Tuesday, March 20, 2012

Corporations United

The absurdity of the republican primary has set me to thinking about the catastrophic Citizens United decision by the Supreme Court. How anyone in their right mind could think that what this county needs is more corporate money in politics is totally beyond me.


(photo: seth_schneider)

In the dissenting opinion in the Supreme Court's Citizens United ruling, Justice John Paul Stevens wrote:

“A democracy cannot function effectively when its constituent members believe laws are being bought and sold.”

According to Senator Bernie Sanders (I-VT) , “Americans are profoundly disgusted by the Citizens United decision and what it means for our democracy.”

That's why Sanders is trying to build momentum for an amendment to overturn Citizens United. The Saving American Democracy Amendment states that:

  • Corporations are not persons with constitutional rights equal to real people.
  • Corporations are subject to regulation by the people.
  • Corporations may not make campaign contributions or any election expenditures.
  • Congress and states have the power to regulate campaign finances.

The New Mexico state legislature passed a measure calling on congress to overturn Citizens United. You can read about this almost nowhere in mainstream news. Several other states and local governments have introduced similar measures to similar lack of fanfare. Among them, Hawaii and California, and towns in Massachusetts and Vermont.

Organized opposition to Citizens United

  • Amend2012 a project of Common Cause
  • Free Speech For People (FSFP) is a national, non-partisan campaign seeking to restore democracy to the people and to ensure that people, not corporations, govern in America. FSFP is dedicated to overturning, through a 28th Amendment to the US Constitution, the US Supreme Court’s January 2010 ruling in Citizens United v. FEC and a corporate rights doctrine, which threatens our elections and our self-government.
  • Corporations Are Not People
  • Move To Amend End corporate rule. Legitimize democracy.

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Our kind of truth

Populist demagogues in politics and the mass media are doing everything they can to discredit the quality press as propaganda organs for left-wing elites who sneer at the views of ordinary Americans. Santorum pretends to speak for these people – that is, for a minority of Americans who are mostly white, provincial, highly religious, deeply conservative on cultural and social issues, and convinced that Obama and all Europeans are dangerous godless socialists.
The point is not whether Santorum is right or wrong factually. What he says “feels” right to his followers, because it conforms to their prejudices. And the Internet, having swamped the quality press, feeds and reinforces those prejudices, making it more difficult to distinguish the truth from lies.
The public is increasingly segmented into groups of likeminded people who see their views echoed back to them in blogs, comments, and tweets. There is no need to be exposed to different opinions, which are, in any case, considered to be propaganda.

Our Kind of Truth, by Ian Buruma on Project Syndicate

Tuesday, March 13, 2012

The Rise of Private Power

David Rothkopf spoke yesterday at Seattle Town Hall on the rise of private power on a cold rainy night.

Rothkopf served as deputy under secretary of commerce for international trade policy in the Clinton Administration. Rothkopf was managing director of Kissinger Associates, an international consulting firm, founded and run by Henry Kissinger and Brent Scowcroft and went on to start two international advisory firms of his own. He is now a visiting scholar at the Carnegie Endowment as well as CEO and editor at large of Foreign Policy magazine.

Rothkopf is the author of three books, most recently, Power, Inc.: The Epic Rivalry Between Big Business and Government and the Reckoning that Lies Ahead.

Power, Inc.

Rothkopf begins with the origins of corporations in the Europe of the middle ages where church and state competed for power. Since that time, the world has moved to an era in which the axis of political tension is beween corporations and the state.

Governments midwived the birth of corporations, creating early state sponsored companies like the Dutch and British East India companies, an event soon followed by the South Sea Island Bubble. Church, state and the corporation are different approaches for controlling and allocating wealth, status and authority in society. In western countries, the church was largely tamed. But, in the modern day, laissez-faire capitalism has enabled the corporation to become a serious rival of state power.

There are several means of deploying power available to nations - control of borders, printing money, passing laws, military force. Multinational companies can circumvent many of these by changing domicile to the most favorable legal environment. Most financial instruments are created by private entities. Some big corporations have larger cash flow than most countries.

The financial crisis was a shocking demonstration of corporate power. When the shit hit the fan, who did we help? Homeowners? Nope, Wall Street. Next came the Citizens United decision, a milestone in the increasing political rights of corporations.

Thomas Jefferson, William Brandis and Adam Smith all mistrusted corporations and feared their influence on politics. Alexander Hamilton was their early cheerleader in American history and architect of the framework in which corporations helped America rise to power.

Adolf Fassbender, The White Night, 1932

American Capitalism

The financial crisis left the reputation of Anglo-American Capitalism in taters and the disfunction of American politics isn't helping America's influence in the world. Rothkopf took a big swipe at the premature triumphalism of the 1990's exemplified by Francis Fukuyama's The End of History which asserted that the Washington Consensus represented "the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government."

