The Bait-and-Switch Behemoth Crisis. I feel there has been a lot of misrepresentation of what is really at issue in the present economic crisis. Reports are most unclear as to whether the bulk of the "bad" mortgages that catapulted us into crisis were bad from the outset or were initially good mortgages that the people indebted could afford to pay according to their original terms and interest rates, and went bad only because the rate of interest was changed. I suspect the overwhelming preponderance of the mortgages defaulted on were perfectly fine until lenders raised the rates. This is classic "bait-and-switch" behavior, which is ILLEGAL in most contexts: lure people into the 'store' with one advertised product and then substitute another, of higher cost. Now the financial system of the entire Western world, if not the entire developed portion of planet Earth, is at the edge of catastrophe because the laissez-faire monsters of the Radical Right of the United States made sure that no one "regulated" (a bad word in their parlance) financial activities as to prevent such a calamity. Then, when the rapacity of bankers produced millions of foreclosures, and there were no ready buyers for the abandoned properties and no money that could have empowered would-be buyers to step up, the thieves in the banking boardroom found their empire of deceit toppling. That was the first shoe.
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"Too Big to Fail". The second shoe was that, again, laissez-faire fools, who controlled U.S. financial institutions and the Federal Government, permitted banks and other corporations to become so immense and so tortuously intertwined that the failure of any of the biggest players would produce a domino effect of cascading failures that could take down the entire economy, because pretty much nobody can make the biggest purchases and pursue the biggest projects without borrowing money, from somebody. In a compartmentalized financial system, if credit were to become unavailable from one source, say, a given bank or even from banks as a type of institutional lender, there were other sources, such as an initial public offering of stock or the issuance of bonds. Now, however, all the banks, and stock markets, and bond markets are tied together, thanks to the practice of bundling bunches of mortgages together into packages treated as a commodity, those "mortgage-backed securities" that President Bush spoke of in his speech tonite. What financiers justified as "spreading the risk" ended up meaning "ensuring universal failure".
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In the Good Old Days, an individual bank, based in a single community or small geographic area, would lend money to an individual / couple so they could buy a house, and the house would be used as the collateral for that loan. If the borrower could not make payments, the bank would first try to work something out and only if the borrower simply could not continue to pay (for instance, for having lost a job or suffered an income-reducing injury), would the bank foreclose. The banker had to be concerned about the attitudes of depositors and potential borrowers, because they lived in the same town, and there were other banks competing for the public's business and, importantly, approval. We didn't like that system. That is, the powers that be in the banking industry didn't like that system.
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So they enlarged the bulk of banks beyond a single town, region, even state, and eventually even country. At the same time, other businesses were also being enlarged beyond all reason. Today, there are 54 individual corporations around the world with annual revenues larger than the U.S. Federal Government's entire budget in 1963 ($93 billion). That is, $93B in the dollars of the day. Today, 1963's $93 billion would equal $624 billion. Even so, the world's largest corporation, Wal-Mart Stores, has revenues equivalent to 61% of the entire Federal Government's budget in 1963 ($379 billion for Wal-Mart, $624 billion for JFK's budget in 2008 dollars). Think about that. John F. Kennedy was a Liberal, one of them durned "tax-and-spend Democrats", but his total Federal budget was only 1.65 times (little more than half again) as large as the revenues for one corporation. (He also had a budget SURPLUS.) Forget about foreign corporations for the moment (but not for good) and speak only of American corporations.
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Arnold Schwarzenegger today signed into law the budget for the largest state in the Union, California: a bit less than $104 billion. There are 14 individual corporations that have revenues larger than the California state budget. FOURTEEN. Five of them are financial companies (banking, insurance, etc.), including AIG, which is only the fifth largest of them.
