The criminals among us on Wall Street

Posted on February 10th, 2011 in Economy by Robert Miller

The Hedge Fund

In yesterday’s New York Times, I slipped past the top fold article on new strategies for breast cancer lumpectomies and the article on the swelling protests in Egypt and settled down below the fold to learn more about the unfolding cases against Wall Street brokers and hedge fund investors who have committed fraud through insider trading. Writers Peter Lattman and Azam Ahmed described investigations into insider trading on Wall Street, with special emphasis on hedge funds. These Federal investigations got started with the arrest in October 2009 of Raj Rajaratnam, the billionaire co-founder of the Galleon Group and the most prominent hedge fund executive charged with insider trading. An apparently extensive network of hedge funds and “expert network firms” have been collaborating over many years to provide inside information on technology firms that was then used as guidance for investment strategies by the hedge funds. Very prominent hedge funds have been implicated so far and the investigation is still early. Preet Bharara, the United States attorney in Manhattan, has so far charged 46 people with insider trading, 29 of whom have pleaded guilty. In addition, at least eight associates of expert network firms have been charged. Based on what’s been uncovered so far, the process might be more efficient to arrest them all and let those out that can prove their innocence. How about filling our prisons with Wall Street criminals rather then drug offenders?

At a news conference this past  Tuesday, Mr. Bharara denounced the prevalence and magnitude of illegal trading on Wall Street. Given the scope of his investigations, he said that “we are not talking simply about the occasional corrupt individual; we are talking about something verging on a corrupt business model, for the defendants seem to have taken the concept of social networking and turned it into a criminal enterprise.” So when these crooks are at work, the quick changes in stock values created by hedge fund investors who know about new innovations or announcements in advance, the stock goes up and robs the average investor of an opportunity for capital gains through conventional buying. This means that the average stock investor, who invests through more legitimate and traditional methods, loses some percentage of his/her stock portfolio, taken away by the deeply flawed and criminally infected practice of insider trading. That is the reason that many of us gave up trying to invest directly in the stock market and I personally have no confidence that this level of criminality has been changed by a small number of arrests or indictments. I have read previous reports that indicate insider trading is widespread–it’s a deeply ingrained culture: when an announcement of a new high tech product is made, suggesting increased profitability down the road, the stock consistently goes up several days before the announcement, generally indicating insider trading. During the dot com buildup before the crash, it was not possible for the average investor to buy a new internet stock when it first came out (whose value usually reached orbital heights before coming back down to earth), because all the shares had been acquired in advance of open trading. Mr. Bharara has referred to the insider trading on Wall Street as “rampant.” At least with Las Vegas you know you are going to lose. With Wall Street you have the illusion you are going to make money. That’s why I sobered up after being hit hard by the dot com bubble and got a financial adviser who has a longitudinal view of my investments.

The Securities and Exchange Commission (S.E.C.) has recently brought charges against three fund managers and an analyst, accusing them of reaping more than $30 million in profits from trading on confidential information provided to them by insiders at companies including Seagate Technology and Fairchild Semiconductor. “Expert network firms” are formed by people within publicly traded hi-tech companies and other technology experts who are willing to share inside knowledge of company secrets, as they knowingly participate in illegal insider trading. But, when everyone does it, as Wall Street seems to do, no one thinks that anything is amiss. Wall Street is awash with this behavior and one has the impression that Mr. Bharara’s investigation has barely scratched the surface of revealing the criminal greed and corruption on Wall Street. I hope that we begin to see Wall Street executives removed from the offices in handcuffs and keep a public tally about who they are and what they’ve done. We are not talking about a few rotten apples here–we are talking about a completely corrupt system. I find it odd that the Tea Party has been appalled by “Obamacare” and refer to it as “socialized medicine,” but fail to recognize that our bailout policies for investment banking firms have given these banks socialism through “too big to fail;” they get the profits while the taxpayers pony up to cover the losses. Meanwhile, the rest of us have to live with the ordinary form of toxic American capitalism.

