The fragile and faltering state of American democracy.
Good news! Janet Yellen, the new chair of the Federal Reserve, speaks English. This is most irregular, even unprecedented in modern times. I’ve been following Fed pronouncements for more than thirty years and cannot remember a time when Volcker-Greenspan-Bernanke ever departed from the dry-as-dust abstractions of monetary economics. Some called it double-talk. But these Fed chairmen were really only talking to a very narrow audience of bankers, financiers and learned economists. The rest of America either wasn’t listening or was unable to translate Fedspeak.
Yellen broke the mold this week with her very first speech to a public audience in Chicago, a national conference on community reinvestment. She talked about the people who don’t have jobs and with a rare sense of human empathy. She even named several whom she had talked with.
Dorine Poole lost her job processing medial insurance claims when the recession hit. Jermaine Brownlee, an apprentice plumber and skilled construction worker, had to scramble for odd jobs with lower pay. Vicki Lira lost the full-time job she had for twenty years when the printing plant closed, then she lost another job processing mortgages when the housing market crashed.
“Vicki faced some very difficult years,” Yellen said. “At times she was homeless. Today she enjoys her part-time job serving food samples to customers at a grocery store but wishes she could get more hours.”
The Fed chair (the title Yellen prefers to chairwoman) declared her solidarity with these “brave men and women.” She explicitly promised the central bank would not abandon their cause, though the economy is again attempting a sputtering recovery. This is a foundational speech for Yellen’s tenure and she will doubtless get brickbats from the usual conservative bean counters. She deserves to get far more energetic support from other political quarters, including the White House.
“The hardships faced by some have shattered lives and families,” Yellen explained. “Too many people know firsthand how devastating it is to lose a job at which you had succeeded and be unable to find another, to run through your savings and even lose your home, as months and sometimes years pass trying to find work, to feel your marriage and other relationships strained and broken by financial difficulties. And yet many of those who have suffered the most find the will to keep tryng.”
Of course she was trying to show that, despite its austere reputation, the Federal Reserve does have a heart. But, more to the point, she asserted explicitly that Fed policy will continue to support economic growth with low interest rates intended to encourage job creation. “The recovery still feels like a recession to many Americans and it also looks that way in some economic statistics,” she warned.
Her declaration is especially impressive because she did not “dumb down” the economic argument for people who are not versed in the indicators. Yellen walked though the evidence that demonstrates why the economy remains feeble—too slack to generate either vigorous job creation or rising wages. Clarity of expression was never one of the Fed’s strong traits. Indeed, Fed officials often seemed to enjoy befuddling members of Congress, most of whom are no more sophisticated than their constituents.
I do not doubt her sincerity, but I expect Yellen to be tested on this commitment. The Federal Reserve’s efforts to stimulate or provoke stronger growth have not succeeded to date and deflationary forces are still present worldwide. At some point rather soon, progressive forces should start asking Yellen what else the Fed can do and demand some answers. As I have been writing for the last few years, the central bank has great untapped lending powers that could cooperate in supporting new job-creating programs like infrastructure spending—if the president and White House take the lead.
Yellen, so far as I know, has never expressed herself on this possibility nor has Barack Obama. But if the misery and loss continue to tear up the lives of millions of families, as Yellen described, then the people deserve a straight answer from her and the president. To make such a deal, the Federal Reserve will need political cover to protect it from right-wing howlers. The President can provide this leadership if he has the nerve. Maybe the gutsy new Fed chair can encourage him to explore possibilities with her.
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The punditry is having such a good time blaming Putin for war-like moves against his neighbors, one hesitates to interrupt their fun with a few hard facts. But our desktop warriors seem to be lost in nostalgic amnesia. David Brooks laments that Putin has destroyed the so-called post-Cold War peace. The guy from National Review says Putin has taken the world back to the great power wars of the 19th century. Even President Obama indulged in a bit of self-righteous forgetfulness—he found a way to say something good about our unilateral “shock and awe” invasion of Iraq.
Let’s review the bidding here. No one in the world can match our bloody record for unprovoked assaults on other nations to remove their governments (unless you count Hitler). Sometimes we invaded with armies, sometimes we sent in the CIA to topple governments we didn’t like. Mosaddegh in Iran in 1953; Arbenz in Guatamala in 1954; Allende in Chile in 1973; Hussein in Iraq in 2003.
