Are we ready yet to educate ourselves about all of the ramifications of the looting of the U.S. citizenry by the rich and well-connected?
What we have:
US “leaders” psychopathically pretend to care about American labor while lying about a real unemployment rate of close to 25% (the so-called “official” rate excludes under-employed and discouraged workers). Along with unemployment, Americans receive policy enabling oligarchs to “legally” hide $20 to $30 trillion in offshore tax havens in a rigged-casino economy designed for “peak inequality.” For comparison, $1 to $3 trillion ends global poverty forever, saving a million children’s lives every month from slow and gruesome death (here, here).
We have escalating and unpayable national debt, a real-inflation rate more than double the stated rate, and because private banks and their admitted privately-owned pinnacle bank, the Fed, create credit/debt for what we use as money, this becomes the literal mother of all conflicts of interest. If the Fed were to deliver its three stated goals of “maximize employment, stable prices, and moderate long-term interest rates,” we have a stunning observation:an honest Fed would at least ask for independent professional cost-benefit analyses to determine if government-created debt-free money and public credit would do better than their ever-increasing and unpayable aggregate debt.
And, as always, please keep in mind, US “leaders” also lie-begat Americans into unlawful Wars of Aggression (in comparison, 11 days of US war cost would pay for all tuition of US college students).
- North Dakota has a public bank for at-cost credit that results in it being the only state with annual increasing surpluses rather than deficits.
- The Big Banks demand public subsidies (so-called “bailouts”) while gambling with over $200 TRILLION in derivatives with the same fraudulent methods as the subprime gambling. They’re not even banks anymore; deriving most of their income from subsidies and apparent market manipulations.
- Without public credit, governments hoard (and gamble) with “rainy day” accounts. The total from all government sources in California from school boards, cities, counties, public services, and the state is a game-changing $8 TRILLION: ~$650,000 of wealth per household that could be released!
Watch Richard D. Wolff's* Economic Update online anytime and read his books, particularly, Capitalism Hits the Fan: The Global Economic Meltdown and What to Do about It . It will spin your head around if you aren't aware of the history of the U.S. concerning the obsessive promulgation of capitalism and why there have been so few real remedies adopted universally for its failings up to and including today's expected (and recurring) crises.
_ _ _ _ _ _ _
By Katrina vanden Heuvel
This week, Washington descends into its annual budget brawl. House Republicans unveiled their plan on Tuesday, with Senate Republicans to follow Wednesday. Their hope is to pass a common budget resolution through both bodies by mid-April. Their incentive is that if — and that is a big if — Republicans in the House and Senate can agree, they can use the process known as “reconciliation” to pass various right-wing passions by majority vote, no filibuster allowed. The House budget plan, for example, calls for repealing Obamacare, partial privatization of Medicare, turning Medicaid and food stamps into block grants for the states, and tax reforms that lower rates and eliminate any taxation on profits reported abroad, turning the rest of the world into a tax haven for multinationals. The president can veto the appropriations bill containing these items, setting up another government shutdown melodrama. This is not the way to run a railroad, much less a government.
Budgets bore and numbers numb, so reporters tend to focus on the politics. The press now is touting the fight between so-called “deficit hawks” and “defense hawks.” The former want to adhere to harsh “sequester” spending limits this year and cut them even further in out years. The latter led by the dyspeptic Sen. John McCain (R-Ariz.) want to blow up sequester limits for the military. But this fight is more bluster than substance.
The House budget plan squares the circle by adding some $94 billion to the military’s “Overseas Contingency Operations Fund” — the money spent on fighting wars abroad — that isn’t counted under sequester limits. The real story of the Republican budget is the triumph of the anti-tax hawks. With few exceptions, Republicans are committed to slashing the basic functions of government and programs that support education, food stamps, energy and R&D to avoid asking corporations or the wealthy to contribute even one more dime in taxes.
(Editor and publisher of the "Nation" magazine, Vanden Heuvel writes a weekly column for "The Post." View Archive)
Too often neglected in this Beltway brawl is the budget alternative offered by the Congressional Progressive Caucus. The fifth annual CPC alternative — “The People’s Budget: A Raise for America” — is about as close to common sense as Congress gets. And it is honest: Its numbers are carefully laid out and add up. It actually says what it would invest in and how it would pay for it.
On the investment side, the CPC expands investments in areas vital to our future. It would rebuild America, modernizing our outmoded infrastructure. It would invest to lead the green industrial revolution that is already forging markets and creating jobs across the globe.
