The United Nations-led Climate Conference at Cancun was not a diplomatic disaster, but for climate activists and grassroots groups, it wasn't a success either. Representatives sent from around the globe to hammer out an agreement on climate change were unresponsive to grassroots concerns about how to lower carbon emissions quickly, and how to ensure fairness in the process.
"Some grassroots groups are losing their faith in the U.N.'s capacity to produce meaningful results," Madeline Ostrader reported for Yes! Magazine. "After the United Nations expelled Native American leader Tom Goldtooth from the meeting last week, the Indigenous Environmental Network called the U.N. Framework Convention on Climate Change 'the WTO of the sky.'"
While gloomy reports before the conference worried that international negotiations could veer entirely off course, the representatives at the conference did come up with an agreement that fleshed out last year's Copenhagen Accord. It became clearer, though, that the United Nations Framework Convention on Climate Change process will not ultimately guard the interests of less powerful players.
"It's pathetic the world community struggles so much just to climb over such a low bar," commented [Kumi] Naidoo, [executive director of Greenpeace.] "Our only real hope is to mobilise a broad-based climate movement involving all sectors of the public and civil society before Durban."
Indeed, this year's conference saw a greater mobilization of outside forces than Copenhagen did. But by the end of the conference, activists were frustrated with the UN-led process, Democracy Now! reported, and began protesting in the area near the conference, under the close watch of UN guards:
When the demonstrators continued their vigil past the time allotted to them, U.N. guards moved in and dragged them towards a waiting bus. The protesters linked arms, and the scene quickly became chaotic. As they wrestled activists onto buses, U.N. guards also seized press credentials from the necks of journalists, and detained a photographer while seizing his camera.
Running REDD
There was one issue in particular, Reduced Emissions from Deforestation and Degradation or REDD, a financial tool that allows countries to offset their emissions, that caused concern among climate activists. As Michelle Chen explained at ColorLines, "From a climate justice standpoint, the deal lost credibility once it was tainted with REDD, a supposed anti-deforestation initiative that indigenous communities have long decried as an assault on native people's sovereignty and way of life."
The program would seek to set aside forests, through financial incentives that would make it more profitable to preserve forests than to harvest them. The problem, in essence, is that the program would take away resources in developing countries, particularly in indigenous communities, in order to mitigate negative actions in developed countries.
At IPS, Stephen Leahy reported, "REDD remains very controversial. It is widely touted as a way to mobilise $10 to $30 billion annually to protect forests by selling carbon credits to industries in lieu of reductions in emissions. ... Many indigenous and civil society groups reject REDD outright if it allows developed countries to avoid real emission reductions by offsetting their emissions. "
Developed vs. Developing
Balancing the interests of developing and developed countries has always been the thorny tangle at the center of climate negotiations, and the Cancun Agreement, critics say, favors developed countries.
As Tom Athanasiou writes at Earth Island Journal, "There's an even deeper concern, that, in the words of the South Centre's Martin Khor, 'Cancun may be remembered in future as the place where the UNFCCC's climate regime was changed significantly, with developed countries being treated more and more leniently, reaching a level like that of developing countries, while the developing countries are asked to increase their obligations to be more and more like developed countries.'"
REDD is an example of that sort of bargain: Developing countries have to sacrifice, too. But developed countries have, in this conference and at its predecessors, refused to make any real sacrifices. This round, it became clear that, in addition to the United States, other key countries, like Japan, would not be willing to commit to binding legal targets for carbon emissions.
Who benefits?
What's worse, developed countries benefit, indirectly, from the financial mechanism proposed to regulate carbon, Madeline Ostrader writes.
"Many of the proposals for financing and regulating climate are designed to earn profits for the same banks that brought the global economy to its knees," she explains. "Goldman Sachs and JPMorgan Chase have been vying for a stake in the global carbon offset trade-a proposed economic model for cutting emissions around the world."
The movement of non-governmental groups and activists fighting to hold rich countries accountable has gained momentum in the past year. If international leaders are ever to move away from these imbalanced agreements, that movement will have to grow and convince a vocal majority of people around the world to support its calls to action. Only then will leaders feel pressure to write stronger, fairer agreements.
