Romney, Obama and the Cult of Divine Right of Wealth

Paul Krugman today writes that Romney's defense of Jamie Dimon and JPMorgan Chase suggests cluelessness.

Romney isn't clueless — he's malicious. Huge difference. Like all of the advocates of Wall Street, including Timothy Geithner and Barack Obama most of the time, there is a deep, profound, dangerous streak of maliciousness at work. These are people who want to transfer wealth from the average to the rich, from labor to capital. These are people who firmly, devoutly believe in the divine right, the divine of superiority of wealth.

As conservative economist and Romney adviser Gregory Mankiw made clear in his blog a few years ago, conservatives (including most Democrats, like Obama) believe that the wealthy are genetically superior. These statements are made explicitly so there is no point pretending that this is a misinterpretation.

It is commonplace now to hear assertions of the genetic coding of morality, or every aspect of human behavior. The cult of reductionism to genetic, pseudo-Darwinian explanations is fully embedded in the popular discourse. Obama, Geithner, Romney, Mankiw, Dimon, Blankfein, Bloomberg all hold the absolute conviction that the wealthy are genetically superior. This is a profoundly dangerous state of mind. We have seen i it before. We know where it leads.


UPDATE

Krugman also has a blog post commenting on the blind, mindless ignorance of economist Edward Lazear (at Stanford and that right-wing haven of war criminals, the Hoover Institution).


As in his op-ed essay today (May 21), Paul Krugman is very generous to conservatives (and the many Democrats who follow their lead, as Obama does). Mitt Romney, Edward Lazear, Gregory Mankiw, David Brooks, Jamie Dimon, Lloyd Blankfein, and others like them are malicious, mean-spirited advocates of the transfer of wealth from labor to capital, from average and poor to rich. Worse, they are convinced of the genetic superiority of the wealth, convinced that the poor are genetically pre-disposed to stay poor.

It cannot be overstated how dangerous their thinking is.

Economic Treason?

At what point does an official's abrogation of duty cease to be mere incompetence and rise to the level of crime? At what point does a public official's crimes rise to the level of treason, particularly when those crimes seem entirely domestic in scope?

"Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort."

So reads the Constitution. George W. Bush gave us a new definition of "enemy," one President Obama has yet to reject. Nevertheless, it is little more than rhetoric to charge Treasury Secretary Timothy Geithner with treason. To do so seriously, we would have to suppose that the Oligarchs of Wall Street are enemies of the United States. That case could be made. They have enriched themselves at the expense of 300 million Americans. But we know that case will never be made by anyone other than lefty ranters like yours truly.

As president of New York Federal Reserve, Geithner was merely a conniving, grovelling servant of the American Oligarchs. Now he is conniving, grovelling servant endorsed, abetted, and presumably directed by President Obama. (Obama is playing the political plausible deniability well by just keeping largely silent, except for the occasional pitch for stocks.)

This administration, a public 'champion' of transparency, has recently been forced, by lawsuit, to make its and Bush's scheming public. So we now know who Geithner, a public servant, really served.

The New York Times reports,

Last June, with a financial hurricane gathering force, Treasury Secretary Henry M. Paulson Jr. convened the nation’s economic stewards for a brainstorming session. What emergency powers might the government want at its disposal to confront the crisis? he asked.

Timothy F. Geithner, who as president of the New York Federal Reserve Bank oversaw many of the nation’s most powerful financial institutions, stunned the group with the audacity of his answer. He proposed asking Congress to give the president broad power to guarantee all the debt in the banking system, according to two participants, including Michele Davis, then an assistant Treasury secretary.

The proposal quickly died amid protests that it was politically untenable because it could put taxpayers on the hook for trillions of dollars.

[...]

But in the 10 months since then, the government has in many ways embraced his blue-sky prescription. Step by step, through an array of new programs, the Federal Reserve and Treasury have assumed an unprecedented role in the banking system, using unprecedented amounts of taxpayer money, to try to save the nation’s financiers from their own mistakes.

And more often than not, Mr. Geithner has been a leading architect of those bailouts, the activist at the head of the pack. He was the federal regulator most willing to “push the envelope,” said H. Rodgin Cohen, a prominent Wall Street lawyer who spoke frequently with Mr. Geithner.

Today, Mr. Geithner is Treasury secretary, and as he seeks to rebuild the nation’s fractured financial system with more taxpayer assistance and a regulatory overhaul, he finds himself a locus of discontent.

