Mike Kueber's Blog

October 12, 2011

An agenda for the Occupy Wall Street movement

Most of the media, especially the conservative media, have been critical of the Occupy Wall Street movement because it does not have an articulated list of complaints.  The tradition for such a list goes way back – all the way to The Declaration of Independence:

  • When in the Course of human Events, it becomes necessary for one People to dissolve
    the Political Bands which have connected them with another… a decent Respect to the Opinions of Mankind requires that they should declare the causes which impel them to the Separation
    .”

Matt Taibbi, a writer for Rolling Stone who penned one of the best books on the financial meltdown, recently mingled with the growing throngs in Manhattan and gleaned from them five principal principles:

  1. Break up the monopolies.  By this Matt means breaking up the companies that are too big to
    fail.  This makes perfect sense.  America can’t rely on capitalism to regulate these companies when the companies are able to operate without worrying about being too aggressive because of the government’s implicit guarantee of the companies’ bets.
  2. Pay for your own bailouts.  Matt suggests a tax of 0.1% on all stock/bond transactions. This tax, which I’ve never before heard proposed, would raise enough money to repay America for the 2008 Wall Street bailout and at the same time discourage high-frequency trading.  I’ve never been a fan of day trading, so I am intrigued be this tax.
  3. No public money for private lobbying.  The courts are loath to allow restrictions on lobbying, so it might be difficult to structure this restriction in a way that survives judicial challenge, but conceptually I think this is a promising idea.
  4. Fully tax hedge-fund gamblers.  I recently wrote that I have never heard anyone make a reasonable argument in favor of birthright citizenship.  Similarly, I have never heard any reasonable argument in favor of a bargain tax rate of 15% for “carried interest.”  A Pulitzer Prize should be awarded to any journalist who does the investigative research to identify the crooked politicians who created this loophole.
  5. Change the way bankers are paid.  Eliminate up-front bonuses in favor of bonuses that can’t be redeemed for a few years.  This will force recipients to consider long-term prospects more than short-term prospects.

Matt’s proposals are excellent starting points.  Some of them are obviously contrary to conservative, capitalistic principles.  But I think our government needs to operate in a more pragmatic, less ideological fashion.  Let’s not be afraid to try something just because it doesn’t fit in with the conservative or liberal orthodoxy.  America doesn’t have pure capitalism, and it is counter-productive to pretend that we do.

June 27, 2011

The myth of Michelle Bachmann

My regular drinking buddy KB is a quintessential conservative who fashions himself a libertarian.  His patron saint of politics is Michelle Bachmann, and he never tires of reminding people that she was a tax attorney who raised 23 kids before getting into the dirty, corrupt world of politics.  By way of contrast, the evil Barack Obama had a mysterious academic existence that sandwiched his brief stint as a community organizer.

Earlier this week, I read part of an article by muckraker Matt Taibbi in Rolling Stone magazine that fleshed out Bachmann’s biography.  According to Taibbi, Bachman  graduated from a fourth-tier law school before working for the IRS for five years before deciding to stay at home with her four kids.  Then she decided to be a foster parent for  young girls, being limited to no more than three girls at a time.  According to Taibbi, the current pay for such services in $47 a day per child.

Although Bachmann’s biography is unquestionably noteworthy, it appears to have been embellished.  Literally, she was a tax attorney, but she appears to have worked as an  underling at the IRS.  After graduation from UT law school in 1979, I considered applying to work for the IRS (where I had worked as a file clerk for two years during law school), but didn’t apply because they indicated that they want applicants who were in the top 25% of their class or female or minority.  I’m not sure which qualified Michelle.  Wouldn’t it be ironic if she were an affirmative-action beneficiary, like Obama.

Regarding the kids, Taibbi reports that Michelle had her foster kids for as little as a few months to as long as more than a year.  This makes it questionable whether she “raised them,” as she asserts.

At the end of the move, “The Man Who Shot Liberty Valance,” a reporter states that when the legend conflicts with the facts, print the legend.  I suspect Michelle is counting  on that, but in the world of modern politics, that is no longer true.  Barack Obama did work as a community organizer, and in the scheme of things, that is more impressive than Michelle Bachmann working as a tax lawyer working for the IRS.  She has no real-life business experience and is ill-prepared to lead this country.