This post features links to the best independent, progressive reporting about the environment by members of The Media Consortium. It is free to reprint. Visit the Mulch for a complete list of articles on environmental issues, or follow us on Twitter. And for the best progressive reporting on critical economy, health care and immigration issues, check out The Audit, The Pulse, and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
Undue corporate influence over U.S. elections has been a serious problem in American politics for decades, but this year's Supreme Court ruling in Citizens United v. Federal Election Commission made things worse. Worst of all, we may never know the extent of the damage.
Citizens United freed corporations to spend unlimited amounts of money backing specific political candidates, and without congressional action, those expenditures can be completely anonymous. Major corporations are already capitalizing on the new legal landscape by the millions, and the public doesn't really know who is buying what influence or why.
That's why The Media Consortium will be carefully watching the effects of this ruling in the run up to this year's midterm elections. Every day through Nov. 4, we'll bring you some of the best independent reporting on the effects of corporate spending in an attempt to measure just how widespread the effect of Citizens United will be on this-and the next-election. Keep your eye on "Campaign Cash" as we follow this issue in the coming weeks. If you want to tweet about it, use the hashtag #campaign$.
The impact of Citizens United
As Harvard University Law School Professor Lawrence Lessig explains in an interview with The Nation's Christopher Hayes, the Citizens Unitedv. FEC decision represents one of many ways that corporations buy political favors.
Prior to the ruling, companies couldn't spend money to directly advocate the election of a particular political candidate during election season. They could form Political Action Committees (PACs) to support or attack specific candidates, but those PACs had to be funded by individuals who worked for the company and couldn't be funded from the corporation's treasury directly. The executives of Goldman Sachs, for instance, could band together to form GoldmanPAC and spend their money on whatever candidates they wished-and many corporate employees exercised that right and spent freely on elections through their corporate PACs.
Now corporations can spend as much as they want and actual corporate funds-not just organized individuals-can also be deployed, making massive amounts of corporate cash eligible for political purchasing.
But the scariest part of Citizens United, as Lessig emphasizes, is the money that isn't spent. That is, if a firm makes it known that they are willing spend millions of dollars to fight any politician who opposes them on a particular policy issue, representatives and senators might begin changing their voting behavior in Congress before the company actually has to put up the cash.
And ultimately, Citizens United didn't just legalize unlimited corporate expenses on elections. It also allows those expenses to be anonymous. If companies launder their political cash through a front group, that third-party spender doesn't have to disclose who its donors are.
This isn't your local Chamber of Commerce
As Harry Hanbury details for GRITtv, this laundering scheme is essentially the business model for the U.S. Chamber of Commerce-- a lobbying powerhouse in the nation's capital. Don't be fooled by its name-the U.S. Chamber has almost nothing to do with the local small business coalitions who help strengthen local economies.
As Hanbury notes, 40 percent of the U.S. Chamber's 2008 funding came from just 26 corporations. The group represents many of the nation's largest and most irresponsible corporations, from those responsible for the financial meltdown on Wall Street to BP, the company that spilled millions of barrels worth of oil in the Gulf this summer. The Chamber's branding allows them to disguise their political as a coalition of local businesses while it does dirty work for corporate titans.
When BP was publicly promising to do everything in its power to fix the massive oil disaster it created in the Gulf of Mexico, it was also funneling money to the U.S. Chamber of Commerce. And what was the Chamber up to? It was lobbying furiously to protect BP from new rules that would force the company to pay for oil disaster clean-up. The Wall Street banks did the same thing as financial reform legislation moved through Congress, and companies never have to disclose these expenditures to the public.
So it's no surprise that the Chamber responded to Citizens United by immediately announcing a 40 percent boost in its political spending operations. So much corporate money then flowed into the Chamber that the group chose to boost this budget again by 50 percent, allocating $75 million for its 2010 war chest. So far, the Chamber's ads have favored Republican's 93 percent of the time. No entity spends more on politics than the Chamber-not even the political parties themselves.
Corporations top the list of big election spenders
But while the future of corporate spending in campaigns looks bleak after Citizens United, corporations are still barred from contributing directly to political campaigns. A company might take out a television ad attacking Rep. Alan Grayson (D-FL), but it can't make unlimited contributions directly to Grayson's challenger, Republican Dan Webster.
