Deadly Democracy: Lancet Study Confirms Millions Died From Capitalist "Shock Therapy"

The world has become so inured to mass death, perhaps the following will merit little comment or outrage among our political punditry, even if the story did make the back pages of the New York Times. A new Lancet study, "Mass privatisation and the post-communist mortality crisis," confirms what has been known but little discussed in the past eight to ten years: millions of people, mostly men of employment age, died as a result of the effects of the "shock therapy" transition from a collectivized to a privatized economy in Russia and other formerly "communist" states in East Europe. According to the Times article, by 2007 "the life expectancy of Russian men was less than 60 years, compared with 67 years in 1985." Back in 2001, a UNICEF-IRC study had already claimed 3.2 million unnecessary deaths due to capitalist restoration. The Lancet study cites other figures, with up to "10 million missing men because of system change." As a result, adult mortality rates soared, up almost 13% in Russia, with much of the increase attributable to the mass unemployment that followed the collapse in state enterprises. The study noted, "the Russian population lost nearly 5 years of life expectancy between 1991 and 1994." Other factors affecting the disastrous increase in the death rate included poor health care, rising HIV rates, higher alcoholism and drug addiction rates, as well as the effects of acute psychosocial stress, massive corruption, impoverishment, rising social inequalities, and social disorganization. The effects of neo-liberal "shock therapy" on Russia and other East European countries (Russia being the hardest hit) were also felt by the children of the region. According to the UNICEF-IRC study noted above, tuberculosis rates rose by 50%; 150,000 children were added to the public care rolls (while overall population was dropping by millions); there were high levels of child malnutrition, and the number of children under age 5 fell by one-third. This was not just a jolt of "shock therapy," it was a social tsunami that devastated the region. According to the Lancet, the more rapid the rate of privatization, the higher the death rate.

Radical free-market advisers argued that capitalist transition needed to occur as rapidly as possible. The prescribed policy was called shock therapy, with three major elements: liberalisation of prices and trade to allow markets to re-allocate resources, stabilisation programmes to suppress inflation, and mass privatisation of state-owned enterprises to create appropriate incentives. When implemented simultaneously, these elements would cause an irreversible shift to a market-based economy.... Although a direct cause and effect relation cannot be ascertained and a detailed discussion of their roles is beyond the scope of this Article, all these findings can be linked, in some way, to mass privatisation programmes.

As the U.S. economy teeters on the edge of free-fall, due to the unbridled policies of financial deregulation, and an evisceration of the tax base through so-called "trickle-down" economics with its massive tax cuts to the very rich, we should all ponder, with awe and great sadness, the final denouement of the Cold War, with its frenzy of capitalist restorationist policies in the old Soviet Union, and the tremendous human cost it involved. It is also important in understanding where Russia is politically today, i.e., what were the social circumstances that produced the Putin regime. Ever since the contrived Georgia-South Ossetia conflict last summer, it has appeared that the military-industrial complex of the U.S. is looking to find new "enemies," should the public taste for the "Global War on Terror" lessen with an Obama administration, and fatigue over the fruitless and largely fictional "hunt" for Osama bin Laden and the crimes and disasters of the wars in Iraq and Afghanistan. Perhaps most of all, the sheer horror of the loss of life, the human tragedy of the return of "democracy" (in its free enterprise garb) to the former Soviet Union, is what we need to ponder. The truth behind the privatization policies of economists like Harvard-educated Jeffrey Sachs -- now head of the Earth Institute at Columbia University -- has been hidden for years now behind glibly optimistic statements of economic progress in now-capitalist Russia. Take for examine this summary of a 1997 article in the Journal of Comparative Economics on "Bank privitization in post-communist Russia", typical of the way the changes in Russia have been reported by the dominant social and educational Western elite:

The privatization of Zhilsotsbank of Russia demonstrates that the process of privatization can contribute to the eradication of the government's role in the corporate governance of banks. Incumbent bank managers obtained control rights over new private banks following Zhilsotsbank's decentralized privatization. The swift eradication of government from direct ownership of numerous banks, combined with broad licensing rules, has enabled the Russian banking industry to be over 75% private. Mosbusinessbank, a big commercial bank formed from 26 Zhilsotsbank branches, is one of the most profitable banks the old state banking system has produced.

There is not a word on the social cost of this increased profitability. In fact, the social disaster in Russia due to privatization and the restoration of capitalism in Russia is barely known or understood in the U.S., outside a sense that gangsterism was increased thereby. The truth about world history since the end of World War II has largely been kept from the U.S. population, e.g. the recruitment of Nazi war criminals into U.S. government research programs, including the intelligence agencies, the mass murders in the 100,000s by U.S. allies in Korea (with U.S. connivance), the budget of U.S. intelligence agencies and the extent of the latter's covert actions around the globe, and the CIA's mind control project with its enlistment of top levels of social, medical and psychological personnel throughout the 1950s-1970s, and the secret medical experiments upon these programs involved. The level of trust in what the U.S. government says is very low right now, thanks to the crimes of the Bush administration. The incoming Obama administration is sending mixed messages about what it intends as regards the past record of the United States. On one hand, the Obama people promise an open government and transparency; on the other hand, Obama himself says he intends to look forward and not backwards when it comes to former administration crimes, applying this standard even to such crimes as torture. As we consider the pressing need to hold the U.S. to account, no matter what administration is in power, we might reflect upon the famous words of Nobel Prize-winning author William Faulkner: "The past is never dead. It's not even past." Shakespeare made essentially the same point hundreds of years earlier: "What’s past is prologue."