Even as banks complain that the government has attached too many intrusive strings to its financial assistance, a range of critics — lawmakers, economists and even former Federal Reserve colleagues — say that the bailout Mr. Geithner has played such a central role in fashioning is overly generous to the financial industry at taxpayer expense.

An examination of Mr. Geithner’s five years as president of the New York Fed, an era of unbridled and ultimately disastrous risk-taking by the financial industry, shows that he forged unusually close relationships with executives of Wall Street’s giant financial institutions.

His actions, as a regulator and later a bailout king, often aligned with the industry’s interests and desires, according to interviews with financiers, regulators and analysts and a review of Federal Reserve records.

[...]

[F]or all his ties to Citi, Mr. Geithner repeatedly missed or overlooked signs that the bank — along with the rest of the financial system — was falling apart. When he did spot trouble, analysts say, his responses were too measured, or too late.

In 2005, for instance, Mr. Geithner raised questions about how well Wall Street was tracking its trading of complex financial products known as derivatives, yet he pressed reforms only at the margins. Problems with the risky and opaque derivatives market later amplified the economic crisis.

As late as 2007, Mr. Geithner advocated measures that government studies said would have allowed banks to lower their reserves. When the crisis hit, banks were vulnerable because their financial cushion was too thin to protect against large losses.

In fashioning the bailout, his drive to use taxpayer money to backstop faltering firms overrode concerns that such a strategy would encourage more risk-taking in the future. In one bailout instance, Mr. Geithner fought a proposal to levy fees on banks that would help protect taxpayers against losses.

The bailout has left the Fed holding a vast portfolio of troubled securities. To manage them, Mr. Geithner gave three no-bid contracts to BlackRock, an asset-management firm with deep ties to the New York Fed.

To Joseph E. Stiglitz, a Nobel-winning economist at Columbia and a critic of the bailout, Mr. Geithner’s actions suggest that he came to share Wall Street’s regulatory philosophy and world view.

[...]

A bill sent recently by the Treasury to Capitol Hill would give the Obama administration extensive new powers to inject money into or seize systemically important firms in danger of failure. It was drafted in large measure by Davis Polk & Wardwell, a law firm that represents many banks and the financial industry’s lobbying group. Mr. Geithner also hired Davis Polk to represent the New York Fed during the A.I.G. bailout.

Why the Bonuses Do Matter

The public is in a fervor over the millions bailout recipients, especially AIG, continue to dole out to precisely those individuals and firms who manufactured the financial disaster and then conspired, with the aid of Timothy Geithner, Hank Paulson, and Ben Bernanke, to conceil the truth from the very people — the taxpayers — now funding the bailout. The newest detail is that the total given out by AIG is more, $50 million more, than the $165 million now widely reported, according to Connecticut's attorney general.

A real question here is whether AIG — 'too big to fail' — is leveraging that position to con the government out of more money to funnel on to Goldman Sachs, Citigroup and others. Frank Rich, one of several New York Times columnists who sounds a good deal more liberal than a year or two ago, put it this way: AIG "has, in essence, been laundering its $170 billion in taxpayers’ money by paying off its reckless partners in gambling and greed, from Goldman Sachs and Citigroup on Wall Street to Société Générale and Deutsche Bank abroad." [1]

Still another question, raised by many pundits of many stripes, is whether the bonus issue is bogus, whether it is a diversion from the more serious issue of the billions AIG is passing along.

The bonuses should be taken seriously, if for no other reason than that the con artists at AIG, Goldman, Citigroup do so. The executives at AIG, Goldman and all the others are motivated by one thing only — money. Any blather they offered about serving stockholders has been conclusively proven false. (It had already been proven false years ago in the US business culture driven by management and the demands of management as opposed to those of owners, namely stockholders.)

Nor are the executives driven by the intricacies of economic problem-solving, or they would not now be working so hard to find ways to keep those bonuses while conceiling the fact from the public and the government (or most of the government, since we now know that Timothy Geithner, Sen. Christopher Dodd and others did know about the bonus boondoggle [2]).

Hank Paulson, Timothy Geithner and their ilk are largely of a piece with this ethos. Paulson was smack dab in the middle of it as an exec at Goldman Sachs. Geithner comes out of an environment populated by willing slaves — lionizing, idolizing the Paulsons, Rubins, etc., much like Alan Greenspan or any of that fundamentally conservative wealth-is-virtue school.