Nevertheless, corporate employees and company PACs have already been spending lavishly on elections for decades. In a feature for Mother Jones, Dave Gilson compiles the 75 biggest political spenders, both companies and trade groups, from 1989 through 2010, and breaks them down by industry. Goldman Sachs, Citigroup, JPMorgan Chase, and Morgan Stanley are all among the top 20 most extravagant political spenders-but the American Bankers Association, a trade group that all four belong to, is also in the top 10. If you're wondering how Wall Street was able to secure its massive taxpayer bailout in the face of widespread voter outrage, this is your answer.
To soften the Citizens United blow, Congress has been debating the Democracy is Strengthened by Casting Light on Spending in Elections (DISCLOSE) Act, which would require companies to disclose all of their political expenditures as well as requiring front-groups like the Chamber to list the identities and amounts of its donors. The bill, sponsored by Rep. Christopher Van Hollen (D-MD) and Sen. Russ Feingold (D-WI), cleared the House this summer but was stymied by a Republican filibuster in the Senate.
Undoing the damage dealt by Citizens United through something like the DISCLOSE Act will help, but it won't make our democracy totally safe from corporate abuse. As Lessig notes, the day before the decision was handed down, U.S. election financing was already encouraging rampant corruption and in need of serious reform.
Lessig suggests banning political expenditures by corporations altogether, and placing a hard cap on the amount that individuals can contribute. By limiting individual donations to $100, the ability of corporate PACs to funnel cash into the political process would be thwarted.
This post features links to the best independent, progressive reporting about the mid-term elections and campaign financing by members of The Media Consortium. It is free to reprint. Visit The Media Consortium for more articles on these issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Audit, The Mulch, The Pulse, and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
With the Wall Street reform bill finally cleared through Congress, activists and intellectuals are pushing hard to make sure that this bill isn't the last word Congress utters about Big Finance. We need deeper and more robust reforms, but it's also critical to ensure that the new bill is implemented as effectively as possible. Part of that means appointing officials with a proven record as robust reformers-people like Elizabeth Warren.
The good news on the Senate financial reform bill these days is that we have a few provisions worth fighting for. Senator Blanche Lincoln (D-Ark.) has introduced one of the most important - a bold section in the Dodd bank reform bill (Section 106) that will force the biggest banks to spin off their swaps (or derivatives) desks into a separate entity. That entity will be regulated and can remain part of the bank holding company, but it no longer has access to the Federal Reserve's flow of funds, FDIC insurance and the taxpayer guarantee. Supporters include legendary economists and public policy experts such as Robert Reich, Joseph Stiglitz, Nouriel Roubini, and Michael Greenberger.
In one fell swoop, Lincoln's measure will effectively protect taxpayers, downsize the behemoth banks, and end the federal guarantees behind big bank gambling. It's the strongest structural reform measure in the bill. These swaps have previously helped the 5 largest banks grow to mega-size and then take down the country. The 5 of them - J.P. Morgan Chase, Citibank, Bank of America, Goldman Sachs and Morgan Stanley - account for 90 percent of these derivatives. Lincoln's amendment will go right after the deals that Goldman Sachs is now being officially investigated for and Lincoln's language is #1 on their hit list.
But the problem of course is that the Goldman Gang in Congress, like Senators Gregg and Chambliss, are lining up to strip this provision one way or other. They are being aided and abetted by conservative democrats like Indiana Senator Evan Bayh. Watch this smug interview where he talks about his hopes to defeat every good amendment. I, for one, am thrilled that he announced he will be retiring this year.
We have a right to know if our Senators will vote to end the federal funding of the Wall Street casino or vote to take Blanche Lincoln's language out of the bill.
We know what we need to do -- it's time for a whip count and a little push and shove. We need to find out which senators will support real reform and which ones won't. Just follow these three easy steps to make sure Senators work on our behalf. Please make your call today. It takes two minutes to reach out to two Senators.
1. Call (202) 224-3121 and ask for your Senators representing your state.
2. Ask them: "Does Senator XXXX support Blanche Lincoln's proposal for spinning off swap desks?" and you can follow up with something like "I expect my Senator to support the Lincoln language and to reject any amendments that weaken derivatives reform in the bill, such as Senator Gregg's amendment to kill Lincoln's language."
"In my view, banks were never intended to perform these activities, which have been the single largest factor in these institutions growing so large that taxpayers had no choice but to bail them out in order to prevent total economic ruin," says Lincoln.
