Former head of government financial regulatory agency gives her take on culture of collusion and greed among megabanks

Now a citizen activist, Sheila Bair explains how ordinary citizens can end up on the hook for bankers’ fraudulent trading practices

No 524 Posted by fw, July 17, 2012

“[To this day] the special interest lobbying is, in a calculated way, [still] trying to slow down reform, complicate reform, water reform down. And the public loses interest, they become cynical about if the regulators in Washington can fix any of this and they don’t exert counter political pressure to get meaningful reforms in place.” —Sheila Bair

As the former chairperson of the Federal Deposit Insurance Corporation, Sheila Bair is well qualified to explain the roots of the egregious banking fraud that can end up costing the public big bucks. She recently appeared on Moyers and Company to talk about greedy bankers gaming the system for personal profit. And now this same banking industry, abetted by avaricious politicians, has the unmitigated gall to try to sabotage reform efforts.

Click on the title link below to watch the complete 27:40-minute video of Moyers’ interview and to access a full transcript of the show. Alternatively, watch the opening 9 minutes of Bair’s interview on the embedded video. Under the video is my abridged transcript of substantial segments of the interview. Subheadings are added to facilitate quick browsing of main ideas.

Sheila Bair on Keeping Banks Honest, Moyers and Company, July 13, 2012

ABRIDGED TRANSCRIPT

Bill Moyers’ introduction

Sheila Bair [is] a hero to many of us for her long fight for an honest and accountable banking system. After years working on Capitol Hill, at the Treasury Department, the New York Stock Exchange and the Commodity Futures Trading Commission she was appointed by President George W. Bush to head the Federal Deposit Insurance Corporation, the FDIC.

Now as Senior Advisor to the Pew Charitable Trusts, Sheila Bair has just organized a private group of financial experts called the Systemic Risk Council. Its mission: to prevent the banking industry from scuttling the reforms created by the Dodd-Frank Act and hopefully prevent another crash. [So I hope we can be a source of information too for people who are confused about what we believe are the appropriate reforms that need to get done, reforms that will help them. And I think the public education function of this group is going to be very important]. She has a book coming out in late September about the need for reform called Taking the Bull By the Horns.

How traders colluded in gaming Libor’s interbank interest rates in order to line their own pockets

When you borrow money there’s something called an interest rate which is your cost of borrowing money and there are different mechanisms for setting what that interest rate should be. And one of them is something called Libor [London Interbank Offered Rate]. And we are discovering now that a lot of unscrupulous people were manipulating that interest rate apparently to line their own pockets. And that is something that should be severely punished.

Libor always troubled me. There’s always been judgment associated with what some people call a fudge factor, there’s always been judgment associated with Libor, the Libor survey. You were supposed to look at various factors, what your recent transactions were, what other transactions are, what the market conditions are. You can use judgment. You don’t have to tag it exactly to a transaction.

But using judgment, and have a potential bias in judgment is profoundly different from open collusion with other banks to lowball or highball the rates to profit. I mean, these emails quite acknowledge that they were trying to manipulate the rate to benefit their trading position. And what’s ironic is the trading desks of these banks were probably hurting the part of the bank that does the bread and butter lending.

Because if they were lowering their interest rate that would reduce the interest rate on loans, a lot of loans that the lending part of the bank conducts to benefit the trading desk. So they were even hurting themselves internally by doing this.

There are real world consequences to gaming Libor

There are absolutely real world consequences to this. There are counterparties through all these swap transactions which are what they were trying to manipulate, and those counterparties were being hurt by it, absolutely. [For example, in Baltimore, as unemployment climbed and tax revenue fell the city laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city's troubles were aggravated by bankers' manipulation of this key interest rate linked to hundreds of millions of dollars the city had borrowed].

It’s shocking. It should be punished very severely. And I think there probably is going to be more information coming out about it so I think it’s just starting, I don’t think it’s over.

The problem with current punishment actions is that it’s the shareholders who end up paying the fines. But it’s the traders and top management who should be made to pay out of their own pockets

Another thing that troubles me about all the enforcement actions that are brought — and there haven’t been enough of them — but they generally, just, they tag the shareholders, right? So Barclays Bank, the shareholders ultimately pay this. There should be punishment of these traders and higher up in management depending on how high it went. There should be, not only clawbacks of compensation but severe civil monetary penalties against the individual traders. Make them pay out of their own pocket. It doesn’t — it’s not much of a deterrent for them if their bank’s paying for it — the consequences of their mistakes — not them personally. So I hope there is more of that. There should be certainly be more civil actions against the individuals and there may be criminal activity involved here too.