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The failure of any one of those megacorporations would be bad enuf, but many of the giant financial corporations have tentacles that have insinuated themselves into all segments of the financial industry, in the United States and abroad. Were any one of them to fail, many others would be weakened. Some of those others would be so seriously weakened that, along with their own losses from bad judgment/rapacious behavior, they too would fail, further weakening some of the same companies weakened by the first failure and reaching companies that the first company was not entangled with. Some companies that were able to withstand the failure of one financial giant could not survive the loss of two, so would themselves also fail. And on and on, in a cascade of grief produced by greed.
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The temptation is to say, "Good. Serves them right." And it would, except that in liquidation, many loans they made would be called in (since some are "demand" loans, which the bank can demand payment for at any time), others have "acceleration clauses" that the bank can invoke to require early payment, etc. Many individuals and businesses would be required to make unexpected payments they could not afford, or forfeit their collateral. And even where the consequences to existing loanholders are not so dire, after the failure of so many lenders, there would be so few lenders left, with so little money to lend, on conditions so stringent as regards creditworthiness, that much of the economy would come grinding to a halt, throwing people out of work in huge numbers. That is why we can't simply stand aside and say "Serves them right." Because that would serve us wrong.
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Bailing Out the World. Foreign banks doing business in the United States demand to be included in any bailout! How dare they? No. You made stupid choices? That's your problem. If any government is to bail you out, let it be your own government, because that's where the bulk of your operations are, in your own country. It is not up to the American taxpayer to bail out the entire planet. If you must fold your U.S. operations, then sell your U.S. assets to American companies and return some of our economic sovereignty.
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There is in fact a serious question as to the 'nationality' of AIG — if any transnational corporation can be said to have a nationality at all — 80% of which the Federal Government just bought for $85 billion. A webpage on the New York Times website says:

Though its name is American [International Group], the company is rooted in Asia. According to company lore, its founder, Cornelius Vander Starr, a World War I veteran, traveled to Asia with only 300 Japanese yen (less than $3 by today’s exchange rates) in his pocket and started the firm in Shanghai in 1919.

With a partner, he sold marine and fire insurance and expanded rapidly throughout the Philippines, Indonesia and China by hiring locals as agents and managers, a business strategy A.I.G. uses today. Nearly half [sic] of A.I.G.’s 116,000 direct employees — about 62,000 people — are in Asia.

The company is headquartered in Downtown Manhattan, and now is American, because the Feds bought it. But those foreign banks that want guaranties on their bad investments are not headquartered in the United States and not owned by Americans, so there is no reason the U.S. taxpayer should save them from their own stupidity.
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Scaling Downward. The bigger-is-better crowd in the corporate boardroom wants us to believe that there is no alternative to ever bigger corporations with ever more power over governments and societies, that cannot be controlled but nonetheless have to be bailed out if their own stupidity and rapacity threaten to produce their collapse, because we have to compete in the world, and other countries are allowing their corporations to become immense. No, that's not true at all.
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The same 'people' use the same reasoning to argue that Americans (not, of course, including corporate executives) must accept that their wages must decline and their benefits vanish because in the age of "globalization" that's the only way "we" can compete with Third World hellholes: by making the U.S. into one of those hellholes. No.
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We have political sovereignty — for the moment — and can exert that sovereignty to put into antitrust laws, absolute size limits for corporations, and enforce those laws in ways that will affect the behavior of foreign governments as well. That is, if we decide that there should be no corporation larger than, say, $50 billion in annual revenues, or whatever standard we set, we can refuse permission to any corporation, anywhere on Earth, larger than that, to operate in the United States or even sell to the United States. If foreign corporations attempt to conceal their actual size to sidestep such restrictions, a provision could be written into U.S. law to assume that any secretive company (not just corporations, but also proprietorships, limited liability companies, partnerships — whatever) exceeds the permissible size, and bar them from doing business in or with the United States.
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In all likelihood, that would produce enactment of a series of similar laws around the planet. But at least we would free ourselves from what we might call the Tyranny of Size. That way, if one stupid executive or board of directors in one big corporation were to produce the destruction of that corporation, we could easily and without worry permit capitalism to make that "adjustment". Let it fail, because the ripples thru the remainder of the economy would be trivial.