Stephen Kinzer, former foreign correspondent for The New York Times and author of Overthrow: America’s Century of Regime Change from Hawaii to Iraq, counted fourteen governments that were brought down by American forces. He did not count a lot of countries like Indonesia, Brazil and Congo where US agents were involved but only played subsidiary roles. Sometimes, they assassinated the leader. Sometimes, they exiled him.
Of all the commentaries I’ve seen, Washington Post columnist David Ignatius was perhaps closest to acknowledging the hypocrisy of Americans who beat up on Putin for doing what American presidents have done repeatedly for years. Putin grabbed Crimea. The US bombed the crap out of Serbia to make Serbians give Kosovo its independence. The Soviets imposed cruel oppression on eastern Europe. Ronald Reagan launched a semi-secret army, the Contras, against the leftwing government of Nicaragua. The US had invaded Nicaragua fifty years earlier and killed their leader Sandino. Washington did not ask for permission. Nobody apologized afterwards. The US claimed this power for reasons not very different from Putin’s.
What’s alarming to me is American hypocrisy and facile forgetfulness. A bipartisan “war party” has dominated the US government since the dawn of the Cold War but its hawks do not seem to understand that things have changed for the US, too. Like Russia, the United States is not as powerful as it used to be. Yet it still has secret agents and soldiers spread around the world in scores of countries, looking for bad guys to take out, ready to start a fight. The amnesia and arrogance are perhaps our gravest danger.
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I am addicted to House of Cards, the British and American versions, but I suggest that both TV series have been looking at the wrong game.
On television, the story line is about a wicked political schemer, accompanied by his wicked wife, who climbs to the ultimate perch of power—prime minister or president—through fiendishly malevolent manipulations, including homicide. In the real world of Washington, however, politicians look more like impotent innocents compared to their true masters. It is the spooks and the spies who shuffle the deck and deal the cards. They hide their cut-throat intrigues behind bland initials—the CIA and the NSA.
In recent weeks, a lurid real-life melodrama has been playing out in the nation's capital that has the flavor of old-fashioned conspiracy theories. The two clandestine agencies are the true puppet masters.
It is elected politicians, even the president, who are puppets dancing on a string. I hope the TV writers are taking notes. This would make a swell plot outline for a third season of the popular drama—"House of Cards, the Reality TV Version."
The plot begins a decade ago in the bad years after 9/11 when the CIA embraced global torture in the war against terrorism. Official Washington was traumatized by the attack and looked the other way, pretending not to know what the spooks were doing. The men in black plucked various "terrorists" off the Arab Street and shipped them to less squeamish countries around the world where the US agents could use medieval methods for pain and punishment, techniques officially prohibited by US law.
The political system was at first shocked when gruesome details were exposed by vigilant reporters. But soon enough the spooks were being celebrated as our anonymous heroes—sticking it to the bad guys, satisfying the popular thirst for revenge. CIA operatives even taped the cruelty for agency archives. The torturers even got their own popular TV show called 24. The Bush administration issued far-fetched legal justifications explaining their torture wasn't illegal torture. The press backed off a bit and began gingerly noting differences of opinion on waterboarding and sleep deprivation.
Eventually, as truth caught up with official lies and the long war in Iraq was exposed as another gigantic fraud, Americans lost their stomach for lawlessness in Washington. The CIA discreetly destroyed its torture tapes (a pity since this would have been terrific footage for the TV show). The Agency denied everything and promised not to do it again. The new president took their word for it. In a forgiving tone, Obama urged Americans not to be obsessed with old controversies. Congress assured the nation that the Intelligence Committees of House and Senate were exceedingly vigilant and they would scold the CIA vigorously if it ever lied again (details, alas, were kept "classified" so as not to aid the enemy).
Public affairs in Washington might have settled down to usual pretensions of "straight talk" except that some high-minded computer geeks came along and blew the doors off government secrecy. First, it was the notorious Wikileaks gang that posted reams of official government documents on the Internet, lighting bonfires of indignation around the world. Reading the private cables from US embassies or the text of a secretly negotiated trade agreement is an educational experience. It desanctifies the lofty legends of diplomacy.
Next it was Citizen Snowden who came forward with the crown jewels of secrets—the shocking dimensions of the National Security Agency's digital invasion of privacy. The government really is listening to your daily pedestrian talk, recording our intimate thoughts. For many years, the people who believed this were usually also hearing voices from God and the Wizard of Oz. Now it is established that Americans at large are in the files, their phone calls conveniently recorded for the spooks and spies, should the government agencies find a reason to know more about you. The agency says it won't do this (unless really, really necessary to save the nation). But we also learned the agency lies, not just to you and me, but to congressional inquiries.
