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Nederlog

October 1, 2015
Crisis: Banks, Obama's "Ended Wars", Cars, IMF Warns, Reich Interview

 "They who can give up essential 
   liberty to obtain a little temporary
   safety, deserve neither liberty
   nor safety."
 
   -- Benjamin Franklin
   "All governments lie and nothing
   they say should be believed.
"
   -- I.F. Stone
   "Power tends to corrupt, and   
   absolute power corrupts
   absolutely. Great men are        
   almost always bad men."
   -- Lord Acton















Prev- crisis -Next

Sections
Introduction

1.
How the banks ignored the lessons of the crash
2. U.S. Bombs Somehow Keep Falling in the Places Where
     Obama “Ended Two Wars”

3. Wide range of cars emit more pollution in realistic driving
     tests, data shows

4. IMF chief warns of weaker global economic growth
5.
Robert Reich interview


This is a Nederlog of Thursday, October 1, 2015.

This is a crisis blog. There are 5 items with 5 dotted links: Item 1 is about a "long read" on The Guardian on bankmanagers, which is somewhat interesting; item 2 is about an article by Glenn Greenwald who complains about - yet another - opposition between Obama's words and Obama's acts; item 3 is a rather puzzling bit that says that "new tests" have showed that many more than Volkswagen's cars emit far more pollution than was stated: my trouble is that either the previous tests were mainly bullshit or Volkswagen is not the only car company to install fraudulent software; item 4 is about an article in which the chief of the IMF promised "less growth" in the coming years; and item 5 is a good interview with Robert Reich, although I don't agree with everything he says.

1. How the banks ignored the lessons of the crash

The first item today is an article by Joris Luyendijk on The Guardian:

Joris Luyendijk is a Dutch journalist who recently wrote "Swimming With Sharks", about the banks, the bankmanagers and the crisis - that in my opinion has been ongoing since 2008, and still goes on, at least for everyone who does not belong to the 1% of the rich, very rich and extremely rich.

This seems to be based on that book. Here is the setting:

I spent two years, from 2011 to 2013, interviewing about 200 bankers and financial workers as part of an investigation into banking culture in the City of London after the crash. Not everyone I spoke to had been so terrified in the days and weeks after Lehman collapsed. But the ones who had phoned their families in panic explained to me that what they were afraid of was the domino effect. The collapse of a global megabank such as Lehman could cause the financial system to come to a halt, seize up and then implode. Not only would this mean that we could no longer withdraw our money from banks, it would also mean that lines of credit would stop.
(...)
These were the dominos threatening to fall in 2008. The next tile would be hundreds of millions of people worldwide all learning at the same time that they had lost access to their bank accounts and that supplies to their supermarkets, pharmacies and petrol stations had frozen.

In fact, that didn't happen. But people were far closer to it than most realized,
and indeed the vast majority of those who might have been hit in that way - which, after the fact, might have been better, simply because then the big banks would have failed and get bankrupted, and the banking industry would have had to be radically changed - never realized this.

There is this on how the bankers radically changed from 1980 onwards:

The British stereotype of the boring banker began to change in the 80s when finance was deregulated. Following Ronald Reagan’s dictum, “Government is not the solution to the problem, it is the problem”, banks were allowed to unite under one roof activities that regulation had previously required to be divided between separate firms and banks. They were able to grow to sizes many times bigger than a country’s GDP – the assumption being that the market would be self-regulating. The changes also meant that bankers became immensely powerful.

In fact, government is the problem mostly for the greedy rich, but they got all they wanted plus a lot more out of deregulation.

Here is what happened and what nearly happened:

In the end, it was only through a combination of pure luck, extremely expensive nationalisations and bailouts, the lowest interest rates in recorded history plus an ongoing experiment in mass money printing, that total meltdown was averted.

And the banks got more powerful, simply because they were saved by money from the ordinary taxpayers.

Here is part of an opinion Luyendijk heard many times from those he interviewed:

If there is one recurring theme in the many conversations I had with City insiders, it was the need for structural rather than cultural change; not so much different bankers, but a different system.

I'll arrive later at the other part of the opinion.

