Keynes concluded that political oversight of the bankers was needed. Keynes conceived a solution which Treasury and Parliament blessed that foreign bills could be redeemed for gold but domestic needs including those of the banks would be met with a new alternative paper currency. The plan worked and the run was stopped.

Keynes was invited to Paris for the WWI treaty of peace negotiations. Disturbed by the Allied demand for massive reparations that were unrealistic , Keynes proposed that Germany be allowed to issue bonds guaranteed against default by the Allied governments. Keynes was not privy to the negotiations drawing new borders and breaking up the Ottoman Empire so doesn’t appear aware of the division of oil reserves among the Allies. When Wilson rejected Keynes “Grand Scheme”, Keynes resigned from the peace negotiations and penned maybe his most influential work in 1919, “The Economic Consequences of the Peace” which Carter describes as:

…provincial, shortsighted, vicious, and in many respects deeply unfair polemic. It is also a masterpiece and very likely the most influential work Keynes ever put his name to—a furious tirade against the autocracy, war, and weak politicians. It is at once a howl of rage directed against the most powerful men in the world and an ominous prophecy of the violence that would again sweep the continent in the years to come.

Keynes wrote:

The resulting international system created at Versailles was extremely fragile and would only function if workers believed in it, and workers would not believe in it unless it worked. Break the collective faith in a better tomorrow, and workers will walk off the job, riot in protest, or worse.

The principle of accumulation based on inequality was a vital part of the pre-war order of Society and of progress as we then understood it. This principle depended on unstable psychological conditions, which it may be impossible to recreate. It was not natural for a population, of whom so few enjoyed the comforts of life, to accumulate so hugely. The war has disclosed the possibility of consumption to all and the vanity of abstinence to many.

Bolshevism in Russia was already known to all as an alternative to La Belle Epoque. All over Europe, but particularly in Germany conditions were ripe for the rise of a strongman. Without jobs, food, a sense of purpose, and confidence in a better tomorrow, Europe was already on the path to another war.

Keynes formalized his political theory of economics with three lectures in 1926 “The General Theory of Employment, Interest and Money“,”The End of Laissez-Faire“, and “A Short View of Russia“. Overlooked in Britain even though Bloomsbury loved them, they formed the core of a unique, practical political theory that the United States would apply on a vast scale during the great depression and WWII.

In 1930, Keynes published “A Treatise on Money” an assault on the ability of central bank interest rates to affect investment. Keynes suggested that the state spend money on public works since domestic investment was the problem. This direct assault on laissez-faire caused Austrian Friedrich von Hayek to pen two part indictment of the book. Milton Friedman later claimed von Hayek encourage a do nothing policy that did harm by recommending that “you just have to let the bottom drop out of the world.” Keynes himself responded to von Hayek; “one of the most frightful muddles I have ever read.”

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Franklin D. Roosevelt in his inaugural address in 1933 said

Primarily this is because the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men…They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish…The money changers have fled from their high seats in the temple of our civilization. We may now restore the temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.

In his first 100 days FDR created the FDIC, the SEC, the TVA, and the Agricultural Adjustment Administration.
Felix Frankfurter, a friend of Keynes and appointee to the US Supreme Court in 1939, delivered a letter from Keynes to FDR and arranged meetings for Keynes in 1934 with key administration players not totally on board with Keynesian ideas. One player Keynes met was John Kenneth Galbraith who was running the office of price administration. Galbraith described the meeting as the Pope visiting the lowly village priest. Keynes largely found himself preaching to the choir.
FDR met Keynes and thought him politically naive about the President’s relationship with Wall Street. FDR believed a banking industry hostile to his reforms was driving up interest rates on government debt by sitting out Treasury bill auctions. “There is a practical limit to what the Government can borrow– especially because the banks are offering passive resistance in most of the large centers,” Keynes did make progress with Fed Chairman Eccles who understood the need to keep interest rates low to help the government spend its way out of the Depression.