The NSA and the CIA, though sometimes rivals for power, can be thought of as the "evil twins" of government bureaucracy—licensed to trample on the Bill of Rights in the name of protecting the nation from alien forces. The two agencies are joined at the hip by this new storm of staggering revelations. Both are trying awkwardly to maintain their Cold War mystique but the storm threatens to blow away their "house of cards." Puppet-like politicians are exposed as utterly incompetent watchdogs. The puppet masters don't look so smart either.
What's promising is they are turning on each other. Senator Dianne Feinstein, chair of the Senate Intelligence Committee and long-loyal apologist for the spy agencies, accused the CIA of spying on her committee's belated investigation into the torture scandal. CIA Director John Brennan turned around and put the blame on her, actually accusing her committee staff of snooping on the agency. He even filed a complaint with the Justice Department and asked for a criminal investigation of the congressional oversight committee.
Feinstein in turn asked Justice to investigate Brennan. This is truly weird.
A Huffington Post headline captured the absurdity: " Senators Okay with Spying on Citizens, But Outraged It Happened to Congress." You can turn it around and make the same point. The CIA and NSA routinely ignore the law and Constitution themselves but want the Justice Department to protect them from an over-reaching Congress. The "House of Cards" is playing for laughs. Which side will President Obama take in this fight?
Meanwhile, Citizen Snowden continues his educational campaign with more bracing revelations about the National Security Agency. Thanks to Snowden, The Washington Post reported that the NSA has built a surveillance system that can record "100 percent" of a foreign country's telephone calls—every single phone conversation. The voice interception program is called MYSTIC. Its official emblem portrays a gnarly wizard in a purple robe and pointy hat, holding a cell phone aloft. Do they think this is a Saturday morning cartoon?
"At the request of US officials, The Washington Post is withholding details that could be used to identify the country where the program is being employed or other countries where its use was envisioned," the story said. Furthermore, the Post reported that at least five other countries are listed for potential use of the same total collection though the Post doesn't name them either. Each month, the newspaper reported, NSA analysts send millions of voice clippings for processing and long-term storage.
So which countries in the world are getting "hoovered" everyday by Washington? Russia or China? Maybe both? Or a trading rival like Germany? Whatever the agencies claim, we know not to take their denials too seriously. They lie when they think they need to lie, even to their supposed overseers. But Snowden and associates certainly know the answer. They could conduct a worldwide contest or conversation of their own—asking people to guess. Or Snowden can simply make the revelation and prepare to take a lot of heat from the desktop warriors in Washington.
The more I thought about it, I kept coming back to the homeland.
Maybe the NSA is listening to the USA. It cannot say so for obvious reasons but the premium value of turning the MYSTIC wizard loose on fellow Americans would be fantastic. Maybe for national security purposes or maybe for the NSA-CIA's own security. Sounds outlandish, I know, but if the NSA can listen to the cell phone of Angela Merkel in Germany, it can undoubtedly listen in on Barack Obama in Washington. I am not making an accusation but asking the question describes the true depth of distrust the government has brought upon itself.
Where is the president in all this? Mostly limp and unpersuasive so far in very restrained responses. He didn't fire the CIA director nor the NSA director though both have lied to Congress and the public, and are obvious candidates for blame. The president did not launch a seriously independent inquiry nor does he seem to understand that, whether or not it's fair, the blame falls at his feet. Why didn't he get angry?
Because he knows the secrets, he is therefore vulnerable to reprisal.
The spies may not have tapped the White House phones but they do know what he knows and can always make use of it. This is the very core of the card game played by the intelligence agencies and it didn't start with Barack Obama. When any new president comes to town, he is told the secrets first thing and continuously. The briefings can be chilling but also thrilling.
Ultimately, it can also be slyly coopting to learn what the government knows only at the very highest level. As the agencies take the White House deeper and deeper into the black box, it becomes harder for a president to dissent. It also makes it riskier to do so. The CIA or NSA know what he heard and know what he said when he learned the secrets. If the president decides to condemn their dirty work, the spooks and spies can leak to the press how in the privacy of the Oval Office the commander-in-chief gave the green light.