Emerging evidence reveals a culture of collusion and greed among banks too big to fail, of doing anything to make a buck

Well, I don’t think we know all the facts yet. But certainly we do know that from 2005 to 2008 there were documented instances of Barclays’, according to Barclays, traders colluding with other banks to influence the Libor rate. I think just that by itself shows a culture of greed, of people feeling they’re above the law, above ethical standards, basically justifying anything to make a buck. And I don’t think– I don’t want the government setting interest rates, I don’t want that at all.

Warning signs about Libor as early as 2008 would not have been ignored had there been more robust regulation

But I do want government regulation of how the market sets interest rates. And there were red flags about Libor back in 2008 and then the simple fix would have been to say that if you submit a rate to Libor it has to be based on an actual transaction that you actually borrowed money at that rate not your best guess, you know, today what I’m going to pay. ‘Cause the process itself opened itself up to abuse and then it completely spiraled out of control. So that, you know, that’s one of the main thing’s that’s frustrating about this crisis.

The fix wasn’t done because the political will and fortitude to make it happen weren’t there

So many of the problems, the fixes were so obvious and we just didn’t have the political will and fortitude to just tell the banks, “You’ve got to stop doing it this way. You’ve got to, you know, start basing this on an actual transaction.” The fix was not hard, it was just never done.

We lost our way in the mid-2000s when we left the banks to themselves

Well, I think we lost our way in the mid-2000s between free markets and free-for-all markets. We forgot that you need some basic rules and standards to regulate financial markets. We deferred too much to bank judgment. Libor is one example where we left it to banks to themselves to set important benchmarks.

And we still don’t have the political will and fortitude to tell the banks to start doing business differently

So we need to rein that back in. And the things that worries me is that Washington, notwithstanding all of this we still, and this horrible crisis and the horrible economic devastation that it has wreaked on so many individuals, we still don’t have the political will and fortitude to get tough and say, “You can’t do it this way anymore. I’m sorry if you’re making money this way, but this is not a good, safe way to make money. You need to stop these types of activities.” All the reform is still just around the edges. We just don’t seem to have the fortitude to stand up to these banks and tell them they need to start doing business differently, profoundly differently.

Yet nothing’s changed — Special interest lobbying is still busy trying to obstruct banking reform as public cynicism deepens

Where’s the anger? That’s right, I know. I think I worry that the public is getting cynical. I think there’s been one of the reasons I started the Systemic Risk Council is I feel the special interest lobbying is in a calculated way trying to slow down reform, complicate reform, water reform down. And the public loses interest, they become cynical about if the regulators in Washington can fix any of this and they don’t exert counter political pressure to get meaningful reforms in place. [A Gallup survey done last year reported that Americans' trust in banks is down to an all-time low of 18 percent. And a recent Pew research survey reports only 22 percent of Americans have faith in the government in other words to do this, people don't trust the financial industry and they don't trust the government to do the right thing in regulating the industry].

Government regulatory oversight failed to prevent banks from gambling with government-backed funds

I think there’s a real problem at OCC [Office of the Comptroller of the Currency]. They are the main regulator for the largest banks. I think there’s a very difficult cultural issue at the Office of the Comptroller of the Currency in terms of whether they protect the public or whether they protect the banks. If they’re trying to protect the banks they’re going to miss things because their perspective is going to be wrong.

…these banks have huge government exposure with all their insured deposits. The OCC in particular has a fiduciary obligation to protect the government purse, to protect the government exposure from these insured deposits. And the JP Morgan Chase trading, that was being done with excess deposits. That they were playing around with insured deposit money.

And yes, they have enough shareholder capital to absorb the losses, so this is not going to be an event that costs the government money. But it’s problematic because these are clearly inappropriate risks that we’re taking with government-backed funds that should never have happened. Never should have happened in the bank and the OCC should not have let it happen.

When regulators do try to get aggressive, Congress bats them down or cuts their funding

I think the political money is corrupted. The Congress, I think in fairness to regulators, when regulators try to get too assertive they frequently get batted down by Congress. We’re seeing it now in the CFTC [Commodity Futures Trading Commission] again, the derivatives regulator, that is the one that unearthed this Libor scandal and is working very hard to tame the derivatives market which is a terrible source of systemic risk. And the House is trying to whack back their appropriations so they won’t have enough money to carry out their responsibilities.

The Orwellian factor – the logic of financial reform discussions is turned upside down: good is bad

I don’t understand it. I think, you know, when in Dodd-Frank one of the chapters in my book is called “The Orwellian Debate.” And it’s about the way financial reforms, the discussion about financial reforms were turned completely upside down. So things that would help stabilize the system were transformed into things that would hurt, you know, people when it was just the opposite.