The CPC understands that we must do the basics in education. It would provide pre-K for every child, the most important single reform we can make in education. It calls for increasing investment in our public schools, helping to mitigate the destructive inequality between rich districts and poor. It would provide students with four years of debt-free college education, and pay for renegotiating existing student loans, relieving the burden now crushing an entire generation.
The CPC recognizes that more seniors are facing a retirement crisis. On budget, it would adopt an inflation measure for Social Security that reflects the rising costs seniors face in areas like health care. Off budget, the CPC calls for expanded Social Security benefits, paid for by lifting the income cap on Social Security payroll contributions. No longer would Donald Trump pay a lower rate in Social Security taxes than the police who guard his palaces.
The CPC would also expand the Earned Income Tax Credit and the Child Tax Credit, giving a break to low-wage workers and to parents struggling with the costs of childcare. And needless to say, the CPC would defend Medicare and Medicaid, not privatize it, and strengthen health-care reform, not eliminate it.
The People’s Budget details how to pay for these vital investments while slowly reducing the national debt as a percentage of the economy. The basic theory is to raise revenues by taxing what we want less of and save by cutting spending we can do without.
We now suffer dangerously extreme inequality, so the CPC would increase taxes on those who make $1 million or more. High-frequency trading on Wall Street is dangerously unstable, so the CPC would levy a small tax on speculation to slow it down. CEO pay has soared while workers haven’t shared in the profits they have helped to generate, so the CPC would end the loophole that allows companies to write off obscene bonuses and stock options as a business expense.
Catastrophic climate change is, even according to the Pentagon, a clear and present danger. The CPC budget would levy a carbon tax, allowing the market to allocate carbon reduction. Much of the revenue is devoted to a rebate so that lower-wage families are made whole from the change.
In cutting waste, the CPC turns to where the money is, calling for a relatively modest reduction in military spending over time. It would repeal the ridiculous law that bans Medicare from negotiating bulk discounts on drugs. It would curb insurance company gouging by giving consumers a public option in health care. It would end the pernicious and wasteful subsidies to oil and gas companies.
And it would rescue millions from of the shadow economy with comprehensive immigration reform, saving nearly $200 billion over a decade according to Congressional Budget Office projections.
What the CPC budget shows is what Washington too often suppresses: There is an alternative. We can afford to build a society that reflects the values and priorities of most Americans. We only have to choose to do so. Read more from Katrina vanden Heuvel’s archive.
If you don't know how important Bill Black was to the prosecution of the S&L thieves of the 1990's, you have really missed out on understanding what happened and why in 2008 - forever, and why it looks like it will never end.
And don't forget (please!) that Hillary and Bill Clinton were and still are economic ignoramuses.
Or, alternately, really enjoy witnessing the impoverishment of their voters (and the nation) - and their own enrichment, affording them the pleasure of becoming multi-millionaires and throwing a multi-million dollar wedding for their most precious of all children only a few years after leaving office.
Reading in the essay below about the history of the Greenspan- and Rubin-ites, it's good to keep in mind that the economics lessons they spout come largely from quickly reading the first chapter of an Ayn Rand boredom fest.
They are all little fountainheads of bad economic policy shouting that they are "going Galt" any day now it seems.
Remembering L. William SeidmanLachman is correct about the content of Hormats’ policy positions. But here are the key factors I would urge readers (and potential campaign supporters and voters) to consider that arise from these positions.
April 10, 2015
by William Black | Comments
By William K. Black
Quito: April 9, 2015
The Clintons’ Unlearned Lessons of the Keating Five Meeting
On April 9, 1987, twenty-eight years ago today, my colleagues and I from the Federal Home Loan Bank of San Francisco (FHLBSF) met with five senators at the behest of the most notorious savings and loan (S&L) fraud – Charles Keating. Keating was looting Lincoln Savings through classic “accounting control fraud” techniques.
Our examiners and enforcement investigation led by Anne Sobol (detailed from Litigation Division) had discovered and documented some of Keating’s worst frauds. Keating, desperate to prevent our recommendation that the federal agency place Lincoln Saving into conservators (removing Keating from power), used the five senators to try to pressure us into taking no enforcement action against Lincoln Savings and its officers for the largest violation of rules in the history of our agency.
The agency’s statutory authority to place a state-chartered S&L like Lincoln Savings into conservatorship had lapsed so Bank Board Chairman Edwin Gray could not act on our recommendation until Congress passed legislation restoring our power. The five Senators, of course, would have a great deal to say about whether and when that legislation was passed. Because we refused to give in to their intimidation, the Keating Five helped ensure that the power to remove Keating from power was not passed until after Gray’s term ended – and President Reagan’s cynical secret deal with Speaker of the House James Wright ensured that Reagan would not reappoint Gray.