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The Yellen era began officially on Monday when Janet Yellen took the oath and became the new chair of the Federal Reserve Board. The very first female to hold that title. And not a day too soon. The New York Times greeted her with a headline that bluntly describes the circumstances. “The Middle Class Is Steadily Eroding. Just Ask the Business World.”
Wouldn’t you know. It took thirty years of guys running the Fed—Volcker, Greenspan, Bernanke—to create this messed-up economy. Now the woman has to clean up after them. From what we know about her, Yellen understands the challenge. She must undo the past. It took a generation of conservative Fed chairmen to tip the balance in one direction and accept the extreme inequalities of income and wealth. It might very well take another generation to correct the damage and restore equity. The Fed, of course, does not control every economic outcome, but, as Yellen knows, its policy levers can have decisive influence on jobs and wages.
What the Times reported—the disintegrating middle class—is not exactly news. But business reporter Nelson Schwartz managed to make the abstraction of rising inequality visible by describing the real-world consequences in the marketplace. Olive Garden and Red Lobster restaurants are losing altitude, while high-end restaurants are surging. General Electric’s mass-market appliances are slowing, while fancier models are hot. Sears and J.C. Penney, which target middle-class consumers, are both in trouble.
Follow the money. Business strategists have this stark choice—either move upscale to target the affluent or down to the very low-end bargain basements where more shoppers are concentrating. The middle buyers are missing in action. Between 2009 and 2012, about 90 percent of the increased consumption came from the top fifth of household incomes, Schwartz reported. The familiar adverse social implications are buried in those business statistics. To put itcrudely, the United States has too many rich people awash with surplus wealth, but not enough healthy consumers with incomes that allow them to both spend and save for the future.
The president and like-minded Democrats are belatedly talking about inequality, but mostly discuss it as a moral issue, a matter of fairness. They will not get serious about finding solutions, I suspect, until they recognize that inequality is, above all, an economic issue. They might consult Janet Yellen about that. Since the crash and tepid recovery, Yellen has been talking consistently about what the economy needs for a healthier recovery—jobs and wages—without going into the obvious implications of inequality.
The twisted nature of American economic life is not new. Nearly a decade ago in 2005, a team of economists at Citigroup identified this new era of inequality and gave it a name, “plutonomy.” The rich are getting richer, these experts agreed, and the US economy has adjusted comfortably to the new reality. Plutonomy, they explained, is an economy “powered by and largely consumed by the wealthy few.” By Citigroup’s reckoning, only the United States, Britain and Canada qualify.
“We project that the plutonomies…will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization,” they concluded. The follow-up report a year later was titled “The Rich Are Getting Richer.”
Janet Yellen, if she dares, might ask the Fed’s deep stable of economists to look into the subject. These Citi forecasters did not see the financial crash coming nor the near-death experience of their own institution. Nevertheless, they got the picture right and their provocative projection is clearly back on track. The American plutonomy has recovered smartly. It is just the overall economy that’s still struggling.
Chief Justice Roberts wishes a Happy New Year to all those losers who will not get healthcare insurance, thanks to his clever reading of the Constitution. There are 4.8 million of these losers, and 2.6 million of them are people of color, black and Hispanic mainly. Not that the Chief Justice and his right-wing colleagues on the Supreme Court would make racist distinctions. No, no, no. They assure us their decision is solely driven by a matter of high constitutional principle—states’ rights.
The problem with these people is that they are low-income adults without dependent children—not quite poor enough to qualify for Medicaid nor old enough to qualify for Medicare. President Obama’s original legislation took care of them by expanding Medicaid coverage and putting up the federal money to pay for it. The Roberts decision insisted that state governments have a constitutional right to reject this financial aid from Washington. And twenty-five states took him up on the offer.
This odd failure will probably be blamed on Obama but should rightly be called the “Supreme Court gap” in unversal healthcare coverage. Because these folks do not not quite earn enough to qualify for Obamacare’s tax credits to help people purchase health insurance. A report from the Kaiser Family Foundation outlined the consequences: “Most of these individuals have very limited coverage options and are likely to remain uninsured.”
Of course, they could get a job that pays more. Or maybe get married and have children that would qualify them for Medicaid. State governments set many of the rules for Medicaid coverage and some conservatives think fedeal aid saps individual initiative and rewards indolence. It is not entirely a coincidence that many of these rejectionist states are the same states that defied the Supreme Court half a century ago and resisted racial integration and equal rights for minorities. Some of them are the very states that went to war to defend slavery. Republicans are sometimes called a “neo-Confederate party.” After the Supreme Court gutted the voting-rights act, the neo-Confederates were free to pass restrictive laws designed to shrink minority voting, and so they did.
