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What Did These Idiots Think Would Happen If We Hired Contractors To Handle Spying?

1:41 pm in Failed government by masaccio

Whose side are cyber contractors on?

Apparently it has escaped the notice of politicians and bureaucrats that the interests of contractors are not the same as the interests of their customers. The contractor wants to make lots and lots of money. The contractor wants to make the customer happy, so it tells the customer whatever it wants to hear: oh sure, we can do that; or oh sure, that’s a great idea, you must be very smart to have thought of it; or I’m sure you’ve heard about the steps being taken by your competition, but fortunately we can stop them. The contractor has no interest whatsoever in completing the work, because that stops the money flows.

The contractor benefits from sleazy practices: hiring high-ranking government people to lobby their friendly former employers, or promising, wink wink to hire them in the future; hiring lower-level government employees who actually know how to do the work, leaving the government less able to do the work; paying off politicians with massive campaign contributions and in-kind goodies and trips and payments for speaking at corporate events; and lots more.

We know this because we can read the paper, because pretty much all of this is standard practice, and none of it is illegal. And we can see the results: massive boondoggles in every sphere of government, software that doesn’t work, hardware that doesn’t work, combinations that don’t work, purchases of unnecessary and useless hardware, and money pouring into the private sector, at least to the people at the top of the private sector.

Which government official thought this wasn’t applicable to spying? According to the Defense Department, General Keith Alexander, director of the National Security Agency, chief of the Central Security Service, and commander of the US Cyber Command testified before the Senate Appropriations Committee that

The IT infrastructure was outsourced about 14 years ago, which provided more federal work in that area to contractors, Alexander noted. “As a consequence,” he added, “many in government — not just us — have system administrators who are contractors working and running our networks.”

The New York Times has a slightly different take:

Since 9/11, the vast majority [of] I.T. experts in the intelligence world have worked for private contractors, and the Snowden case has set off a new debate about whether the government could have more control of the workers if they were direct employees.

Fourteen years ago would have been 1999. The NYT’s implication that this has something to do with 9/11 seems really wrong.

Systems administrators for all intelligence operations working for contractors? These people have access to pretty much everything on the system. They could look at the private emails of General Alexander, other government workers, senators, representatives, staffs, administrative agencies, purchasing officers, planners, pretty much anyone, and pretty much everything they see or do on the internets. And if they did, they could tell their bosses what those government workers thought about things. Who would know? How would they know?

What could possibly go wrong with that in a system already rotting from crony capitalism?

Chained CPI Helps Fund Corporate Tax Breaks and Trickle Down

10:49 am in Failed government by masaccio

Obama Finds Trickle-Down Inspirational


Jack Lew, the Treasury Secretary and former head of the Office of Management and Budget, testified before the Senate Budget Committee recently. His written testimony explains the priorities set by President Bipartisan, Barack Obama, who seems to think he was elected on the long-term Republican promise to balance the budget.

Lew tells us that Obama’s budget is based on his Grand Bargain offers to Speaker Boehner that couldn’t garner any Republican backing. Lew doesn’t explain why that should be a starting point for further capitulations. Lew mentions such balanced ideas as the Chained CPI. That’s the part where we slash at Social Security and raise taxes on the middle class by raising income tax brackets less than inflation. Lew explains the reason for this assault on the 99%: “The chained CPI is a more accurate measure of inflation in that it does a better job of reflecting the substitution of goods in response to relative price changes.” That is a lie.

The CPI is supposed to measure how much it costs to maintain your lifestyle. The Chained CPI measures the decline in your standard of living as you change your protein intake from an occasional piece of beef to Alpo. Lew thinks that’s not a problem because it’s all protein. And it’s not a problem for the administration’s rich clients, whose life-style is utterly unaffected by inflation. For the 99%, the Chained CPI assumes that you are just as happy with canned catfood as you were with fresh salmon.

Lew’s headline number is $580 billion in tax hikes. It dwarfs the impact of cutting Social Security, which is $130 billion. At the same time, we are increasing taxes by $100 billion by raising the brackets more slowly than actual inflation. So, we have an actual $680 billion in increased revenues. Let’s see what we do with those. You probably think it has something to do with helping the middle class, as Lew claims in the section labeled “Strengthening the Middle Class by Investing in the U.S. Economy”. That translates to More Trickle Down From President Bipartisan. He wants to increase funding for US agencies to promote trade, including the Trans-Pacific Partnership, and the Transatlantic Trade and Investment Partnership, the new NAFTAs, and will hurt even worse as we watch corporations erode our sovereignty. Then we recycle the money back to corporations that shift foreign production back to the US. We paid them to leave, through deductions available for moving out (which supposedly will be repealed), and now we pay them to return. But that’s not all the corporations won. Take a look at the budget, pp. 7-35, where you can see all the money going to corporations on its way to trickling into the pockets of the rich.