Gray’s successor, M. Danny Wall, was a Republican political staffer whose boss, Senator Jake Gran, after a single meeting with Keating had his number and refused to ever meet with him again. But the lesson Wall took from seeing Gray reduced to roadkill at the hands of Speaker Wright and the Keating Five was to never block the road when powerful thieves and their political cronies are racing down that road and eager to run you over.
Wall first took the unprecedented step of removing our (the FHLBSF) jurisdiction over Lincoln Savings and gave Keating a sweetheart deal. Wall’s critical, Neville Chamberlain-like order to his senior staff to reach an “amicable resolution” with Keating (which, given Keating, meant “surrender”) occurred immediately after a meeting with Keating. Wall’s meeting with Keating, in turn, occurred immediately after Keating met with Senator Glenn and Speaker Wright. Keating and Wright used their after-lunch meeting to plot how to get me fired and sued. Keating hired private investigators twice that we know of to try to find dirt on me. Fortunately, I live a very Midwestern personal life. Keating eventually sued me for $400 million.
Keating, being Keating, started his meeting with Wall by noting that he had just met with Speaker Wright and Senator Glenn. Keating was capable of being subtle, but he preferred smash mouth football, so his next line, referring to the Speaker, was that “There’s someone you would have much better relationships with if you took care of your red-headed lawyer in San Francisco.” I still had bright red hair (and beard) at that time.
After getting rid (he thought) of the accursed FHLBSF regulators, Wall proceeded to force Joe Selby, the nation’s most respected financial regulator, to resign as our top supervisor for Texas. Selby’s sin was being a vigorous regulator. The Texas frauds targeted him for removal and successfully enlisted Speaker Wright’s enthusiastic support through contributions and by telling Wright that Selby was gay. Bank Board Chairman Gray, who personally recruited Selby and Mike Patriarca because of their reputations as the nation’s best financial regulators, had placed Selby and Patriarca in charge of the two states with the worst fraud problems (Texas and California).
Wall, while still a congressional aide, had urged Gray to fire Selby to placate the Speaker. Gray refused. Wall now publicly took “credit” for forcing Selby to resign or be fired. Within months, Wall had removed or sidelined the nation’s best financial regulators.
Keating’s successful extortion of Wall to remove the FHLBSF’s jurisdiction over Lincoln Savings did not work out well for Wall and the Keating Five for Keating used the sweetheart deal to intensify his looting of Lincoln Savings and its customers which led it to become the most expensive financial institution failure in U.S. history (at what now seems a quaint $3.4 billion), to sell worthless (and uninsured) junk bonds of Lincoln Savings’ insolvent holding company, and to target tens of thousands of widows for those sales.
My extensive notes of the Keating Five meeting led to a Senate ethics investigation of the Keating Five. The Democratic Party Senate Committee colleagues on that investigation spent most of their energy attacking us, the regulators, for the high crime of criticizing Senators for aiding the nation’s most notorious fraud loot the S&L and rip off widows. (Senators Cranston, Riegle, Glenn, and DeConcini were Democrats. Senator McCain was the lone Republican.)
The type of violations we had documented were invariably fatal. Keating had recruited the Keating Five through political contributions and through hiring Alan Greenspan as a lobbyist. Greenspan also served Keating as his outside economist to attempt to prevent the agency from adopting effective regulations to restrain looting by the Keatings of the world. In that capacity Greenspan had famously claimed that Lincoln Savings posed no foreseeable risk of loss to the FSLIC insurance fund. Greenspan was slightly (as in 180º) off as I just explained.
But here’s the thing – given their ages, the lessons of the S&L debacle should have been the formative experiences for everyone involved in the most recent crisis. Wall resigned in disgrace in December 1989 after months of House hearings. The Senate ethics committee hearings on the “Keating Five” took place in 1990 and 1991.
“These [Senate ethics committee] hearings would take place from November 15 through January 16, 1991. They were held in the Hart Senate Office Building‘s largest hearing room.  They were broadcast live in their entirety by C-SPAN, with CNN and the network news programs showing segments of the testimonies.  At the opening of the hearings, as "The Washington Post" would later write, ‘the senators sat dourly alongside one another in a long row, a visual suggestive of co-defendants in a rogues’ docket.’ Overall, McCain would later write, ‘The hearings were a public humiliation.’Greenspan’s role was discussed in both the House and Senate hearings.
The committee reported on the other four senators in February 1991, but delayed its final report on Cranston until November 1991.”