AIG Scandal: America Wakes Up To Extent of Capitalist Thievery

The news that AIG executives were to receive hundreds of millions of dollars in bonuses (maybe as high as $450 million!), even after a $170 billion dollar bailout, has fueled a populist revolt not seen since the initial shock of the economic crisis hit Americans last October. When Obama Treasury Secretary Timothy Geithner told American Insurance Group CEO, Edward M. Liddy, that government loans to AIG might be renegotiated as a result, Liddy responded with "grave concern" over the firm's ability to retain "talented staff."

Talented in rip-off, that is. But former New York governor and supposed scourge of Wall Street, Elliot Spitzer, is reporting over at Slate that the outrage in the media over the bonuses is a diversion. (H/T Inky99 at Daily Kos.) Not that they aren't an outrage, the scandal misses the larger crime: the siphoning off of billions of taxpayer dollars to a handful of companies, who insured their highly risky investments with AIG. These companies have received hundreds of billions of dollars in bailout money. Now they are to receive 100% on the dollar reimbursement for their losses from AIG. Spitzer comments:

The payments to AIG's counterparties are justified with an appeal to the sanctity of contract. If AIG's contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse.

But wait a moment, aren't we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won't be laid off. Why can't Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, and aren't they sitting on more than $100 billion in cash?....

The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.

No reason? No explanation? But there is always a reason. Always an explanation, though Spitzer may not want to go there.

Private ownership of the wealth and capital, freed of most regulatory restraints, is the distal cause, while the proprietors of this capital have gone on an orgy of thievery that may have never been seen in the history of civilization, outside of a world war.

Consider the new TALP plan ("Term Asset-Backed Securities Loan Facility"), which bobswern has dissected so well over at Daily Kos (bold in original).

1.) $2 trillion in taxpayer funds with no salary restrictions to recipients....
2.) Shadow Bankers get almost all of their investment money for free, from you. [Shadow bankers consist of "non-bank financial institutions that, like banks, borrow short, and in liquid forms, and lend or invest long in less liquid assets... via the use of credit derivative instruments which allow them to evade normal banking regulations," e.g., hedge funds, investment banks, "structured investment vehicles," etc.]
3.) Shadow bankers will skim administrative fees off the top of $2 trillion, first.
4.) Government has virtually no say in terms of regulating what these entities must do with the money once they give it to them. [And on and on...]

Congress has responded to constituent anger, and hearings are being held even today (see liveblogging of those hearings by Emptywheel over at FDL). But while more details will leak out, it's unlikely we will see much more than the spectacle of what Chris Floyd describes as "faux shock in the Beltway over Wall Street fat cats paying themselves big bonuses with the free money that Washington knowingly gave them."

The following points will never be mentioned:

... the capitalist class is a definite concrete group composed of those who own and have a monopoly over the means of production (including loanable capital). The capitalist class is bound together by innumerable personal, familial and organizational filiations; the atomized non-capitalist entrepreneur -—the central figure of bourgeois economic theory -— is a fiction. The capacity to borrow is strictly limited by one’s ownership of the capital assets required for security against loans. In reality, credit under capitalism is always rationed, on the basis of specific monopoly complexes involving financial, industrial and commercial capitalists.

The ingrown nature of the capitalist class, who has united to unleash a frenzy of greed and stealing, is no better illustrated than by the biography of Obama's Treasury Secretary Geithner. Born to a scion of the capitalist class -- his father was a prominent leader of the Ford Foundation -- Geithner's early career (after attending the best Ivy League schools) was working for Kissinger and Associates in Washington, D.C. He began working for various divisions of the Treasury Department as early as 1988, when he was 27 years old. He was close to two former Treasury secretaries, Robert Rubin and Lawrence Summers. During the George W years he worked at the Council of Foreign Relations and the International Monetary Fund. In October 2003, he became president of the Federal Reserve Bank of New York, and a few years later joined the elite, Rockefeller Foundation organized "Group of Thirty."

In March 2008, he arranged the rescue and sale of Bear Stearns... in the same year, he is believed to have played a pivotal role in both the decision to bail out AIG as well as the government decision not to save Lehman Brothers from bankruptcy.

Hmmm... the same guy who organized the AIG bailout, with its non-regulation of monies, including millions for "bonuses" to the same execs who helped manufacture the crisis... naw, that can't be true, can it? (It is.)

Oh, and he "forgot" to pay $35,000 in self-employment taxes over several years.

AIG and the CIA

Another strange aspect of the AIG affair, and one with which to end this post, concerns AIG's links to the CIA, another aspect of the entire scandal that seems to have escaped the mainstream press, if not the bulk of the blogosphere.

From CorpWatch:

Though it is an American company listed on the New York Stock Exchange, AIG makes extensive use of offshore jurisdictions such as Barbados, Bermuda and Luxembourg that are immune from U.S. regulatory and tax scrutiny. They help the company launder profits to evade U.S. taxes and hide insider connections in supposedly "arms-length" deals. This is especially important as the company has moved into financial services and asset management, handling the wealth of “high net-worth” clients -- the mega-rich.