For those of us trying desperately to wrap our heads around the Security and Exchange Commission’s allegations against Goldman Sachs, the Wall Street Journal’s recent article on the alleged fraud is a real boon. The article is clear and concise (or at least as clear and concise as can be expected when a describing multi-stage transaction that involved more than 500,000 mortgages in 48 states), and, perhaps just as importantly, it frames the events in a way that recognizes that the economic collapse was a fundamentally human event—caused by human greed at the cost of human suffering, and leading to even greater human suffering.
According to the article, the allegations involve a massive bet, booked by Goldman Sachs and placed by hedge fund manager John Paulson, that would pay off if people across the country could not pay their mortgages. He allegedly took a particular interest in adjustable rate subprime loans issued to people with poor credit scores, rightly believing that the people who had taken out these shady mortgages didn’t really understand how big their monthly payments would eventually become. As we all now know, Mr. Paulson was all too right, and he profited to the tune of more than $1 billion as foreclosure rates shot up.
It is irritating but not especially surprising when Goldman Sachs CEO Lloyd Blankfein says things like "they are doing God's work", or claiming that attacking Goldman is "hurting America." I'm sure people like him really believe they are good people just doing their best to help the world economy, in the same way Ayn Rand really believed that selfishness is a virtue and the Gordon Gecko character in Wall Street really believed that greed was good.
What is disturbing is when Obama administration officials like Larry Summers appear to believe it too - or at least believe that these massive mega-banks (the top six controlling assets equal to 63% of our nation's GDP) are needed to keep our economy going. I have been thinking about the Summers quote (given to PBS' Jeffrey Brown) all weekend long:
Brown: The too big to fail issue, why not go further? Why not just limit the size of banks?
Summers: Jeff, that was the approach America took to banking before the depression. That was the approach America took to lending in the thrift sector, before we had the S&L crisis. Most observers who study this believe that to try to break banks up into a lot of little pieces would hurt our ability to serve large companies, and hurt the competitiveness of the United States. But that's not the important issue, they believe that it would actually make us less stable. Because the individual banks would be less diversified, and therefore at greater risk of failing because they wouldn't have profits in one area to turn to when a different area got in trouble. And most observers believe that dealing with the simultaneous failure of many small institutions would actually generate more need for bailouts and reliance on taxpayers than the current economic environment.
It is ironic that this quote is so appalling given that the Obama administration has been showing more steel on taking on Wall Street in some ways, and has been effectively fighting back against Republican efforts to completely neuter the bill in terms of at least some issues. I have also been pleased at Obama's political positioning on the issue, finally showing some populist message talking points on the issue. The Summers quote is awful, though - quite possibly the worst quote I have ever seen from this administration on the banking issue, and that's saying something because there have been lots of disappointing ones. Summers historical references are inaccurate and completely misleading: to imply the reason for the Great Depression and the 1980s S&L fraud crisis were due to the companies being too small is laughable and absurd. In fact, the Great Depression and the S&L crisis, as well as the 2008 financial meltdown, were all caused by the same thing: too little oversight over financial institutions that were too economically and politically powerful.
Summers' further argument is that smaller, less diversified banks would be at greater risk of failure ignores 60 years of successful banking regulation under Glass-Steagall and the other New Deal economic reforms. Even worse, he is essentially arguing that our economy needs massive concentrations of wealth and size in a few big banks in order to prosper, which takes the argument for oligarchy to a logical end point that is as right wing as anything I have ever heard Mitch McConnell argue.
What Summers, Dodd, and apparently the President continue to not get is that massive concentrations of wealth and power - both economic and political - do equally massive amounts of damage over time to both a democracy and to the markets that make our economy function. We can only make markets be markets, as the Roosevelt Institute put it in their outstanding report on financial policy, if the big six banks don't have the ability inherent in their size to distort and dominate the economic system. Simon Johnson's experience as Chief Economist at the IMF taught him this very well: when countries are dominated by a financial oligarchy, their markets become corrupted and their economies can't recover until you break up the oligarchy.
As I wrote the other day, there are some solid policy proposals in both the House and Senate bills. Combining the best of these bills (and getting rid of the crap inserted by industry lobbyists) will give you a decent step forward at rebuilding the regulatory framework shredded over the last two decades. But until you pass legislation similar to the Brown-Kaufman bill to actually break up the banks, we aren't going to solve the problems we face in the financial sector due to too much political and economic power by these mega-banks.