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We often speak of a "level playing field", as tho that's something we want. In fact, however, there is no level economic playing field whatsoever. How many small businesses can really compete with transnational corporations? How many small businesses can get capital enuf to build a factory, or even refit an old factory, from a vanished industry?
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We see the Tyranny of Size in politics as well. There are hundreds of minor political organizations in the United States that have ideas of value (Wikipedia mentions 83 that have offered candidates for major national office), but they cannot compete in the "marketplace of ideas" because they cannot get display space on the store shelf. Just as major food and beverage corporations demand outsize presence on supermarket shelves, and even specific places within store layouts, as almost entirely precludes major supermarkets from offering goods produced by local small businesses, the major parties are jealous of their own share of (metaphorical) shelf space, and product placement vis-a-vis, for instance, the cash registers or certain types of compatible foods and beverages.
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They do not simply compete with their superior resources. You'd think that would give them enuf of an advantage. But no, they want to bar smaller parties from even getting on the ballot. They may argue that they don't want the ballot 'cluttered', lest their own candidates be hard to find. No, they are assured prime product placement at the top of the ballot, because ballots are typically arranged in order of the number of votes received by that party in the last election. No, the major parties just don't want minor parties to appear on the ballot at all, so do everything in their considerable power to make it impossible for minor parties to be seen, much less voted for. In New York State some decades ago, for instance, you couldn't just get x-number of signatures in the state overall but had as well to get at least y-number of signatures in each and every county of the state! That was clearly designed to keep a local or regional party from getting on a statewide ballot, because only major parties could get that wide a distribution of signatures. If the requirement was 50,000 signatures, and you could get that many in one of New York City's hugely populous counties, why should you have to collect signatures anywhere else? Because, you see, the actual purpose of petitions is to prevent minor parties from achieving "ballot access". With modern voting technology, we could have 200 candidates for each office, and be able to use "Search" to find the one you want, by name or party. But that will never happen if the major parties continue to control ballot access. Because even a dozen minor-party candidates in Congress is too many for the major parties to tolerate.
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The result is that minor parties, such as the one a friend and I, from different boros (counties) of New York City started in 1977, the Expansionist Party of the United States, are reduced to passively offering their ideas on a website, or via a blog, letters to the editor, and other means that can make only minimal impact.
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In any case, what hope is there for society, when things are going so very wrong, the major parties don't even offer answers until obvious problems that have been developing for decades without restraint suddenly produce, or threaten to produce, a calamity, and no one listens to those of us crying in the wilderness?
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We must find ways to destroy the Tyranny of Size, not only to reign in the present misdeeds of major corporations but to prevent future misdeeds, yet to be developed by the fevered, greedy imaginations of corporate insiders. Our political system is ossified. New ideas cannot reach the floor of Congress, much less the Oval Office. We must, in this time of reevaluating our economic institutions, reevaluate our political institutions as well.
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Hiding from Scrutiny. At the very time when we need to be thinking about the future, John McCain, running from comparison to Barack Obama, has announced his intention not to participate in Friday's debate at Ole Miss, on the pretense that the current economic crisis requires him (and, by implication, Senators Obama and Biden) to tend only to resolving the present crisis. He said he is 'suspending his campaign' until that crisis is resolved.
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David Letterman and Craig Ferguson both blasted the very concept of suspending the campaign. Ferguson was especially forthrite: "Democracy first!" Ferguson also blasted financial manipulators: "they don't make anything but money" — no product, no service, just money. Ferguson is a brilliant comic, but he has had two WONDERFUL political tours de force in the past couple of weeks. He's a new U.S. citizen (we saw his participation in a mass swearing-in ceremony in January, and know that he actually recited the words; how do we know all the others did?), and his passion for participatory American democracy comes thru, even tho his show is very, very heavy in foreign guests, especially from Commonwealth countries. I don't know if he asked for that or Worldwide Pants (Letterman's production company, which owns the show) saw him as the ideal host to talk knowledgeably with Brits, Aussies, and the like. I wish he would stop making drug "jokes", tho. I'd be in favor of flogging people who make drug "jokes" on TV. Maybe then people wouldn't regard drug use as trivial, and thousands of people in Colombia and Mexico wouldn't die in the drug wars, and tens of thousands of Americans wouldn't die from drugs and drug-related crime here.