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In 1936 Keynes published his most important work “The General Theory of Employment, Interest and Money“, a work that Carter calls the most important work in economics in 160 years, to be compared with the monuments of Aristotle, Thomas Hobbes, Edmund Burke, and Karl Marx.

It is a theory of democracy and power, of psychology and historical change, a love letter to the power of ideas. The book is dangerous because it demonstrates the necessity of power. It is a liberation book because it re-framed the central problem at the heart of modern economics as the alleviation of inequality, pivoting away from the demands of production and the incentives facing the rich and powerful that had occupied economists for centuries. It is a frustrating book because it is written in novel abstractions, argued in convoluted sentences and dense equations. And it it a work of genius because it proves a simple truth that, once offered, seems obvious: Prosperity is not hard-wired into human beings; it must be orchestrated and sustained by political leadership.

Keynes said of the genius of Sir Issac Newton:

Newton could hold a problem in his mind for hours and days and weeks until it surrendered to him its secret. Then being a supreme mathematical technician he could dress it up, how you will, for purposes of exposition, but it was his intuition which was preeminently extraordinary…The proofs, for what they are worth, were, as I have said, dressed up afterwards–they were not the instrument of discovery.

Explaining his own method in The General Theory Keynes says:

The object of our analysis is, not to provide a machine, or method of blind manipulation, which will furnish an infallible answer, but to provide ourselves with an organized and orderly way of thinking out particular problems…Too large a proportion of recent “mathematical” economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and inter-dependencies of the real world in a maze of pretensions and unhelpful symbols.

The term macroeconomics hadn’t even been coined. Keynes not only invented modern economics, he invented the modern economist and placed him at the top of the new intellectual power structure. The book is a collaborative work done by the Cambridge “Circus” an almost cult like group with its own private language. The two most important contributors beyond Keynes were Joan Robinson and Richard Kahn. Carter says Robinson is the most important economist never to have won a Nobel prize in economics. Two of her students Amartya Sen and Joseph Stiglitz were honored with the Nobel prize. In fact she was only named full professor at Cambridge in 1965, thirty years after publication of her most significant work for which she is not credited. Carter likens Joan Robinson to Rosalind Franklin who discovered the double helix of DNA and was never recognized. Joan Robinson’s published contributions to economics continued until her death in 1983. Much of the The General Theory is incomprehensible. The book is difficult and obscure because Keynes wanted it to be. Its sheer ugliness created a small industry of interpreters. Two economists won Nobel prizes for interpreting the work.

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Keyesian economics found its first real world application during the FDR years. For Joan Robinson “The economic theory which was developed in America was a return to pre-Keynesian doctrines that smothered everything important in Keynes.” For Richard Kahn, the re-engineering of The General Theory into mathematics was a Faustian bargain–a fatal turn that would ultimately lead to Keynes being discredited.

In June 1942, Keynes was rewarded for his service with a hereditary peerage. On 7 July his title was gazetted as Baron Keynes, of Tilton, in the County of Sussex.

Maynard’s wife Lydia was a principal ballet dancer with Ballets Russes under Diaghilev and partnered with Nijinsky

Lydia partnered by Vaslav Nijinsky
There is a youtube video of Lydia dancing with George Balanchine in 1929.