Being the bleeding heart liberal that I am, my heart is really bleeding right now for all the poor oppressed Wall Street mega-bankers who are being blamed (with merely the overwhelming preponderance of evidence) for defrauding their clients and destroying our economy. I am so glad that they, and their sturdy defenders like the group of Republican Congresspeople led by Darrell Issa, are rising up and saying, "We aren't going to take it anymore." I think everyone deserves their day in court (especially these guys, preferably criminal court) and a chance to be heard, and I think everyone deserves a chance to defend themselves, no matter how low-life, greedy, scummy, and immoral they may actually be.
So I'm glad that Goldman Sachs CEO Lloyd Blankfein is doing a lot of complaining these days, and telling people that going against his company is "hurting America." I'm delighted that so many Republicans Congresspeople are still willing to defend Lloyd and his bank executive colleagues- after all, they only control assets worth 63% of the American GDP. I'm pleased that Republican Senators are showing absolutely no shame or embarrassment in meeting with big bank lobbyists behind close doors to plot strategy, and are still happily taking their money. Good for them.
In fact, some of the most blatant financial rip-off artists are even contemplating running for office. Jeff Greene, who CNBC described as "the man who shorted subprime" and became a billionaire in the process of helping wreck the economy, is actually talking about running for Senate in Florida. You have to admire the courage of someone as blatantly sleazy as Greene for considering getting into the political arena after all the damage his financial scheming did to the Florida economy. I hope more of these courageous financial fraud kings enter the political fray, because then their behavior will be front and center in the 2010 elections. God bless them everyone.
The defenders of wealth and power are fighting back because, well, they kind of have to. Their reputations are in the toilet, and their massive political and economic power is being threatened. Legislation like the Brown-Kaufman bill to break up the banks is gaining a head of steam, which would be a profoundly important shift in the banking industry, and dramatically rein in their market power, their political power, and the impact on our overall economy if they failed, making bailouts unneeded in the future.
Readers of mine know I love my history, and this financial reform debate is reminding me increasingly of the biggest debates in American history of banking issues: the Jackson-Biddle battle in the 1830s, the populists and progressive attacks on big banks around the turn of the century a century ago, and FDR's New Deal finally reining in the banks that caused the Great Depression. Simon Johnson noticed the connection as well: check out this great post by him this morning.
Last week, the Securities and Exchange Commission filed fraud charges against Goldman Sachs and underscored what most Americans have believed for some time: Wall Street has rigged the economy in its own favor, and will stop at nothing-not even outright theft-to boost its profits. What's worse, Goldman's scam could have been completely prevented by better regulations and law enforcement.
Goldman's heist
Let's be clear. "Financial fraud" means "theft." Goldman Sachs sold investors securities that were stocked with subprime mortgages and had been cherry-picked by a hedge fund manager named John Paulson. Paulson believed these mortgages were about to go bust, so he helped Goldman Sachs concoct the securities so that he could bet against them himself.
Goldman Sachs, like Paulson, also bet against the securities. But when Goldman sold the securities to investors, it didn't tell them that Paulson had devised the securities, or that he was betting on their failure. By withholding crucial information from investors, Goldman directly profited from the scam at the expense of its own clients. If ordinary citizens did what the SEC's alleges Goldman did, we'd call it stealing.
As Nick Baumann emphasizes for Mother Jones, the SEC's suit against Goldman is just the tip of the iceberg. During the savings and loan crisis of the late 1980s, literally thousands of bankers were jailed for financial fraud. Today's crisis was much larger in scope, yet the Goldman allegations are among the first serious charges of legal wrongdoing to emerge (other complaints have been filed against Regions Bank and former Countrywide CEO Angelo Mozilo). If the SEC or the FBI are doing their jobs, we should see many more of these cases.
Bust 'em up.
How do banks get away with these kinds of shenanigans and still secure epic taxpayer bailouts? It's all about their political clout, as Robert Reich notes for The American Prospect. So long as banks are so enormous that they can ruin the economy with their collapse, the institutions will always carry tremendous political clout.
Even in the case of Goldman Sachs, which is too-big-to-fail by any reasonable standard, the SEC's fraud case is being filed three years after the company's alleged offense. That's well after the company rode to safety on the Troubled Asset Relief Program, the AIG bailout and billions more in other indirect assistance-and only after multiple journalists made Goldman's offensive transactions general public knowledge.