December 4, 2010

Sunday book review #3 – Griftopia by Matt Taibbi

I recently blogged about a decade-in-review article in Time magazine that suggested dysfunctional government in America had become “of the feckless, by the crooked, for the connected.”  (2000: A Nation Divided, by David Von Drehle.)  That description perfectly encapsulates Matt Taibbi’s view of America presented in Griftopia, subtitled Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America

Although Taibbi is clearly a liberal, he is not a partisan because he thinks both parties are tools controlled by the financial industry and other fat cats.  Although his thinking is not original, his description is:

  • “If American politics made any sense at all, we wouldn’t have two giant political parties roughly equal in size perpetually fighting over the same 5-10 percent swatch of undecided voters, blues versus reds.  Instead, the parties should be broken down into haves and have-nots – a couple of obnoxious bankers on the Upper East Side running for office against 280 million pissed-off credit card and mortgage customers….  The insurmountable hurdle for so-called populist movements is having the nerve to attack the rich instead of the poor.”

This political philosophy coincides with my previously expressed view that, if the Republican Party (or the Tea Party) wants to represent the working class, it should refuse to be led by or sponsored by American aristocrats.

Taibbi provides an interesting explanation for why Americans care so much about elections even though they realize that elections don’t fundamentally change anything:

  • “But why it’s so important to them is one of the great unexplored mysteries of our time.  [That’s a bit of an overstatement, I think.]  It’s a mystery rooted in the central, horrifying truth about our national politics.  Which is this: none of it really matters to us.  The presidential election is a drama that we Americans have learned to wholly consume as entertainment, divorced completely from any expectations about concrete changes in our own lives.  For the vast majority of people who follow national elections in this country, the payoff they’re looking for when they campaign for this or that political figure is that warm and fuzzy feeling you get when the home team wins the big game.  Or, more important, when a hated rival loses.  Their stake in the electoral game isn’t a citizen’s interest, but a rooting interest.”

That makes sense to me.

For those of you, like me, who don’t recall the beginning of the Tea Party, Taibbi reports that it was started on February 20, 2009 by CNBC’s Rick Santelli in response to Obama’s proposed $75 billion program to help those faced with foreclosure.  Santelli railed against the proposal for rewarding the irresponsible.  Instead it should “reward people that could carry the water instead of drink the water.”  Later he asked rhetorically, “How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills?”  And finally, he said, “We’re thinking of having a Chicago Tea Party in July.  All you capitalists that want to show up to Lake Michigan, I’m gonna start organizing.”  Taibbi thinks Santelli’s “rant” was significant because it provided “those already pissed-off viewers with a place to focus their anger away from the financial services industry, and away from the genuinely bipartisan effort to subsidize Wall Street.” 

Taibbi goes on to say that this was a matter of racial politics – “Santelli’s rant fostered the illusion that the crisis was caused by poor people, which in this country usually conjures a vision of minorities, no matter how many poor white people there are, borrowing too much house.  It was classic race politics – the plantation owner keeping the seemingly inevitable pitchfork out of his abdomen by pitting the poor whites against poor blacks.  And it worked big-time.”  I agree with Taibbi that this political tactic divided people in this country, but I don’t think it was a racial divide.  Rather, it was a classical political divide between the self-reliant/responsible and the dependent/irresponsible.  

The body of the book begins with a chapter titled, “The Biggest Asshole in the World.”  I was surprised to learn that this person was Alan Greenspan.  I was even more surprised to learn that Greenspan’s greatest flaw was that he was a disciple of Ayn Rand:

  • attending meetings at Rand’s apartment with a circle of like-minded intellectual jerk-offs….”
  • One of the defining characteristics of Rand’s clique was its absolutist ideas about good and evil, expressed in wildly off-putting, uncompromisingly bombastic rhetoric that almost certainly bled downward to the group ranks from its Russian émigré leader, who might have been one of the most humor-deprived people ever to walk the earth.”
  • Rand’s book, Atlas Shrugged, for instance, remains a towering monument to humanity’s capacity for unrestrained self-pity – it’s a bizarre and incredibly long-winded piece of aristocratic paranoia in which a group of Randian supermen decide to break off from the rest of society and form a pure free-market utopia, and naturally the parasitic lower classes immediately drown in their own laziness and ineptitude.”  [Having recently read Atlas Shrugged, I understand Taibbi’s description, but disagree with it.  Atlas Shrugged is about the parasites vs. the productive, not the aristocrats vs. the lower classes.]

Although I found the extensive discussion of Ayn Rand, her philosophy of objectivism, and Atlas Shrugged interesting, I’m not sure what they have to do with America as a Griftopia?  As Taibbi noted, Rand’s clique opposed the concept of a Federal Reserve, yet Greenspan became its chairmen.  As Greenspan’s career progressed, his actions were dictated, not by any definable economic philosophy such as Rand’s, but rather by his willingness to do whatever is necessary to facilitate massive Wall Street profits, which inevitably leads to a bubble bursting, at which time government moves in to bail out Wall Street.  In fact, late in her life Rand appeared to recognize that Greenspan was not faithful to her economic philosophy – “I think that Alan basically is a social climber.”