[Board Chairman Maurice] Greenberg has enviable political clout, never so much in evidence as when, with the help of Henry Kissinger -- chair of AIG's international advisory committee and a paid consultant via Kissinger Associates – AIG became in 1995, the first company licensed to sell insurance in China. AIG was the only foreign firm that owned 100 percent of its license there.

The American International Group at its origins was linked to the OSS (Office of Strategic Services) the forerunner of the CIA. It grew from the Asia Life/C. V. Starr companies founded by Cornelius Starr who started his insurance empire in Shanghai in 1919, the first westerner to market insurance in China.

Some of the links between AIG and the CIA can take us to some pretty heady conspiracy territory, as in this link from a Ron Paul website:

Since 1997, Frank G. Wisner, Jr., has been a board member of Kroll , and is currently Greenberg's Deputy Chairman for External Affairs. Wisner's father was a founder of the U.S. Central Intelligence Agency, who killed himself over the scandal from his being duped by British-Soviet masterspy Kim Philby. Frank Wisner, Jr., is a director of the George Bush-linked energy giant Enron (a client for whom AIG negotiated payments from Peru over nationalization of Enron operations).

Of course, nothing in this quote above is wrong, but whether these dots connect or not is another matter. Still, the connections between AIG and U.S. government operations is a shadowy land that is worth investigating. Wisner, by the way, stepped left AIG late last year.

Michael Ruppert made an impressive case regarding the intelligence connections of AIG in an article back in 2001. He quotes a September 22, 2000 L.A. Times article by Mark Fritz, the text of which is worth considering as the AIG scandal unfolds.

Newly declassified U.S. intelligence files tell the remarkable story of the ultra-secret Insurance Intelligence Unit, a component of the Office of Strategic Services, a forerunner of the CIA, and its elite counterintelligence branch X-2.

Though rarely numbering more than a half dozen agents, the unit gathered intelligence on the enemy's insurance industry, Nazi insurance titans and suspected collaborators in the insurance business. But, more significantly, the unit mined standard insurance records for blueprints of bomb plants, timetables of tide changes and thousands of other details about targets, from a brewery in Bangkok to a candy company in Bergedorf.

"They used insurance information as a weapon of war," said Greg Bradsher, a historian and National Archives expert on the declassified records....

The men behind the insurance unit were OSS head William "Wild Bill" Donovan and California-born insurance magnate Cornelius V. Starr.

Starr had started out selling insurance to Chinese in Shanghai in 1919 and, over the next 50 years, would build what is now American International Group, one of the biggest insurance companies in the world.

Ruppert, seven years prior to the current economic meltdown, highlighted the uses of reinsurance for national security purposes. From Fritz's article (emphases added):

"Stiefel mapped the entire system," said Naftali, a historian at the University of Virginia's Miller Center of Public Affairs. "Each time I take a piece of your risk, you've got to give me information. I am not going to reinsure your company unless you give me all the documents. That's great intelligence information"....

With the Axis defeat imminent, U.S. intelligence officials focused greater attention on ways the Nazis would try to use insurance to hide and launder their assets so they could be used to rebuild the war machine. It's a task that continues today.

It's no secret that the CIA needs to launder vast amounts of money to fund its secret wars around the world. That's a good deal of what the Iran-Contra affair was about. Alfred McCoy also plumbed these depths in his classic work, The Politics of Heroin: CIA Complicity in the Global Drug Trade. According to the Wikipedia article on McCoy, in his work just cited:

He also uncovered money laundering activities by banks controlled by the CIA, first the Castle Bank which was then replaced by the Nugan Hand Bank, who had as legal council William Colby, retired head of the CIA [3]. He also alludes to the BCCI, which seems to have played the same role as the Nugan Hand Bank after its collapse in the early 1980s, claiming that "the boom in the Pakistan drug trade was financed by BCCI." [3].

There's a lot that is horrifically dirty in the entrails of American capitalism. Why is this huge outflow of capital happening at this time? Where is money going, exactly? Why are the same people who engineered the bailout now in charge of policing it?

Standing outside the intricacies of this scandal, whatever they may be, as uncovered, stand two unassailable facts. One, this breakdown of the capitalist system is causing untold suffering for billions of people around the world. Two, the causes of the economic collapse are complex, and rooted first of all in the inadequacies of the capitalist system -- a system that argues it needs an influx of public monies in the trillions of dollars every fifty to seventy years or so or it will implode. Great system!

But further questions remain: how was this collapse handled? Who benefited? What was the role of secretive government agencies that use sophisticated schemes of investment and money laundering in all this? I don't trust the U.S. government to reveal this to us. The failure of public oversight and the need to preserve a crooked system at all costs led to the downfall of the Stalinist Soviet empire. It seems likely to do the same to the American empire as well, if not now, then someday soon.

Taxpayer Bailout $ Goes for Bonuses, Chauffeurs, Country Club Memberships

No, I shit you not. Associated Press reports that about $1.6 BILLION dollars have been paid out by bailed-out banks in salaries, bonuses and various fringe benefits. All this goes to prove that in America, if you are filthy rich and one of the financial elite, you have a license to rip off the public at will.

Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.

The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines.

AP gathered their information using Securities and Exchange Commission documents on 116 banks that have received nearly $200 BILLION dollars in the taxpayer robbery bailout pushed by both political parties last September. The kind of data they gathered would make any working U.S. citizen sick (and what the growing army of the unemployed might do or think upon seeing this, I shudder to imagine).

The average paid to each of the banks' top executives was $2.6 million in salary, bonuses and benefits.

Goldman Sachs, where Treasury Secretary Henry Paulson, the overseer of the bailout, was recently Chairman and Chief Executive Officer, gave over a quarter of a BILLION dollars to their top five executives alone.

Merrill Lynch, which got $10 BILLION in bailout cash last October, gave its CEO, himself yet another former CEO of Goldman Sachs, $83 million in earnings last year.

You can't say that the bailout money was all going to lavish salaries and country club memberships and home security systems, there were practicalities to be considered, too, for the poor impoverished execs of our country's financial elite:

Wells Fargo of San Francisco, which took $25 billion in taxpayer bailout money, gave its top executives up to $20,000 each to pay personal financial planners.

And then there was Madoff...

Meanwhile, the SEC's broken oversight system (or system of corrupt payoffs?) led to the perpetuation of Bernard Madoff's now-notorious and now collapsed Ponzi scheme, which bilked investors out of $50 BILLION. Led to believe initially by the press that Madoff's clients were all the well-to-do, for whom the average American could wag their heads with schadenfreude, it now turns out that charitable foundations around the country were rocked by the collapse of Madoff's company.

One major loser was "the JEHT Foundation, a six-year-old New York City-based philanthropy focused on juvenile and criminal justice, human rights, and election reform." JEHT funded hundreds of advocates and non-profits, who are now struggling to survive. JEHT, which distributes tens of millions in grants each year, is now shutting down operations.

Nobel Prize-winning Physicians for Human Rights, who have been in the vanguard in fighting against torture and war crimes, had received over a million dollars in the past six years via JEHT grants, and now find themselves suddenly $175,000 short of funds for their 2009 Campaign Against Torture project.

Two foundations that funded various Jewish causes -- the Robert I. Lappin Foundation the Chais Family Foundation -- have totally shut down.

Even in ritzy Marin County, California, the nonprofit Commonweal group has lost its funding and is shutting down its juvenile justice program.

San Francisco attorney Jay Gould explained to the local paper there that those who lost money will have to compete for legal representation with those who profited from Madoff's Ponzi scheme over the years. The latter are clamoring for legal representation, too, fearful the feds will call back some of their winnings profits over the past several years. Gould elaborated:

"It's possible that anybody who takes on one client is conflicted out of taking on any other client because everybody is potentially adverse to one another," Gould said. "These little guys who call in that lost $2 million or $6 million or $10 million - I can't guarantee we're going to represent them."

U.S. capitalism has revealed itself to be one big clusterfuck. While the politicians and opinion makers rail over the Detroit automakers request for a few billion in loans, castigated as out-of-touch cheaters flying around in posh corporate jets, intent on milking the American public (and all the while the government says the unions will pay with BILLIONS in cutbacks to make Detroit "competitive"), Wall Street (including the firms that received BILLIONS in bailout cash) maintains "fleets of jets to carry executives to company events and sometimes personal trips."

A Nightmare From Which I'm Trying to Awake

How is it that this country hasn't descended into one giant jacquerie is beyond me. It is testimony to the huge superprofits that American capitalism has stolen or engendered over the years that it can blatantly waste billions, if not trillions, and still not yet be totally bankrupted. But no doubt we are getting very close, and bringing down the world economy with us in our steep descent. And then again, the economic tsunami that will accompany the shock of the trillion dollar bailout has not yet fully hit.

Where is all the money going? How is it being spent? Oh, it's secret, a matter of national security, and the Treasury Department won't account for all the money and how or where it's spent, not even to the Chairwoman of the Congressional oversight panel supposedly overseeing the humongous "bailout."

No wonder I'm having a repetitive dream these days. I'm being driven in a car on a curvy mountain road, when all of sudden there's a jerk and the car is directly and quickly driven right over the cliff. In my panic I look and I can't see the driver. My last thought is: who did this? Who steered me right over the cliff?

Unlike my unconscious and pathetic dreamer, we know who has been doing the driving and the steering. They work on Wall Street, inside the Beltway, in T.V. studios and Pentagon hallways. How much money is going to -- besides the wallets and expense accounts of the superrich -- secret military projects, to overseas dictators, covert operations? We may never know.

Wake up America, before the car definitively spins, and in one vertiginous fall, we are directed into a nightmarish void... if it is not too late already.

Chris Floyd on Power Elites, the Bailout, & Afghanistan

Chris Floyd writes so well, and so often gets directly to the marrow of the problem, that there's nothing to do but reprint his words. I found the following particularly compelling, and they speak for themselves.