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In any case, Ferguson made the same sarcastic point I wanted to make: why not just suspend the election? Lots of other people have done it, in many countries. Letterman was hot under the collar at McCain's lying to him, in saying that he couldn't appear, as scheduled, on Letterman's talk show today because he had to return to Washington urgently. But then he went onto CBS News for an interview with Katy Couric at exactly the same time as Letterman was taping his own show, with replacement guest MSNBC commentator Keith Olbermann. Since Letterman is also on CBS, he was able to show the live feed of the Couric interview to prove McCain's perfidy.
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Never mind that we have little more than a month to make a decision we will have to live with for four years. Never mind that there is no agreement among Administration officials and the members of both houses of Congress, so there may not be a resolution for days, possibly even weeks! Never mind that a new ABC/Washington Post poll shows Obama 9 percentage points ahead of McCain, and voters showing much less confidence in McCain's ability to handle this economic crisis in particular and the economy beyond the crisis more generally.
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I have said that the real margin of error in this election, due to the "Bradley Effect", is about 12 percentage points, not the 3 claimed by pollsters. Obama's margin in the ABC/WashPost poll is 9%. We are getting to the point where an Obama win is almost believable. Almost.
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McCain got the message. He now wants to pose as supremely concerned about the economy, and ready to do what needs to be done to save us (from the laissez-faire economics he himself has championed for decades). He has gone so far as to say that all politics should stop until this crisis is surmounted. Oh? So we're not going to have an election November 4th?
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This is like Rudolph Giuliani's statement after 9/11 that the crisis was so great that we should suspend the normal rules so he could remain in office beyond his scheduled departure date! His successor, Michael Bloomberg, would have none of it, and insisted that Giuliani (a would-be dictator we were lucky enuf to stop this year) was not above the law and had to leave on schedule.
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In like fashion, we will in fact NOT put off the election to some later date. It IS going ahead on November 4th, just as planned. If John McCain wishes to withdraw his candidacy for President, he can certainly do that. What he cannot do, however, is tell the voters that Barack Obama is irresponsible in accepting that time waits for no man, our fixed-term system of government must be absolutely inviolable, the election must go forward on November 4th, and that election, which will saddle us with a President (and Vice President) for the next four years, is more important than any given crisis. Obama was right in saying, plainly, that a President must be able to do more than one thing at a time. Obama did not say, but I will, that if McCain cannot handle more than one thing at a time, then perhaps he should resign and let Sarah Palin take up the Republican banner alone. She'd love that. She has already plainly spoken of a Palin-McCain ticket! A Palin(-only) ticket would probably delite her. But would it delite the Nation?
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McCain has already hidden Palin away to keep the voters from scrutinizing her. And now he wants to sequester himself in the Senate and keep the voters from scrutinizing him! The tragedy is that this odious tactic might actually work, and we will have a new Administration that is even more secretive and more insulated from public scrutiny and control than the Bush Administration. That should worry everyone, even people who admire John McCain, because the person in charge might not be John McCain at all, but Sarah Palin. And that is truly scary, because she is strong-willed enuf to refuse to be anybody's puppet, and the Invisible Hand that pulls Dumbya's strings might find those strings cut out from under them by a headstrong female with absolutely no qualifications to run things herself.
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O No. Japan's new prime minister is Taro Aso. Aso. Funny.
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(The current U.S. military death toll in Iraq, according to the website "Iraq Coalition Casualties", is 4,171 — for Israel.)

- posted by L. Craig Schoonmaker @ 11:59 PM