“Progressives” tend to roll their eyes in disgust at the entire “Whitewater” investigation, but two points are worth noting in terms of what the scandal should have taught the Clintons and their appointees. First, James McDougall, the CEO, looted Madison Guaranty through classic accounting control fraud techniques. (He was acquitted by a jury of one series of alleged bank frauds and convicted subsequently of other band frauds.)
James Clark, the Bank Board examiner-in-charge (EIC) of the 1986 examination of Madison Guaranty, testified in front of Congress about McDougall’s domination of the S&L and his massive multiple frauds. Clark’s testimony is devastating.
Second, McDougall’s frauds were made possible by the criminogenic environment created by the three “de’s” – deregulation, desupervision, and de facto decriminalization – and McDougall was brought to book when the regulators and prosecutors learned their lessons and got rid of the three “de’s.” The FSLIC was appointed the conservator for Madison Guaranty in February 1989.
Then first lady Hillary Clinton received substantial adverse publicity about her role not simply as an investor with but also as an attorney for the S&L. She and her husband were publicly humiliated by the sex aspects of the investigation.
Both Clintons, therefore, would logically have come out of the experience with a strong appreciation of how dangerous accounting control frauds are, why bank CEOs pose by far the greatest risk of fraud and do so through accounting fraud techniques (the fraud “recipe” for a lender) that require the lender to intentionally make large numbers of bad loans.
This, in turn, requires the CEO to suborn the underwriting and internal controls. The Clintons should have had an acute appreciation of how critical underwriting is to avoiding banking crises. They observed first hand that the S&L debacle was driven by an epidemic of accounting control fraud.
Bill Clinton announced his candidacy for the Democratic Party’s nomination for President on October 2, 1991 – while the Senate Ethics committee was still wrapping up its investigation of the Keating Five. The S&L debacle was the defining scandal of the Clinton’s era and it was fresh in their minds as they made the run for the nomination and the presidency. We were convicting several hundred banksters and their cronies annually as Clinton prepared to run and actually ran his first campaign for the nomination and the presidency.
The same logic applies to Greenspan. He had to read our examination report and my report on why Lincoln Savings would be a disaster. My report emphasized the key role of its deliberately pathetic underwriting. Similarly, our presentation to the Keating Five emphasized the non-existent nature of Lincoln Savings’ underwriting on multi-million dollar loans. This was reprised in our testimony before the House and the Senate about Keating’s looting of Lincoln Savings.
But we know what the Clintons, their appointees, and Greenspan (originally a Bush I appointee) learned from the S&L debacle – nothing, or worse than nothing. Greenspan told the sycophantic author of Maestro that he would have done, said, and wr(itten) the same things for Keating now that he did then based on the “facts.” I discuss later Greenspan’s actual approach to the “facts.”
Clinton’s Goal: Destroy the “Culture of Regulation”
But the Clintons and their bankster allies learned something far worse – the need to push the three “de’s” to ensure that never again would banksters and their political cronies be prevented from looting “their” banks or be held accountable for their looting. Bill Clinton, in his first major meeting with financial regulators (from the Office of the Comptroller of the Currency (OCC)) as President, chose to make these revealing remarks. One part of government most upset Clinton – the examiners who checked for threats to the safety and soundness of banks and businesses.
“The federal government to many people is not the President of the United States, it’s the person who shows up on the doorstep to check out the bank records, or the safety in the factory, or the integrity of the workplace, or how the nursing home is being run. I believe that we have a serious obligation in this administration to work with the Congress to reduce the burden of regulation and to increase the protection to the public. And we have an obligation on our own to do what we can to change the destructive elements of the culture of regulation that has built up over time….”
The federal examiners that expose the banks, workplaces, and nursing homes that engage in fraud or abuse provide a vital and unique service not only to the public, but also to honest competitors by blocking the “Gresham’s” dynamic that “control fraud” produces (bad ethics drives good ethics out of the markets). Clinton, however, is unaware of this dynamic. This type of regulation does not (net) “burden” honest businesses – it makes it possible for them compete by relieving them of the impossible burden of competing with control frauds.
Clinton sees regulation not as episodically failing, but as the inherently flawed product of a “destructive” “culture of regulation.” He started the process that replaced a “culture of regulation” with what even the anti-regulators now concede is the “culture of corruption” that dominates Wall Street and the City of London.
Clinton then singled out the worst examiners – bank regulators.
“When I was out in New Hampshire in 1992, I heard more grief about the regulation of the private sector by the Comptroller of the Currency than any other single thing. And now every time I go to New England, they say, we’re making money, we’re making loans, and we can function, because we finally got somebody down there in Washington who understands how to have responsible and safe banking regulations, and still promote economic growth. I hear it every time I go up there, and I thank you, sir, for what you’ve done on that. (Applause.)”