First, there is this about who really run risks in modern banks: Not the banks, not the bankmanagers, but those who use the banks and the taxpayers, who have to foot the bill if things go wrong in a major way:

The problem with the way banks are now organised is not that they take risks – that is their job. The problem with today’s banks is that those who accept the risks are no longer those who get stuck with the bill.

The managers Luyendijk spoke to believed changes were easy, in principle:

How hard would it be to change those incentives? From the viewpoint of those I interviewed, not hard at all. First of all, banks could be chopped up into units that can safely go bust – meaning they could never blackmail us again.

So why did they not happen? Because that would have made bankmanagers less powerful. Besides, a very important role was played by Eric Holder and Barack Obama, who decided not to prosecute any bankmanagers after the near total collapse that they caused. [1]

The banks were saved by the taxpayers' money, and went on just as they did before the near total collapse, and because apart from Lehman Brothers and a few other banks there were not many bankruptcies. Therefore:

But because the general public was left in the dark, there was never enough political capital to take on the banks. Compare this to the 1930s in the US, when the crash was allowed to play out, giving Franklin D Roosevelt the chance to bring in simple and strong new laws that kept the financial sector healthy for many decades – until Reagan and Thatcher undid one part, and Clinton and Blair the other.

Precisely, and they were helped again by Obama and Holder.

Finally, here is the other part of the opinion Luyendijk heard many times:

The European commission president, Jean-Claude Juncker, memorably said in 2013 that European politicians know very well what needs to be done to save the economy. They just don’t know how to get elected after doing it. A similar point could be made about the major parties in this country: they know very well what needs to be done to make finance safe again. They just don’t know where their campaign donations and second careers are going to come from once they have done it.

Which is to say: The European politicians all are corrupt and only interested in their own financial well-being: They are fascists with the fascists, catholics with the catholics, socialists with the socialists, liberals with the liberals, all for the benefits of being in power. None has the character to stand up and try to do something for others. All are greedy egoists, and most are proud of it as well.

I think that is basically correct: The present-day politicians have for the most part been corrupted by the money they make, legally and illegally, and that is true of the left and the middle as well as the right - always with a few exceptions, but these are exceptions only, and usually they have little or no real power.

2. U.S. Bombs Somehow Keep Falling in the Places Where Obama “Ended Two Wars”

The next article today is by Glenn Greenwald on The Intercept:
This starts with a number of quotes in which Obama and others claim he ended two wars (in Iraq and Afghanistan), where American troops are still fighting and killing and bombing and droning.

This gives rise to the following quite legitimate question + answer by Greenwald:

How do you know when you’re an out-of-control empire? When you keep bombing and deploying soldiers in places where you boast that you’ve ended wars. How do you know you have a hackish propagandist for a president? When you celebrate him for “ending two wars” in the very same places that he keeps bombing.

All of this, just by the way, is being done without any Congressional approval, at least with regard to Iraq and Syria.
Quite so. As Greenwald also indicates, there is a small difference with how things are done in Russia:
Russia today announced that its upper Parliament approved its own imperialistic intervention and bombing campaign inside Syria, and that legislative body was widely (and not inaccurately)  derided by U.S. commentators for being what the New York Times called a “rubber stamp.” The Obama administration, by contrast, does not even bother with the empty ritual of Congressional approval for its bombing campaigns; the president proved he is even willing to bomb a country after Congress rejected his authorization to do so, as happened in Libya.
And therefore:
Whatever else one wants to say about Iraq and Afghanistan, one cannot honestly say that Obama ended the wars in those countries. The U.S. continues to drop bombs on both, deploys soldiers in both, kills civilians in both, and engages in a wide range of overt and covert force, all without a shred of Congressional approval.
Yes, indeed. And this is a recommended article.

3. Wide range of cars emit more pollution in realistic driving tests, data shows

The next article today is by Damian Carrington on The Guardian:
This starts as follows

New diesel cars from Renault, Nissan, Hyundai, Citroen, Fiat, Volvo and other manufacturers have been found to emit substantially higher levels of pollution when tested in more realistic driving conditions, according to new data seen by the Guardian.

Research compiled by Adac, Europe’s largest motoring organisation, shows that some of the diesel cars it examined released over 10 times more NOx than revealed by existing EU tests, using an alternative standard due to be introduced later this decade.

