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October 26, 2009

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It is American as American can be. We have a long history of taking -- just ask Spain, France, Mexico, any central or south American country, Canada, any of the 500 native tribes, Haiti, the Philipines, Cuba, Dominican Republic, Granada, etc. etc. etc. If there is a way to profit at someone's else expense, an American will figure out a way to do it.

The most stunning part of Michael Moore's "Capitalism" movie was the revelation of a 2005 Citibank internal report on the global economy. It was stunning not for its contents, which would come as no surprise to anyone paying a modicum of attention, but for its brazenness. The report declared that the U.S, UK, and Canada are now "plutonomies" - meaning that their economies are so controlled by the wealthy top 1% that the serf's don't even matter. It went on to outline "risks" to the glorious New Gilded Era, which were mostly the fact that the peasants can still vote and that workers may start demanding protectionism.

Broken record here;

If Americans are not clamoring for change, it hasn't gotten bad enough yet. My view of our history is that we have a consistent habit of changing only at (or after) the last minute.

Jon, and others, need to keep talking about it so we'll have some choices when the lazy majority finally sees it time for real change.

The irony here is that when change comes politically, it's likely to drive this nation even further to the right. Unemployment won't get better anytime soon, so the party out of power benefits - even if that party's dogma and policies caused the problem in the first place.

We are deeply deluded as a nation but there's a reason for that. The right made a project out of capturing the media. In the process, they managed to even slur the idea of empirical reality. Now, journalism is a dying profession and newspapers will be entirely gone in a few years. It's not likely that democracy, degraded as it is, will survive the right's stranglehold on the electronic media.

The liberal project has to involve the idea of a civic antidote to concentrated power and wealth. Only government can serve as a vehicle here. As our national crisis worsens, the argument will make itself. How this message breaks through the wall of right-wing noise remains to be seen. But it will be made. It has to.

Mr. Talton's post is a superior commentary, even for a writer who habitually exceeds the average competence by a wide margin. The reader comments thus far are also perceptive. It is thus difficult to improve upon.

What about corporate governance? Or, simply put, what in the world has the board of directors been doing to discharge their responsibilities for oversight?

Ken Dayton was one of Target's progenitors, who wrote extensively about his concerns for corporate governance. He almost always saw coming events in a clearer light than his Ivy League educated peers.

Cronies, toadies and empty suits have graced the pages of our Fortune 500 annual reports. And where is their accountability? Where are the class action suits?

One point which I wished to develop, simply by way of concurrence (though I lacked the online time to do so yesterday evening) involves this important detail from an Associated Press article headlined "Next Asset Bubble Could Come Sooner Than You Think":

"Over the last 30 years, the value of financial assets — such as stocks, bonds and bank deposits — grew to be four times larger than annual global gross domestic product. . . . Mckinsey Global Institute estimates this measure of wealth peaked at $194 trillion in 2007. And while it fell back to $178 trillion at the end of last year, it is still dramatically larger than the $43 trillion in 1990 or the $94 trillion in 2000."

http://www.google.com/hostednews/ap/article/ALeqM5gKP6ISKbUaLQd0nINgrgqrOSqr2wD9B75BN81

Financiers will counter that such funds provide "much needed liquidity"; but even financiers should be prepared to admit at some point that financial liquidity, so far in excess of anything that could be supported by investment in the productive global economy, must necessarily constitute excess liquidity; and the growth of such funds, via compound interest and similar mechanisms, far outstrips the growth of the productive global economy.

It's important -- in fact, critical -- to remember this, because to those for whom the question "How much is enough?" has no satisfactory answer, idle money must always be used to make more money. A reserve of idle money four times in excess of the world's productive economy cannot be invested in economic production: therefore it must be invested in speculation, except in dire times when the comparatively low returns of government bonds and cash deposits are acceptable. Such speculative ventures serve primarily to multiply financial wealth over and above productive economic activity; and what is this except a source of funds whose flow swells investor bubbles?

In recent years such funds, flowing in great, inexorable waves, went first to inflate the dot com bubble of the 1990s and then the real-estate and oil-futures bubbles of the 2000s.

Inevitably then, with economic recovery, such funds must seek outlet in similar speculation.

At present, bank lending, which formerly was driven by real-estate speculation (and the equity based underwriting of consumer credit which derived from it) has little outlet in traditional lending, since consumers are over-leveraged and markets which might otherwise increase the equity positions of consumers, such as housing, are collapsed; and regular corporate loans currently constitute only about 15 percent of bank lending, "with large corporations bypassing the banking sector to raise huge sums in the bond markets"; while commercial real-estate loans, another mainstay of traditional banks, have also tanked.

http://online.wsj.com/article/SB125530562684479215.html

So, investment banks (e.g., Goldman Sachs) which have the cash reserves (thanks to the bailout) and the legal flexibility to invest in the junk bond market, are once again profitable.

Commercial banks, faced with the prospect of continuing foreclosure losses and the unappealing option of repeating recent loose-lending mistakes at the bottom of a recession, sit on their cash reserves while attempting to make money from predatory fee increases on credit cards and other financial services, insofar as the current regulatory environment permits this (e.g., prior to new legislative start dates).

The broader, more systemic problem remains: where will the tidal wave of global excess liquidity flow next, and which economic shores will be flooded as a result?

Obviously, limited legislation aimed at individual banker compensation in that portion of the domestic (U.S.) sector which has received but has yet to pay back TARP funds, is inadequate to address this problem.

Note, however, that even a tiny tax on wealth, or even financial trading, on the order of 1/1000 of 1 percent, could raise large pools of funds for critical international projects such as carbon emissions reduction. Just 1/1000 of 1 percent of $178 trillion, for example, would raise $178 billion (U.S. dollars). A unitary (1 percent) surtax would raise a nearly unimaginable (by government standards) $1.78 trillion.

Ideally, such a tax would be internationally coordinated, so as to maintain a level playing field which does not drive capital out of one country and into others thereby.

If a side effect of such a tax would be to decrease excess liquidity and the speculative bubbles which are inflated by it, then well and good.

In any case, some mechanism must be created whereby not only excess global liquidity, but the growth of such liquidity (far outpacing productive economic growth) threatens to undermine the global economy with either bubbles and subsequent collapses (with recession/depression) or else to feed inflation as the beneficiaries of this paper wealth seek to spend some unsustainable portion of it on the purchase of actual goods and services.

A shameful correction: $178 billion is 1/1000 of $178 trillion (U.S. measure), not "1/1000 of 1 percent" as I erroneously wrote.

Speaking of Austin Powers type errors of magnitude, allow me to apologize to general Rogue Columnist readers for the following "secret message" (the first and hopefully the last):

"Dear Mr. Bob's Big Boy: Sorry you were spooked. The book isn't nearly so scary as you seemed to imagine, if you will only research the title. It doesn't really matter if so-and-so is pictured on the cover."

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