Vice-President Gore had already praised the OCC head, Gene Ludwig, for embracing the three “de’s.” Gore was particularly impressed that the bankers’ lobbyists were praising Ludwig. Readers will vary on what they infer from that praise, but Gore thought the only possible inference was that Ludwig’s deregulatory policies were superb. When the bank lobbyists are praising you as a financial regulator you know you are on a path to disaster for the industry and the public. Bank lobbyists do not represent the interests of “banks” or their shareholders. They represent the interests of the banks’ controlling officers and when those CEOs create a culture of corruption the lobbyists will push policies that will make it easy for the CEOs’ to loot “their” banks with impunity through the “sure thing” of accounting control fraud.
Clinton launched an unholy war against effective financial regulation. He began the process, and bragged about, the massive cuts in the FDIC staff that eventually (Bush made it worse) led to the FDIC losing over three-quarters of its total staff and the OTS over half of its staff. FBI agents were reassigned from prosecuting the S&L frauds and such prosecutions largely ended in 1993. Clinton’s “reinventers” ordered us to refer to the industry as our “customer” and to treat them as if they were our “customer.”
Clinton’s reinventers eliminated the most important rule – the underwriting rule. They replaced it with a deliberately unenforceable “guideline” that was exceptionally criminogenic and would greatly intensify the epidemic of liar’s loans. This rule change was actually far more damaging than the more infamous statutory acts of deregulation that B. Clinton, Rubin, and Greenspan pushed in order to essentially repeal the Glass-Steagall Act and pass the Commodities Futures Modernization Act of 2000 to not only kill Brooksley Born’s effort to protect the nation and the world from financial derivatives, but ensure that no regulator in America would have any ability to regulate effectively massive classes of derivatives.
Clinton’s key economic appointees, and Gore, were fervent proponents of the three “de’s.” They came from banking and represented the interests not of banks, but of the banksters. Robert Rubin, the former head of Goldman Sachs and Clinton’s Treasury Secretary exemplified the bankster representing the interests of his peers. In particular, they pushed the global regulatory “race to the bottom” – warning that any effective financial regulation would drive the bankers to relocate to the City of London.
While anyone open to reality would have learned the grave dangers of the three “de’s” and the enormous value of effective regulation, there were three excellent reasons for the Clinton/Gore administration to be closed to reality and to embrace the three “de’s” and the banksters.
First, it is not pleasant to be the subject of a government investigation and a conservatorship for your friend, business partner, and legal client’s S&L. It is perfectly human to react by being enraged at regulators. It was effective banking examiners who stopped McDougall’s frauds, conducted the bulk of the investigations that led to McDougall being convicted, and led to the exposure of the “Whitewater” “scandal.” From the Clintons’ perspective, that represented “Strike One, Strike Two, Strike Three – You’re Out!”
Second, the Clintons and Gore were leaders of the Democratic Leadership Council (DLC). The DLC’s creed was that the three “de’s” were divinely inspired. It was revealing that Clinton chose Gore as his running mate. Gore provided neither geographic nor ideological diversity to the ticket. Clinton did not want ideological diversity. He wanted a loyal junior partner who shared his disdain for regulators.
It would require unusual independence of thought for Clinton and Gore, in their moment of electoral triumph, to say: “we’ve been observing the S&L debacle and thinking hard about its implications for our anti-regulatory policies and we have been forced to conclude that the DLC dogmas we have long championed about the virtues of the three ‘de’s’ are not simply incorrect but dangerous to the nation.” Humans are more likely to do what Clinton and Gore did – religiously ignore the lessons of the S&L debacle and surround themselves with zealous advocates of the three “de’s.”
Third, the DLC had a special place in its heart for big finance. Big finance had the big money to make contributions, but it also had CEOs who were often at least moderate on social issues. These big contributors had been there in the DLC’s corner since its founding in 1985. How likely was it that Clinton and Gore, its two greatest DLC beneficiaries, would turn on big finance in their moment of triumph?
Hillary Clinton Learned the Same Perverse Lessons as Bill about Financial Regulation
I thank Samantha Lachman for her April 9, 2015 column entitled “As Clinton Tries To Win Over Progressives, She Might Want To Distance Herself From This Economic Adviser.” I hope that my column will not seem too harsh, but I feel the need to point out the key ways in which my analysis differs from Lachman’s – each of which adds to her thesis.
Lachman’s column explains that Hillary Clinton chose Robert Hormats as one of her most prominent economic advisors. Lachman points out that Hormats is a rabid deficit (and war) hawk, wants to cut the safety net, supports the faux “free trade” agreements that the Rubin-wing of the Democratic Party constantly seeks to inflict on the nation, and favors aggressive deregulation.
