promoted by roxy. Originally posted 2008-04-23 18:57:05 -1000

The “bail out” of Bear Stearns five weeks ago did nothing to solve the underlying causes of the unfolding financial meltdown, so another major crisis is unavoidable. The “bail out” of Bear Stearns has merely bought more time for the big players on Wall Street to try and drag this out past the November election, because what they fear above all else is the rise of a progressive political movement strong enough to pry loose their grasp on the credit mechanism -- the financial system -- of our economy.

The fundamental problem is the big players on Wall Street have misused the credit mechanism for their own private gains through the bloating of debt and speculation, at the expense of actually allocating and supplying capital to the real economy. This is what has caused the 30-year decline of the American industrial economy that Barack Obama observes has made many Americans bitter- a comment that was, all too typically, taken out of context by Obama’s opponents. So this diary will look at the underlying truth of Obama’s remarks, and offer some radical observations on the role of Wall Street, and what needs to be done.

promoted by roxy

In The Crash is past. Comes now Inflation, on March 2 (it seems so long ago), I warned that the official response to the financial crises so far was to save Wall Street and the financial system at all costs; that inflation was being unleashed; and this would mean a severe decline in our standard of living over the next few years. I alluded to a rise in food prices being one immediate cause of pain, and intimated that social unrest would be the result.

It’s happening much faster than I thought possible.

Michael Greenberger, former Director of Trading and Markets at the Commodity Futures Trading Commission (CFTC), was interviewed by NPR’s Terry Gross this past Thursday, April 3. He explained that the sub-prime mortgage crisis was caused by financial derivatives, and that there are more crises coming, because there are many more financial derivatives out there. He notes that the one act of deregulation most to blame – even more to blame than the 1999 repeal of the Glass-Steagal Act (the law passed in the First Great Depression to separate commercial banking from investment banking) is the Commodities Futures Modernization Act of 2000, introduced on the sly by then Senator Phil Gramm (R-TX), who is now the top economic advisor to John McCain:

And Greenberger warns that we are at the beginning of the financial crises, not the end.

When people tell you this is the worst economic crisis since World War Two, that’s a way of not saying the panicky thing, which is, we may be heading for a depression. And if a Bear Stearns collapses, you’re going back to 1929.

The [stock] market went up last week because there is the belief that Bear Stearns is the end. But there are some of us who are very worried that Bear Stearns is the beginning and not the end, and if we needed $30 billion to bail out Bear Stearns . . . .

(CORRECTION: The quote about focusing on the deficit being wrong was incorrectly attributed to Richard Trumka. It was actually Lawrence Mishel who said that. I have changed the name, and moved the paragraph up to where I cover Mishel's presentation. - TW)

--more from Tony-- cho

(NOTE -- Unlike my post of yesterday, I will use block quotes to indicate where I am quoting or paraphrasing the speakers. All other text are my own summaries, comments, and interpretations. Also, the phrase “neo-liberal” or “neo-lib” – which was used by the speakers – refers to the economic ideology of radical free markets, or market fundamentalism, not political liberalism.)

In introducing the panel, The Economics of Shared Prosperity Lawrence Mishel, president of the Economic Policy Institute argued forcefully:

The dominant economic philosophy of neo-liberalism – that markets solve all problems, and everyone can be left to take care of themselves – is now completely discredited. What we need to say loud and clear is that the era of small government is over. Remember that it was a Democratic President, Clinton, who joined the neo-libs, the conservatives, and the republicans in 1997 when he said the era of big government is over.

Promoted -- GreyHawk.

Notes from Take Back American 2008 Conference
March 17-19, Washington DC

I apologize for, first, coming to this conference at the very last minute and thus rather unprepared, and second for not being the world’s best note taker, and third, for not being able to clean up my notes and get this posted yesterday, the first day. I am at the conference now, and one good thing the conference organizers, The Institute for America’s Future, did was to make sure the conference rooms and public areas of the hotel are blanketed with a wireless connection.

I must also mention that the staff at Press Registration were very gracious, and admitted me as a representative of epluribusmedia.org even though their deadline for press registration was a week past. Somehow, I just had not taken note of this conference, which is one of the most important gatherings of political progressives each year, before. Fortunately, WashingtonPost.com had a good story on Take Back American 2008 on Sunday, the day before the conference started. I also would like to note the rapid and helpful response of Cho and others at epluribusmedia.org when I contacted Cho by email on Sunday afternoon inquiring about the possibility of representing epluribusmedia.org.

Before I get to the panel, I will give a few general impressions. I was hoping to find a general sense of urgency from conference attendees about the general financial crises that have engulfed the U.S. since last summer, and are now seriously impacting the real economy. I found that sense of urgency only among a very small number of people. A worryingly large number of attendees still seem to focused almost exclusively on their particular area of concern, whether it be the environment, health care, or militarism. There is also a bit of a sense of weariness, as one panelist noted in a Q and A session, we have been spending a lot of time and effort the past seven years fighting the encroachments and outrages of the conservative movement in general and the Bush Administration in particular.