If we don't break up the big banks, politically connected Wall Street titans will make sure they get bailed out when the next crisis hits, regardless of whatever laws we have on the books.
Fix the derivatives casino
If Congress doesn't soon pass a bill to break up behemoth banks, it will be neglecting the gravest problem in our financial system today. But several other reforms are needed if Wall Street is ever going to serve a useful economic function again.
As Nomi Prins emphasizes for AlterNet, much of the Wall Street profit machine has been divorced from the economy that the rest of us live in. These days, banks make most of their money from securities trades and derivatives deals. Their actual lending business is taking a beating. That means big banks have very little incentive to promote economic well-being for every day citizens. We need to create these incentives by banning economically essential banks from engaging in securities trades, and make sure all derivatives transactions are conducted on open, transparent exchanges, just like ordinary stocks and bonds.
Better derivatives regulations could help protect against fraud. If Goldman Sachs' sketchy subprime deal had been subject to market scrutiny on an exchange, it's very unlikely that any investor would have bought into it. Goldman Sachs almost got away with it because the deal was secretive and beyond the scope of most regulatory oversight.
Protect whistleblowers
The Goldman case also raises significant questions about the government's enforcement of existing financial fraud laws. Bradley Birkenfeld, a banker for Swiss financial giant UBS, helped the Department of Justice bring the largest tax fraud case in history against his company, which was helping rich Americans hide money from the IRS in offshore bank accounts.
For his cooperation, Birkenfeld was rewarded with a four-year prison sentence, even though nobody else at UBS-nobody-has been sentenced to prison over the scam. As Juan Gonzalez and Amy Goodman emphasize for Democracy Now!, Birkenfeld's imprisonment could have something to with who exactly is hiding money with UBS.
Gonzalez discusses an interview with Birkenfeld, in which the former banker notes that the bank had a special office to handle the accounts of "politically exposed persons"- American politicians. Moreover, the top brass at UBS includes key advisors to top politicians in both parties. This is exactly the kind of influence smuggling that breaking up the banks would help fix. UBS is a multi-trillion-dollar institution with no less than 27 U.S. subsidiaries.
But protecting Birkenfeld would accomplish still more-by jailing him, the Justice Department is actively discouraging others from coming forward, and making it more difficult for regulators to enforce the law.
Greenspan's failure
It's abundantly clear that almost every major regulatory agency charged with curtailing financial excess failed to prevent the Crash of 2008. But that failure doesn't mean that effective regulation is impossible-it only shows that the regulators in power failed. The top bank regulator in the U.S., John Dugan, was a former bank lobbyist.
As Christopher Hayes demonstrates for The Nation, former Federal Reserve Chairman Alan Greenspan has never had any interest in regulation whatsoever. After the crash, Greenspan insisted that nobody could have seen it coming. But as Hayes notes, many people did-Greenspan simply didn't listen to them. These days, Greenspan is revising his story, claiming that he did in fact see the crisis coming, but that nobody could have prevented it. That is simply not credible.
Hayes draws a useful parallel Hurricane Katrina, a problem sparked by a natural event that became a catastrophe when regulators failed to take the necessary precautions. The lesson from both Katrina and the financial crash is not that government always screws up-we have plenty of examples of government preventing floods and economic calamity. The lesson we should learn is that people who don't believe in government will never do a good job governing. As Hayes notes:
If Greenspan couldn't figure things out, that doesn't mean others can't. In fact, developing systems for doing just that is called-quite simply-progress, and Alan Greenspan continues to be one of its enemies.
That is exactly the task that now presents itself before Congress: Developing a system to prevent and constrain economic destruction wielded by Wall Street. The U.S. had a system that did exactly this for more than fifty years. For the last thrity years, it has been systematically dismantled. How well Congress lives up to that challenge will define much of our economic future for decades to come.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
... Under major league rule 21(d), players, officials and club employees face a one-year suspension for betting on games involving other teams. Those placing wagers on games in which "the bettor has a duty to perform shall be declared permanently ineligible."
... "There is no temptation on this Earth that could ever get me to fix a game. None. End of story," [Pete Rose] wrote. "As out of control as I got with my gambling, I never bet against my own team."
The prohibition against gambling is perhaps baseball's most sacred rule, with the aim of assuring the integrity of competition. ...