For the middle class there are some opportunities for training, and schools for four-year olds, an increase in the minimum wage (because the middle class now lives at the minimum wage), and help with recovery of child support. The end.

Here’s a quote from the budget:

The Administration believes in a balanced approach that cuts spending and reforms entitlements responsibly, but also raises revenue from tax reform that closes special interest loopholes and addresses deductions and exclusions ….

Let’s just skip the tax increases on the middle class and the destruction of their retirement benefits. Why do Lew and Obama think balance is a good thing? Did the people on Social Security and Medicare and Medicaid cause the Great Crash? Did they reap billions of dollars in benefits from the Reagan/Bush/Obama tax rate cuts? Did they steal from pension plans or from stock and commodities brokerage accounts? Did they manipulate LIBOR for their personal benefit? Did they launder money for drug cartels and terrorists? Did they need Get Out Of Jail Free cards from the fake prosecutors at the Department of Justice? Did anyone in the entire country vote for this guy thinking “Oh good, at last someone will make the tough decision to cut my Social Security and give the money to the rich and their corporations?”

I’m all for balancing the budget. Just do it on the backs of the oligarchs and corporations and their foundations and their offshore holdings of trillions and their professional minions who make it all possible. That’s fair and balanced.

Photo by wayne’s eye view under Creative Commons license

Oligarchy Exists Inside Our Democracy

10:16 am in Failed government, Uncategorized by masaccio

Suddenly it looks like we are seeing political victories for progressives, on LGBT rights, on issues important to Hispanics, even occasionally on issues important to women. At the same time, we lose every single battle over economic issues. How is it that when polls show that a huge majority oppose cuts to Social Security, Democratic politicians like President Obama and Senate Majority Leader Dick Durbin are all for it, as are the Republicans? How is it that when Obama gets elected on a pledge to hike taxes on incomes above $250K, with a huge majority and control of the Senate, and a legislative situation where all he has to do is nothing and it happens, and then it doesn’t? How is it that the same bill continued a bunch of disgusting loopholes for the richest Americans and the corporations they control, like the NASCAR loophole that essentially only benefits one enormously wealthy family? How is it that within days of hearings showing the incompetence of JPMorgan’s derivatives traders the House Agriculture Committee cleared legislation to inflict derivative losses on the FDIC?

To answer that question, we have to get outside of normal discourse in the US, and take up a new word: oligarchy. Even though our pundit class doesn’t seem to grasp the possibility, it’s easy to see that this single concept explains the apparent discrepancy between wins on social issues and utter defeat on all economic issues.

We think of the US as the Shining City on the Hill of Democracy. Maybe so. But as Jeffrey Winters and Benjamin Page say in their article Oligarchy in the United States?, kindly made available by the author, it is perfectly possible for an oligarchy to function quite nicely inside a democracy. In this paper, and this somewhat more accessible version, Winters and Page answer three questions: a) what is oligarchy? b) how can you have an oligarchy in what is ostensibly a democracy, and c) how can an oligarchy function when there is such a large number of hyper-wealthy people? As to the first, they define oligarchy to mean rule by the richest citizens, a definition that follows Aristotle. This is from Politics, IV, viii:

For polity or constitutional government may be described generally as a fusion of oligarchy and democracy; but the term is usually applied to those forms of government which incline towards democracy, and the term aristocracy to those which incline towards oligarchy, because birth and education are commonly the accompaniments of wealth.

It’s easy enough for an oligarchy to work inside a democracy. Historically, the richest citizens had to fight to protect their wealth and power, with expensive castles and armies and alliances with other oligarchs. As the nation state evolved, the rich struck a deal: the state would take on the burdens of protecting property from foreigners, peasants and other oligarchs, and the rich agreed at least in theory to abide by the same rules as everyone else in the state. Of course, the rich played an important role in determining how those rules would be established. Winters and Page point to a number of provisions in the US Constitution that wet things up for significant control by the rich. Not least is Art. I, Section 10, which prohibits states from passing laws that impair the obligation of contracts, and the Fifth Amendment, which prohibits taking property without due process and just compensation. The Constitution protected wealthy slavers, awarding them extra votes so they could insure control in their home states.

Throughout our history, the richest among us have used their wealth to secure favorable laws. The full extent of that influence is obvious in hindsight, even if at the time other motivations may have seemed important. Laws that restricted voting may have looked like ways to enforce racial prejudice, but they also applied to poor whites as well. Poll taxes, property requirements and other requirements were designed to insure that undesirables couldn’t vote.