Adac put the diesel cars through the EU’s existing lab-based regulatory test (NEDC) and then compared the results with a second, UN-developed test (WLTC) which, while still lab-based, is longer and is believed to better represent real driving conditions. The WLTC is currently due to be introduced by the EU in 2017.
Actually, I find that a bit incredible.

Here is the problem: Volkswagen frauded with software that hid that their cars were emitting 10 or more times as much pollution as they were said to do. Now a testing agency finds similar problems with cars "
from Renault, Nissan, Hyundai, Citroen, Fiat, Volvo and other manufacturers" - but they are not suspected of fraud, and the discovery is due to a new testing schema.  But the new testing schema is supposed to have established that some cars produce "over 10 times more NOx than revealed by existing EU tests"?!

I am sorry, but this suggests to me that either the other cars also were somehow tricked when they were tested, or else that the "existing EU tests" are totally useless, which makes Volkswagen's fraudulent software pretty useless.

And I suspect that it is a bit of both: The EU tests were very, very friendly to the makers of cars, and some of the other makers of cars probably also frauded somehow.

Here is the problem for the European population:
The failure of the regulatory tests is the main cause of illegal levels of NO2 in many cities, according to a recent UK government document. “It has had an absolutely enormous effect,” said Prof Alistair Lewis, an air pollution expert at the University of York. “The costs will be in thousands of deaths and billions of pounds, all passed on to the taxpayer.”
I say.

4. IMF chief warns of weaker global economic growth

The next article is by Larry Elliott on The Guardian:
This starts as follows - and I can't resist relaying the news that the Dutch PM Rutten declared yesterday that everything is economically rosy:

A marked slowdown in big emerging market countries will cut global growth to its lowest level since the deep recession of 2009, the head of the International Monetary Fund has warned.

Christine Lagarde, the IMF’s managing director, said forecasts to be published by her organisation next week would show activity expanded by less than the 3.4% recorded in 2014 – the joint weakest since the world economy came to a standstill six years ago.

Speaking in Washington, Lagarde said “global growth will likely be weaker this year than last, with only a modest acceleration expected in 2016”.

Lagarde said she was “concerned about the state of global affairs”, highlighting the refugee crisis in Europe, the prospect of 2015 being the hottest year on record and the state of the global economy.

I believe her (much rather than the Dutch PM). She also said:
Lagarde said financial stability had not yet been assured despite progress in recent years to make the system safer. “If we put all this together, we see global growth that is disappointing and uneven,” she said. “In addition, medium-term growth prospects have become weaker. The ‘new mediocre’ of which I warned exactly a year ago – the risk of low growth for a long time – looms closer.

I do not believe there was much "progress in recent years to make the system safer" (and see item 1 and item 5).

But OK - the news is that for almost everyone (other than the very rich) the situation will be dire for the eighth successive year in 2016, with no realistic
hope of letting up.

5. Robert Reich interview

The next article is by Amy Goodman and Juan González on Democracy Now!:
This is a good interview. To start with, here is Reich on the changes he thinks are necessary:
ROBERT REICH: I mean, we do have to substantially increase taxes at the top, if we’re going to have enough money to do everything that needs to be done with regard to investing in education, infrastructure, do a lot of things that, despite President Obama’s efforts, have still not been done. But I think we even have to go beyond that and really change the way the market is organized. I mean, if you look at antitrust law, for example, you’ve got huge combinations now in health insurance, in airlines, in banking, in food. That means Americans are spending much more than otherwise for all of these basic necessities—airlines may not be a necessity, but certainly the others are necessities—and that’s a redistribution upward.
In brief: Higher taxes on the rich, and a reorganization of ther market, where especially the trusts have to be broken down. I agree, but I have the remark I
often made when reading about Reich's proposals, that I think usually are sensible:

Yes - but who is going to realize these changes? With the press for the largest part in the hands of the rich; the government for a large part run by past and future bankmanagers; and most members of Congress corrupted by lobbyists who work for the rich?

Here is another such proposal:

ROBERT REICH: Bernie Sanders is right: We’ve got to re-establish Glass-Steagall. Repealing it—

AMY GOODMAN: And explain why it’s so important.