... But a curious incident that fateful day raises significant public policy issues. Goldman Sachs reported that its exposure to AIG was "not material." Yet on March 15 of this year, AIG disclosed that it paid $7 billion of its government loan last fall to satisfy obligations to Goldman. A "not material" statement and a $7 billion payout appear to be at odds.
... Thus the "empty creditor": someone (or institution) who may have the contractual control but, by simultaneously holding credit default swaps, little or no economic exposure if the debt goes bad. Indeed, if a creditor holds enough credit default swaps, he may simultaneously have control rights and incentives to cause the debtor firm's value to fall. And if bankruptcy occurs, the empty creditor may undermine proper reorganization, especially if his interests (or non-interests) are not fully disclosed to the bankruptcy court. ...
Baseball holds integrity of outcome and good-faith competition as a sacred value, the banking industry, not so much. The industry's culture of corruption came to the forefront today, as a new report on Lehman Brothers' shady dealings (including "actionable balance sheet manipulation" and "nonculpable errors of business judgment" against which "colorable claims" could be made) under the not-so-watchful eyes of the NY Federal Reserve and Timothy Geithner.
Wall Street's been on a gambling bender with the country's life savings that would make Bill Bennett blush, but without the same level of accountability Pete Rose faced. Because, you know, the integrity of baseball is important to Congress, who believes firmly that professional sports clubs need to be self-policing and set a good example if they want to escape strict scrutiny and sanction.
Anyway, these are the things I think about. I'm going out for a drink now.
Over the past thirty years, Wall Street has waged a steady war against governments around the globe, convincing policymakers of various ideological stripes that whatever raises profits for bankers and traders will be good for the rest of society. It's a very simple and appealing portrait of how the world works. Unfortunately, it's completely wrong.
Profiting from hunger
In an interview with AlterNet's Terrence McNally, economic luminary Raj Patel explains the connection between widespread global poverty and wild Wall Street profits. Markets are defined by a set of rules-if those rules completely disregard social welfare, then the participants in those markets will ignore them as well. When traders can make a quick buck speculating on the price of rice, they will, even if that speculation drives up the price of a basic necessity and makes people go hungry.
We've known this for a long time, but as Patel illustrates, governments have allowed financial bigwigs to rewrite the basic rules of the road so that Wall Street can extract profits from anything-even hunger. That process created several crises in the developing world over the past few decades, and has now ravaged the economies of the United States and Europe. As Patel notes:
By basically gaming the system with regulations -- that they authored -- which encouraged a certain kind of playing fast and loose with the numbers, it was possible through some creative accounting for huge amounts of systematic risk to be kicked off into the future and ignored. And of course when the catastrophic risk was realized, everyone ran for the hills and started demanding public support.
Financial turmoil in Greece
This political sleight-of-hand is demonstrated by the looming fiscal crisis in Greece. As Richard Parker explains for The Nation, Goldman Sachs colluded with prior Greek administrations to hide the nation's fiscal situation from both its own citizens and investors (Parker is an adviser to current Greek Prime Minister George Papandreou). Goldman was not interested in fair play-it was interested in making money off of the Greek government in any way it could. If that meant actively sabotaging the market by hiding important information, well, Goldman didn't care.
First Greece, then ...
Now that this budget façade has been stripped away, Goldman and other investors are now profiting from making things very difficult for Greece. As Matthew Yglesias explains for The American Prospect, the rational, profit-maximizing choices of investors are now actively helping to drive Greece into a default that hurts everyone:
When Greece starts looking shaky, the interest rate it needs to pay on its deficit goes up, which makes the country look even shakier. This cycle can push a vulnerable country into a default situation.
Various Greek administrations clearly bear significant responsibility for the situation. Nobody forced them to get in bed with Goldman Sachs, just as nobody forced U.S. administrations to gut our financial regulatory system. But the problem in Greece is not just a problem for a single Mediterranean nation-there is very real risk that the investor "unease" could spread to Portugal, Ireland, Spain, Italy, and by extension the European Union and the global economy. The bonuses at Goldman Sachs and J.P. Morgan Chase this year were not a sign of renewed strength in the global economy.
Community Security Clubs to the rescue
So if Wall Street can't save us, what can? Our communities could play a significant role, as Andrée Collier Zaleska explains for Yes! Magazine. Zaleska profiles Common Security Clubs in Portland, Boston and Fort Lauderdale to show how people hit hard by the economic downturn are banding together to make ends meet, and organizing for political action.