You get this now trying to raise capital standards. Banks need to put more of their own money at risk. That would help tame risk taking if they stopped using so much borrowed money and used more of their own money in their operations. That’s what raising capital is all about.

But the banks say, “Oh, you raise capital it’ll hurt our ability to lend. It’s going to raise, you know, costs for your mortgage or whatever.” That’s nonsense. But you know, say it often enough it becomes true. So I think there’s been a calculated effort to confuse the dialogue, to confuse the public about what is in their interest to do. And people who know and understand these markets really need to stand up and speak the truth and let people know what needs to be done.

Beginning in 2008, free market capitalism became “taxpayer-bailout crony capitalism”

Well, we did not have a free market in 2008. I am sorry, but we had crony capitalism in 2008 and 2009. We bailed out basically anybody over $100 billion. We said the taxpayers are going to make sure you don’t fail no matter how stupid you were. So that’s not free market. And I think as a Republican I view myself as a markets-oriented person. I don’t ever want to go back to that kind of situation again.

Here’s Orwellian logic: “I’m all for free markets but I don’t want the market to punish mismanaged corporations”

There are important new authorities in Dodd-Frank that will make sure we don’t do bailouts again, that mismanaged banks do go into a bankruptcy-like process where they and their shareholders and their creditors take the losses, where their boards lose their job, their managers lose their job, their salaries are clawed back. That is all in Dodd-Frank. And so for people to say, “I’m a market-oriented person,” but not want the market to punish mismanaged institutions, that — again that’s Orwellian. That’s just upside-down. That’s not a market. You have to suffer the consequences of your mistake if you have a market.

The organizational structure of megabanks is too complex to comprehend, therefore difficult to break up

One thing that regulators could do as part of the — one of the things Dodd-Frank required is for these large banks to submit what we call living wills, so they’re basically breakup plans. So if you get into trouble how can the government break you up and sell you off in an orderly way without broader systemic ramifications?

The problem is these banks have thousands of legal entities. The organizational structure itself is so complex, I’ve heard people call it a poison pill. How can you break them up? You can’t even figure out how they’re organized or structured. So simplifying those legal structures and dividing up the legal structures in accordance with business lines to facilitate a breakup I think would be very good market information to get out there.

Shareholders of megabanks are not getting a good return on their investment

Shareholders are getting frustrated. The megabanks do not deliver good returns at all and they may well be — I think they are worth a lot more if they were broken up into pieces. But again shareholders cannot be empowered to break them up if they can’t figure out what the organizational structure, how to do it. This is going to be a terrible consequence for Barclays’ shareholders, I can only assume. And again, you know, the risk management controls, the internal controls are so much more challenging when you’re dealing with an institution of this size and complexity. Break them up, you know, have a commercial bank, have an investment bank, have a broker dealer. It’s a lot easier to manage.

We need basic rules, enforcement when people break the rules, and consequences for those responsible, not the taxpayers, customers and shareholders

I view myself as a capitalist. I know that’s a bad word these days. But I do believe in capital markets if they’re appropriately regulated. You need some basic rules and the rules need to make sure that when people do stupid things they suffer the consequences, not the taxpayers, not their customer, they, they suffer the consequences. And that’s the kind of system I would like for us to have again. And I do care about that deeply. I care about our markets and I want them to function correctly again, but they’re not functioning correctly now.

To follow Sheila Bair in her new role with the Systemic Risk council…

Go to the PewTrust.org website and you can find a link to the SRC, the Systemic Risk Council. And we will be putting there our Call to Action. And our press release and our members and our Call to Action is all on the website. We’ll be making additional pronouncements over the coming weeks and those will all be publicly released and go on our website as well. So I hope we can be a source of information too for people who are confused about what we believe are the appropriate reforms that need to get done, reforms that will help them. And I think the public education function of this group is going to be very important.

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There is hope! We are laying the groundwork for the “Next Great Revolution” – Gar Alperovitz

This is the speech that Obama should be giving, hasn’t, and never will

No 523 Posted by fw, July 17, 2012

In his keynote address to the Green Party’s National Convention, activist and historian Gar Alperovitz proclaimed – and I’m paraphrasing –“Revolutions begin in rooms like this, with people like you stepping up to transform the most powerful corporate capitalist system in the history of the world. We are laying the groundwork for the “Next Great Revolution”.

Gar Alperovitz’s thesis to support his bold assertion goes something like this –

The current political and corporate capitalist systems in the U.S. are broken. Problems are wicked and cannot be managed the old way. People at the grassroots level sense something is wrong but don’t quite know what to do about it.  But they do know there has to be a better way. The better way, according to Alperovitz, is a bottom-up transformative change. The question is: Can we rebuild a democratic system from the bottom up that changes ownership of capital from big corporations to worker-run businesses and, concurrently, is inherently Green?