The economic disaster doesn't threaten the position of the imperial elites at all. On the contrary, as we have seen in the last few weeks, the Obama-backed "bailout" plan has enriched the already rich and powerful to a staggering degree. As CNBC reports, the government has spent more on saving the rich from the consequences of their greed than it spent in winning World War II: more than $4 trillion so far, with much more to come. This astonishing theft – the largest gobbling of public loot by a rapacious elite in the history of the world – will only further cement the powerful in their entrenchments on the commanding heights of society. The nation may rot beneath them, may be roiled by storms of blowback; but that is not their concern, it is no defeat for them. You can lose; they do not.

This is not to say that our elites don't tell themselves any number of flattering, self-justifying fairy tales about the boundless nobility and righteousness of their intentions. They can do this because they identify the interests of the system of elite rule (and the comfort, power and privilege they personally receive from the system) with the common good of the nation, or the world, as a whole. This allows them to pursue truly monstrous policies without regarding themselves as monsters. This allows them to order actions, such as the escalation of the destructive, destablizing conflict in Afghanistan, which they know, with absolute certainty, will needlessly murder innocent women, children and men -- and still talk earnestly and sincerely about their hopes for peace, their concern for humanity, their deep, abiding faith in a loving God. But again, as we have said over and over here, what matters are not the rhetorical justifications of power or the stated intentions of power -- or the charisma, likeability or compelling story of the wielders of power; what matters are the operations of power, its actual effects on the human beings on the receiving end of its machinations. Like love, power is what it does, not what it says.

Eating Shit

And that's a pleasant way to describe the bailout in the works by the corrupt politicians of the United States, these narcissistic, craven sellouts, who couldn't bring themselves to stop their own country from invading another and killing 100,000s and displacing millions more, who couldn't stop their military interrogators and gestapo-like spies from torturing thousands. These moral zeros are about to send something just under a trillion dollars to the scions of finance capital. These latter have lived high off the hog, raking in millions, and in some cases billions of dollars, off a pyramid credit scheme, leaving us -- the suckers -- to pay up for a generation or more when their con finally went spectacularly bust, unraveling into a wilderness of economic "instruments" and "derivatives" so convoluted and intertwined that no one could ever untangle it.

So long, dreams of universal health care. Adios, decent educational system for all. Eat shit, crumbling infrastructure of bridges and roads and public buildings. Die, pathetic human beings flooded by unfixed dikes in hurricanes, or straining for unreachable help in a major earthquake, crushed by masonry, wood studs, and national indifference. (And fear not, fearsome Mars, our honorable military, filled with honorable men and women and rockets and bombs and infrared sensors and shrapnel-stuffed "devices," will not be touched by the cost of the precious bailout, but expands and expands even unto world domination!)

Selfishness rules the nation now. It always did, but now it sits on the crown seat, so that each and every one of us may walk by and pay obeisance to king god capitalism, untouchable, beyond criticism, beyond repair, leering down on you and me and our bedraggled children, prostrate, struggling to survive.

This is like standing and looking at the long, long sweep of empty seabottom, pulled back by the massive tsunami current, and waiting for cataclysm. They have announced the total bankruptcy of the system, and you still don't believe you'll have to pay the bill.

Poor, silly, deluded us.

But no fear, for German dramatist Bertolt Brecht and composer Kurt Weill told us "how to survive" as far back as 1928. Here's your new bible. Here's the unbridled truth. Asking the question that ought to be asked, and soon the only question with any relevancy:

What keeps a man alive? It's his compulsion
to steal and cheat and kick his fellow man in the face.
We have to eat the shit without revulsion
and turn our backs on the human race.

You have to kill your neighbor to survive.
It's selfishness that keeps a man alive.

A More Sober Perspective (than me)

Edger over at Docudharma conjured up a quote from Nouriel Roubini regarding the unnecessary bailout. Roubini is professor at NYU's Stern School of Business. The selection below is from his blog, RGE Monitor:

Whenever there is a systemic banking crisis there is a need to recapitalize the banking/financial system to avoid an excessive and destructive credit contraction. But purchasing toxic/illiquid assets of the financial system is not the most effective and efficient way to recapitalize the banking system. Such recapitalization - via the use of public resources - can occur in a number of alternative ways: purchase of bad assets/loans; government injection of preferred shares; government injection of common shares; government purchase of subordinated debt; government issuance of government bonds to be placed on the banks' balance sheet; government injection of cash; government credit lines extended to the banks; government assumption of government liabilities.

A recent IMF study of 42 systemic banking crises across the world provides evidence on how different crises were resolved. First of all only in 32 of the 42 cases there was government financial intervention of any sort; in 10 cases systemic banking crises were resolved without any government financial intervention.

[snip...]

So this rescue plan is a huge and massive bailout of the shareholders and the unsecured creditors of the financial firms (not just banks but also other non bank financial institutions); with $700 billion of taxpayer money the pockets of reckless bankers and investors have been made fatter under the fake argument that bailing out Wall Street was necessary to rescue Main Street from a severe recession. Instead, the restoration of the financial health of distressed financial firms could have been achieved with a cheaper and better use of public money.

[snip...]

Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown.

FYI: Link to "discussion draft" of the new "bipartisan" version of the bailout bill, circa September 28, 2008, approximately 106 pages long.