"[Jared] Gardner, a busy organizer in Portland, launched four CSCs in his church, two of which were comprised almost entirely of unemployed people. By the time his own group had met five times, they were planning tours of local co-housing projects, organizing to fight locally for progressive taxation, and wondering how to bring the rest of their church into the time bank they had created."
Markets are supposed to serve human needs, not the other way around. But Wall Street isn't going to give up its stranglehold on the U.S. political process for nothing. While community-driven efforts are a good start, we need much larger actions and reform to restore balance to the global economy.
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Reps. Ron Paul and Alan Grayson are trying to get the Federal Reserve audited. Last week the House Financial Services Committee passed an amendment to their financial regulatory reform bill that would mandate an audit.
So ... Have any of you heard the name Stephen Friedman, former Chair of Goldman Sachs? While still on the Board of Goldman Sachs he was Chairman of the Federal Reserve Bank of New York. Now there's some independence for you! (Never mind the stuff about buying GS stock after the Fed became their regulator in late 2008, etc.)
I'm just sayin'... one person's "independence" is another person's ... something else. The Fed is not independent of the giants of the financial sector. Of course we want independence so they set interest rates based on sound policy and independent of political considerations. So when do they start doing that?
McClatchy is out with an incredibly important series on Goldman Sachs, the first two parts of which have gone up already, that raises questions about whether Goldman committed securities fraud at a massive level. I am guessing the next three parts of this series are going to be really explosive as well. What Goldman essentially did was to have one big group of their traders, call them Group 1, marketing mortgage securities as triple-A investments, while other traders in the company, call them Group 2, were secretly betting that there would be a steep drop in housing prices, which would mean the values of those securities Group 1 was selling would drop off a cliff. Goldman Sachs was making money coming and going, and it is virtually impossible to believe senior management did not know that the securities they were selling were junk. Now I'm not a securities lawyer but that sure sounds like fraud to me.
Gordon's superbly researched series follows on Matt Taibbi's brilliant Rolling Stone article on Goldman Sachs earlier this year, which walks through many of the same issues. With what Gordon and Taibbi have both been able to document, folks at the DOJ sure ought to be looking at whether criminal charges should be filed against Goldman. And the Obama White House should be coming down on the executives at Goldman Sachs with both feet, hard. This kind of financial manipulation, which has cost public pension funds and other investors many billions of dollars, needs to be stopped, and huge conglomerates like Goldman need to be broken apart. This story is not just a story about simple greed or securities fraud, it's a story about a company that has gotten so big and powerful that it can manipulate markets at will. This story goes to the heart of the recent financial collapse, for which Goldman Sachs deserves a sizable share of the blame. They need to be broken into pieces so that they can't wreak this kind of havoc again. And it sounds increasingly like some of their executives might deserve to go to prison for a long time.
More than 5,000 people are packing the streets of downtown Chicago this morning, chanting, marching and rallying against Big Bankers and financial institutions that have taken taxpayer money and are using it to give big bonuses to CEOs and to lobby against financial reforms that would ensure they don't go back on the public dole.
The crowd is marching to the Sheraton Chicago Hotel & Towers, site of the American Bankers Association meeting, to protest the banking industry's greed and irresponsibility that crippled our economy, leaving millions of workers behind.
After the house of cards they built collapsed, bankers and the financial industry took $700 billion in taxpayer funds for a bailout. But rather than reform their failed practices, they want to go back to business as usual-with the chance of again precipitating another financial collapse and need for taxpayer bailout in coming years.
The great Wall Street Bail Out, TARP and the various programs associated with it, continues to breed deep levels of resentment and cynicism in the American public who footed the bill for rescuing the financial sector in America. The resentment is easy to understand. The fact that there really were no good options left by the time Obama was elected President helps to explain his Administration's actions in that crisis, all taken under duress and incredible pressure with virtually no time for full contemplation let alone careful detailed planning. Those facts do almost nothing though to deal with the publics anger, which repeatedly flares up like a California wild fire facing El Nino winds. Huge Goldman Sachs bonuses and Wells Fargo record profits are merely the latest gale wind gusts. All the while cynicism keeps growing that our government is in bed with giant financial interests writing sweetheart legislation as Valentine Day presents for corporate Sugar Daddies in a ritual that repeats as often and predictably as Groundhog Day in Hollywood.
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