Yes we can, he insists, even though acknowledging that the minority of citizen activists who will bring about that change don’t, as yet, have the experience to successfully manage transformative change. The good news is that the foundation of transformative change is already being laid by an explosive growth of worker-owned and co-op companies. Alperovitz points to Cleveland as a model for building entire communities where the 99% benefit as opposed to the existing corporate capitalist system that benefits only the 1%. These kinds of experiments are the only way to build a popular mass movement. However, to achieve this transformative change, citizen activists will have to rise above the current level of relying primarily on “projects and politics” to the level of “existential self-awareness”. And that’s hard to do.

Here’s a 25:16-minute video of Alperovitz’s keynote address, followed by my abridged transcript with added subheadings to facilitate speedy browsing of main ideas.

Gar Alperovitz’s Green Party Keynote: We Are Laying Groundwork for the “Next Great Revolution” Published on July 16, 2012 by Democracy Now.

ABRIDGED TRANSCRIPT

Revolutions begin in rooms like this, with people like you, stepping up to transform the most powerful corporate capitalist system in the history of the world

…you begin [historical change by] fighting small and you expand when the time is right, and you make an impact because the other things are failing. That is what has happened in many, many cases. Revolutions are as common as grass and world history, and they begin in rooms like this… That is how it works. That is how it works. When I say I take you all seriously, first, I’m talking to the person in your personal seat. So when I say I take you seriously, you, maybe more seriously than you take yourself, I mean to say that the beginnings of the next great historic change come from us taking ourselves that seriously. So, I urge — and I think many people here do — but I urge that you sit back and say, am I up to that or am I just doing politics, or am I really up to that? Now that is transforming the most powerful corporate capitalist system in the history of the world. That is what it is about. And to say that I take you seriously is to say that that is what you’re stepping up to, not simply a gesture, not simply a new party, not simply a green movement. It is that, and that is the challenge.

Now, I am very cold-eyed realist. I did run House and Senate staffs. I’ve even done stuff for my pains and for my sins, planning U.N. policy in the State Department before I left that world many years ago. I have been involved in the nitty-gritty of ugly politics. I am no naive guy. And I say again that we have the possibility, if we look at the stage we are at and what is happening to the era and who we are existentially — I am talking to the person in your chair — and if we know who we are and take ourselves that seriously, we have that possibility. So, let me go on.

This is the most important period of American history bar none. The current system is running out of options. Problems are wicked and cannot be managed the old way.

The second thing I want to say is, I don’t think that is always true. But I do think that the emerging era of history into which we are living our lives, the era into which we are living, may well be the most important period of American history bar none. Now, I say it as a historian and others would disagree, but I don’t say it lightly. And when I say bar none, I mean including the American Revolution and including the 1960’s and the Civil War. Whoa, that is a heavy rap, as we used to say in the 1960’s. What I mean is that in many ways, the system is running out of options, and we are beginning to see more and more people aware of the difficulties that cannot be managed the old way.

The crises are systemic. Washington is broken. Either we transform the system or risk violent societal disruptions

Most people know Washington is broken. They have not quite realized that the systemic problems are coming to the surface, that it’s a systemic crisis. You may get ripples of increased gain and jobs and so forth, but you can’t deal with climate change, you can’t deal with unemployment, you can’t deal with poverty, and we keep getting more and more decay. That’s light bulb time. That’s when people begin to asking very serious questions. Now, remember, when I say that I come at it as a historian. You got to throw a couple of decades of your life on the table, not a couple of weeks and not a couple elections. But, there is growing sentiment on all sides that either we transform the system or profound difficulties, violence, probably repression, possibly something like fascism when the violence begins, there is great danger.

Millions of people sense something is wrong. They just don’t know what to do about it. But they do know there has to be a better way

But lots of folks sense something is wrong. The first in my adult life that you find millions of people responding. Listen to the response: Occupy. Occupy was critical, far more important. The American people responded to Occupy. They got it, they know, they know who runs this game. It’s no secret, and it’s a new kind of awareness that something is going on with those big banks and something’s going on with these corporations that don’t quite know how to get a handle on it, but it is not like if we just elect a Democrat it’s all going to be fine and the progressive era will start again. There is a sense that is very deep, and in my view, given the inability to solve the problems, that’s going to be worse, and the pain is going to increase and the number of people saying, there has got to be a better way, something different has got to happen, somehow we’ve got to start in a different place, somehow either we build something new or this thing is a sham.