The Kaiser Foundation doesn’t get into any of that but simply observed, “These continued coverage gaps will likely lead to widening racial and ethnic as well as geographic disparities in coverage and access.”
Don McCanne of Physicians for a National Health Program circulated the Kaiser report with this comment: “What a terrible way to start the first of the year of what is essentially the full implementation of the Affordable Care Act. It seems pretty obvious what our New Year’s resolution should be. Let’s bring health care to everyone through an improved and expanded Medicare for all.”
Democrats ought to call out Republicans on these questions. And citizens generally ought to call out the Roberts Court. The Supremes have done quite a lot in the last fifteen years to mess up our already weakened democratic system. They stole the presidential election in 2000. They cut loose Big Money to swamp elections by destroying lawful restraints. They are trying step-by-step to restore hoary old legalisms that favor capital over labor, corporations over individuals. Shouldn’t we be talking about how to stop them?
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The Federal Reserve has always been a very masculine institution. In economic affairs, the Fed chairman resembles the stern father figure who disciplines the children and occasionally punishes them for unruly behavior. Only now, for the first time in its 100-year history, the Federal Reserve will be led by a woman—Janet Yellen. But will that make any difference?
In this era of gender equality, the polite answer is, no, a woman in charge of this powerful institution will do pretty much what any man would do in the same circumstances. I devoutly hope not. The confirmation of Janet Yellen as Fed chair raises intriguing possibilities for altering the operating values of the central bank and broadening its obligations to the country. Isn’t that what makes “old boys” of Wall Street nervous? Yellen, of course, is obliged to dismiss the question. Like any woman who manages to break through the glass ceiling, she has to bring superior technical skills and an impressive résumé in central banking. Yellen has both—and a reputation for thinking beyond narrow-minded traditions in economics.
Monetary policy, in other words, is a feminist issue, though in ways that may not be obvious at first. At a very deep level, girls learn to see some things differently from boys, and in Fed policy-making this can put women at odds with men. I witnessed this cultural tension in real personal terms at the Federal Reserve during the 1980s when Paul Volcker was chairman and described it in Secrets of the Temple: How the Federal Reserve Runs the Country (1987).
Listen to how Federal Reserve Governor Nancy Teeters—the very first woman to hold that title—described the experience. Teeters was appointed in 1978 by Jimmy Carter and served during Volcker’s dramatic campaign to defuse inflation with a long and brutal recession. Teeters dissented in meetings of the Federal Open Market Committee as Volcker persisted with the blood-letting. She was politely ignored. Her strong talk irritated the boys.
“I gave the FOMC a lecture,” Teeters told me. “I told them, ‘You are pulling the financial fabric of this country so tight that it’s going to rip. You should understand that once you tear a piece of fabric, it’s very difficult, almost impossible, to put it back together again.’” The metaphor, she pointed out to me, was one only a woman might use. “None of these guys has ever sewn anything in his life,” Teeters said.
Her opposition was not sentimental. As a professional economist, she argued that Volcker’s harsh policy was extreme and unnecessary. “It was very difficult for me philosophically to run the unemployment rate [which reached 12 percent],” Teeters said. “It was perfectly obvious to me we didn’t need to put interest rates up that high. We couldn’t do it without a recession, but recession is still a difficult decision to make. People get hurt. All sorts of nasty things can happen if it gets out of hand.” Which happened. The financial system became so frayed Volcker had to back off.
Teeters acknowledged frankly what most men would never admit. “I was scared and so was everybody else,” she said. Some of her colleagues resented her frankness. One complained, “She never said ‘we.’ She always addressed the other committee members as ‘you.’ ‘If you do this, you’re going to have worse unemployment.’ She was very consciously the outsider.” In practical terms, she truly was an outsider. When Teeters joined the Board of Governors, she found only two women in senior-grade positions.
Behind her back, the male-dominated orthodoxy disparaged Teeters as too liberal, but Governor Martha Seger, a conservative Republican who served after Teeters retired, was left isolated, too. Seger, too, dissented from Volcker’s unrelenting interest rates that kept unemployment higher even after the economy recovered. Seger told me she felt cut out of any policy discussions that mattered. “We have very little input into what I call the formulation stage, which I’m not accustomed to,” she said. “In corporate America, there is input all along the line.”