RFM

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Ronald Reagan as a candidate for the worst American President in history

Posted on February 8th, 2011 in Politics by Robert Miller

Ronald Reagan

In this, the 100th anniversary of Ronald Reagan’s birth, we have already been deluged, in a single day (his birthday was February 6, 1911), to more detestable hyperbole of his life, governorship and presidency, than any human should be asked to endure, even if such distortions were spread out over a duration lasting several millenia. We can’t deny that Ronald Reagan was a brilliant politician, who was recruited and brain-washed for service into the Republican Army by General Electric, as he carried out their bidding and served as possibly the worst president in American history. In the past, I have given that award to GW Bush, but as I explain below, the policies Reagan put in place have finally settled in and become more pervasively economic than those of GW, whose main contribution was to give us a “Security State.” Reagan’s mentor at GE was Lemuel Boulware, who helped convert him from an FDR Democrat (Reagan voted for FDR all four times he ran), to a conservative Republican willing to do the bidding of General Electric and serve other corporatist interests. Perhaps he was grateful to someone who paid him at a time when his acting career had come to an end (he worked for GE from 1954 to 1962, when he became governor of California). For the Republicans, he was a good figurehead president that could be counted on to promote their program and be true to the corporate plan; I still wonder today if Reagan really understood the degree to which he was intellectually abused by the Republican mantra and the corporatist interests he faithfully  served. His famous quip “government is not the solution, it’s the problem” caught the attention of many Americans, including the former governor of Minnesota, Tim Pawlenty, who hopes to replace Reagan as the banner carrier for outrageously destructive, right-wing policies. Pawlenty’s main contribution to Minnesota was to turn Minnesota into Mississippi and I think he got the state about half way down the river. Reagan’s presidency was not as viciously destructive as that of GW Bush’s, but it had a far more devastating, long-term impact on our lives, our system of government and our national economy. Reagan served to convert our nation from a country that once had decent equality of wages, with a vibrant middle class, to the current form of our socioeconomic order that includes a marginalized middle class and hoards of homeless people living in abject poverty. I did not know about homeless people in America until Reagan came into office. Then I began to see them in every city I visited.  Reagan hand delivered our once vibrant economy into the destructive hands of a plutocracy made up of a few ruling elites, who have no interest in stabilizing our economy or our future: these ruling elites, who hide behind the masks of corporate behavior, wouldn’t even know what a healthy, equitable society looked like, let alone know how to generate one. But, they all pray at the alter of Ronald Reagan, a convenient resting place for the mindless. Individually, the people that make up these corporations may seem like very nice people, though they are extraordinarily naive about things like the environment and the costs their corporations shift to public spending. But since a corporation is not a person and has no innate sense of ethics, under the banner of the corporation, immensely destructive behavior is perpetrated on the public and tramples on our values. The development of the multinational corporation has moved

Lemuel Boulware

them away from the boundaries of effective control by a single government.

Before Reagan took office and drastically cut the income taxes to produce huge Federal deficits and more wealth for the wealthy, the United States was the biggest creditor nation in the world. When Reagan was finished, we had become the biggest debtor nation in the world and we continue to borrow to finance our wars and tax cuts for the wealthy–he showed us how to do that too.  How is it possible, given Reagan’s impact on our economy, to even think about electing Republicans? Shouldn’t we have a constitutional amendment banning the Republican party and Reaganomics as one which endangers our future and places doubt on the survival of our species?

Ronald Reagan’s objective as president, was to destroy the New Deal of FDR. He commenced his presidency by waging war on labor unions and putting the country on a trajectory where today, the lowest number of Americans are represented by a union contract, compared to any time since the 1930s. Unions are historically vital to our economic equality because they serve to even out the score between increases in productivity, due to worker efficiencies, and a just increase in worker wages, which have now fallen far behind the long-term gains in productivity. When union representation retreated, corporate heads were increasingly concerned about a golden parachute  for themselves as they abandoned the concept of the gold watch for their employees. Downsizing the corporation is now so commonplace that people in their fifties expect to lose their job and are guaranteed of not finding a suitable replacement. If we had more and stronger labor unions, the income gap that exists today, would never have developed. And yes, stronger unions would have helped create an environment where companies cannot move at the drop of a hat to China or some other low wage country. That decision, like it is in Europe today, would be more broadly distributed through unions, government and weaker corporations.

Reagan also significantly reduced Federal support for programs that provided things like healthcare for poor people and he began the cultural wars of pitting the middle class against one another on issues like creationism, abortion and gay rights. The reductions he imposed on Federal programs led, among other things, to a significant rise in infant mortality, especially in the inner cities,  an outcome created when pregnant women could no longer access prenatal care. Today, the United States ranks 33rd among all nations in the infant mortality rate. Isn’t that a sobering number for the wealthiest country in the world? It is especially grievous because it is very easy to significantly reduce this number, through proper prenatal care.

