My third article noted that his September 2012 article argues that:

“In this sense, a tax on poor workers to subsidize rich bankers may actually benefit the workers, as the increase of investment and employment can raise their wages by more than the cost of the tax [p. 25].”

That same September article provided the basis for my [fourth article, which is a] critique of Myerson’s internally inconsistent analytics and disastrous policy proposals concerning executive compensation.

This article discusses the similar analytical and policy flaws in Myerson’s ode to crony capitalism.

Myerson’s political theory: if he buys you a nice dinner he has a right to sleep with you

In his December 8, 2007 Prize lecture, as the economic system was crumbling, Myerson announced his ode to plutocracy and its handmaiden – crony capitalism.   Myerson is explicit in claiming that only exceptionally wealthy people can be trusted to be CEOs.  Under his model the bribe that the shareholders would have to pay a merely rich CEO to “imitate” a “good” CEO is so large that the net social value of the corporation becomes negative.  Only the World’s wealthiest need apply to be CEOs under Myerson’s logic and model.

“This amount is negative when A<40. So in this example, we cannot get any positive expected profit for society unless the manager himself can contribute assets A worth at least 40. That is, to deter abuse of power without an expected loss to the rest of society, the manager must have stakes in this project worth at least 40% of the cost of the capital input here. If no one has such a large personal wealth to offer as collateral to this investment, as might be the case in an egalitarian socialist society, then society at large cannot profitably undertake this investment.

Thus, moral-hazard incentive constraints can also provide an analytical framework where the initial allocation of property rights may affect the possibility of productive investments. Indeed, this simple example may provide an analytical perspective on problems of socialism, as Hayek was seeking.  Modern industrial production requires integrated managerial control over large scale assets, and whoever exercises that control will have great moral-hazard temptations, which are represented by the parameter B in this model.  When managers have great temptations B, the moral-hazard incentive constraint cannot be satisfied unless managers have large stakes in [the] success of their projects” [p. 334]. [from Myerson's Nobel prize lecture.]

As I explained in my prior articles, Myerson’s model would require the CEO of a mid-sized bank with $20 billion in assets and $1 billion in capital to invest $400 million of his own funds in the bank.  For our largest banks, with reported capital levels over 50 times larger than my hypothetical mid-sized bank the CEO would have to invest over $20 billion.  Myerson’s model is literally impossible because there are not remotely enough multi-billionaires with great managerial competence to run our largest firms, and many of the wealthy are not managers.  Myerson’s model predicts, therefore, that there will be endemic “bad” behavior by CEOs who are not sufficiently wealthy to be amenable to Myerson’s optimal bribes to “imitate” good CEOs.

In his eagerness to proclaim his paean to plutocracy, Myerson did not even consider the negative consequences of plutocracy for the world and for his models and policies.  For Myerson, plutocracy is all positive.

“Proponents of the free-market system do not advocate it merely as an excuse for abandoning egalitarianism. The free market distributes economic power and rights to people throughout the population, and so the free market may be seen as the antithesis of centralized political control of the economy.

From this perspective, we may try to derive the rationale for the free market from a model where centralized political control causes economic inefficiency.  The costs of unrestrained central power can be understood as problems of moral hazard at the center of government” [p. 337].

Myerson seeks to transmute the dross of plutocracy into the gold of pluralism and democracy.  The great danger is the “unrestrained central power” and the resultant “moral hazard at the center of government.”  Plutocracy is Myerson’s answer to countering the evils of governmental “power” and preventing “economic inefficiency.”  Once more, capitalism is unique because it is the only system guaranteed to produce enough multi-billionaires to prevent the democratically-elected government from causing “economic inefficiency” and securing excessive “power.”  Myerson’s lecture supports the later claim by Lloyd Blankfein, Goldman Sach’s CEO: we owe our economy’s success and our democracy’s success to the genius, guts, work ethic, and wealth of the top one-one-thousandth of one percent – the multi-billionaires, made wealthy through the shareholders’ bribes to “imitate” “good” bankers  – who truly are doing “God’s work.”  For Myerson, democratic government is bad and plutocrats are good.  Plutocrats are the only ones that can save democracy from the tyrannical “power” of the democratically-elected officials.