The differences in reasoning between girls and boys were examined as “gender-related moral differences” by Harvard psychologist Carol Gilligan in her best-selling book, In a Different Voice. Women, Gilligan explained, will usually seek to avoid “the fracture of human relationships that must be mended with its own thread.”
It is striking that Nancy Teeters and Carol Gilligan both used the same metaphor—the torn “social fabric”—to explain what makes girls different. Gilligan argued the society needs sensibilities that make equal space for what women know. “Sensibility to the needs of others and the assumption of responsibility for taking care lead women to attend to voices other than their own and to include in their judgment other points of view,” Gilligan explained.
Achieving that standard would pose a high challenge, not just for the Federal Reserve, but for the entire governing system. A lot of progress has been accomplished since the eighties, both in society and government. Hey, a forward-leaning woman named Yellen is now running the Fed. Maybe Yellen can take that powerful place further down the road to equality.
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Behind his back, they called him “Tall Paul” in the 1980s and Volcker was indeed awesome then as Federal Reserve chairman alongside Ronald Reagan as president. Together they refashioned government—shifting everything rightward and setting up the triumph of the financial sector that has reigned ever since with its destructive qualities.
The Gipper did the fun part—cutting taxes from the top down—but Volcker did the heavy lifting. He presided over a long, brutal recession that broke inflation and labor wages and lots more. It was a decisive injury to organized labor He was a civil service giant, brave and also scary. At six-foot-seven, Volcker towered over the pedestrian ranks of Washington politics. Also important bankers and the US Senate. Reagan’s White House staff tried to push him around (though not Reagan himself) and Volcker brushed them off like gnats.
For all those reasons, I see his triumph—finally getting federal regulators to adopt his “Volcker amendment” to limit proprietary investing by the mega-banks—as a melancholy moment. It took three years for regulatory agencies to fend off the thousands of bank lobbyists and approve something. That’s better perhaps than a hollow victory but still far short of the reforms that are needed to get control over the out-of-control mega-banks.
I haven’t read the bill, but the financial press and Wall Street talkers are not impressed. It is something like 850 pages and so dense with loopholes and clever snares it will probably take another three years for bank examiners to understand what they are supposed to do with it.
Meanwhile, the too-big-to-fail banks will go on about their business, getting sweet on America’s troubles and pretty much ignoring prudent restraints. The real solution will not come until another Congress or a new president find the courage to break them up, cut them down to size and restore the old Glass-Steagall division of commercial banking from investment banking. A few years of experience with the Volcker Rule will probably be enough to demonstrate that it’s insufficient to change the behavior of JP Morgan and the banker gang. The risk is that the bankers will go wild again in the meantime.
Paul Volcker must be feeling a sense of personal regret if not guilt. He was present at the creation, after all. As Fed chairman. He blessed the first rounds of serious deregulation that repealed the caps on interest rates and doomed the savings and loan industry that financed housing. However reluctantly, Volcker also engineered the first big rescue of a too-big-to-fail bank—Continental Illinois in Chicago. He could have hung tough but he caved to the bankers. The Fed has lived off that precedent many times since.
The Federal Reserve and Treasury Secretary want us to believe they won’t do it again. I judge from his body language and muted comments that Paul Volcker doesn’t believe them.
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The one word you never hear from the lips of a practicing capitalist is “guilt.” Milton Friedman taught a generation of business execs and bankers that their only job is to make as much money as they can. Leave the blame game to dewy-eyed liberals. Economists and business schools picked up on the theme and told losers who didn’t share in the good times it was their own fault. They didn’t work hard enough or get a proper education. Maybe in their next life they can go to grad school or choose a career that doesn’t involve working with their hands.
Only now comes this world-class player from the privileged “1 percent” to admit he is feeling guilty. Two cheers for Bill Gross, the co-founder and managing director of PIMCO, the California-based bond house that manages some $2 trillion in other people’s wealth. Gross himself has accumulated $2.2 billion, which puts him at #252 on the Forbes 400.
“Having gotten rich at the expense of labor,” Gross confessed, “the guilt sets in and I begin to feel sorry for the less well-off.” The message is addressed to fellow rich guys who are IMCO clients, in Gross’s latest monthly Investment Outlook. He calls them “Scrooge McDucks.” He suggests they stop whining about the enormous taxes they pay the government and give more back to the society they degraded with inequality.