Turning to the question of coordination among the oligarchs, how can they work together when there are so many of them. The answer is that all of these hyper-rich people share three important interests:

1. Protecting and preserving wealth
2. Insuring the unrestricted use of wealth
3. Acquiring more wealth.

They don’t have to conspire to protect their interests. They just have to shut up and let a few of them manage the specifics. As an example, consider the Estate Tax. Its function is partly to generate revenue, but its social role is to break up large fortunes. The Walton heirs, a group which has done nothing to deserve great wealth besides belonging to the lucky sperm club, provides leadership for the rest of the oligarchy on this issue. They spend vast sums of money to insure that their children do not suffer the indignity of living on less than billions and billions of dollars of inherited money. You can count the members of the oligarchy who oppose the Walton heirs on this issue, and they do not oppose changes with the kinds of money and influence that the Walton heirs bring, only by cheap talk.

The oligarchs have armies of professionals to influence economic policy; Winters calls them the Wealth Defense Industry. These people see themselves as independent professionals, but they need patronage to maintain their positions, and they get it by providing research and advocacy for the policies and facts that support the views of their controllers. Just watch those supposedly independent lawyers espouse laughable positions in courts, and then watch those indefensible positions win in supposedly independent courts. The same is true of economists and accountants and pretty much any profession you can name.

Winters and Page have some thoughts on the makeup of the oligarchy in the US, but their attempts rely on simple measures like income and wealth alone, and are not completely convincing. Part of the problem is that it is difficult to analyze the patterns of influence with a few raw numbers and simple measures of concentration of wealth and income. There is no obvious way to measure the power of working through corporations, foundations, think tanks, and even universities, which bring a deep range of pressures to bear on government officials. But even the raw numbers show that the power and influence of the rich is enormous, and much greater than any other segment of the population.

It’s only recently that the Oligarchy has lost interest in the bargain about following the rules. Entire industries are off limits for prosecution. Rules are randomly changed to favor the interests of the rich. And worst of all, democracy itself isn’t working. We used to operate under some general form of majority rule. That is not the case in either house. In the House, under the Hastert Rule, the Speaker, John Boehner, will not present a bill that doesn’t have the support of a majority of his party. That means that a minority of the House can prevent any bill from being heard. That minority comes from small states in the most conservative parts of the country.

The Senate operates under rules that allow a single Senator to stop a bill in its tracks. A minority can prevent discussion of any bill. That’s bad enough, but the same rule applies to appointment of judges and the officials in policy positions. These require the advice and consent of the Senate, but again, a minority can prevent consideration of even routine appointments for any reason or for no reason. That means that we do not have judges in many courts, and that the President cannot govern with the people he thinks best.

These matters are largely the fault of the Republicans, who are the party of the rich, the oligarchs. But at least in the Senate, the Democrats could change these rules. They refused to do so in the face of the bad faith of the Republicans. It’s at least as much the fault of Harry Reid as it is the fault of the party of the rich.

The primary impact of this leverage in the hands of the minority is on economic issues. The oligarchy is just as divided as the rest of the population on social issues, like immigration, LGBT rights, women’s issues and similar non-financial matters. It turns out that, for example, some of the oligarchs have family or friends or are themselves LGBT. Their interests in wars and other kinds of issues are also divided. Because of that, democracy could theoretically work on those issues. It’s only those economic issues where the rich are on the same team, and they always win those battles.

And that’s exactly how things are working out. On matters of direct interest to the oligarchy, they win. You can have your silly laws about marriage or abortion as long as they get their way on money. It’s a lousy bargain, and it doesn’t have to be that way.

Cross-posted and slightly revised from Naked Capitalism.

Economic Theory for an Age of Ruin

2:24 pm in Failed government, Financial Crisis by masaccio

Flour Mill, Wolverhampton, England, photo by alienwatch via Flickr

As this financial disaster grinds through its fifth year, US economists haven’t seemed to change much about their analysis or explanations. The people who got it wrong continue to push their false theories, insisting that if we clap louder their reputations will be saved. It’s working for the hyper-rich. We’ve all seen the figures:

The numbers, produced by Emmanuel Saez, an economist at the University of California, Berkeley, show overall income growing by just 1.7 percent over the period. But there was a wide gap between the top 1 percent, whose earnings rose by 11.2 percent, and the other 99 percent, whose earnings declined by 0.4 percent.

Median household income, which was $50,054 in 2011, is about 9 percent lower than it was in 1999, after accounting for inflation.

Economists comfortable with progressive ideas offer the same solutions they always do: infrastructure repair paid for with borrowed money, hikes in the minimum wage, tax cuts for the workers who still have jobs, and so on. Perhaps they are familiar with some of the thinking that offers a better way forward. But let’s be realistic. There is little point in trying to teach any new ideas to Democrats in the legislature. They absolutely refuse to deviate from the standard American view: Chicago School Capitalism Good, Everything Else Bad. Heaven forbid anyone accuse them of being a liberal on economic matters.