This country has for some thirty years effectively been governed with0ut question by the demands of wealth. The US has always held wealth to be the finest repository of power. European nations and others had monarchs, sometimes not the most wealthy, who commanded the greatest power. Ages ago, religious institutions held the power. But the US broke with all that, exalting money as the greatest good. Indeed, George Washington may well have been the wealthiest person in the colonies at the time of the American Revolution. He was certainly one of the wealthiest.

(It would be interesting to poll people at random simply asking them to name a great American from the turn of the last century, or from 50 years ago. From the time of the revolution, they would almost certainly mention Washington. From the Civil War, Lincoln. That was the time of power in government. But then the US began to assume to role of world's leading industrial and economic power. So from 1900, who?)

Deregulation is the most obvious instantiation of the driving priniciple of Wealth as the Greatest Virtue. Trickle down 'theory'. The pattern of compensation in our private and public institutions. Our culture, with its unalloyed reverence for wealth and fame, further supports this conclusion. The titans of Wall Street may not be the flashiest. Athletes and actors enjoy that privilege, but the oligarchs are the economic decision makers, and their motive is money money money.

The meaning of their lives has one measure. To deny them the vast sums they clearly think they have a right to, regardless of the quality of their labor, is the greatest possible punishment short of actual imprisonment. It is wholly appropriate that We the People force this much from an Obama administration that is again proving itself too spineless or too corrupt to hold to account this nation's greatest criminals.

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NOTES

1. Rich's Times piece, by the way, is a beautiful example of the power of internet journalism. It is thick with cross-links to supporting stories. For example, Republican blowhards like Mitch McConnell now call for curbs on greedy executives. Not long ago, he and others were dead set against them. These are the same Republicans who opposed tooth and nail any Obama stimulus measure, then went home and took credit for the very thing they had opposed.

2. From CNN (emphasis mine): "Dodd told CNN . . . that he was responsible for language added to the stimulus bill to make sure that already-existing contracts for bonuses at companies receiving federal bailout money were honored. A Treasury Department official told CNN earlier that the Obama administration pushed for the language.

"Dodd initially denied he had anything to do with adding the provision.

"Treasury Secretary Timothy Geithner [told CNN] that his department asked Dodd to make the changes."

Obama Shills for Wall Street

Today, March 2nd, President Obama waded into the waters of Wall Street traders saying that price to earnings ratios indicate it's a good time to buy if investing for the long term.

What you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal, if you've got a long-term perspective on it.

Wall Street didn't buy it. And the American people are a helluva lot smarter than any money-grubbing asshole on Wall Street. The catch is that the "long-term perspective" now needed is one that exceeds the life-expectancy of any living American. You're buying for your grandchildren folks (if you're under 20, that is).

But why shouldn't Obama turn penny stock pusher? The Wall Street 'experts' have proven to be anything but, so why not get the nation's top lawyer in on the game? The catch is, of course, that another fact proven in recent years is that performance of the stock markets has surprisingly little to do with the performance of the economy. Averages like the Dow have been adjusted, fiddled, finagled to immunize them against economic bad news, most particularly by removing firms from the average that do not perform suitably. Now, the entire market is doing so badly (it's not entirely immune) that there is no way but down.

But for Obama to jump in sounds more like a Hail Mary. "Puhleeze puhleeze buy stocks. Give us some good news."

This may be sadly reflective of the advice Obama is getting from Summers, Geithner and Bernanke — the Team Of Rivals. The Team of Rivals is not really in the tradition of Lincoln, but the Republicrat tradition of the past 30 years. It is the Team of Bush & Clinton. Torture, extraordinary rendition, responsibility on civil rights — Bush. Stupid economy — Clinton.

Or perhaps it is only a Team of Softball Rivals, the kind that organized between business buddies — Goldman Sachs versus A.I.G. — to play in Central Park during the warm weather.

One way or another, Obama is getting bupkis from his 'team'. It's quite amazing that his proposed budget is as daring as it is. Perhaps that is an attempt to mollify voters even the blindest of whom can see that the 'bailout' is the largest kickback to slovenly, shit-for-brains, billionaire leeches in history.

Reinflating the Bubble

An interesting spectrum of economists are sounding damned pessimistic about the Obama-Geithner-Summers 'stimulus'plan. I've heard conservative and liberal analysts characterize the plan as little more than a scheme to "reinflate the bubble".