“Admit that you and I and others in the ‘magnificent 1 %’ grew up in the gilded age of credit,” Gross wrote. “…You did not create that wave. You rode it. And now it’s time to kick out and share some of your good fortune by paying higher taxes or reforming them to favor economic growth and labor, as opposed to corporate profits and individual gazillions.”
Gross propose this reform: “The era of taxing ‘capital’ at lower rates than ‘labor’ should now end.” That heresy is a little like punching PIMCO customers where they live, but Gross will no doubt get away with it. They are used to hearing his occasional heresies and Gross has made them lots of money over the years. Besides, the capitalists are counting on the politicians to protect them from higher taxes.
Some other wealthy capitalists like Warren Buffett have made similar raise-my-taxes pleas, but Bill Gross’s is distinctive because, first, he acknowledges a personal sense of guilt and, second, he bluntly describes the fundamental conflict as capital versus labor. You seldom hear that kind of talk any longer in American politics and certainly not from financial-market billionaires. Gross is not a closet commie. He is simply acknowledging in plain English the underlying ideological contest that has dominated the last thirty years.
Capital won and labor lost. Not just union workers but middle-class people of all kinds, especially “those who used their hands for a living,” as Gross puts it. That verdict is now so obvious that even timid commentators talk about it obliquely. The middle class is breaking up, while the largest capital owners continue to claim an ever larger share of the nation’s wealth, even during the economy’s bad years. This trend has been obvious to working people for years while elite opinion was celebrating the triumph of market economics. Neither political party wishes to inquire too deeply into the causes since both Republicans and Democrats are implicated.
Maybe it requires unorthodox sources of truth-telling—odd heretics like Bill Gross—to put these questions on the table. Certainly, the political system will not find any real answers as long as most politicians are afraid to ask real questions. Gross expressed his own frustration with reluctance of elected officials to face hard truths about the hollowing US economy.
He cited Barack Obama’s recent speech sounding “a faint alarm” about the failure of corporations and capitalists to invest in US productivity. Obama said, “It’s time for folks to…focus on doing everything we can to spur growth and create new, high-quality jobs.” Gross was exasperated. “Folks?” he responded. “Ordinary folks, the 99 percent, don’t have money any more. Mr. President. The rich and corporations do.”
I am a little biased in Gross’s favor because I first encountered him fifteen years ago with my book on the globalizing economy—One World, Ready or Not—which described the capital-labor struggle and the threatening consequences I foresaw for Americans. Gross invited me to address the semi-annual conference PIMCO has its bond traders from around the world. I asked him why. Prominent economists and financial reporters were disparaging my fears as silly. Bill Gross said he thought I had the story right and his people needed to hear it. The bond traders, rather loudly, did not agree.
The latest hot controversy launched by Citizen Snowden’s revelations involves the National Security Agency’s listening to the personal cellphone of Angela Merkel, Chancellor of Germany. Embarrassment all around and the White House now says it is “reviewing” what other foreign leaders the NSA may be eavesdroping on.
But here Is a more explosive question that needs an answer: Is the NSA eavesdropping on Barack Obama?
Officially, this will be promptly denied, of course. But can we believe opaque denials from the same intelligence officials who have previously lied to the press and misled Congress about the unlimited range of NSA snooping? More to the point, can Barack Obama believe them?
This question will doubtless be dismissed as a paranoid conspiracy theory. Surely, officials of this super-secret government agency would not use its vast technological capabilities to spy on their own boss, our president. But why not? Information is power. Bureaucracies typically use their information power to protect themselves or weaken their political rivals. As investigators dig into the secret world of NSA power, I expect they will sooner or later have to examine this possibility.
As it happens, there is a scandalous precedent for this kind of abuse, and his name is J. Edgar Hoover. During the long reign of Hoover as FBI director, the agency was notorious for “keeping a file” on all sorts of political figures and leaking the damaging content to the press. But Washington politicians—senators and even presidents—faced a more dangerous threat. The FBI was most likely keeping files on each of them. A politician would know his own personal transgressions, but so might J. Edgar.
Hoover curried favor in Congress by letting friendly politicians sneak a peek at salacious material agents collected on left-liberal-labor figures. The FBI campaign to ruin the Rev. Martin Luther King Jr. was perhaps its most notorious effort. Only after King’s death and Hoover’s did the stories surface to confirm the Director’s legendary power over politicians. The mere threat of exposure—even if the accusations were fabricated—was enough to freeze many politicians from acting.