Lachman warns that this will cause progressives to wonder whether they should support H. Clinton. Lachman’s sole substantive argument against Hormats’ support for deregulation is that if she were to adopt his policy recommendations it would inhibit efforts were H. Clinton to be elected to reduce inequality.
“Hormats, who was the undersecretary for economic, energy and environmental affairs from 2009 to 2013, has advocated for the deregulatory approach that was begun by the Reagan administration and continued by former President Bill Clinton. Progressives say this deregulatory strategy contributed to widening income inequality….”
- The problem with Hormats is not that he will upset “progressives.” The problem is that he is incompetent, dishonest, and supports policies that have devastated and will continue to devastate our nation and the people of the world. Hormats has been wrong on every important economic issue – for decades. That should upset everyone regardless of their politics.
The insoluble problem is that every time Hormats’ policies cause a disaster and his dogmas are falsified he doubles-down on his failures. He does so because he is so dogmatic and intellectually dishonest that he refuses to learn from even his most catastrophic mistakes – and because his policy disasters enrich him and his peers – the elite banksters.
The enormous problem with Hormats’ policies is not that his policies “contributed to widening income inequality” (though they did) – but that they blew up the financial system, our nation’s economy, and the global economy.
In the U.S. 9.3 million Americans lost their jobs and roughly six million jobs that would have been created absent the Great Recession were not created. The leading economic estimate is that the U.S. will lose $24 trillion in GDP as a result. The job and GDP losses are far larger in Europe due to the insanity of self-inflicted austerity. If Hormats had been able to secure his desire to inflict austerity on America our job and GDP losses would have at least doubled.
Worse, Hormats’ policies blew up the financial system because they made it so “criminogenic” that it produced the three great fraud epidemics by bankers (appraisal, “liar’s” loans, and secondary market fraud) that hyper-inflated the bubble and caused the catastrophic fraud losses that drove the financial crisis.
Worse still, while he had a front row seat to these fraud epidemics as Goldman Sach’s Vice Chairman, he not only failed to warn the nation about them but encouraged ever more criminogenic heapings of the three “de’s” – deregulation, desupervision, and de facto decriminalization.
And, still worse, Hormats continues to push for those same policies because while they were a catastrophic failure for our nation and the world, they make him and his peers (many of them criminals) immensely wealthy – and will do so in the future when his policies again crush our nation in an orgy of fraud by the banksters.
Hormats doubtless supports (formal) legal civil rights (as opposed to the reality), which makes him a member in good standing of the Rubin-wing of the Democratic Party, but his economic policies are to the right of the UK Tories’ policies that Paul Krugman correctly eviscerates for their economic illiteracy.
I will discuss only two examples of Hormats’ incompetence as an economist, neither of which Lachman explores. First, he championed and aided the “Scandalous Seven.”
- Hormats’ continuing support for the three “de’s” and his support for President Clinton’s reappointment of Alan Greenspan and President Obama’s reappointment of Ben Bernanke to head the Fed.
There are seven U.S. public officials who embraced the three “de’s” and are most culpable for creating and refusing to stop the criminogenic environment that produced the three most destructive epidemics of financial fraud in history.
Those fraud epidemics hyper-inflated the bubbles, drove the financial crisis, and caused the Great Recession. Clinton, Gore, Rubin (with a dishonorable mention to his protégé Larry Summers), Greenspan, President George W. Bush, Bernanke, and Timothy Geithner are the U.S. officials who failed so spectacularly in the run-up to the crisis that they deserve their inclusion on my list of the Scandalous Seven.
I am talking here about the public sector. The elite bankers who led the fraud schemes are even more culpable for they were made wealthy by their fraud schemes.
The terrible thing about the seven officials is that none of them had to be bribed in any overt fashion that could ever lead to even an investigation much less a prosecution. (The finance industry, of course, finds ways to richly reward its political cronies.)
The Scandalous Seven felt wonderful about their actions in creating and then ignoring the criminogenic environment. Like Hormats, their embrace of the three “de’s” was open, not oofurtive. Three of the officials were Republicans and four were from the Rubin-wing of the Democratic Party. Geithner is a special case who became a nominal Rubin-Democrat to get his position as Treasury Secretary in the Obama administration.
Lachman’s discussion of the Hormats’ support for Greenspan and deregulation emphasizes that Greenspan “is loathed by progressives.”
“Similarly, in a discussion of whether former Federal Reserve Chairman Alan Greenspan should be reappointed by then-President George W. Bush, Hormats said Greenspan, who is loathed by progressives, had done ‘a terrific job.’