People at the grassroots level don’t currently have the experience to manage transformative change. They need time to organize

That’s a big deal in history. That’s a big deal when people begin asking those kinds of questions. Now, it takes a long, painful process, but notice this system probably does not reform in the old liberal way for all the reasons we know including the labor movement has collapsed from 35% to down to 7% in the private sector. But, probably it doesn’t have a classic revolution, because government is 30% of the big floor under the economy. You get decay and stagnation, pain and difficulty. That is a very unusual moment in history because it goes on and gives time for people to be aware and to build democratically from the bottom up. If it collapsed tomorrow, the right wing would take over. And if it collapsed to the left, we wouldn’t be prepared. And above all, we wouldn’t know from the bottom of our own experience how to build and run and change and transform the system. This is an era where things are beginning to open up over time. Time for us. Including the person standing here and in your seat.

History teaches us that systems are defined by those who control the wealth. Right now corporate capitalists control the systems, the capital wealth and the power

Let me put it another way—-the third thing I want to say—-systems in history are defined above all by who controls the wealth; no secret. In the feudal era, land was the critical piece. If you had the land and you were the lord, you commanded. In the 19th century, there was the kind of capitalism that was sort of free enterprise. Most of the free enterprise small business capitalists of the 19th century were actually farmers. They ran a small business called a farm. That was a different, maybe a free time in some ways, but a very different time. State socialism was a different way to own capital throughout the system. That is another way to go about it, and we live now in essentially what is called corporate capitalism. And if you look at who owns the system and the power, you all know the income number distribution numbers, they’re pretty obvious. It’s gone from about—-the top 1% has gone from about 10% to 22% and then bobbling around given the recession in the 20% range. Think of that, it’s gone from 10% to 20% in 30 years. Who lost that money? But wealth is even worse.

The top 400 people in America own more wealth that the bottom 185 million Americans

The way you define the system is who owns the capital wealth, and 1% owns just about half all the investment business capital, 1%. 5% owns 70%. And the top — this is a number you got to get your head around, really odd and I checked many times — think about this, the top 400 people, not percent, people, 400 own more wealth now than the bottom 185 million Americans taken together. That is a medieval structure. I don’t mean that rhetorically, I mean that technically that is the way you concentrated wealth in the medieval era, really.

Can we build a democratic system from the bottom up that changes the ownership of capital and is inherently Green? That’s the challenge.

So, the question becomes — and here is the third (sic) thing I think a lot about we do a lot with — is there any sign if you don’t like state socialism, you don’t like corporate capitalism that we can build a democratic system from the bottom up that also changes the ownership of capital and is also inherently Green? How do we do that? We — we.

Yes We Can! In fact we’re already doing it with worker-owned and co-op companies. And we’re going to do a lot more of it

One of the things happening, and this is exciting stuff going on, and the press simply does not cover, they don’t have an interest. If they had any interest, they’d be able to look at the other way because they — but they don’t have any money to do it. The press is being stripped of all capacity to report. But on the ground there are now, what, 10 million people involved a worker-owned companies. Did you know that? 10 million, in America. 130 Million are involved in co-ops and co-op credit unions. 40% of society. Four or five thousand neighborhood owned corporations, thousands of social enterprises. Odd bits and pieces here and there like Sarah Palin’s Alaska; they use the oil revenues as a matter of legal right, everybody gets a piece; it’s a maverick country but there it is. They don’t do that in Texas. We’re going to do that a lot elsewhere when we get to where we’re going to get.

These kinds of experiments, along with the projects and politics, are the only way to build a popular mass movement

If you look carefully on the ground, there are these social enterprises popping up, credit unions, etc., etc. and there are many, many more experiments. Something like 20 states now have legislation before them like the Bank of North Dakota, a state owned bank, and many other states. Another 20 approximately are considering single payer. And here is the issue, as the pain deepens — that’s why the era is critical — as the pain deepens and we have time to build, and we work to build, more and more people begin to see, you’ve got to come up with a new answer. My judgment is — and I think I’m not blowing smoke — those kinds of experiments are the only way to build the popular base, with the politics and the projects, with the politics and the projects.