I have written before on the Presidency of Ronald Reagan and Reaganomics in more than one posting and I will surely write about him again. There are many other sides to Ronald Reagan’s policies besides the domestic ones and each of them is an equally sad indictment of his presidency. Once Reagan was elected, the great civic and public works projects, like the Interstate Highway system under Eisenhower, the Apollo project under Kennedy and the Civil Rights legislation and War on Poverty under Johnson–those kinds of projects ceased and Reagan instead chose his militaristic “Star Wars” missile defense program to highlight his administration, which did little for the country’s future and did virtually nothing for bringing down the Soviet Union (the Soviets actually spent less on defense after Reagan announced his star wars initiative which you can read about in one of Chalmers Johnson’s books). Military spending may add something to consumption and does produce jobs, but these are not the kinds of jobs or the kind of industry that generates a multiplicative economic growth, leading to a broader, more innovative economy (just what kind of spinoff do you get when you design a cluster bomb? Improved fire works?). Today, thanks to Reagan, we are a far more militaristic country than we were under previous presidencies. Missile defense is still alive as a program which no one wants to identify by its proper terms: missile defense is in reality an offensive weapons system. Duh!

Reagan also created a disastrous foreign policy in other spheres, not just those related to his unneeded acceleration of the Cold War and his ruinous policies on our domestic tranquility. He also went to war against a small South American country–Nicaragua, because he didn’t like the leftist government that the Sandinistas had legitimately established after overthrowing the brutal dictator Somoza. I would invite you to read about Greg Palast’s experience in witnessing the effects of Reagan’s war and economic embargo on Nicaragua when Palast was in the country. The Iran-Contra scandal under Reagan was an example gross of  violation of Federal law. For his assault on our constitutional form of government and his knowledge and perhaps direction for the Iran-Contra scandal, Reagan should have been impeached and thrown out of office for violating laws passed by Congress. An investigation into the Iran-Contra scandal led to charges against many of Reagan’s appointees were charged violating Federal statutes and/or perjury; fourteen members of his administration were charged, including the infamous Oliver North and Casper Weinberger, Secretary of Defense. North was convicted, but his conviction was overturned on appeal. Casper Weinberger was pardoned by Bush I. Reagan has also stacked the Federal courts with judges who are steadfast supporters of deregulation; we are still living with many of his judicial appointments.

Reagan sewed the seeds of destruction of a more equitable American economy and helped to establish the imbalance that now imperils our future growth and stability as a democratic society. The giant corporate wealth and power he helped to set in motion now robs us of free choice and the political capacity to shape our future and improve the lives of our children. I was deeply disturbed by his Presidency when it began: if he made some people feel good at one time, they should all be feeling pretty terrible right now, since we can, if we are willing to look at history objectively,  fully appreciate how much of the economic crisis of today actually got started when Reagan first assumed the presidency and set his policies in motion. Reaganomics gave us a terrible recession soon after Reagan took office (the supply side economic theory, the idea that taxation policy entirely controls our economic growth, served as the basis of Reagan’s drastic reduction in income taxes, which in turn ignited the severe recession of the early 1980s–because the supply side theory didn’t work–cutting taxes cut Federal revenues dramatically and the interest rates skyrocketed).  In fact, the unemployment level  during the Reagan recession (which the Republicans tried to blame on Jimmy Carter) was higher than what we are experiencing today (10.8 percent). His policies of deregulation led directly to the Savings and Loan scandal, which soaked ordinary tax payers for bailout money (~ $130 billion). Until Reagan began to dismantle the New Deal, our recessions were minimalized by the New Deal policies and the regulatory functions of government installed under FDR. But, since Reagan took office, we have seen the economic crises not only increase in frequency, but increase in severity, until today, we find ourselves in a crisis rivaling that of the Great Depression. Never before in any recession have I personally known individuals who lost their jobs or were foreclosed on their homes. Now I know many such people. What the news doesn’t adequately report is the fact that this recession we are in has reached deeply into the middle class, leaving many of them broke and without income. In reality, we have been in a recession since the dot com recession of 2001. Yet, despite the overwhelming connection of this cause and effect, we are confronted with a group of citizens, such as those in the Tea Party of today, who eulogize Ronald and Nancy Reagan in a way that seems like serious case of denial pathology. Apparently making Americans feel good is better than formulating policies that provide good paying jobs and give balance to wealth distribution in a society. I understand that Mercedes Benz factory workers in Alabama are paid half the rate that German workers get for the same work. Isn’t this a true reversal of fortune? That is the essence of capitalism–especially the form that Reagan helped to develop–the toxic capitalism that destroys unions, marginalizes wages of workers and then moves on to another country where labor is even cheaper.