Fortunately, some economists in the rest of the world saw that the economic theories they learned in college aren’t working, and are saying so in public. Lord Adair Turner is the Executive Chairman of the Financial Services Authority, presently the top banking and securities regulator in England. He recently gave a lecture entitled Debt, Money and Mephistopheles: How do we get out of this mess? Martin Wolf discussed it in this article.

In normal times, says Turner, monetary policy should work. The central bank lowers interest rates and that leads to an increase in bank lending. That isn’t working now, Turner says, because this is a balance sheet recession. People are paying down their debt, not taking out new loans. It doesn’t matter how low the interest rate goes, they don’t want to borrow, they want to get out of debt. Turner calls it pushing on a string. Turner points to long-term problems created by continuing on this feeble course. Japan is the primary school for this kind of failure.

Turner then addresses fiscal policy, deficit spending to provide tax cuts or infrastructure repairs. This tool has been ridiculed by economists for the last 30 years for several reasons the validity of which was unquestioned by any serious economist. Turner discusses a recent paper by Brad DeLong and Larry Summers arguing that those reasons aren’t applicable in the current crisis. He also points out that even so, they may have long term problems. That is because all deficits are financed using borrowed money. Deficit spending means the issuance of debt, and at some point that will be a serious problem, even if it isn’t right now.

But, of course, it is a huge problem right now, a problem not acknowledged by Turner, or by DeLong and Summers. The deficit hawks are insisting that the existing deficit is going to kill us and our children and their children, and it has to be stopped now, by suffocating cuts to Social Security, Medicare and Medicaid, and tax cuts for their corporate sponsors like @FixTheDebt.

Turner then opens the door to another idea that he calls Overt Money Finance. In the US, it would work like this. The Treasury has an account at the Fed. Congress appropriates money to pay for a program, say, purchase of new building in Pittsburg. Right now, that would be financed by issuing new Treasury bills. With Overt Money Finance, the Fed would simply credit the account of the Treasury with the amount appropriated. There would be no new debt, but the Treasury would have the money to pay for the building. You will note the similarity to the idea of the Trillion Dollar Coin. You will also notice the similarity to the way the Fed lends money to banks.

Overt Money Finance isn’t really a new idea. The most famous proponent was Milton Friedman in a 1948 paper, but it has been studiously ignored by all right-thinking people as much too dangerous. Turner explains that economists think that if politicians realized that they could just issue fiat money, they would destroy the currency by issuing more and more until we had hyperinflation. To prevent that bad outcome, we hobble ourselves with all sorts of laws and institutional rules about debt. One of those is the rule that the Fed can’t just lend money directly to the government. It finances the government by buying and selling Treasury debt in the open market. I suppose the theory is that the Fed is independent, so it won’t destroy the currency. Maybe, but let me point out that the Fed could easily have popped the last two bubbles, and didn’t, so its record on protecting the economy doesn’t give me much hope.

FDL readers will recognize Overt Money Finance, because we know about Modern Money Theory, thanks to the efforts of letsgetitdone and other diarists and commenters, and an excellent Book Salon with L. Randall Wray. Wray discusses Milton Friedman’s paper in Chapter 6 of his Modern Money Theory, A Primer on Macroeconomics for Sovereign Monetary Systems, and goes on to explain how it would work today and the steps that would be taken to prevent inflation. Turner has some ideas about that too.

Martin Wolf provides some helpful framing in his article in the Financial Times:

…[I]t is impossible to justify the conventional view that fiat money should operate almost exclusively via today’s system of private borrowing and lending. Why should state-created currency be predominantly employed to back the money created by banks as a byproduct of often irresponsible lending? Why is it good to support the leveraging of private property, but not the supply of public infrastructure? I fail to see any moral force to the idea that fiat money should only promote private, not public, spending.

I fail to see any moral force to that idea either. Why should those criminals get any help from government after wrecking the economy and ruining the lives of hundreds of millions of people around the world? Let’s do something nice for ourselves, preferably at the expense of the hyper-rich. Maybe we could fix some of those 70,000 structurally deficient bridges.

Legal Status of the Trillion Dollar Coin

3:45 pm in Failed government by masaccio

There is a lot of loose talk out there about the legal status of the Trillion Dollar Coin idea. Let’s go to the statute books.