You might remember that Greenspan had one significant lapse from being a bubble facilitator when in December 1996 he warned about “irrational exuberance” in the stock market.  According to Taibbi, this warning caused such dismay with his Wall Street patrons, “Greenspan spent much of the next four years recoiling from his own warning, turning himself all the way around to become head cheerleader to the madness.”  In January of 2000 Greenspan seemed to have convinced himself that the dot.com bubble, which was about to burst, was not a bubble:

  • “When we look back at the 1990s, from the perspective of say 2010, the nature of forces currently in train will have presumably become clearer.  We may conceivably conclude from that vantage point that, at the turn of the millennium, the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity… at a pace not seen in generations, if ever.”

The preceding is not an isolated incident where Greenspan was utterly wrong.  Taibbi provides several other examples.  Taibbi also credits Greenspan with finagling the repeal of the Glass-Steagall Act, which had prohibited insurance companies, investment banks, and commercial banks from merging.  To effect the repeal, Congress passed the Gramm-Leach-Bliley Act, which played a large role in the 2007-2008 financial meltdown

Taibbi concluded his discussion of Greenspan by ineffectively trying to associate his conduct with Ayn Rand’s philosophy:

  • “He raised a generation of Wall Street bankers who under his tutelage molded themselves in the image of Randian supermen, pursuing a mantra of personal profit with pure religious zeal….  Greenspan staked the scam, printing trillions upon trillions of dollars to goad Americans into playing a series of games they were doomed from the start to lose to the dealer….  He probably did this just because he wanted his face on magazine covers and be popular at certain Upper East Side cocktail parties.  His private hang-ups in this way shaped the entire scam of modern American politics: a pure free market for the suckers, golden parachutes for the Atlases.”

The preceding may be an accurate portrayal of Greenspan, but it is a totally inaccurate reference to Rand’s supermen and Atlases, and thus it damages Taibbi’s credibility. 

The next chapter in Griftopia, titled “Hot Potato,” describes the subprime mortgage mess (i.e., any mortgage with a FICO of less than 660) and the subsequent financial meltdown.  Taibbi shows how virtually everyone involved, from the mortgage brokers to Wall Street CEOs, knew that the mortgages and associated financial instruments were doomed to go bad, but there were huge profits to be made so long as the “hot potatoes” were passed to someone else before they went bad.  The only people who didn’t know how toxic the mortgages were – the rating agencies and the companies like AIG that issued the credit-default swaps. 

AIG comes off particularly stupid.  Not only did their Financial Products division sell billions of dollars of credit-default swaps (essentially mortgage insurance without the legal requirement to maintain any capital reserves), but their Asset Management division bought billions of dollars of toxic residential-mortgage-backed securities.  This resulted in AIG holding more than their fair share of hot potatoes when the bubble burst.  Eventually, the federal government bailed out AIG, which was then able to honor its credit-default swaps to Goldman Sachs and others.  The federal government also provided direct relief to the Wall Street banks holding hot potatoes through the Troubled Asset Relief Program.  And finally, the Fed provided billions of cheap dollars through the Temporary Liquidity Guarantee Program.  The moral of the story – inflate the bubble, make huge short-term profits, and look to the federal government for relief if anything bad happens.

 The next chapter, titled “Blowout – the commodity bubble” concerns a bubble that has not been adequately covered by the media.  According to Taibbi, the commodity bubble of 2008 (especially oil prices) was caused by Wall Street beginning in 2005 to aggressively sell commodity-index futures.  Historically, this practice had been severely limited by the Commodity Futures Trading Commission (CFTC) because futures trading was supposed to be conducted primarily by physical hedgers (those who actually produced or consumed the commodity), while speculative hedgers were allowed to participate only to the extent necessary to produce liquidity, usually limited to 20% of commodity-market activity.  Unfortunately, the CTFC provided speculation exemptions to Goldman Sachs and others, and their speculation eventually generated over 80% of the commodity-market activity.  The inevitable bubble included oil selling for $149 a barrel and gas for $4 a gallon.  Although the bursting of this bubble did not require a government bailout, the bubble itself did great damage:

  • “Bubbles like the one we saw in 2008 are only one-half of the oil-price scam.  Because taking your money through the indirect taxation of high energy and food prices … is only half the job.  What these clowns did with all that cash they siphoned from you … is the other end of the story.”