In Myerson’s December 2012 presentation of his model that would purportedly contain moral hazard, he made a naïve claim about control frauds.

“Agents in a firm might look to state courts for contract enforcement, but not in a political faction that acts to take state power itself.

Political leaders are highest guarantors of social incentive systems (emphasis in original).”

Political leaders acting in alliance with the plutocrats who funded their rise to power are the “highest guarantors” of “anti-social incentive systems” that will enrich the plutocrats and their political patrons at the expense of the public.  This is the defining trait of crony capitalism.  Plutocrats place their central reliance not on laws and contracts but on their political patrons.  Plutocrats have the ability and the incentive (and no upsetting mores) to aid their political allies “to take state power” and become the “highest guarantors” of the perverse incentives that define the dominant strategy for crony capitalists and their political co-conspirators.

Myerson operates in such an ethics-free zone that he suggests that if we only sold political offices to the highest bidder we would create the correct incentives in the public sector because:

“Candidates would be willing to pay for such highly rewarded offices.”  Buying and selling political office is an infamous practice known for millennia.  It is typically a felony in the United States, as Illinois Governor Blagojevich learned.  Like simony, which included the sale of indulgences, the actions bring the institution into public contempt and create endemic corruption.

Myerson expands on his ode to crony capitalism by developing a metaphor about “courtiers.”

“To build a state, a leader must solve this central moral hazard problem of binding himself credibly to reward past service.

Solution: organize top supporters in a court or council where they monitor his distribution of rewards and offices, as they serve him. [My APSR '08]

The leader’s personal constitution: keep the courtiers’ collective trust.

Political institutions are established by leaders with reputations for reliably rewarding good service by supporters in a network of patronage” (emphasis in original).

Like the 19th-century socialists, we may dream of great social reforms.

But we should understand that the institutions of any such brave new world would be built on narrower factional foundations, organized by political leaders whose first imperative is to maintain their reputation for rewarding loyal supporters” (emphasis in original).

Myerson does not mention the obvious interconnection of his paean to plutocracy, his model that makes the wealthy vastly wealthier, and his model of government.  The plutocrats’ political minions’ “first imperative is to maintain their reputation for rewarding loyal supporters” – the plutocrats.  That is precisely the problem – the politicians’ “first imperative” is “rewarding” the plutocrats who put them in office.  The dominant plutocrats are in finance.  The economic result of crony capitalism is that the financial “markets” become so perverse that the CEOs leading control frauds prosper and the result is a terrifying financial crisis.  Tens of millions of people are left unemployed and the losses (at peak) are far in excess of $10 trillion.  The results for our democracy are shameful – leading to the obscenity that a Nation in which no one is supposed to be above the law now has a doctrine of “too big to prosecute” for our most elite and most fraudulent financial leaders who caused the financial crisis and were made wealthy as a result of leading control frauds.  This is the twin travesty of economic and political ruin via plutocracy and crony capitalism that Myerson praises.  We give Nobel prizes to the scholars whose predictions have failed and whose policies have proved disastrous at the very time that their policies are crushing the financial system and enshrining crony capitalism.

The post Bill Black: Myerson’s Ode to Crony Capitalism appeared first on Dollars & Sense Blog.

In The Surprising Design of Market Economies, urban journalist Alex Marshall shows how in fact it always takes government—even bad government—to create and maintain markets. The idealized “free market” we meet in Ec. 1, with its large numbers of well-informed competing buyers and sellers—that kind of market would not exist without intensive government support and regulation. I provided an example in my post on Public Meat Markets in Old New York.