Applicable Statutes

31 USC § 5111
(a) The Secretary of the Treasury—
(1) shall mint and issue coins described in section 5112 of this title in amounts the Secretary decides are necessary to meet the needs of the United States;
(2) may prepare national medal dies and strike national and other medals if it does not interfere with regular minting operations but may not prepare private medal dies;
(3) may prepare and distribute numismatic items;

31 USC § 5112
(a) The Secretary of the Treasury may mint and issue only the following coins:
(1) a dollar coin that is 1.043 inches in diameter.
(2) a half dollar coin that is 1.205 inches in diameter and weighs 11.34 grams.
(3) a quarter dollar coin that is 0.955 inch in diameter and weighs 5.67 grams.
(4) a dime coin that is 0.705 inch in diameter and weighs 2.268 grams.
(5) a 5-cent coin that is 0.835 inch in diameter and weighs 5 grams.
(6) except as provided under subsection (c) of this section, a one-cent coin that is 0.75 inch in diameter and weighs 3.11 grams.
(7) A fifty dollar gold coin that is 32.7 millimeters in diameter, weighs 33.931 grams, and contains one troy ounce of fine gold.
(8) A twenty-five dollar gold coin that is 27.0 millimeters in diameter, weighs 16.966 grams, and contains one-half troy ounce of fine gold.
(9) A ten dollar gold coin that is 22.0 millimeters in diameter, weighs 8.483 grams, and contains one-fourth troy ounce of fine gold.
(10) A five dollar gold coin that is 16.5 millimeters in diameter, weighs 3.393 grams, and contains one-tenth troy ounce of fine gold.
(11) A $50 gold coin that is of an appropriate size and thickness, as determined by the Secretary, weighs 1 ounce, and contains 99.99 percent pure gold.
(12) A $25 coin of an appropriate size and thickness, as determined by the Secretary, that weighs 1 troy ounce and contains .9995 fine palladium.

(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

31 USCS § 5103

United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.

Legislative History, Such As It Is, and Plain Language

Section (k) Was Added In By P.L. 104 – 208, the 1997 Omnibus Consolidated Appropriations Act. The provision isn’t discussed in the House Report or the Senate Report as best I can tell. The statute adds several provisions besides section (k) related to commemorative coins, which generally are regarded as numismatic or collectible coins as opposed to circulating coins. The point of those sections is to enable the Treasury to make a significant seigniorage profit on these coins, and to raise money to assist in worthy causes. There are numerical limits on certain of the coins, as in section (m), presumably to protect their numismatic value, although the Secretary of the Treasury is authorized to make more if there is sufficient demand. There is no similar limitation on issuance of platinum coins. In any case, all coins are legal tender, whether they are numismatic or intended for circulation.

In a similar way, the Treasury is authorized to print U.S. currency notes itself, but the amount is limited to $300 million. 31 USCS § 5115.

Section 5111 authorizes the Secretary of the Treasury to mint and issue coins as described in § 5112 in such amounts as the Secretary decides are necessary to meet the needs of the United States. This is very broad language, and does not appear to establish any limitation on the factors that might help the Secretary determine the needs of the United States.

Of course, our conservative Supreme Court Justices aren’t interested in legislative history (except when it suits them). They rely on the plain language of the law. It would be a real hoot to watch Justice Scalia explain why the plain language is not plain enough for him.

The Debt Ceiling

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A Vicious Assault on Retirees

2:46 pm in Failed government by masaccio

There is no other way to describe the machinations in DC today. The median Social Security benefit is $1229. The median net worth of retirees is about $160K, including home equity according to the 2010 Survey of Consumer Finances.

Chart from 2012 Annual Report of the Pension Benefit Guaranty Corporation

Any cut to the Social Security benefit is going to damage these average people seriously, and it’s worse for the people below the medians. But that isn’t the whole picture. The original idea behind Social Security was that it would be just of part of retirement, along with employer pensions and personal savings. As the graphic shows, the pension plan has gone the way of the Dodo.

Now think for a moment about the people above that median. These are the people who saved money to fund their retirement, and have some assets. They get no interest income, thanks the to the Fed and its zero interest rate policy (ZIRP). There has been precious little income from savings for the last few years, and the Fed promises that there won’t be any in the foreseeable future. That means that people are being forced to eat up their savings, or to put it with the wolves of Wall Street.

We aren’t talking about pocket change, either. For people in the 75-90 percentile range, the mean net worth in 2010 was $525K, down from $616K in 2007. The mean value of financial assets held by this group was $233K, down from $254K in 2007. That isn’t all that much money to last 20 or thirty years. ZIRP means that savers get screwed. Bloomberg reports that ZIRP is helping the rich and screwing everyone else, quoting Joseph Stiglitz: “Monetary policy has been indirectly, surreptitiously helping the top and hurting the bottom.” It describes a semi-retired college librarian:

…when he first started an annuity in 2005, his interest rate was 5.25 percent. Now it’s 2 percent, he said. That means that instead of getting a monthly payout of $700, he gets $413.

In the face of the horrible damage inflicted on all segments of the population by the richest Americans, aided by an ideologically insane party and a spineless party, President Obama and the rest of the Washington Elite insist on slapping retirees with Social Security cuts via the Chained CPI, and cuts to Medicare and Medicaid, to go with the demand that they eat up their savings or reduce their standard of living.