Many historians who debate the similarity between the Roman Empire of the ancient world and the American Empire of today, coalesce behind the idea that one feature in particular was shared by both empires, included the perception that their only concern was the country or city in which they lived, coupled with complete ignorance about the world outside, but it was the world that they wanted to dominate. Don’t you find it odd that a country intent on dominating the world is so ignorant about the nature of what it is they want to dominate? Well, they are not the same people are they? That is, the would be “dominators” are different than the dodo citizens who can’t locate the Atlantic ocean on a map. And who was it that decided on this “option” for dominance by America. Only now, with events like the massive demonstrations in Egypt, are we beginning to wake up to a world that has changed without us really knowing anything about what it was like before the changes began. Surely we have reached the low point in our ignorance. But I’m sure the Tea Party can show us a lower bar for stupidity and the inability to face reality.

Americans have a way of assimilating bad presidents and absorbing their errors in judgment and their bad policies. But Ronald Reagan was a president whose errors cannot be absorbed, as he gave us an irreversible demarcation point in our history, one which has forced us backwards as a society, slowly unraveling the layers we had generated which favored social and economic justice on a much broader scale than what we have today. In the 19th and 20th Centuries, we were steadily marching towards improved social and economic conditions and better opportunities for education and improvements in our lives. Before the current recession, the policies of the Bush administration, based on the ideas of Reaganomics (Bush’s plan was to exactly reproduce Reagan’s presidency, as he began with significant tax cuts, especially for the wealthy and huge deficits as part of “kill the beast” approach to government) had pushed us many steps further but in the same direction as what Reagan had induced. Through Bush, we generated a new Gilded Age of the 21st Century, that led directly to our current economic crisis. The element that confronts us today is perhaps the biggest challenge we have ever faced as a society–that of dealing with giant, multinational  corporations, the entities that Ronald Reagan favored and to which he gave such a boost, just as if he was still employed by General Electric. Our courts have ruled that corporations are essentially people and entitled to the privileges of the 14th Amendment of our constitution and now they can contribute unlimited funds to campaigns. Armed with new options for contributing to political campaigns, corporate power will be flexing its substantial wealth in the election of 2012, while the mythology of Ronald Reagan continues to propagate itself until we say enough is enough and begin to look more objectively at his achievements. Not only is the Reagan cupboard bare, but there are a lot of things missing.

A bad President is one whose implemented policies places the country into a more perilous future. That is what Ronald Reagan, Reaganism and Reaganomics have done to America and, as we see the fresh bloom of new corporate greed spill out into actions like the privatization of the world’s water supply, we can appreciate the threat that these changes have imposed on our future. But, they can all be gone in a minute. If each state simply nullified their corporate contract, they would be without license to operate in the states that rejected their rights to operate . That would get the CEO fired and force his/her replacement to renegotiate the license. Just a few such examples like that would bring the ruling corporate elite back to the real world and help restore society to a pathway of sanity.

RFM

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The Arab World is on fire

Posted on February 5th, 2011 in Culture,Politics by Robert Miller

A demonstrator shouts during a protest at the Egyptian embassy in London, January 29, 2011 (Reuters/Paul Hackett)

At a time when NASA’s scientists, using the Kepler satellite, have reported 1235 new planets (54 of which have orbital distances from their suns, such that they could support water and perhaps some form of life), we find that the very planet on which we stand is on fire, at least that’s the summary offered by al-Jazeera. It’s a fire that we are powerless to extinguish, even though that was the first choice of the Obama administration. We are strangely drawn to the conflict as if somehow we are cheering for the formation of a democratic society, like the one we left behind in favor of our current plutocracy:  our internal lust for the Egyptian  street affair, is further enhanced when we listen to the articulate young people in Tahrir Square, who express a passion for freedom and democracy, shouting “I will never be afraid again,” or “we want what you have.”  Nicholas Kristof of the NYT tells many touching stories of heroes in the streets of this early, fascinating revolution. But, the Egyptian revolution is on a yo-yo string. This massive, initially peaceful demonstration, which has seemingly toppled Mubarak, got ugly this week, as Mubarak’s thugs, financed by American aid, took to the streets with clubs and guns in an attempt to crush the rebellion that momentarily lost its innocence and flower power. I think we find the push for Democracy in the Middle East, especially the process going on in Egypt, to be enlightening and stimulating, and more invigorating than looking for Paris Hilton–as if this new found interest resonates with a primitive passion we buried long ago, when we decided against aiding the developing world, and instead chose to dominate it. The demonstrations supporting the Egyptian movement have spread throughout the world and seem to offer the substance of what will be required to form an international labor union (figure is from Reuters of a London demonstration at the Egyptian embassy).