When Congress finally confronted the scandal and reformed the FBI, it enacted limited terms for the FBI director and chose people with exemplary records of public service. That didn’t entirely eliminate politics from the agency’s behavior but it put each new director on notice that his performance would be subsequently examined by his successor.
Among other reforms, the NSA will need similar restraints to restore a modicum of public trust but, above all, to change the poisonous culture that politicians have allowed to flourish in the institution. President Obama should start by dismissing NSA Director Keith Alexander and National Intelligence Director James Clapper, neither of whom seem to grasp that their evasive behavior is deepening suspicion and making the broad public even more distrustful.
If Obama fiddles around with inquiries that do not change much of anying for the spy masters, then the president himself may be incorporated in the suspicions. Some people will ask: what did the NSA or CIA have on Obama?
Robert Scheer thinks President Obama should thank Edward Snowden.
James Dimon, chairman and CEO of JP Morgan Chase & Co., speaks at a conference, Tuesday, October 27, 2009 in New York. (AP Photo/Mark Lennihan)
JPMorgan Chase, the star of mega-banks, is up against the wall at the Justice Department, trying to settle its myriad crimes for $13 billion. That’s real money, even for a trillion-dollar bank. So this is progress. After years of scandalous indifference, the Obama administration appears to have found its backbone.
Better late than never, grumpy citizens can say. But that doesn’t settle the matter. Four years ago, Senator Ted Kaufman of Delaware crisply described the more fundamental problem posed by the wantonly reckless behemoths of Wall Street.
“People know that if they rob a bank they will go to jail,” Kaufman said. “Bankers should know that if they rob people they will go to jail too.” Can we hear an amen on that? Not yet. But the complaint Kaufman voiced repeatedly is now on the table. “At the end of the day,” the senator warned, “This is a test of whether we have one justice system in this country or two. If we do not treat a Wall Street firm that defrauded investors of millions of dollars the same way we treat someone who stole $500 from a cash register, then how can we expect our citizens to have any faith in the rule of law?” (See my piece from April 2011, “How Wall Street Crooks Get Out of Jail Free.”)
Attorney General Eric Holder was stung, his reputation severely damaged. His lieutenants in the criminal division explained repeatedly that while the megacrimes seemed obvious, it is fiendishly difficult to locate the people in a huge, complex financial organization who can be successfully prosecuted as criminals. The popular anger did not go away, however, because in JPMorgan’s case the outrages only got larger and more obvious.
So here we are four years later and leading newspapers report that Justice is on the brink of a record-setting settlement—$13 billion. Jamie Dimon, JPMorgan CEO and formerly the president’s favorite banker, has personally negotiated the terms with the attorney general. The Morgan bank started with an offer of $1 billion and quickly raised it to $4 billion. Holder’s office kept saying, no, not enough. According to The New York Times, seven federal agencies are investigating the bank, plus state banking regulators and a couple of foreign governments.
The offenses include an all-star list of duped victims—of mortgage fraud against home-buyers, investor fraud against people and pension funds that purchased the rotten mortgage securities and defrauded the federal agencies (Fannie Mae and Freddie Mac) that bought the mortgage bonds and applied federal guarantees to them. Nevertheless, if there is no identifiable “criminal” who can be sent to jail, the case could be treated as merely another bureaucratic crime and adjudicated with lots of cash, a very familiar exercise in this era of high-flying capitalist buccaneers and bandits.
But here is the exciting and suspenseful element in this story. Eric Holder and his prosecutors have so far refused to settle on such amicable terms. Federal prosecutors in Sacramento believe they have established the personal linkage—who ordered the dirty deals, who carried them out—that could support criminal indictments of individuals or against the corporate “person” known as JPMorgan Chase. That would be truly unprecedented—a “game changer” in Wall Street/Washington parlance—and with threatening potential for the defendant bank.
In the negotiations, Holder has refused to give Dimon what he seems to want most—an agreement to drop the criminal charge and settle for bigger money instead. That might weaken the storm of private lawsuits already filed by the victims of JPMorgan’s fraudulent profiteering. The star banker kept raising his bid. The AG kept saying no way. Americans should stay tuned and maybe send fan mail to the Justice Department, urging the prosecutors to hang tough.
But you can’t send a bank to jail, can you? No, but you could place it under court supervision and empower a federal judge to order and supervise internal reforms in the megabank, perhaps even downsizing. Does that sound too harsh? If the feds can do this to a corrupt labor union like the Teamsters, why not to an outlaw bank like JPMorgan?