There is no excuse for this vicious assault on the retirement plans of millions of Americans. And there is no other way to describe it. It is a horrible and mean-spirited attack on every American except a few hyper-rich people.

Plutocrats Are the Same the World Over

8:32 am in Failed government by masaccio

It isn’t just the US plutocrats like David Koch and Sheldon Adelson and the plutocrat wannabes at Romney $50K per plate dinners who want to screw up the economy and make sure Americans remain in blissful ignorance of the real world. Here’s an article in a French magazine Basta describing the efforts of French plutocrats to influence the US Elections and support right-wing right-think tanks. (Link is to Google translate. If it doesn’t work, insert this link: http://www.bastamag.net/article2758.html into google translate. Or read it in the original French.)

The article begins by pointing out that there is no limit on campaign contributions in the US, and no transparency. French companies are the fourth largest contributors to Senate and House campaigns behind Swiss, British and German companies. The article relies on OpenSecrets.org in reporting that French companies have admitted to giving $728K through October 1. Buyers include Sanofi (pharmaceuticals), Gulf Suez (energy), Lafarge (cement and building products), Areva (nuclear) and Louis-Dreyfus (commodities trading). French energy magnates fund 16 Republican global warming deniers and six adamantly opposed to any form of regulation of greenhouse gases. Several French companies support Illinois Congressman John Shimkus, probably because

He made headlines in 2009 by declaring that no one should fear rising sea levels because God promised Noah that mankind would never be threatened by a flood.

Another favorite is Dan Lundgren, currently trailing newcomer Ami Bera in California. Climate deniers would lose a major supporter if the results hold up. Another favorite is “flat-earth” candidate Anna Marie Buerkle, currently trailing Dan Maffei by 14,601 votes but unwilling to concede until the 14,442 provisional and absentee ballots are counted. Flat-earth candidates don’t do maths so good. All in all, not that great for the French contributions to stupid, but probably better than Karl Rove; at least the dollars were smaller.

Then there are regular French politicians. In their last elections, the people elected a Socialist, Francois Hollande, and gave him a working majority in the legislature. So right off, he appointed a French version of the inane Jack Welch to provide him with a report on needed changes in the economy. Louis Galois, a seasoned bureaucrat from European Aerospace Defense and Space (EADS), is a true representative of the plutocracy. His prescriptions read like Mitt Romney’s wet dreams: crush workers and use the profits to sweeten the pots of the rich. Sorry, I meant create jobs. In France.

The report calls for a payroll tax reduction of €30 billion, or $38 billion, a sum equivalent to about 1.5 percent of the French gross domestic product. The reduction would be in the form of a €20 billion tax break for businesses and a €10 billion break for workers on the lower end of the wage scale.

The government would offset the effect of the tax reductions on the budget through higher sales and carbon taxes, as well as cuts in government spending.

That sounds like a specific program to dump the costs on the working class, which now, of course, includes the middle class. And the new item: fracking for shale gas. As usual, the important thing is the destruction of regulations and the improvement of the animal spirits of the investing class.

A spokesman for Medef, the French employers union, says this is a great plan. And the Germans chime in with Jorg Kramer, who says that the French must change and not slide into the muck with Italy, Spain and Greece. And the Socialists are buying:

Firms will be offered tax credits worth up to €10bn next year, rising to €20bn by 2015, to be financed by an increase in VAT and €10bn in public spending cuts, as yet unspecified. That was less than the €30bn-a-year cut in payroll taxes that Gallois demanded, but far more than many analysts expected. The rebates will be proportionate to the size of a company’s payroll, up to a maximum of two-and-a-half times the minimum wage, in an attempt to support jobs./

I’m sure you recognize that the VAT hike will impact workers a lot, not so much the plutocrats. And I bet the spending cuts will not impact the rich. It looks like elections don’t matter much in France either, though the Socialists are raising the top tax rate to 75%, something we can never do here.

And the Greeks are in for more of the same austerity in the aftermath of another vote for it from their sleazy politicians. Elections don’t chanage things there either. Both leading parties vote for austerity, and both parties flatly refuse to investigate their tax-evading rich. The only important thing is to get another loan from the EU to “shore up its banks and pay off loans” to the rich.

The problem is that nations and their citizens owe a lot of money to the hyper-rich bastards who try to steal elections and keep us stupid so we won’t notice the oceans crashing into our cities or ask how the financial crisis happened. They want control so they can force us to repay those loans.

Just once, I’d like to hear a politician point out that there is an easy way to pay those debts: we tax the hell out of the plutocrats and use that money to “shore up the banks and pay off loans”.