We refer to Mubarak as an ally against terrorism, yet the reality is that he has been a brutal dictator in a country with widespread poverty and diminished expectations–until a few weeks ago.  As if we had forgotten what democracy looks like in its early iteration, we are hoping that Egypt shows us the road again, which is something we rarely tolerate, with the exception of Israel. So we are hoping the Egyptians do it right and give a lasting lesson on how it’s done: we forgot (of course our revolution for democracy was born in war and began with slavery embedded in our constitution).

To give you some idea about where our current popularity  in the Middle East stands, the Brookings Institute published a poll last year of Arabs: only 10 percent of those polled agree with Washington and Western commentators that Iran is a threat. In contrast, they regard the U.S. and Israel as the major threats (77 percent; 88 percent) to the region. So hostile is Arab opinion towards Washington’s policies that 57 percent think regional security would be improved if Iran had nuclear weapons.

As William Pfaff writes, in all likelihood, the events of the last three weeks “have ended the era of American/Israeli dominance and intimidation of the Middle East.” Pfaff further illustrates the problem that Israel confronts: “The Israeli calculation today is that if “Mubarak goes” (which is usually stated as “If America lets Mubarak go”), Egypt goes. If Tunisia goes (same elaboration), Morocco and Algeria go. Turkey has already gone (for which the Israelis have only themselves to blame). Syria is gone (in part because Israel wanted to cut it off from Sea of Galilee water access). Gaza has gone to Hamas, and the Palestine Authority might soon be gone too (to Hamas?). That leaves Israel amidst the ruins of a policy of military domination of the region.” The difference between America and Israel, is that we change sides at the drop of a hat, as we always attempt to triangulate in order to maintain American hegemony (we prefer to support the winners, but only after we are sure they have won). In contrast, Israel has aligned itself as a country surrounded by enemies and with Mubarak presumably gone, Israel views its surrounds as a group of growing, uniformly hostile nations. Israel now has to look to America to solve its new problem of being surrounded by more independent neighbors. Yet one can imagine that if Israel can merely solve its problems with the Palestinians, without trying to take their land and water away, they might find themselves in the enviable position of not having to worry so much about their security, by discovering that, unlike themselves and their American partners, other people don’t really like war and are willing to go to great lengths to avoid it.

Noam Chomsky writes of the pattern we have engaged in to support brutal dictators right up to the last moments of their rule and then, when the end is clearly known, we switch sides to support “the good guys.” As Chomsky writes “That is a standard pattern: Ferdinand Marcos, Jean-Claude Duvalier, Chun Doo Hwan, Suharto and many other useful gangsters. It may be under way in the case of Hosni Mubarak, along with routine efforts to try to ensure that a successor regime will not veer far from the approved path.” Of course this behavioral pattern of supporting dictators over democratic reformers, or even overthrowing governments to install one more favorable to our hegemonic view of the world, must be disguised and advertised as “supporting democracy” strictly for our own public consumption, and it seems to work. In the case of the Middle East, this behavior has been successfully implemented from before the close of WW II, when FDR agreed with the Saudis to provide military protection in exchange for oil, as we also have the coerced the region to favor Israel as a protected state. That all seems to be unraveling now, but is freedom and democracy in the Middle East bad for anyone?

Perhaps the one good thing about financially supporting and training the Egyptian army, is that our financing of the organization means they depend on us for their paychecks and we might finally use this ace to advance the cause of democracy in Egypt. Who knows, but with the turn of a card, we might begin to see the flip side of our foreign policy in which we actually begin to think about supporting democratic reforms in those countries where we previously wanted hegemonic dictatorships. If this turns out favorably for Obama, he can thank Wikileaks and Assange for revealing the accepted competency and integrity of our diplomatic officers. Quoting from the Chomsky article in Truthdig, ” “America should give Assange a medal,” says a headline in the Financial Times. Chief foreign-policy analyst Gideon Rachman writes that “America’s foreign policy comes across as principled, intelligent and pragmatic … the public position taken by the U.S. on any given issue is usually the private position as well.”” So there you have it: Wikileaks, denounced in America as a tool for evil purposes, may well turn out to be a means by which our President achieves a second term and an event which begins to get the American public believing once again that its government can do some things quite well. What a hoot!

RFM

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