Here is a breakdown of the 'stimulus' courtesy of McClatchy.

Bailout by Yes-Men

Timothy Geithner, Hank Paulson, Robert Rubin, & Co. did not get ahead by saying things people did not want to hear. As in any strongly authority-driven culture, they worked to please authority. Thinking unconventionally, sticking out, saying what is unpopular is anathema.

The New York Times ran a story on February 9th ("Why Analysts Keep Telling Investors to Buy") which fits well into this framework. The buy buy buy mentality is more complicated since there are issues of conflicts of interest etc. But a basic problem is that bad news is never welcome. People don't seek it out. And messengers dread delivering it.

But now we are in a time when, one, bad news must be delivered. And, two, unconventional thinking is a must. As long as the ship was sailing on steady seas under a steady wind, it was easy to make money and for the Rubins, Greenspans, Paulsons to claim credit.

But in these times, their minds are too small to grasp the nature of the problem. They are neither capable or willing. And more important, they are deeply unwilling to risk their own fortunes, in either money or prestige. "Failing upward", as is common on Wall Street, is all about putting obedience and conformity before substance, thought, invention. This is not to say that the native talent is absent. They are as gifted with native intellect as any other. But they have thrown most of it over the side in the service of wealth or approval.

One of Geithner's few purported pluses was that he had not worked for years in the bellies of the beasts — Goldman Sachs, Lehman, Citigroup, and so on. He worked in the beast of Greenspan's design, the Fed. The supposition was that Geithner made a choice of public service. But who knows? Maybe he just didn't have what it took to get a job at Goldman Sachs. He studied government and Asian studies at Dartmouth — not irrelevant, but neither a subject obviously involving any study of business or economics (certainly no mathematics or anything comparably rigorous, not that Wall Street shows much command of math). Then the CIA farm league at Johns Hopkins, the School of Advanced International Studies with international economics and East Asian studies.

Who can say. Geithner is unlikely to tell us what jobs he was rejected for. But he failed up into Secretary of the Treasury. Likewise, Larry Summers failed up from Harvard (where he distinguished himself with his abrasiveness, ignorance and outright bigotry).

Sadly, President Obama seems so far to be a conformist, too. Again, like his peers, he clearly has an excellent mind. But his "team of rivals" betrays an utter unwillingness to challenge what John Kenneth Galbraith originally called the conventional wisdom.

Some Thoughts and Questions on Economic Issues

What is the Right Frame of Mind?
Do you approach problems like those now sinking the US with an "optimistic" point of view? If you approach the problem with the assumption that it cannot be solved, chances are pretty good you will find a way not to solve it. Conversely, if you are unrealistically 'optimistic', you are likely to miss the mark.

There are two kinds of optimism. The first, optimism that a solution exists. This is the reasonable optimism. The second, an optimism about whatever particular solution you are wedded to.

This second kind is the one that the Obama Administration is exhibiting, lead for the time being by Timid Timothy Geithner: "We are going to take aggressive measures. Aggressive. Take action. Yes, can do. Do now. Action." All said while slowly backing away, preparing for the "Run Away!"

Articles of Faith
If we were lucky, we would be trying to draw attention to the assumptions Obama, Geithner, Summers, and others are making unwittingly. But this Team of Rivals has made clear that they are quite consciously not going to challenge particular assumptions:

1. No public ownership. The US will not nationalize banks, will not seize control.
2. Management is just fine. The con-artists who constructed this Ponzi scheme will remain in place.
3. Tax cuts! This is the Great Republicon Truth and President Obama has jumped right on. But people who are too poor or losing too much to owe any tax in the first place won't benefit from tax cuts. Should be obvious and is, but the tax cuts are the ever-promised kickback to the wealthy who bankroll junkets for members of Congress, provide cushy jobs post-term-in-office, etc.

More to come. . . .

Would You Hope for the Best?

If a neurosurgeon told you, "We're hoping for the best," what would you do? That is the advice of President Obama, Timid Timothy Geithner and Larry 'Deregulator' Summers.

Martin Wolf offers an excellent essay in The Financial Times, reproduced here nearly in its entirety:

Why Obama’s new Tarp will fail to rescue the banks
By Martin Wolf
February 10 2009

Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.

What is needed? The answer is: focus and ferocity. If Mr Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly.