Ideologicalization of American politics has rendered constructive debate impossible. (Ideology sucks! See the tag-line above.) The great opportunity presented by the crisis for financial reform was wasted. The watered down reform that was enacted remains underfunded and mostly unimplemented.

As traditional forms of state power are increasingly ineffective, the US government has put all it's chips on military power, developing its comparative advantage at projecting force. This is the "leviathan" doctrine articulated in Thomas Barnett's 2004 book The Pentagon's New Map, which set out a grand strategy for an American foreign policy specializing in policing the globalized world economy.

Different capitalisms

What is taking the place of the Washington Consensus, both between and within countries, is a competition among several different varieties of capitalism: state capitalism, entrepreneurial capitalism, small business capitalism, chaotic capitalism.

Can corporations be made to serve societies? Rothkopf believes so. But, we need to intelligently discus the alternatives, and be willing to cede authority upward to transnational bodies. Viewed in this light, the EU as an experimental attempt to regain lost sovereignty. Rothkopf also cited public/private partnerships such as those that created the transport system in the US and the internet.

The Scandinavian countries, Rothkopf pointed out, are near the top of the rankings, including quality of life, education, and per-capita GDP. It's amusing to note that socialist Sweden let Saab go under at the same time the nominally capitalist US was bailing out GM. The reason? A generous safety net in Sweden made bankruptcy possible.

Rothkopf, perhaps understandably considering his background in publishing, sees a comparative advantage in protection of intellectual property. I see problems with that. At least in its current form, IP law overwhelmingly favors big companies, holding back innovation. Patents and copyrights are a blatant example of corporate manipulation of the legal environment. Erecting barriers to the creative remixing of ideas will merely succeed only in exporting the vibrant technology sector and with it another of the crown jewels of the American economy.

Rothkopf's intelligence and scholarship were evident throughout his thought-provoking talk. The same could not be said of the questioners in the Q&A session. The city that brought the world the Battle of Seattle couldn't muster many rhetorical molotov cocktails. Step it up, Seattle.

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Saturday, March 10, 2012

Leveraging moral hazard

The Economist, hypothesizing an unattainable federalized Euro-Fed, says, "If you were sitting down with a blank sheet of paper, you would advise the euro zone to complement its one-size-fits-all monetary policy by pooling sovereignty and creating new institutions, [...among other things...] a bail-out fund could ensure that large European banks were not at the mercy of their vulnerable sovereign borrowers."

That's a touching show of sympathy for the creditors. And, looking at how the US fared with its massive intervention and how scary things were looking in Europe for a while there, you might conclude that bail-outs are the lesser evil. We'll have to wait and see how this looks in 5 or 10 years.

Greece asks Angela Merkel and Nicolas Sarkozy for a hundred billion Euros as concerned and inexplicably naked investment bankers look on.

Some say the big mistake the US made was letting Lehman Brothers go under. Some say the mistake was in the inconsistency of how Bear Stearns was handled compared to Lehman.

Whether an investment bank or a small sunny country with lots of islands, "too big to fail" applies either way. Maybe Greece isn't, but Spain might be and Italy even more so. While Greece and Spain both have long histories of default on debt (according to my dedicated research staff), Italy does not.

What's needed is a mechanism, an orderly well-defined processes, to handle failure of large systemically connected entities, whether they are corporations or governments.

Defaults happen. It's only common sense that we should have a means for resolving default, while minimizing damage and preventing problems from spreading to weaker neighboring nodes in the densely connected social network of finance.

That shouldn't mean protecting creditors or borrowers from the consequences of poor decisions.

The so-called "voluntary" hair cuts for holders of greek bonds, an attempt to avoid triggering credit default swaps, appear to have failed. But, what if they hadn't? Or pressure from some country whose investment banks had underwritten CDS's had influenced the terms of a bailout? Some speculate that was back story behind Timothy Geithner's trip to Europe in December.

In that context, credit default swaps are a device for leveraging moral hazard.

Credit-default swaps on Greece cover $3.16 billion of debt, down from about $6 billion last year, according to the Depository Trust & Clearing Corp. That compares with a swaps payout of $5.2 billion on Lehman Brothers Holdings Inc. in 2008. The actual payout on Greece will be “much smaller” than the net amount reported by DTCC, Pickel said. A gross $68.9 billion of contracts were outstanding as of March 2 before accounting for offsetting trades.

Amazingly, after the AIG debacle, there's still no disclosure requirements for CDS exposure, so it's hard to know the extent to which US banks have sold CDS on European Debt and net exposure is even harder to guess. It looks like some of that exposure got unwound in to past few months. You can bet, a lot of it ended up in the laps of taxpayers, just like last go 'round.

Saturday, March 3, 2012

A political economy

A recent piece in the Economist ( A new anthology of essays reconsiders Thomas Piketty’s “Capital” , May 20, 2107) ends with these words: &q...