The “other end of the story” is a chapter titled, “The Outsourced Highway.”  This is a story that I had not previously heard of.  Yes, I have a friend who opposes toll roads for San Antonio, and he mentioned that the roads would be managed by a foreign-owned company.  I thought his reference of foreign ownership was xenophobia on his part, but I didn’t realize that the sale of American infrastructure (parking meters, toll roads, airports, parking garages) was being conducted on a large scale by Wall Street on behalf of cash-strapped governmental entities to oil-rich foreign entities.  In this chapter, Taibbi describes the city of Chicago selling a 75-year lease of its parking meters to a domestic entity for more than $1 billion, but after the sale the ultimate owners turned out to be heavily from Abu Dhabi.  The main problem with these sales is that the city is giving up long-term revenue to address short-term budget problems.  Back home in North Dakota, that’s called “eating your seed corn.”  What makes the problem particularly irritating for Taibbi is that Wall Street’s commodity bubble caused the oil-rich countries to reap obscene amounts of money, and they are now using that money to buy America’s infrastructure for long-term assured profits.    

The next chapter, titled “The Trillion-Dollar Band-Aid,” concerns ObamaCare.  According to Taibbi, ObamaCare was the result of a political party (the Democrats) that felt compelled to pass anything that could be called healthcare reform.  To accomplish this, Obama sold out not only to various swing-vote Senators at $100 million a pop (Nelson, Landrieu, Inouye, Dodd, and Lieberman), but more importantly he sold out to the healthcare industry, with sweetheart deals and continued anti-trust protection:

  • It was almost a perfect example of politics in the Bubble Era, where the time horizon for anyone with real power is always close to zero, long-term thinking is an alien concept, and even the most massive and ambitious undertakings are motivated entirely by short-term rewards.”

The villain in The Trillion-Dollar Band-Aid was not Wall Street.  Rather it was crooked politicians controlled by moneyed interests.  But Wall Street returned with a vengeance in the final chapter, titled “The Great American Bubble Machine,” a/k/a Goldman Sachs.  According to Taibbi, Goldman Sachs at one time had a relatively good reputation for solid ethics and long-term thinking – so-called “long-term greedy.”  That changed, however, in the late 1990s when it saw the obscene profits that could be reaped by inflating the dot.com bubble.  Goldman was at the forefront of underwriting IPOs on unprofitable companies by misleading and even defrauding investors.  Taibbi characterized this new bank as follows:

  • “The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on earth, pure profit for rich individuals.”

To put salt on any wound caused by Goldman Sachs, Taibbi reported that in 2008, the bank paid $10 billion in compensation and made a profit of over $2 billion, but paid less than $14 million in taxes (less than 1%) because it moved its money around the world in such a way that most of its earnings took place in foreign countries with low tax rates.  Texas Congressman Lloyd Doggett noted, “With the right hand begging for bailout money, the left is hiding it offshore.”

As you may have noticed in the previous quotes, Taibbi likes to use earthy, colorful descriptions of people and companies.  As a hater of politically-correct anything, I find the following language entertaining:

  • The Tea Party puts forward “some of the most egregiously stupid morons on our great green earth.  By rallying behind dingbats like Palin and Michelle Bachmann….  Bachmann is the perfect symbol of the Dumb and Dumber approach to high finance.”
  • A loose definition of the Tea Party might be fifteen million pissed-off white people chasing after Mexicans on Medicaid by the small handful of banks and investment companies who advertise on Fox and CNBC.”
  • The Westchester housing settlement – “a classic example of dizzy left-wing meddling mixed with socially meaningless legal grifting that enriches opportunistic lawyers with an eye for low-hanging fruit.”
  • The right-wing teabagger crowd….  Meanwhile the castrated left wing….”
  • “Lloyd Blankfein proved to be jaw-droppingly obnoxious douchebags who made you want to drive a fist through your TV set.”

So, is American government “of the people, by the people, for the people”?  Taibbi concludes Griftopia with the following not so sanguine conclusion:

We have voters who don’t pay attention, a news media that either ignores key subjects or willfully misunderstands them, and a regulatory environment that bends easily to lobbying and campaign financing efforts.  And we’ve got a superpower’s worth of accumulated wealth that is still there for the taking.  You put all that together, and what you get is a thieves’ paradise – a Griftopia.

Although Taibbi seems excessively cynical, I am reluctant to reject his notions about Wall Street greed.  There could be something there, so I need to do some more reading.  I am not reluctant, however, to accept Taibbi’s opinion regarding corrupted politicians.  They need to be replaced by politicians with integrity.  I hope Taibbi has underestimated American voters.