White collar criminologist Bill Black analyzes how the U.S. got into the 2008 financial crisis and what it means that we have not learnt the lessons from that crisis 10 years later, on the anniversary of the Lehman Brothers collapse
Part 1
BILL BLACK: OK. So the crisis doesn’t begin with Lehman. Lehman dies because of the crisis. So the crisis became that bankers didn’t trust bankers anymore. And they didn’t trust them for good reason, because bankers were lying to each other about the quality of assets. So Lehman, for example, did not have $600 billion in assets. Maybe it had $300 billion in assets. It was claiming to have $600 billion. And it didn’t have $600 billion, roughly, in liabilities; it had liabilities of over a trillion dollars which it wasn’t recognizing. Why? Because it was one of the leading sellers of fraudulent loans to the rest of the world. It sold hundreds of billions of dollars under false representations and warranties, and that’s how you get these massive liabilities for these institutions that you’ve seen in the lawsuits.
Part 2
But good economics has a long said, and I mean since 1970 this has been the literature, that the key thing regulators need to do, and only regulators and the law can do effectively, is stop what is called a Gresham’s dynamic in economics and criminology. And that’s this: In a Gresham’s dynamic, the cheater gains a competitive advantage. If that’s true, then market forces become perverse, and they drive the ethical people out of business. Now, the obvious victim from these frauds is us, the consumer or the investor. But the less obvious victim is the honest competitor. And that’s exactly what these frauds do. So when I told you that the appraisers gave their warnings, began giving their warnings, in 1998, when we could’ve fixed this problem with zero losses, zero recession, zero failures, that’s what they said, that the lenders were deliberately creating a Gresham’s dynamic. They were blacklisting honest appraisers and sending all the work to appraisers that would inflate the value. Well, that makes no sense for an honest businessman, because the appraisal, of course, is your great protection against loss.
Part 3
BILL BLACK: Well, obviously the economy is enormously stronger than in the depths of a great recession in terms of things like unemployment. But a couple of things. First, the estimated loss of GDP over the course of not just the Great Recession, but the very, very long recovery- this is economists- is $41 trillion.
Remember that our debt is in terms of money that our Federal Reserve Bank creates out of thin air. The lost GDP is in terms of the dollar value of real goods and services that nobody can produce out of thin air.
AMY GOODMAN: Well, explain Kavanaugh’s relationship with Judge Kozinski.
RYAN GRIM: Right, it’s very tight. So, not only was he his clerk in the early ’90s, he became close friends with him afterwards. And he and Kozinski vetted the clerks that went to Anthony Kennedy in the Supreme Court, which is one of the most powerful positions in the legal world, to vet Supreme Court justices. Kavanaugh’s own clerk last year was Kozinski’s middle son. So these are very close people. And so—
AMY GOODMAN: And Kavanaugh was recommended to be Anthony Kennedy’s clerk, which he was, by Judge Kozinski.
RYAN GRIM: Yes. And then Kennedy recommended to Trump that Kavanaugh be his replacement. Without Kozinski, you don’t have Kavanaugh. And so, he has distanced himself, in testimony and in public statements, from Kozinski’s behavior. Interestingly, Mazie Hirono followed up to him in written questions—
AMY GOODMAN: The senator from Hawaii.
RYAN GRIM: Senator Mazie Hirono said, “Please search your email and check to see if you got any sexually inappropriate emails from Kozinski, because to know him for 20 years like this and to not have is very strange.” His [Kavanaugh’s] reply was—instead of the wall of denial that he gave in his testimony, his reply to that was “I do not remember receiving any sexually inappropriate emails.” And that’s the end of his written reply.
And so, now, according to Sanai, there are employers who would say, “That’s nonsense. I know firsthand that Kavanaugh was a witness to…”—not that Kavanaugh approved of the behavior, but that he’s lying about this. And his credibility is now central to the accusation of the attempted rape.
There is much more damning information in this video than suggested by the excerpt and the headline.
What strikes me about Kavanaugh’s situation with his alleged attempted rape victim is that he has ruined his chance of using the excuse that he was so young when it happened. If he had admitted to the incident, apologized profusely, and said something like he has looked back at that incident in shame ever since and was so sorry that the incident had such a significant impact on the victim’s life, he might have gotten a pass. If it turns out that it can be proven that his denials are false, then his initial attitude to the accusation should disqualify him.
This interview seems to provide evidence that his behavior long after he became adult shows insensitivity to the issue of sexual discrimination and harassment. His credibility on this issue is destroyed. The unwillingness of the Republicans on the committee to entertain the idea of listening to other witnesses to his adult behavior completely destroys their credibility, too.