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The Liberal Myth That Morbid Wealth Is Just Fine

3:15 pm in Failed government by masaccio

This isn't like when rich people protest using Citizens United. Walmart strikers: bring out the Riot Police. Photo by Peoplesworld via Flickr

Liberals have been neutered by capitalism. Once upon a time, they spoke of Malefactors of Great Wealth. They said that these morally bankrupt jackals were ruining people’s lives. Nowadays, liberals just don’t talk like that. They begin any conversation about money by saying that they don’t begrudge the rich their wealth, they just want minor tweaks. It isn’t working.

As Chris Hedges argues, there was an alternative not so long ago:

The left once harbored militant anarchist and communist labor unions, an independent, alternative press, social movements and politicians not tethered to corporate benefactors. But its disappearance, the result of long witch hunts for communists, post-industrialization and the silencing of those who did not sign on for the utopian vision of globalization, means that there is no counterforce to halt our slide into corporate neofeudalism.

I remember the push against the commies. I wrote an essay in high school on Masters of Deceit by J. Edgar Hoover. I was quite proud of it until I showed it to a Dutch priest theologian who was a friend of my family. He explained gently that there was more to say about radicals than perhaps I could be expected to know as a young American.

There is a grain of truth in the notion that we don’t begrudge rich people their wealth. Robert Frank divides the wealthy into three groups in his book Richistan, Lower Richistan, with net worths of $1-10 million, Middle Richistan, with net worths of $10-100 million, and Upper Richistan, with net worths in excess of $100 million. Many of the people in Lower Richistan earned their wealth through merit and hard work. They are, by and large, the millionaire next door. They worked hard and played by the rules and saved and invested, and made it to the lower reaches of wealth. If this were what liberals meant when they said they don’t begrudge the rich their money, I would wholeheartedly agree. This differential in rewards seems perfectly consistent with the ideas of John Rawls in A Theory of Justice. And few of them are doing damage to the nation. They don’t have enough money.

Middle Richistan has about 1.4 million residents. Many of them use their wealth to encourage the stupid theories of the crazed right wing. We catch glimpses of them when they convene in secret to listen to Romney complain that 47% of their fellow citizens are leeches.

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Jury Finds MF Global Not Guilty

9:13 am in Failed government by masaccio

Department of Justice Lawyers on a Picnic, photo by CocteauBoy via Flickr

And by jury, I mean the candy ass prosecutors at the Department of Justice, who have made an in-house decision that it’s just too hard to indict anyone at MF Global, including friend of Barack Jon Corzine, for stealing billions of customer dollars. It’s just impossible that a friend of Eric Holder’s could be found to be criminally responsible for allowing a company to steal money from its customers to give to its bank, especially when the bank is the much-loved JPMorgan Chase. After all, the Department of Eric Holder is made up of peers of the MF Global crowd, so it’s just like a real trial.

These chicken-shits have been telling reporters from the beginning that there were really high hurdles to prosecution, as if this were some sort of Olympic event. They tell the reporters that “chaos and porous risk controls at the firm, rather than fraud, allowed the money to disappear”. The billions in losses were beyond human control, and nothing can be done, a phrasing which perfectly mirrors DOJ’s passivity in the face of one of the biggest heists in history.

The reporters, Azam Ahmed and Ben Protess of the Dealbook blog at the New York Times, add their own passivity: “But a lack of charges in the largest Wall Street blowup since 2008 is likely to fuel frustration with the government’s struggle to charge financial executives.”

These guys can’t tell the difference between frustration and anger, between irritation and hostility. Their repetition of talking points helps the Obama Administration fuel the sense of impotency among us mere citizens, a sense that nothing we can do makes a difference, and the certainty that the rich and connected do not face the same justice system as the operators of medical marijuana dispensaries and their pathetic clients.

But look over there, a bright shiny object: civil suits! The government won’t lift a finger to support investors whose money was stolen, so they get to spend vast quantities of their own money in the hope that some civil court staffed by George Bush from the ranks of the Federalist society will eventually, in some future decade, give them a few of their dollars back. Good luck with that.

This is one more confirmation of the findings of Fulmer and Knill:

…accused executives whose firms have contributed to political campaigns via a PAC are banned as an officer for three fewer years, serve probation for five fewer years, prison for six fewer years and are 75% less likely to be given both prison time and an officer ban (the most severe form of criminal and civil penalties)…

OpenSecrets provides the data:

MF Global’s employees gave generously to politicians at the federal level — and almost all of that campaign cash benefited Democrats once former New Jersey Gov. Jon Corzine became chief executive of the company.

According to research by the Center for Responsive Politics, MF Global employees have contributed $408,000 to federal candidates and political parties since 2007. That sum includes $38,000 in donations to President Barack Obama, who is the largest recipient of MF Global employee contributions.

It must be really distressing to the customers of MF Global to see that they are just more roadkill for Wall Street hyenas. They probably thought they were in the protected class because they had a few million dollars, but it turns out they were muppets.