Bretton Woods agreement 1944-1972 Lydia was 5’0″ Maynard was 6’7″

In 1944 Keynes attended the Bretton Woods conference in New Hampshire to hammer out a new international economic system. The Mount Washington Hotel overlooked the Ammonoosuc River where Keynes’s wife Lydia bathed nude each morning.
Keynes called for a new Supernational Bank to regulate the global money supply, currency, and trade flows. This international central bank would issue “Supernational Bank money (SBM) to national central banks like the Federal Reserve, the Bank of England, and their other counterparts throughout the world. These national central banks would borrow SBM from the Supernational Bank as a matter of course as they conducted their ordinary monetary policy operations.
The Supernational Bank would allow nations to grapple with domestic problems without resorting to deflation. Nations would never have to worry about running out of money in an emergency, because the Supernational Bank would always be there to provide money on reasonable terms. No government would have to intentionally create unemployment to resolve a currency or trade problem. Under the old system, when loans became unavailable for any reason–war, banking instability, bad monetary policy, a stock market bubble, or a simple disinterest in foreign lending–the only way a country running a trade deficit to fix its situation would be to force down the price of its goods in foreign markets. Ultimately it would resort to deflation and mass unemployment to do so. Keynes argued the surplus nations were not injured by countries that ran deficits. While the deficit country ran up large financial debts, the surplus country enjoyed fat export trade that employed its workers and raised the standard of living.
What the world also needed was an international authority that could punish countries for running a persistent trade deficit or a persistent trade surplus. Keynes proposed an International Clearing Union (ICU). Each participating central bank would open an account with the ICU. International trade payments would be made through those accounts, using a new international currency called Bancor that the ICU would create at will. When a country ran a persistent deficit or a persistent surplus, the ICU would require it to revalue its currency to bring the system back toward balance. The revaluations would be up or down to a limit of 5%.

Unfortunately for Keynes’s vision, Harry Dexter White, the US representative of the FDR administration arrived at Bretton Woods with a plan already formulated and the US had the clout to get its way. Keynes’s plan had been rejected before the conference even began. Instead all nations that joined the Bretton Woods project would agree to make their currencies convertible into dollars at a fixed exchange rate. The dollar only would be convertible into gold at a price later fixed at $35 per ounce. An International Monetary Fund (IMF) would be established to provide emergency loans in a crisis. A World Bank would be created to assist with post war reconstruction.

Instead of an international regulatory apparatus, Keynes got a gold standard with a bailout fund. White spend much of his time at the conference trying to secure USSR participation. He failed and the USSR never ratified the Bretton Woods agreement. Britain was broke and Keynes could do nothing about the outcome of the conference. Keynes died on Easter Sunday 1946.

The backlash against FDR’s New Deal and War powers was led by the bankers, wall street, and the corporate American elite. Undermining Keynesian economics combined the McCarthy era Communist scare accusations, the rise of the Ayn Rand inspired libertarian movement emphasizing unfettered individual freedom (freedom from government interference), and the resurgence of laissez-faire (market fundamentalism) economics centered at the Chicago School with von Mises and von Hayek and the London School of Economics.
Chicago School graduate Paul Samuelson wrote the textbook Economics: An Introductory Analysis, first published in 1948 that became the principal introduction to economics for generations of American students including this reader. While incorporating some Keynesian ideas, Samuelson was careful to couch these ideas in the long tradition of market fundamental economics. Some labeled Samuelson a neo-Keynesian .

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In 1958 Galbraith published his sensational The Affluent Society where the economics of scarcity had been replaced by an economy of abundance able to meet the needs of everyone with advertising used to encourage further consumption. Galbraith noted that great inequality still existed in America. The book had an immediate and wide spread impact on economic discussion which Carter calls similar to the impact of Thomas Piketty’s Capital in the Twenty-First Century, a history of inequality of income and wealth in France, Britain, and America. Galbraith was perhaps the best known member of the JFK brain trust. Expecting a cabinet appointment, Galbraith was instead named ambassador to India, then under Nehru and the Congress party. Galbraith was a vocal opponent of US involvement in Vietnam so likely JFK wanted to isolate him to quiet his opposition.

In 1972, Nixon shocked the world announcing the end of the post war Bretton Wood system. The gold standard was abandoned and massive monetary and fiscal stimulus programs were launched with low interest rates and business tax cuts. A 10% import tariff would be imposed and price controls put into place. Carter doesn’t discuss it but the US had moved from a trade creditor nation to a trade deficit nation by the late 1960’s. Strongest of the Creditors were Germany and Japan. Sometime about 1971, a young London School of Economics educated Paul Volcker penned a three page secret memo to his boss Henry Kissinger suggesting that foreign nations should be encouraged to have the United States recycle their surpluses through Wall Street. Yanis Varoufakis claims to have seen this secret memo, but the reality is that approximately 70% of all foreign trade surpluses, including China, are now recycled by the United States. Thus a new industry, financialization, which today dominates the US economy was created.