Cleveland provides a model for building whole communities where the 99% benefit, not just the 1% of capitalist owners

There is a really beautiful thing going on in Ohio in Cleveland, we have been involved with. I was involved with the Youngstown workers in 1977 when the first big steel closing occurred, the workers tried to take over and they got clobbered. But, they organized their politics and got a lot of people involved. So, in Ohio, the idea of worker ownership is a bigger idea. Lots of people understand it. And in Cleveland, building on the Mondragon model, we know about the Mondragon model and other ideas, there are a series of worker owned integrated co-ops in Cleveland in a neighborhood where the average income is $18,000 per family. And they have these co-ops not just standing alone, but linked together with a non-profit corporation and a revolving fund. The idea is to build the community and worker ownership, not just make a couple workers richer, to say the least, not just rich but to build a whole community, and to use the purchasing power of hospitals and universities, tax money in there, Medicare, Medicaid, education money, buy from these guys and build the community. That model and it’s the greenest — for one of the things — the greenest laundry in that part of the country, that uses about one-third of the heat, about a third of the electricity and about a third of the water. They’re on track now to put in more solar capacity that exists — one of the other worker owned companies that exists in the entire state of Ohio. These are not little-thinking co-ops.

There’s another one they’re just about to open which is a greenhouse; 3.25 acres. The greenhouse hydroponic will be the largest in the United States in an urban area, the largest in a worker co-op, worker-owned, in a community building structure, capable of producing something like 5 million heads of lettuce a year, capable of producing something like 5 million heads of lettuce a year. That’s happening. You could do that, and you could force the politicians to help you do that.

To learn more about thousands of other “New Deal” things that are happening in America visit this website

There is a website, Community-wealth.org, [where] you will find thousands of things that are happening on the ground that change the ownership of wealth and begin to green the economy, and it is part of the new deal that we’re going to build forward as we go on through the decay. That’s the direction.

These are the kinds of things that are the prehistory of the next great revolution. And this is how you build it

Those are the kind of things that are the prehistory of the next great revolution. That’s how you build it. You generate the ideas and then you begin to protect national ideas out of real experience and out of real commitment. So, did you happen to notice, we did not nationalize the two big auto companies when those crises came, and we pretty much nationalized the banks before we gave them back. So when those crises come, and they will come, if we’re prepared with a highly democratic vision and if we know something and if we build the politics, I’m not just talking about communities, that’s critical; if you don’t have democratic experience in local communities you’ve got nothing. But, the ideas like Wisconsin pointing to the New Deal, those ideas also generate vision for the long, larger scale when time goes on and we build forward.

So, now that’s also a heavy wrap. I am saying that we are laying the foundations bit by bit in an extremely unusual period of history, the most important moment in history because we’re running out of options, in my view. And mine is suggesting we can take it forward in a positive way.

“The most radical thing you’re going to hear – I think there is hope”

I want to say something far more radical than I have said before. This is the most radical thing you’re going to hear. I think there is hope. I’m no Utopian. I don’t mean it is going to be hard and tough and a lot of stuff is going to go wrong and a lot of pain and a lot of difficulty. But I don’t think they’ve got all the answers and I don’t think that they’ve got all the power and I don’t think they can solve it. And I do believe — the person in your chair, why I take you seriously — can you wrap your heads around, really, I mean, really, that we are in a position to lay down the foundations for the next great transformation? Really? Not just doing token politics, not just building the party. All that is critical. Not just laying the foundations. But really laying the groundwork for transformation into a highly democratic new system beyond the old traditions, one that is sustainable, one that gives a climate change, but also alters the ownership and democratizes wealth. That is our question.

People understand that something different really has to happen

One last thing. I give you just a little fragment more of the book [America Beyond Capitalism: Reclaiming Our Wealth, Our Liberty, and Our Democracy]. Two fragments, actually. This is a really interesting one. They have been polling younger people, people in the range of 18-29. These are people who really will build the next politics; a lot of them in this room. Now, it turns out that in the latest polls, it turns out that when you look at it, about 45%, 43% have a positive reaction to the word capitalism and 49% of a positive reaction to the word socialism. I don’t know that any of those folks actually know what the word socialism means, but the idea that they understand something different really that has got to happen is embedded in those politics.

Projects and politics alone aren’t enough to transform the system. We have to rise above that – to the level of existential self-awareness. And that’s hard to do

But, one last one I saw just the other day, I did a piece for Sojourn Magazine, one of the real radical activists group of religious Christians. One of the pieces of poll data I saw was this, said that 36% of all Americans polled — one of the big polling agencies, not a side one, not a biased one — 36% decided and were quite sure that capitalism, Christianity and capitalism cannot be reconciled. So, my urging, I am pleased to be here, but I don’t think anybody moves the ball like people in this room when they get serious…. [M]y suggestion to you is that we together are in fact capable if we rise to that level of existential self-awareness. Real hard [to do]. Real hard. People want to do projects, they want to do politics, they don’t want to get as serious as it takes to really transform the system. So, that I think that is our challenge and I see a lot of people in this room up and ready to do it.