If the Democrats on the committee allow this to solely revolve around the he said, she said issue between Ford and Kavanaugh, then they ought to be as ashamed of themselves to the degree
Today, Ben Bernanke, Hank Paulson and Timothy Geithner insist they did what they had to under conditions of extreme duress. Mistakes were made, the government’s former top financial overseers acknowledge in a recent piece for The New York Times, but they did ultimately “prevent the collapse of the financial system and avoid another Great Depression.”
Except they didn’t really rescue the banking system. They transformed it into an unaccountable criminal syndicate. In the years since the crash, the biggest Wall Street banks have been caught laundering drug money, violating U.S. sanctions against Iran and Cuba, bribing foreign government officials, making illegal campaign contributions to a state regulator and manipulating the market for U.S. government debt. Citibank, JPMorgan, Royal Bank of Scotland, Barclays and UBS even pleaded guilty to felonies for manipulating currency markets.
Not a single human being has served a day in jail for any of it.
Previously, I had gone under the assumption that taking financial decisions out of the political sphere was a good idea. Now I see the problem with that approach. Given how the oligarchs have bought the political sphere, I am not so sure that putting the political sphere back in charge of finances would be a solution. I guess that is exactly what the title of the article is trying to convey.
The rule you learn on Day One of being a billionaire philanthropist is that you don’t give money via pay packets to the poor people who literally already work for you. They’d only spend it poorly. However, if they want to humbly queue up and apply for it via some thinly disguised hardship grant that you take the applause for, that’s a different matter. Dignity is something you hand out, not something that others get to earn. I missed this bit in The Wealth of Nations; I guess there’s a sealed section.
If nothing else, this article should soothe the souls of frustrated Progressives. It surely does not mince words.
As for the philanthropy of people like Bill Gates and Warren Buffet, I have always wondered if the society would have been better off if they hadn’t fist sucked so much wealth from the rest of us and put it into their own pockets, and then given back a small piece of what they took (or even all of what they took).
Quantum entanglement—physics at its strangest—has moved out of this world and into space. In a study that shows China’s growing mastery of both the quantum world and space science, a team of physicists reports that it sent eerily intertwined quantum particles from a satellite to ground stations separated by 1200 kilometers, smashing the previous world record. The result is a stepping stone to ultrasecure communication networks and, eventually, a space-based quantum internet.
There is more in this article than just the following video.
If the idea of quantum entanglement boggles your mind, maybe the following video will help. (Or maybe it will just boggle your mind more).
In this episode of the Keiser Report, Max and Stacy discuss the new m-SDR and ask will the dollar live to die another day? And are SDRs forever? As the G20 in China concludes they ask whether the new Special Drawing Right is the first step toward one world currency. In the second half, Max interviews Dan Collins of ChinaMoneyReport.com about yuan internationalization and China’s quantum satellite.
Here is an interesting follow-up to my previous post. Some of this is at least a tad over my head, but it points me to some things i should be paying more attention to.
Since 1979 the United States failed to prevent the Chinese industrialization reform movement and China’s rise is almost complete. At the same time, the American’s turned their economy over to the financial sector. The problems since 2008 are only the tip of the iceberg.
It’s amazing what we have been able to do to ourselves over the last 40 years.
The story of the relationship between Sigmund Freud and his American nephew, Edward Bernays. Bernays invented the public relations profession in the 1920s and was the first person to take Freud’s ideas to manipulate the masses. He showed American corporations how they could make people want things they didn’t need by systematically linking mass-produced goods to their unconscious desires.
Bernays was one of the main architects of the modern techniques of mass-consumer persuasion, using every trick in the book, from celebrity endorsement and outrageous PR stunts, to eroticising the motorcar.
His most notorious coup was breaking the taboo on women smoking by persuading them that cigarettes were a symbol of independence and freedom. But Bernays was convinced that this was more than just a way of selling consumer goods. It was a new political idea of how to control the masses. By satisfying the inner irrational desires that his uncle had identified, people could be made happy and thus docile.
It was the start of the all-consuming self which has come to dominate today’s world.
Originally broadcast on 29th April 2002.
I have read that these propaganda techniques had started in the run up to World War I. This video puts many details to what I could remember of my past readings. In fact I found mention of this idea in a previous post Chris Hedges Interviews Noam Chomsky (1/3).
Thanks to Sep Ebrahimzadeh for posting the video as a Facebook comment on one of my posts.
I now better understand the context of what I alluded to above and can recommend some resources for anyone else who might be curious:
There’s a book titled Propaganda by Edward Bernays (Freud’s nephew) including its excellent introduction by Miller. In this book Bernays described how and why he saw the populous as irrational and easily manipulated.
This 4 hour BBC documentary starts from shortly before Bernays and Freud’s time and connects the dots all the way to Raegan/Tatcher and Clinton/Blair’s era (which is largely where we are now)
The fourth part of the series describes how the “left” parties in America and England abandoned their principles and adopted the business-marketing style of governance in an effort to win votes and get reelected. Robert Reich’s short speech at the end sums up the problem succinctly:
The issue is a difference of idealogy between today’s corporate Democrats who have a Freudian view of their voters and the Democratic Socialist view of rational involved citizenry.