Lenin's Chickens Roost in Paulson's Attic

Another reason why the omnipotence of “wealth” is more certain in a democratic republic is that it does not depend on defects in the political machinery or on the faulty political shell of capitalism. A democratic republic is the best possible political shell for capitalism, and, therefore, once capital has gained possession of this very best shell..., it establishes its power so securely, so firmly, that no change of persons, institutions or parties in the bourgeois-democratic republic can shake it. -- Lenin, State and Revolution

The cascade of financial failures on Wall Street -- the sure result of a decade or more of unregulated, unrestrained capitalist speculation -- has shaken the world capitalist system with a sudden, shuddering spasm of fear. But with fear comes opportunity, and the ruling elite now sees an opportunity to cast off the shackles of messy public oversight and control entirely.

If one were looking for the utmost in financial irresponsibility, allowing the system to implode/explode, paving the way for socialist revolution (or failing that, a fall into post-Roman-Empire-like darkness), then you'd put Bush and his cronies, like Treasury Secretary Henry Paulson, in charge of a supposed "bailout" plan for Wall Street. That's because the Bush-Paulson plan, by turning over unrestricted control of nearly a trillion dollars of a running tab, while handing the gargantuan bill over to an already deficit-weary taxpayer, will totally eviscerate the public sector of the economy, and pave the way for the complete impoverishment of the wide spectrum of the society. (Naomi Klein has described this process accurately in her widely-read book, The Shock Doctrine.)

As one commentator put it:

[T]he cost is still unknown, but there is no way that the taxpayers will profit. My initial estimate is that the direct costs of the Paulson plan will be $700 billion to taxpayers. That is about double the cost of the S&L crisis (compared to GDP).

....The plan only limits the Treasury to "$700,000,000,000 outstanding at any one time", so the total purchases can exceed $700 billion.

It's a running tab of almost a trillion dollars! Furthermore, this tab is run explicitly without any oversight or regulation. In the words of Paulson's own plan:

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency. [Emphasis added]

There are plenty of others well versed in economics and financial arcana who can describe much better than I the inadequacies of this bill... nay, it's sheer inanity, representing, as it does, a total heist of an unknown hundreds of billions of dollars. Here's Mike Whitney's take (at Counterpunch):

Most people don't understand what happened on Thursday, but the build-up of bad news on the Lehman default and the $85 billion government takeover of AIG, triggered a run on the money markets and a freeze in interbank lending. The overnight LIBOR rate (London Interbank Offered Rate) more than doubled to 6.44 per cent. Bank of America reported overnight borrowing rates in excess of 6 per cent. Longer-term LIBOR rates also rose sharply. On Wednesday, jittery investors removed their money from money markets and flooded short-term US Treasuries for the assurance of a government guarantee on their savings even though interest rates had turned negative which means that their balance would actually shrink at the date of maturity. This is unprecedented, but it does help to illustrate how raw fear can drive the market.

The TED spread (the TED Spread measures market stress by revealing the reluctance of banks to lend to each other) widened and the credit markets froze in place. Borrowing three-month dollars on the interbank market and the U.S. Treasury's three-month borrowing costs widened five full percentage points. That's huge. The banking system shut down.

What does it mean? It means the Federal Reserve has lost control of the system. The market is driving interest rates now, and the market is terrified. End of story....

The problems cannot be resolved by shifting the debts of the banks onto the taxpayer. That's an illusion. By adding another $1 or $2 trillion dollars to the National Debt, Paulson is just ensuring that interest rates will go up, real estate will crash, unemployment will soar, and foreign central banks will abandon the dollar. In truth, there is no fix for a deleveraging market anymore than there is a fix for gravity. The belief that massive debts and insolvency can be erased by increasing liquidity just shows a fundamental misunderstanding of economics....

The malfunctioning of the markets and the freeze-over in the banking system are the outcome of a massive credit unwind instigated by trillions of dollars of low interest credit from the Federal Reserve which was magnified many times over via complex derivatives contracts and extreme leveraging by speculative investment bankers. This has generated the biggest equity bubble in history. That bubble is now set for a "hard-landing" which is the predictable result of an unsupervised marketplace where individual players are allowed to create as much credit as they choose.

Bush-Nero Resurrects Marx

It was Karl Marx who first recognized that the bust and boom cycles of capitalism was not an evil to be extirpated but an inherent feature of the system. It is beyond tragic that it is going to take the immiseration of millions to bring us back to Marxism, and the road to true socialism. It has already cost humanity many millions of deaths, but still the insanity of organizing the world according to proprietary nation states -- run by elites who own the bulk of their own nation's wealth, and continue to steal any newly created wealth, hiding their crimes behind clouds of fear and hideous war waged on either internal or external "enemies" -- remains unquestioned. I shudder to think whether that lesson can ever be learned.

The past seven years has been excessively gory and greedy, even by typical historical standards. Bush is like Nero. He's taken the excrescences of empire to heights that his predecessors could never have contemplated, stealing billions... even trillions of dollars, it seems, right out in the open. And the mainstream politicians, even the liberals like Obama and Pelosi, are, with some populist protest, conducted in a minor key, dancing with the rest of the rotten bunch the macabre dance around the death of their own system.

I'd say, if you were a revolutionary, you'd have to be grimly satisfied to see the capitalist chickens come home to roost. Except I don't think any critic of this system would want to see so many suffer. But suffering people are, and suffer they will, while the rich and super-rich have their government to keep them safe.