From the earliest times, government—at first perhaps just the local warlord—has at least provided a safe physical space for trade. Before 2000 BC, Chinese, Egyptian, and Babylonian governments not only established market places; they also built roads and canals to them. They created and enforced systems of weights and measures, and even forms of money. They also drew up sets of rules, such as the Code of Hammurabi, and provided courts to resolve disputes. Later, under the Roman Empire, of course Christ found money-changers in the temple courtyard, along with all sorts of other merchants—because that was a nice, safe, central location for a market.

As Marshall points out, government creates and enforces titles or “rights” to property. If we don’t have the right to own something, we can’t trade it. Most critically, rulers of early civilizations created land titles, that is, they arbitrarily carved the earth’s surface into parcels, assigned owners, recorded them in central registries—and used the information to collect taxes. When William I conquered England in 1066, he recorded his new property in the Domesday Book. This allowed him to grant lands to his nobles as a privilege, conditioned on their military support. Only in the last two centuries did private citizens of developed countries gain the right to hold, buy and sell real estate “in fee simple.” (Or rather men gained the right—most women had to wait.)

In Ec. 1, we study markets in a spaceless, timeless vacuum. In the real world, infrastructure precedes markets. Hurricane Sandy reminded us that markets and even life in New York screech to a halt when we lose electricity, telephone, water, sewers, subways, roads, police, fire protection, or hospitals. In the longer run, public schools ensure another market essential: a literate and skilled population sharing basic values. Marshall notes that English language requirements in schools, much as they may offend multiculturalists, teach us a common vocabulary and foster the rapid inclusion of immigrants.

Corporations are no more “natural” than markets. Originally, governments chartered corporations only for specified public purposes. William I chartered the City of London in 1075; James I chartered the colony of Jamestown in 1606. In the US, only in the 19^th century did state governments begin to grant private owners a right to incorporate—setting off a race to the bottom in lax requirements—a race won by Delaware. Yet, corporations aren’t the only viable form of economic organization. Marshall examines cooperatives like Land O’Lakes, which thrive especially well in Wisconsin and neighboring states with a German or Swedish heritage. I myself spent a summer studying cooperatives in the ancient northern Italian city of Bologna, center of the Emilia-Romagna region. Cooperatives big and small dominate this original “Red” region of Italy, making it among the most productive and prosperous parts of the European Union.

Like Adam Smith, Marshall decries the excess of government-granted monopolies like patents and copyrights. While these may or may not have some short term justification as rewards to innovators, today they enable the One Percent to block competition and vacuum up wealth. Surprisingly, unlike Smith, Marshall does not address another powerful way governments shape markets: taxation. Smith opposed tariffs and excise taxes, which “obstruct the industry of the people.” Smith favored “the most equitable of all taxes”: taxes on land—which he regarded as just payment to the state for the privilege of secure titles. Henry George and later economists argued that land taxes actually make markets function better by counteracting resource monopolies.

As for international markets, a few years ago my step-daughter, a US State Department attorney, spent a year at the Hague Conference on Private International Law. There she helped draft the 2005 Convention on Choice of Court Agreements. Since 1893, the Hague Conference has been churning out conventions—which become international treaties when adopted. These are just a small part of what Marshall calls “the dense forest of rules and regulations” that make possible international trade. We couldn’t even send Christmas cards to our English nephews without the Universal Postal Union of 1878!

If government creates markets, then we the people should force government to create better markets, ones that serve us all. Marshall offers a number of proposals. For example, shouldn’t large corporations have national charters? A “US National Companies Act” could require companies operating in the US to meet certain standards—putting an end to tax evasion via Bahamian post office boxes.

Conventional economics wittingly or unwittingly provides cover for the One Percent, by professing that “the market” operates benevolently on its own. Alex Marshall gives us an entertaining, thoughtful, and well-written antidote to this dangerous abstraction.

The post Polly Cleveland: It Takes Government to Create Markets appeared first on Dollars & Sense Blog.