‘He enjoys respect on both Main Street and Wall Street,’ Hormats said. ‘In short, he’s really been one of the great financial leaders in American history.’
In the same conversation, Hormats argued that while Greenspan had facilitated a positive economic climate, other factors, including deregulation, were also responsible for private sector growth.
‘[Greenspan] has power, but what’s really driving this economy is the dramatic change that’s taking place in the private sector in this country,’ he continued. ‘We’ve had government deregulation, which has held.’”A technical note, Lachman is quoting from an NPR transcript and the audio is no longer available on the web site. I suspect that the last word, “held,” should read “helped.” Lachman does not explain why “progressives” loathe Greenspan – or why such loathing should be limited to “progressives.”
If “progressives” loathe Greenspan for bad reasons then this represents a defect on their part, not a failure by Greenspan or Hormats. In the same interview Lachman is quoting, Robert Reich issued a vibrant endorsement of Greenspan’s reappointment by Clinton that included one of the funniest (unintentional) descriptions of Greenspan: “Alan Greenspan is a pragmatist, an empiricist.” When it came to regulation to stop the fraud epidemics, I show below that Greenspan was still Ayn Rand’s faithful cultist. He was dogmatic and rather than an “empiricist” he religiously refused to allow real data to be presented.
Here are the primary reasons Greenspan (and Bernanke) make my list of the Scandalous Seven.
- The Fed had the unique authority under HOEPA (enacted in 1994 under Clinton) to ban all “liar’s” loans – regardless of whether they were originated by federally insured lenders. As the name implies, such loans were known to be pervasively fraudulent and it was known that lenders and loan brokers overwhelmingly put the lies in liar’s loans.
Greenspan, and then Bernanke, refused to use this authority to stop an obvious, massive epidemic of “accounting control fraud. The FBI’s senior agent in charge of dealing with mortgage fraud, Chris Swecker, warned in September 2004 that there was an “epidemic” of mortgage fraud developing and predicted that it would cause a financial “crisis” – and Greenspan refused to stop the fraud epidemic.
Greenspan’s colleague, Governor Gramlich, warned Greenspan of the developing epidemic of bad loans and urged him to send the Fed examiners in to the sleazy bank holding company affiliates that were pumping out hundreds of thousands of fraudulent loans. Greenspan refused not only to stop the fraudulent loans – he refused to send the examiners in to find the facts.
When Richard Spillenkothen, the Fed’s top supervisor, requested to brief the full Fed board on the fact that every major bank involved with Enron had eagerly aided and abetted Enron’s accounting fraud and tax evasion the senior leadership of the Fed was enraged – at its supervisors! While Spillenkothen does not name individual names, this could not have occurred without Greenspan’s active support.
We realized that only fraudulent CEOs running accounting control frauds would make liar’s loans. Greenspan and Bernanke had no need to reinvent the supervisory wheel and the disastrous loss data on the 1990-1993 experience with liar’s loans was available to them. Banning liar’s loans was one of the easiest calls any regulatory could make. There was zero upside to liar’s loans – they harmed every honest borrower.
The following astonishing fact is revealed (but also buried) well into the report of the Financial Crisis Inquiry Commission (FCIC): “Swecker, the former FBI official, told the Commission he had no contact with banking regulators during his tenure (FCIC 2011: 164, emphasis added). As a former financial regulator I am almost reduced to tears every time I read that sentence.
- Put yourself in the position of Greenspan, Bernanke, Geithner, and Bush – all in office when Swecker made his very public warnings in the media and his Congressional testimony in 2004. There is no possible excuse for their total refusal to act against a crime wave led by elite banksters. Worse, their obscene attacks on supervisors to prevent them from presenting these senior officials with the reality of the three raging fraud epidemics demonstrates that they were not simply cowards unwilling to stop a wave of crime by their powerful cronies. These four officials’ war on the facts was so intense because they knew that if they ever let reality intrude it would falsify their ideological dogmas and render disgraceful their slavish lifetime devotion to the banksters.
- Greenspan also makes the list for his dogmatic position expressed to CFTC Chair Brooksley Born that preventing fraud was never a legitimate basis for regulation.
- The real problem is the Clintons.
Lachman’s focus is on Hormats’ revealed preferences, but the key is that we are observing H. Clinton’s true preference. She picked a known, serial incompetent who was a disaster in his supposed area of expertise (finance) and so dogmatic, intellectually dishonest, and dedicated to the interests of his fellow 1% that he continues to double-down on his failures.