ROBERT REICH: Well, because after the crash of 1929, the United States set out to prevent that kind of crazy risk taking by the banking sector that led to the crash of 1929—we’re not talking about 2008, we’re talking about 1929. One thing we did was separate commercial banking from investment banking, so that people’s deposits, the ordinary savings of ordinary people, would not be used for gambling operations by the investment banks. We ought to maintain that. I mean, that’s one of the reasons that we got into trouble again.

We also need to bust up the biggest banks. Bernie Sanders actually understated the reality. I mean, the five biggest banks, they used to have 10 percent of total banking assets back in 1990, now have 44 percent of total banking assets in this country. I mean, they are far too big to fail. I mean, they are so large that they are—just because of their political clout and their scale, they are gaining more and more market share of the entire banking industry. That’s dangerous. It’s dangerous for the economy. It’s dangerous for our political culture, because those banks have a great deal of political power.

I agree - but again: Who is to do it? Bernie Sanders, if elected - but while I am a fairly strong proponent of Sanders (I think he is the only mostly honest somewhat prominent politician in the US) I do not think the chance that he will get elected is large. If not, then what?

Reich more or less evades a question why he titled his book "Saving Capitalism" and then says

ROBERT REICH: But the most important point is to recognize that even Denmark and Sweden and so-called social democracies are still capitalist fundamentally. That is, they’re based on private property and voluntary exchange. Even China is becoming a capitalist nation.

Yes, of course Denmark and Sweden (and Holland and Germany and France) are capitalist! (Whether China is, is a moot question, for while there are quite a few
big capitalists, the Chinese Communist Party still has most of the power.)

Then he says:

ROBERT REICH: (..) There is no free market. And I want to state that again: There is no free market. And the kind of battle that we’ve had between liberals and conservatives for the past 40 years or 50 years, between do you trust the market or do you trust government, is a fatuous and silly battle, because you can’t have a market without government creating the rules of that market. And it’s in those rules, exactly as you said, Juan—and this is what the point of the book is—it’s inside those rules that you find the most important issues that ought to be debated.
(...)
I mean, there are hundreds and hundreds and hundreds of examples of ways in which the deck has been stacked, the dice have been loaded, the game has been rigged, in favor of very wealthy, very powerful people and companies and banks.
Yes, indeed - and it is nice to see Reich and I agree on "the free market".
(See under Liberalism in the Philosophical Dictionary for my position.)

Reich also has this to say on the moral core of the economy:

ROBERT REICH: There is and should be a moral core to any economy. And whether it’s called capitalism or any other system, if it doesn’t have that moral core, in which we agree on basics, kind of minimum standards of decency—we agree that we’re all in it together, we understand that trust is critical if an economic system is going to be maintained and sustained—then you’re in trouble. I think one of the problems in the United States, and one of the problems with contemporary capitalism as practiced by the American model, is that it celebrates greed as the central principle. But that can’t possibly be the central principle, because if it’s all about greed, then you end up spending more and more of your resources protecting yourself from everybody else’s unvarnished greed.
I'm sorry, but I don't believe this.

First, there clearly is an opposition between the rich (say, the 1%) and everybody else: Under the system-as-is the few rich profit enormously, and they do so by designing the rules and regulations precisely for that purpose.

Second, capitalism was much more extreme from the 1830ies till the 1930ies. I see no reason to suppose that schema of exploitation of the poor will not be resurrected by the rich, whether in the name of greed or whatever: Historically,
the rich have had most of the power everywhere, and for hundreds or thousands of years, and the only ground to tame that power somewhat was political democracy - but it seems to me that has been mostly deregulated away as well,
together with most of the laws and rules that maintained it.

Here, to end this, is Reich's opinion on Sanders:

JUAN GONZÁLEZ: Well, we only have about 30 seconds, but I’m interested—your critique dovetails very much with a lot of the stuff that Bernie Sanders has been saying on the campaign trail. Your sense of what he’s bringing to the debate that’s going on now in America?

ROBERT REICH: I think he’s telling the truth, and I think peopleonly are responding with extraordinary enthusiasm, even many conservatives and Republicans I meet, to a truth teller.

I say. Welll... this is an interesting and recommended interview, though I don't agree with everything. Recommended reading!

-------------------------------------
Note

[1] Incidentally, the whole argument that the banks will fail if some of the leading bankmanagers were to end up in jail is also false. There is no reason why a bank's health should or can coincide with a banker's health.


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