Volcker was named Fed Chairman by Jimmy Carter in 1979. He promptly raised interest rates to an unprecedented peak of 20%. Volcker had turned the Federal Reserve into the primary instrument of US economic policy to fight inflation. Further creative uses of the Fed would be used in the 2008 banking crisis.

The final nails in the coffin of New Deal economic mechanisms occurred under Bill Clinton taking the advise of Bob Rubin and Larry Summers. The Glass-Steagall act was repealed allowed the merger of banks with wall street to create too big to manage financial monsters. Then Clinton declared that there was no need to regulate Wall Street created derivatives that were at the heart of the 20008 sub prime mortgage crisis. Carter points out that the credit default swap (CDS) was the most explosive of these new derivatives. The CDS was a form of insurance whereby a default of an insured derivative would pay the holder. There was no requirement that the entity taking out the insurance actually owned the derivative insured.

The Obama administration was economically scammed by Tim Geithner and Larry Summers. The big banks were bailed out, Glass-Steagall was not reinstated, no banker was prosecuted for their illegal activities. And, according to Carter, 9.3 million lost their homes with government doing virtually nothing to preserve home ownership. A $75 billion plan designed to save 4 million homes never happened. The money was allocated but never spent. The family loss of homes contributed greatly to the increase in unemployment during this time.
Democratic Representative Dennis Cardoza of California in 2011 exclaimed:

For the life of me, I can’t figure out why a community organizer who says he cares about families, who says he cares about communities, has turned his back on one of the biggest problems in America.

Keynes believed that an enlightened management of the economy to produce widespread prosperity and job security would alleviate the problems of unrest that lead to revolutions either communist or fascist. Today the world has the highest level of inequality ever measured.

In 2008, Joseph Stiglitz calculated that if the $48 trillion global economy were simply divided among every one of its inhabitants, a family of four world receive $28,000, high enough to end poverty in every country. Carter calculated that the 2018 economy of $85.8 trillion economy and 7.5 billion people would yield an income of $45,000 for each family of four. “The economic problem of humanity is no longer a problem of production but of distribution–inequality.

Keynes was a conscientious objector dedicated to the elimination of the causes of war. Yet the history of the US after WWII was one of almost continuous real armed conflict and a continuous succession of virtual wars: the cold war til 1992, the war on drugs, and the war on terror after 9/11, The later two were not wars against state actors but against amorphous largely hidden force scattered globally. State actors found themselves invariably drawn into all these virtual wars often with terrible consequences. In real shooting wars with armies, Korea was fought to a draw; Vietnam was lost at a cost of more than 1 million lives; Afghanistan and Iraq never end; Syria and Libya appear to be without resolution. In foreign policy, the US, starting in 1953 and continuing to this day, assist in the overthrow of governments in country after country. The US today is the world’s greatest threat to stability and peace.

As Piketty documents, we are living in a period of unprecedented inequality of income and wealth. Carter concludes, the US government has remained, with the exception of Bill Clinton, stubbornly Keynesian but Keynesian principals are applied only during ever escalating economic crises. Applying Keynesian solutions in government policy sporadically and blind to people’s suffering serves only to rescue the oligarchs from their own incompetence and crimes. This malignant phenomenon has been named “Corporate Socialism“. The failures of the 2008 banking crisis highlighted the bankruptcy of Market Fundamentalist views of the world. Without extensive, enlightened, humane state management, unfettered capitalism is capable of generating enormous instability and suffering that only the state can correct. As an optimist foresees, the global economy, properly managed by the state, is capable of reducing income and wealth inequality and improve the lives and quality of life of everyone on earth, and eliminate war.

A bit of trivia; Keynes was 6’7″, Galbraith was 6’9″ and Volcker was 6’7″.