Lachman warns H. Clinton that to curry favor with progressives “She Might Want To Distance Herself From This Economic Adviser.” But that is not what any progressive should want. Progressives (and everyone else) should be demanding that she repudiate, not merely “distance herself from” Hormats’ dogmas. It does nothing good for the world if H. Clinton is able to deceive people by making it appear that she has ditched disastrous deregulatory dogmas by keeping Hormats at a “distance” while she actually maintains those same dogmas.
I got out as a regulator when the “Reinventers” ordered us to refer to the industry we were supposed to regulate as our “customer” – and to treat banks and bankers as if they were “customers.” I personally witnessed this directive, and the administration’s chief goon in charge of its oxymoronic “Reinvention” proudly cites that directive as one of his top accomplishments and prints praise of his supposed bravery in insisting on that directive.
Instead, we had Hormats testifying that July 26, 2007 would be a great time for the U.S. to simultaneously “boost savings at home,” cut safety net payments (Social Security, Medicare, and Medicaid), and return the federal budget to surplus. Each of these actions would have further reduced already inadequate demand and caused the Great Recession to come sooner, be deeper, and last far longer – because that is what austerity does when you add it to a recession.
“Because we know that one of the stated objectives of terrorists is to cause massive disruption in the U.S. economy, such financial vulnerabilities could lead potential perpetrators to feel that they can do a great deal of damage not simply by their initial act, but also because of the secondary and tertiary economic disruptions that would occur because of the subsequent turmoil in a more vulnerable financial environment. In finances as in military affairs, vulnerability frequently invites aggression.”
“Alexander Hamilton recognized from the very beginning that America’s financial strength was vital to its security. If the country did not manage its finances well, he reasoned, it would not have the resources needed to defend itself in time of war and it would lose credibility in the eyes of creditors, making borrowing in time of war or other national emergency all the more difficult.
Over two centuries have passed since Hamilton held office, but these principles are just as relevant today.”
Well, no, not even close. On a more technical detail, his “Red Peril” scenarios assume that the U.S. can only fund itself through issuing bonds. My colleagues have explained in loving detail in NEP why Hormats’ claims demonstrate that he does not understand even the most basic aspects of how money actually works.
I do not demand that Hormats agree with MMT, but he does have to understand the actual operations by which money can be created to be minimally competent in his field. As I explained, one does not make a Rubinite an adviser because one is seeking competence.
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* Richard D. Wolff (born April 1, 1942) is an American heterodox economist, well known for his work on Marxian economics, economic methodology, and class analysis. He is Professor of Economics Emeritus, University of Massachusetts, Amherst, and currently a Visiting Professor in the Graduate Program in International Affairs of the New School University in New York. Wolff has also taught economics at Yale University, City University of New York, University of Utah, University of Paris I (Sorbonne), and The Brecht Forum in New York City. In 2010, Wolff published Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It, also released as a DVD. He released three new books in 2012: Occupy the Economy: Challenging Capitalism, with David Barsamian (San Francisco: City Lights Books), Contending Economic Theories: Neoclassical, Keynesian, and Marxian, with Stephen Resnick (Cambridge, MA, and London: MIT University Press), and Democracy at Work (Chicago: Haymarket Books).
Wolff hosts the weekly hour-long radio program Economic Update on WBAI, 99.5 FM, New York City (Pacifica Radio) and is featured regularly in television, print, and internet media. The New York Times Magazine has named him "America's most prominent Marxist economist." Wolff lives in Manhattan with his wife and frequent collaborator, Dr. Harriet Fraad, a practicing psychotherapist.
. . . "[E]verything you expect about how the world works probably will be changed in your life, that unexpected things happen, often tragic things happen, and being flexible, being aware of a whole range of different things that happen in the world, is not just a good idea as a thinking person, but it’s crucial to your survival. So, for me, I grew up convinced that understanding the political and economic environment I lived in was an urgent matter that had to be done, and made me a little different from many of my fellow kids in school who didn’t have that sense of the urgency of understanding how the world worked to be able to navigate an unstable and often dangerous world. That was a very important lesson for me."
Wolff's father was acquainted with Max Horkheimer. Wolff earned a BA magna cum laude in history from Harvard in 1963 and moved on to Stanford — he attained a MA in economics in 1964 — to study with Paul A. Baran.
Baran died prematurely from a heart attack in 1964 and Wolff transferred to Yale University, where he received a MA in economics in 1966, MA in history in 1967, and a PhD in economics in 1969. As a graduate student at Yale, Wolff worked as an instructor. His dissertation, "The Economics of Colonialism: Brita\\
in and Kenya," was eventually published in book form in 1974.
Don’t Let The Bastards Getcha Down
The American Deep State
The Destruction of the World Trade Center: Why the Official Account Cannot Be True