Studies Show CEOs Not Subject to Same Rule of Law as You

8:58 am in Failed government by masaccio

Now here's a serious crime. Photo by Boris SV via Flickr


Recent academic papers begin the formal work of proving that CEOs and giant corporations face a completely different legal system than the rest of us, one in which their vast resources are used to insure that they can safely ignore laws and rules applicable to small fry. One study looked at the influence of corporate lobbying on fraud detection. Corporate Lobbying And Fraud Detection, 46 Journal of Financial and Quantitative Analysis 1865 by Frank Yu of Barclays Global Investors and Xiaoyun Yu of Indiana University available here. From the abstract:

We find that firms’ lobbying activities make a significant difference in fraud detection: compared to non-lobbying firms, firms that lobby on average have a significantly lower hazard rate of being detected for fraud, evade fraud detection 117 days longer, and are 38% less likely to be detected by regulators. In addition, fraudulent firms on average spend 77% more on lobbying than non-fraudulent firms, and spend 29% more on lobbying during their fraudulent periods than during non-fraudulent periods. The delay in detection leads to a greater distortion in resource allocation during fraudulent periods. It also allows managers to sell more of their shares.

This quantifies earlier anecdotal data. For example, look at the collapse of Lincoln Savings and Loan. Five senators intervened to stop an investigation, and the business collapsed two years later at a cost of at least $3 billion. The delay sought by the Keating Five increased the losses, particularly to small savers who bought Lincoln Certificates of Deposit.

Yu and Yu show that this hideous perversion never stopped, and not only includes direct campaign contributions but also lobbying. They show that firms increase their lobbying expenses after they commit fraud. During the time they are committing fraud, executives of lobbying firms sell their stock about four times more than firms that aren’t lobbying.

Sarah Fulmer and April Knill of Florida State build on that study in their recent paper Political Contributions and the Severity of Government Enforcement, available here, with abstract. Fulmer and Knill examine data on PAC contributions by corporations and CEOs and SEC data on enforcement to show that

…accused executives whose firms have contributed to political campaigns via a PAC are banned as an officer for three fewer years, serve probation for five fewer years, prison for six fewer years and are 75% less likely to be given both prison time and an officer ban (the most severe form of criminal and civil penalties)…

Fulmer and Knill point to Judge Rakoff’s refusal to rubber-stamp the SEC settlement with Citigroup over cheating its investors in a late-stage RMBS deal. They also mention an earlier repulsive settlement between the SEC and Citigroup CFO Gary Crittenden.

On an analysts conference call, Crittenden said Citi had reduced its subprime exposure by 45% to $13 billion, not mentioning the other $40 billion in super-senior tranches. Crittenden settled for a meaningless $100K and there was no discussion of the fraud on investors.

The SEC Inspector General began an investigation to determine whether, as alleged by Senator Charles Grassley, Robert Khuzami, the SEC Chief of Enforcement, had a secret meeting with Crittenden’s lawyer and good friend of Khuzami, and subsequently told his staff to lighten up. The IG eventually cleared Khuzami. The reporter, Allison Frankel, said the IG report shows the cozy club approach to settlements at the SEC. Friends call friends, there are discussions about whether Crittenden would have to resign from his Church positions and the impact of a fraud settlement on Citi.

Marcy Wheeler sees that club in action again in the efforts to cover up the Standard Chartered fraud.

First, you hire Sullivan and Cromwell and act contrite. Then, you pay a consultant to conduct a review and claim the violations involved just $14 million in transactions as opposed to $250 billion shown in your bank records. … Then you bury all the embarrassing details showing willful flouting of the rules, so the proles don’t learn how craven banks really are.

Then there is the latest whitewash of Goldman Sachs. The Department of Justice won’t prosecute for the allegations made in the report of the Senate Permanent Subcommittee on Investigations, and the SEC won’t file charges over its subprime mortgage portfolio.

One channel for creating these relationships is the personal connections created as people rise through the ranks of government and move into white collar defense in the private sector. Political contributions and lobbying are another channel. Everyone knows that your rise to wealth is dependent on following the rules of connection, and eventually you get to the point where you can do the contributing and lobbying, and use those connections for your personal benefit and the benefit of your clients, which enables you to get even richer.

That has now culminated in the capture of the Department of Justice by financial interests. Attorney General Eric Holder is a rich guy from Covington and Burling. He bundled contributions for Obama and served as a co-chair of the campaign. Three other top Justice Department officials played major roles in fundraising and came from white-collar defense firms. It’s worth noting that the right wing is all over these connections. No links from me, but google “holder west perrelli mason” and see for yourself.

The prosecutors, the rich, the politicians: all buddies in the rarefied atmosphere of wealth and power. How could such great guys possibly be a lying cheat? And if there is a slip-up, they cover up.