However, one significant event at the Conference occurred when Jack Layton, leader of Canada's New Democratic Party, called for a re-writing of NAFTA during his speech before the Conference luncheon. Layton is a current member of Parliament, representing the area of for Toronto. Provincial New Democratic Parties currently form the government in the province of Manitoba, and have previously formed government in British Columbia, Ontario, Saskatchewan and in the Yukon Territory. Layton’s call for reconsidering NAFTA is important because, in response to recent statements by Obama and Clinton, free-traders in the U.S. have insisted that there are no calls from U.S. trading partners for renegotiating NAFTA.

-- promoted

Laying the Groundwork for the Ultimate Backroom Deal
The 1854 Kansas-Nebraska Act, allowing territories and new states to decide for themselves whether to be free or slave, began the final phase of disintegration of the old political order, and the Whig and Democratic Parties of the time. In 1856, the new-fangled Republican Party fielded its first candidate for President of the United States. A little known fact is that one of the people discussed at the 1856 Republican convention for the vice-presidential position was a gangly, rather ugly prairie lawyer from Illinois. You’all can easily guess his name.

-- originally posted 2008-03-02 20:23:36 -- bumped, cho

Seems to me a lot of people don’t realize the worst financial crash since 1929 has already occurred. I suppose they are waiting for a big explosive fireball and a lot of noise like in a Hollywood movie, or for the nightly news on their wide-screen televisions to show pictures of desperate bankers and brokers splattered on the sidewalks in front of 60-story temples of finance.

This diary is my humble little attempt to let these people know that the crash has already happened. It began in August. I guess they didn’t notice, but a number of financial markets have already collapsed. First, of course, there was the derivatives based on sub-prime mortgages. That seems to be about where the common consciousness stops. But before U.S. Secretary Treasury Hank Paulson and Federal Reserve Chairman Ben Bernanke (a.k.a., Captain Carnage) even lifted a finger to try and sort out the sub-prime mortgage mess, they first had to deal with the collapse of the market for Structured Investment Vehicles. Since these two crises began last summer many other financial markets have also collapsed: corporate junk bonds, asset-backed commercial paper, municipal bonds. This last was saved just last week by New York State Insurance Commissioner Dinallo basically forcing Moodys, S&P and Fitch to give AAA ratings to the monolines insurers. All these markets have pretty much ceased functioning, with not even the banks that created some of this stuff willing to buy their own product. Financial institutions have also been disappearing, especially a number of hedge funds, the most recent being this past week: Peloton, a London-based hedge fund specializing in asset-backed bonds.

Promoted. Originally posted 2008-02-23 01:48:56 EST.

Sara Robinson posted an excellent article on Campaign for America’s Future a few days ago, outlining the seven preconditions for violent revolution discussed by Caltech sociologist James C. Davies in a 1962 article in the American Sociological Review. Davies’s work was largely based on the seven "tentative uniformities" identified by another scholar, Crane Brinton, who had studied and correlated the origins of the Puritan, American, French, and Russian revolutions.

“…it struck me,” Robinson writes, “that the same seven stars Brinton named are now precisely lined up at midheaven over America in 2008.”

Bloggers are telling stories from the front lines of primaries and caucuses that look like something from the early 60s — people lining up before dawn to vote in Manoa, Hawaii yesterday; a thousand black college students in Prairie View, Texas marching 10 miles to cast their early votes in the face of a county that tried to disenfranchise them. In recent months, we've also been gobstopped by the sheer passion of the insurgent campaigns of both Barack Obama and Ron Paul, both of whom brought millions of new voters into the conversation — and with them, a sharp critique of the status quo and a new energy that's agitating toward deep structural change.

There's something implacable, earnest, and righteously angry in the air. And it raises all kinds of questions for burned-out Boomers and jaded Gen Xers who've been ground down to the stump by the mostly losing battles of the past 30 years. Can it be — at long last — that Americans have, simply, had enough?

I believe Robinson is so desperately aching for radical change in America, that she sees more hope than really exists. But this can only be a subjective judgment, and the past four decades of seeing my own hopes and aspirations crushed have left me seriously doubting that much is possible in the U.S. But the argument Robinson presents is by no means weak. And, she is a great wordsmith, who delights in taking conservatives behind the proverbial woodshed for a good metaphorical thrashing. So, I pass along these excerpts, the seven preconditions for a Second American Revolution:

Last week, the financial news was full of stories on credit default swaps, which appear to be the next shoe ready to drop in the financial crises millipede that has engulfed the globe since the IKB Deutsche Industriebank of Germany announced on July 30, 2007 that it was marking down the value of some of its financial derivatives based on U.S. sub-prime mortgages. From the comments posted in various blog discussions, of credit default swaps, it is very clear that most people are very, very confused. More troubling, most people are unable – or unwilling – to recognize that the world as they know it now crashing down about their ears.

Very basically, what is happening is that the financial and banking system has found that what it thought was measurable risk is instead unmeasurable uncertainty. And what the system cannot measure, it is unwilling to deal with. This uncertainty has now extended to the financial health of the very banks, hedge funds, and other financial agents themselves. Nobody knows how healthy or unhealthy anybody else is. Therefore, the banks and other agents in the financial and banking system have become unwilling to lend to one another. Goldman Sachs has estimated that these crises have contracted credit in the U.S. by $2 trillion (with a t, not a b). The U.S. economy is now about $15 trillion, as measured by gross domestic product--you can do the math for yourself, to see what a massive impact this is going to have on the real economy.