Thank you for having me.

*****

Gar Alperovitz is professor of political economy at the University of Maryland and co-founder of the Democracy Collaborative.

Fair Use Notice: This blog, Citizen Action Monitor, may contain copyrighted material that may not have been specifically authorized by the copyright owner. Such material, published without profit, is made available for educational purposes, to advance understanding of human rights, democracy, scientific, moral, ethical, and social justice issues. It is published in accordance with the provisions of the 2004 Supreme Court of Canada ruling and its six principle criteria for evaluating fair dealing

Banks, corrupt politicians and mainstream media have convinced people there are no alternatives to austerity

But there are many alternatives. Just don’t look to mainstream media for them

No 473 Posted by fw, May 10, 2012

“The finance sector has started a lot of think tanks, they’ve funded the research institutes, and they’ve bought control of the public media, so that they’ve been able to convince people that there really isn’t an alternative, and only talk about whether there is more austerity or chaos.” —Michael Hudson

According to economist Michael Hudson, from the Democratic Party to European “Socialists”, they manage crises in the interests of financial capitalism.

Watch today’s interview with Hudson on The Real News Network. My abridged transcript featuring added subheadings and links follows the 13:30-minute interview. To access the original program and complete transcript, click on the following linked title.

What Americans can Learn from Eurocrisis, The Real News, May 10, 2012

ABRIDGED TRANSCRIPT

Introduction by Paul Jay, Senior Editor, The Real News Network — Headlines around the world greeted the election results in Greece and France as a rejection of austerity programs by the electors of those countries. Well, what can Americans learn from the results of these elections and from the crisis in the eurozone? Now joining us to talk about all of this is Michael Hudson. Michael is a former Wall Street financial analyst, and he’s a distinguished research professor of economics at the University of Missouri–Kansas City. He has a new book coming out soon called The Bubble and Beyond. So what should Americans take away from the European elections?

Once in power, Europe’s left-wing parties are selling out to financial backers

The same thing is happening in Europe that’s happening here. Left-wing parties, socialist parties, labor parties all say that they’re going to preserve the social contract, and as soon as they get into power, they sell out to their financial backers, they double-cross labor. The socialist party in Greece fell from 44 percent to 14 percent because the last party simply moved the most vicious anti-labor measures in Europe. Same thing in France now. Hollande of the French socialists, before the election, said he was going to beg, ask Europe, will you please not insist that we roll back our social programs. And just this morning he said, well, I asked and they said no. I’m afraid that in order to preserve Europe, in order to preserve the idea of a political harmony, we’re going to have to go ahead and impose more austerity on the people. I’m terribly sorry. But if you don’t like it, you can vote for another party in four years. But there’s going to be austerity, and we’re going to have to lower wages here, and there’s nothing to do. If you don’t lose our campaign contributors, the banks could lose, and we couldn’t have that, because if the banks lose, they say that that’s intolerable to them.

Why the sellout? Is it simply the case that the financial sector is too powerful for political leaders to defy?

The banks really have no power at all except the power to bribe, and in Europe—in South America, the power to assassinate, which they do quite frequently. All they can do is bribe.

In fact, banks have no economic power. What they do have is the power to bribe corrupt politicians who are in their (the banks’) pockets.

Remember, we had the same argument over here about three years ago, when Sheila Bair wanted to take over Citibank, and she said, look, we can foreclose on Citibank, we can close down all these big banks on Wall Street anytime. They’re insolvent. We can pay all the depositors. There’s no problem at all. If the government were to take over the banks, they can pay all the depositors. The only people who would lose would be the very wealthy, who have more money in the banks that are insured. Sheila Bair said the bank bondholders would suffer, the counterparties would suffer. The banks have no power at all. The problem is the corruption of the politicians, who are just demagogues pretending to oppose the banks while actually being in their pocket. The banks don’t have any [inaudible] power. They don’t have any economic power, except they can bribe politicians.

In fact, Governments have the power, not the banks! Bailouts of “banks too big to fail” proved that

The government became the major shareholder of the insolvent banks here, like Citibank and Bank of America. The same thing in Europe. If Europe banks caused the crisis, the governments can simply say, okay, we’re taking over the banks. Now we own them. Now that we own the banks, we’re going to write down the mortgages to the price that people can pay, which is [incomprehensible] We’re not going to pay other rich people. But financial reform and tax reform have to go together. And they’d say, we’re actually going to roll back all the tax cuts for the 1 percent, and we’re going to the begin taxing real estate again, we’re going to tax monopolies, we’re going to reintroduce progressive taxation just like we had for 30 years ago. If capitalism worked 30 years ago with higher taxation, with strong labor power, with a good property tax, and with affordable houses, it can work again. All of this is unnecessary.