September 11, 2018
I have now seen all four episodes of “The Century of the Self”. Somewhere along about episode three it lost its way. I don’t feel that episode showed any understandinng of how to improve the political situation for progressives. I was singularly unimpressed with Robert Reich’s opinions at the end of the fourth episode.
Remember that this documentary was first aired in 2002. I think I have learned a lot more about reality than I knew in 2002.
With the economic collapse of 2008/2009, I am now much more educated on what the “free market” has managed to do with all that freedom. The economy has been financialized. More profit is made by charging for moving money around than is made by manufacturing to satisfy consumer wants and needs. The “free market” doesn’t care about providing consumers with enough income to buy stuff. The free market only wants to squeeze consumers by getting them to borrow more money. This way, the rich can profit more from interest payments on the borrowed money than they can make by selling actual goods. Whatever goods need to be made can be made by cheap foreign labor to which the corporations have outsourced the work. Why should corporations bother to pay USA workers higher wages, when you can keep all that money for themselves? If the workers don’t have the money to buy stuff, just shrink the size of the corporation to meet the size of the market. This shrinkage has the tendency to raise the value of the corporation that is left concentrated in the hands of the 1%
The rich have found that corporations can make more money per share of stock and raise the prices of shares of their stock, by using corporate assets to buy back the corporations shares. The companies make less total money, but with fewer shares outstanding, the people who own those remaining shares get a bigger share of the shrinking economy. Imaginary measurements are enough to dupe the uninitiated into thinking the economy is growing. These uninitiated just cannot understand why they aren’t getting their share of the supposedly growing economy.
Ultimately, the strength of the USA depends on the productive capacity of the economy. We can keep that strength by overspending on military power for a while, but eventually their won’t be enough of a domestic economy to support the military spending. The USA empire is approaching its ultimate collapse (which might not be so bad for the rest of the world). However, we don’t need to overdo that collapse.
The documentary focused all its attention on what people could be sold in terms of consumers goods and political ideas, and too little analysis of the economic consequences of the decisions people are being fooled into making.
Walter Mondale showed how foolish it was to sell a political program based on raising people’s taxes. Robert Reich isn’t going to have any more success in selling a program that way. We have to focus on the economic destruction of our society that is going on with the current policies. The economy has changed enough since Barack Obama got elected for people to see the harm they suffer from too much corporate power. It’s not so much that government power is so good as it is how damaging corporate power is when it has no controls over it.
The 99% don’t need their taxes to be raised, but the 1% certainly do. It is less about their paying their fair share as it is about transferring great wealth from the 99% to the 1%. This gives the 1% great powers over the country that they should not have, as evidenced by what they have done with all the power they have accumulated.
We need a better understanding of the damage that occurs when functions that the government should be doing are privatized so that even more resources can be taken from the 99% and given to the 1%. Progressives need to recognize the harm that can occur from too much government power, but they need to explain how much worse it is to turn that power over to the corporations. Maybe there needs to be more focus on the damage that occurs when too much power is concentrated in the hands of any single group.
In the hearings to confirm Brett Kavanaugh as a new Supreme Court justice, Democrats are mostly focusing on hypothetical questions instead of questioning him on his record and releasing his documents. This is an inflection point in US democracy, says law Prof. Francis Boyle.
I learned more about the Kavanaugh hearings from this interview than any story I have seen or read elsewhere. I must admit that I have decided not to waste my time on listening to the proceedings because I suspected they would be full of the games that Prof. Boyle describes. Listening to this interview was exactly what I wanted that cut to the heart of the matter without wasting my time on the frustrating games.
Asking hypothetical questions that the Democrats knew Kavanaugh would not answer was exactly the frustration I decided I could easily live without. Prof. Boyle talks about the class of questions they should have asked that would have derailed the nomination rather than the hypothetical questions that were designed to just get some votes for Democratic politicians.
A new vanguard of economists in Washington, including former Bernie Sanders staffer Stephanie Kelton, has argued that under modern monetary theory, public spending is only constrained when the economy is running at full capacity and inflation starts to rise — which is not remotely the case today.
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In a statement, Kelton said that “pay-go is a self-imposed, economically illiterate approach to budgeting.” Republicans, she said, know this, which is why “they have unabashedly used their power to expand deficits and, hence, deliver windfall gains for big corporations and the already well-to-do.”
She continued, “Instead of vowing budget chastity, Democrats should be articulating an agenda that excites voters so that they can unleash the full power of the public purse on their behalf.”
This is why if the Democrats take back the House and they elect Nancy Pelosi as the speaker, all will be lost. I’d rather the Democratic majority waits until the Democrats wake up.