Class warfare means this: the 400 richest individuals in the United States divide among them $1.57 trillion dollars in net worth -- that's almost $4 billion per person! And how many of you reading this are wondering if you can keep your house, pay your rent, put your child through school or send them to college? It's class warfare all right, but it's war made by the rich on YOU!

Sometimes class warfare is fought with bullets and bombs, sometimes with legislation and foreclosures.

Here's a short program to "fix" the economy: expropriate the banks and energy industries and nationalize them; no money for the rich owners of these industries who have ripped off the public for trillions. End the wars in Afghanistan and Iraq, and begin the process of military withdrawal from the countries that have a U.S. presence.

I can think of no better way to close this piece than with the words of Harold Pinter, who used his Nobel acceptance speech to speak the unuttered truth about the United States and its actions in the world. He emphasized the use of bullets and bombs in spreading U.S. predominance over the globe, but I think the points are just as relevant to the economic bomb our lords and masters are dropping on our heads right now:

The United States supported and in many cases engendered every right wing military dictatorship in the world after the end of the Second World War. I refer to Indonesia, Greece, Uruguay, Brazil, Paraguay, Haiti, Turkey, the Philippines, Guatemala, El Salvador, and, of course, Chile. The horror the United States inflicted upon Chile in 1973 can never be purged and can never be forgiven.

Hundreds of thousands of deaths took place throughout these countries. Did they take place? And are they in all cases attributable to US foreign policy? The answer is yes they did take place and they are attributable to American foreign policy. But you wouldn't know it.

It never happened. Nothing ever happened. Even while it was happening it wasn't happening. It didn't matter. It was of no interest. The crimes of the United States have been systematic, constant, vicious, remorseless, but very few people have actually talked about them. You have to hand it to America. It has exercised a quite clinical manipulation of power worldwide while masquerading as a force for universal good. It's a brilliant, even witty, highly successful act of hypnosis....

When we look into a mirror we think the image that confronts us is accurate. But move a millimetre and the image changes. We are actually looking at a never-ending range of reflections. But sometimes a writer has to smash the mirror – for it is on the other side of that mirror that the truth stares at us.

I believe that despite the enormous odds which exist, unflinching, unswerving, fierce intellectual determination, as citizens, to define the real truth of our lives and our societies is a crucial obligation which devolves upon us all. It is in fact mandatory.

If such a determination is not embodied in our political vision we have no hope of restoring what is so nearly lost to us – the dignity of man.

WashPost: Wall Street Steals Billions from Shareholders

Also posted at Daily Kos

OK, so the Washington Post article today doesn't stay "steal." The headline reads Dire Year on Wall Street Yields Gigantic Bonuses. And how big were these bonuses? Reportedly larger than the GNP of of Sri Lanka, Lebanon or Bulgaria, or more precisely, $39 billion dollars in year-end bonuses for the top five Wall Street firms. Meanwhile, shareholders in three of these five firms lost $80 billion dollars.

Now I know that economics is supposed to be the "dismal science," but who knew how dismal? The shareholders of these companies may want to pause and consider the math. The money out of shareholder pockets, much of which comes from institutional investments by union funds, IRA mutual funds, state retirement agencies, etc., goes directly into the pockets of a handful of the super-rich. Meanwhile these same firms plan to ax "at least 4,900 jobs as losses mount from the collapse of the subprime mortgage market."

Ah, this is capitalism.

Of course, Wall Street understands:

Goldman Sachs Group, Morgan Stanley, Merrill Lynch, Lehman Brothers Holdings and Bear Stearns together paid $65.6 billion in compensation and benefits last year to their 186,000 employees. Year-end bonuses usually account for 60 percent of the total, meaning bonuses exceeded the $36 billion distributed in 2006 when the industry reported all-time high profits....

"To many people, it will be shocking and questionable," said Jeanne Branthover, managing director of Boyden Global Executive Search. "People in New York in the world of investment banking will understand it. It's critical that pay is still there or you're going to lose really good people."

Something doesn't add up, and it's this: A small group of individuals have appropriated the massive wealth produced by a vastly larger number of individuals. So some people will wind up on the street, and lose their homes, and have their lives seriously disrupted or destroyed, all because another, much smaller bunch of people might walk off their jobs if they don't receive millions of dollars, even tens of millions, in extra money each year.

Call it government by extortion, an economy run on massive theft and fraud.

The candidates for president -- almost all millionaires themselves -- might raise enough outrage to summon up a soundbite on this. But don't hold your breath.

We need real change in this country. But it won't come until the American people rise up and demand it.

How hard will the bankers and corporations have to squeeze? How many lives will be destroyed before the irrationality of allowing such giant discrepancies in wealth will be recognized for the intolerable evil it is?

This story suddenly elicited an old tune in my head, Woody Guthrie's old ballad about "Pretty Boy Floyd":

Yes, as through this world I've wandered
I've seen lots of funny men;
Some will rob you with a six-gun,
And some with a fountain pen.

And as through your life you travel,
Yes, as through your life you roam,
You won't never see an outlaw
Drive a family from their home.