Banks, politicians and the media have convinced people that there are no alternatives to austerity

Except if they can [inaudible] the banks and their politicians can convince people that there is no alternative. So that’s really the banks’ argument. The change over the last 30 years has been a drive by the finance sector to become more dominant steadily. So the finance sector has started a lot of think tanks, they’ve funded the research institutes, and they’ve bought control of the public media, so that they’ve been able to convince people that there really isn’t an alternative, and only talk about whether there is more austerity or chaos.

There are many alternatives. But the people won’t learn about them in the mainstream media, which is out to keep people entertained and ignorant

But, of course, the alternative to austerity isn’t chaos; its economic democracy, it’s progressive taxation, it’s taxing the rich, it’s writing down the debts. There are many alternatives. And what they’ve done is make sure that none of these alternatives get discussed in the public press or in the media. That’s why we’re on The Real News Network talking about it, not in The New York Times or the Fox media.

Welcome to the age of financial capitalism – increase the public debt load, raise debt service rates and voilà – an indentured 99%

So finance today is the means of conquering a country and getting what in the past took an army. Financial conquest is how you shift the taxes onto the population to pay the financial sector, how you load a population down with debt and make a population pay interest and amortization and penalties on debt service, you make a population pay for schooling instead of getting it free or a low price as used to be the case, you make a population take on a lifetime of debt in order to get a home that used to be affordable, you make the governments go into debt for the banks, so that in Europe governments can’t—don’t have a central bank to monetize their own deficits but actually have to borrow money from banks. You achieve—you essentially empty out an economy, and you take its economic surplus financially without an army, just by trying to promote what really is junk economics and junk politics, if the economics of Rubinomics in America under Clinton and Rubenomics in America under George Bush, and now with a vengeance under Obama—.

Come the 2012 election, backers of the Republicans are same as backers of Obama

I think the people who vote for Romney are the same people who voted in Europe for, essentially, throw the rascals out. When people are unhappy with an economic situation, they simply vote for the other party, whoever it is, and it’s a flip-flop back and forth. The Republicans very much want—the backers of the Republicans are the same backers who backed Obama. They’re the Wall Street people. They want Obama to come in for a second term and then really move against Social Security.

Compared to extreme right-wing Republicans, Obama looks reasonable. The choice is between ‘terrible’ and ‘bad’

Obama’s the only person—only a Democratic president can swing a Democratic Congress or Senate over to the right wing. So you need the Republicans to make—go so far on the right that Obama, who in the past would have been looked at as a right-winger or Republican, you need to make him look reasonable. And if you can push the crazies, as the Republicans are doing, then Obama seems less bad than the alternative. In fact, he gave a campaign speech a month ago, and he said, well, look at the alternative. I’m better. Isn’t that crazy choice, to have to choose between these two, between an absolute terrible alternative and just a bad alternative? That’s the choice we have. Yes, please, or yes, thank you, to a choice that—

Where’s the left in America and Europe?

Where is the left in America? Where is the left in Europe? Where is what used to be the left? I don’t see it anymore anywhere. Back in the 1950s, I used to go to socialist meetings, and people would say, why do the trade union people keep thinking they’re locked into the Democrats? And the answer is: well, that’s the two-party system. There isn’t really room for a third party here. And all the Republicans have to do is say, no, we’re worse, and it just scares people to actually vote for the Democrats. But people have been asking that question for 60 years, and nobody’s come up with a better answer since.

Hudson predicts that Americans have become so dispirited that “most” won’t vote this November

I think you need a third party or you need to break away from the Democratic Party for people like Dennis Kucinich or the more progressive people. You need what was called 50 years ago realignment. And that realignment that people saw even then was necessary hasn’t occurred, and it hasn’t occurred in Europe either. That’s why everybody is so frustrated. In France and Greece and everywhere else in Europe, they’re equally frustrated. There doesn’t seem to be any alternative. And that’s exactly what Mrs. Thatcher liked to say, there is no alternative. And it’s just amazing when there really are so many alternatives that people can be convinced that there aren’t and become so dispirited they just give up. So the fact is that most Americans are going to vote with their backsides. They’re just not going to vote this November.

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Fair Use Notice: This blog, Citizen Action Monitor, may contain copyrighted material that may not have been specifically authorized by the copyright owner. Such material, published without profit, is made available for educational purposes, to advance understanding of human rights, democracy, scientific, moral, ethical, and social justice issues. It is published in accordance with the provisions of the 2004 Supreme Court of Canada ruling and its six principle criteria for evaluating fair dealing.