Yet hoping for the best is what one sees in the stimulus programme and – so far as I can judge from Tuesday’s sketchy announcement by Tim Geithner, Treasury secretary – also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years’ economic crisis, has let Congress shape the outcome.

The banking programme seems to be yet another child of the failed interventions of the past one and a half years: optimistic and indecisive. If this “progeny of the troubled asset relief programme” fails, Mr Obama’s credibility will be ruined. Now is the time for action that seems close to certain to resolve the problem; this, however, does not seem to be it.

All along two contrasting views have been held on what ails the financial system. The first is that this is essentially a panic. The second is that this is a problem of insolvency.

Under the first view, the prices of a defined set of “toxic assets” have been driven below their long-run value and in some cases have become impossible to sell. The solution, many suggest, is for governments to make a market, buy assets or insure banks against losses. This was the rationale for the original Tarp and the “super-SIV (special investment vehicle)” proposed by Henry (Hank) Paulson, the previous Treasury secretary, in 2007.

Under the second view, a sizeable proportion of financial institutions are insolvent: their assets are, under plausible assumptions, worth less than their liabilities. The International Monetary Fund argues that potential losses on US-originated credit assets alone are now $2,200bn (€1,700bn, £1,500bn), up from $1,400bn just last October. This is almost identical to the latest estimates from Goldman Sachs. In recent comments to the Financial Times, Nouriel Roubini of RGE Monitor and the Stern School of New York University estimates peak losses on US-generated assets at $3,600bn. Fortunately for the US, half of these losses will fall abroad. But, the rest of the world will strike back: as the world economy implodes, huge losses abroad – on sovereign, housing and corporate debt – will surely fall on US institutions, with dire effects.

Personally, I have little doubt that the second view is correct and, as the world economy deteriorates, will become ever more so. But this is not the heart of the matter. That is whether, in the presence of such uncertainty, it can be right to base policy on hoping for the best. The answer is clear: rational policymakers must assume the worst. If this proved pessimistic, they would end up with an over-capitalised financial system. If the optimistic choice turned out to be wrong, they would have zombie banks and a discredited government. This choice is surely a “no brainer”.

The new plan seems to make sense if and only if the principal problem is illiquidity. Offering guarantees and buying some portion of the toxic assets, while limiting new capital injections to less than the $350bn left in the Tarp, cannot deal with the insolvency problem identified by informed observers. Indeed, any toxic asset purchase or guarantee programme must be an ineffective, inefficient and inequitable way to rescue inadequately capitalised financial institutions: ineffective, because the government must buy vast amounts of doubtful assets at excessive prices or provide over-generous guarantees, to render insolvent banks solvent; inefficient, because big capital injections or conversion of debt into equity are better ways to recapitalise banks; and inequitable, because big subsidies would go to failed institutions and private buyers of bad assets.

Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best. But it also seems it has set itself the wrong question. It has not asked what needs to be done to be sure of a solution. It has asked itself, instead, what is the best it can do given three arbitrary, self-imposed constraints: no nationalisation; no losses for bondholders; and no more money from Congress. Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing. Trying to make up for this mistake by imposing pettifogging conditions on assisted institutions is more likely to compound the error than to reduce it.

Assume that the problem is insolvency and the modest market value of US commercial banks (about $400bn) derives from government support (see charts). Assume, too, that it is impossible to raise large amounts of private capital today. Then there has to be recapitalisation in one of the two ways indicated above. Both have disadvantages: government recapitalisation is a bail-out of creditors and involves temporary state administration; debt-for-equity swaps would damage bond markets, insurance companies and pension funds. But the choice is inescapable.

If Mr Geithner or Lawrence Summers, head of the national economic council, were advising the US as a foreign country, they would point this out, brutally. Dominique Strauss-Kahn, IMF managing director, said the same thing, very gently, in Malaysia last Saturday.

The correct advice remains the one the US gave the Japanese and others during the 1990s: admit reality, restructure banks and, above all, slay zombie institutions at once. It is an important, but secondary, question whether the right answer is to create new “good banks”, leaving old bad banks to perish, as my colleague, Willem Buiter, recommends, or new “bad banks”, leaving cleansed old banks to survive. I also am inclined to the former, because the culture of the old banks seems so toxic.

By asking the wrong question, Mr Obama is taking a huge gamble. He should have resolved to cleanse these Augean banking stables. He needs to rethink, if it is not already too late.