Is there no hope? (a threnody on Korea and Mosul)

It is enough to point out that even though there is an overwhelming amount of public information that Bush started an aggressive war based on lies and blatant propaganda, nothing is done to bring this criminal to the bar. Or that his administration countenances torture, openly, and is treated with deference by all mainstream authorities.

I have given this much thought, but we are finished as a civilization, and certainly as any progressive force in history. Humanity itself is very unlikely to survive the coming world war. This war is guaranteed due to the irrational insistence on nation-state production and competition for international markets and raw materials (including competition over labor as a production input).

It could be a chicken-or-egg dilemma, but the other side of this is the epidemic of narcissistic self-indulgence and self-reference that ridicules knowledge and stubbornly refuses to learn from humanity's mistakes. In this sense, America has gotten the president it deserves in George W. Bush, a narcissistic, sociopath-type, who sees the end of his party's rule (or his class's rule) as coterminous with an apocalyptic end of days.

The anti-intellectualism of U.S. society has poisoned any reasoned discourse, drenched as it is in anti-Marxist, triumphalist ideologies that are shallow in the extreme, and ridiculous in the concrete.

Mistake after mistake, crime after bloody crime, mass murder after mass murder, from Korea and Vietnam to the sectarian killing fields of Iraq, the U.S. and its impressionistic train of pundits, media stars, would-be critical bloggers, and brainless idiots full of the certainty of their own mentalistic creations, pontificate, bluster or excuse the disaster that has been U.S. foreign policy. They have nothing to replace it with. Liberals wash their hands of Iraq, crying crocodile tears over civil war, leaving moral posturing about democracy and a better life to the vicious GOP, who have no intention of helping anyone, unless it means lining their own pockets and bringing billions into the coffers of American corporations.

Meanwhile, revelations come out, about torture, about U.S. mass murder of civilians in Korea, about sectarian killings, and the response is inured neglect. A collective shrug of the shoulders. What outrage is possible is displaced onto meaningful but lesser atrocities, like the firings of the U.S. attorneys. (And I've written on the latter myself, so this is not aimed at anyone in particular).

The Korean revelations, as written up [at Daily Kos] by OneCrankyDom (see link above), or by Stephen Soldz at his blog, can be read in more detail at the AP story, "Declassified documents confirms U.S. killed civilians during 'Korean War'".

POHANG BEACH

A declassified U.S. Navy document confirms that on Sept. 1, 1950, the destroyer USS DeHaven, at the Army's request, opened fire on a refugee encampment on a beach near the southern South Korean port of Pohang. Survivors say 100 to 200 refugees — mostly women and children — were killed.

KOKAN-RI SHRINE

... 83 were killed, including many children. Declassified documents show that commanders of the U.S. 25th Infantry Division, operating in that area, had issued orders two weeks earlier to shoot civilians found in the war zone.

YOUNGCHOON CAVE

As many as 300 refugees were killed, many suffocated, on Jan. 20, 1951, when U.S. warplanes dropped apparent napalm firebombs at the entrance to a cavern where the South Koreans were sheltering 90 miles southeast of Seoul, survivors say....

DOON-PO STOREHOUSE

Also in January 1951, south of Seoul, U.S. warplanes killed 300 South Korean refugees as they jammed into a storehouse at the village of Doon-po, survivors say....

SANSONG VILLAGE

In another napalm attack that month, U.S. warplanes struck Sansong village, 125 miles southeast of Seoul, killing 34 villagers, a declassified U.S. military document said. It quoted U.S. officials saying Sansong villagers had helped North Korean troops, who kept supplies there, but it also reported "no enemy casualties" in the strike. Survivors denied they had aided the enemy and said they had no warning to evacuate.

And then there's the 21 Yazidis pulled off a bus near Mosul and lined up and shot. It was a reprisal killing by Muslims for an earlier barbaric death by stoning of a Yazidi woman, whose crime was falling in love with a Muslim and converting to Islam. The stoning death was reportedly put onto the Internet. Here's one of many press stories covering this tragedy.

Finally, there's the insanity of nation-states fighting each other over the world's finite markets and resources. Some diaries at Daily Kos went mano a mano over this issue, while missing the main point: capitalist production and an insistence on holding world productive capacities to an organization by nation state or regional alliance is certain to lead, as it did previously in 1914 and 1939 to a new and massively horrific world war.

People who know absolutely nothing about history, but love the sound of their own voices and worship their own thoughts, sneer at the promise of socialism. The corpses of the millions killed by Stalin and Mao fertilize their well-meaning sermonizing (giving them the benefit of the doubt), while their consciences seem not to blanch at the millions killed by imperialist conquest and rivalry in World War I and II (and numerous other wars, or by the sectarian and nationalist conflicts of which Iraq and Bosnia are only two well-known recent examples). The shadow of Hiroshima seeps ominously into what's left of our souls.

No, there is no hope. Humanity is inexecrably stupid and cruel. This does not, irrationally enough, mean that I will abandon all hope myself. It is nobler to act as if the universe were moral, that good can triumph, that reason will achieve a revolution in human manners and civilization, that the very being of humankind will evolve into something higher and finer.

How calmly does the olive branch
observe the sky begin to blanch,
without a cry, without a prayer,
with no betrayal of despair!

Poem link