Michal Kalecki

(1) Coming soon–Interview with Bob Pollin:  Today’s image is a lovely drawing of Polish macroeconomist Michal Kalecki, by Manuel García Jódar and available on Wikimedia Commons.  Kalecki comes up in the interview my co-editor Alejandro Reuss did earlier this week with UMass-Amherst economist Robert Pollin, one of the co-authors of the paper that took down the Rogoff and Reinhart paper on debt and growth.  The interview takes that paper, and R&R’s paper, as a starting point for a really interesting discussion of the current global economic predicament and ways out. A shortened version of the interview will appear in our July/August issue, with a longer version appearing online.

(2) A bit more on NSA surveillance:  I have a few more links to share on the NSA surveillance scandal.  Can we call this a scandal?  I think it counts as one much more clearly than the “scandals” that were said to be plaguing the Obama administration just before Snowden and Greenwald brought their revelations to the world. But one of the ways people are trying to discount the whole thing is to claim that “we always knew” that there was massive surveillance. This seems strange to me.  People certainly joked about it and/or suspected that the government had the capacity, but to find out that it definitely has the capacity and is in fact exercising the capacity seems to be news to me.

A related case: hat-tip to Donna B. for alerting me to something that readers of this blog might not have overlooked as I did, that a proposed amendment to this year’s National Defense Authorization Act would legalize domestic war propaganda (see Buzzfeed and Antiwar.com for details). To which my response was: huh? has it been illegal?  But it has, because of the Smith-Mundt Act of 1948 and Foreign Relations Authorization Act in 1987.

But in the case of the NSA’s surveillance program, no member of congress has yet proposed repealing the 4th Amendment, which the program appears to violate.

So here are my new links:

• From the Chronicle of Higher Ed, from before l’affaire Snowden, Why Privacy Matters, Even If You Have ‘Nothing to Hide’.  Excellent. A friend who subscribes to the “we knew they were doing it” view, and also the “whatever they need to do to keep us safe” view, also likes to make this point about how you have nothing to worry about if you haven’t done anything wrong.  I like to tell him to try saying that in a German or Russian accent and see if it gives him the creeps.  In a similar vein, he remarked to me (jokingly), after an exchange in which I criticized the NSA program sharply, that maybe I should move to another country since I don’t seem to like this one.  My response was that people used to tell people that they could move to the Soviet Union; now the NSA is bringing the Soviet Union here to the U.S.A.!
• Naked Capitalism’s “must read” for today, from Bloomberg, U.S. Agencies Said to Swap Data With Thousands of Firms.
• Naked Capitalism’s review of Snowden’s interviews with the South China Morning Post.

(3) Consumed on Marketplace:  I have been enjoying Marketplace’s series Consumed this week. Much of it, including the segment on P.J. O’Rourke’s new book on Adam Smith, was anticipated by Thad Williamson’s article in D&S a few years back, America Beyond Consumerism.

(4) The Yes Men’s latest antics:  They are pissed off that the U.S. Chamber of Commerce has backed down from suing them. Details here and here.

(5) Hilarious book from PM Press:  The Basic Skills Caucasian Americans Workbook.

That’s it for today.

–Chris Sturr

The post Links and Updates appeared first on Dollars & Sense Blog.

Roger Myerson has recently updated an article on his purported mechanism for explaining why our supposedly efficient markets are producing growing crises. “A MODEL OF MORAL-HAZARD CREDIT CYCLES” (March 2010, revised September 2012).

Myerson’s credit cycle model is not the focus of this piece.  I write about one recommendation he makes about how to respond to a financial crisis driven by control frauds led by financial CEOs.  This is the third piece I have written on Myerson’s paean to plutocracy.  He asserted in his Nobel Prize Lecture in December 2007, as a global systemic crisis was breaking out driven by an epidemic of control fraud, that the key advantage of capitalism over communism was that capitalism produced severe income inequality in the form of exceptionally wealthy CEOs.  Myerson claimed in that lecture and a lecture in December 2012 that CEOs were naturally dishonest and abusive towards shareholders.  The only reliable exception was if they had enormous personal ownership in “their” bank.

Myerson’s “mechanism” for causing abusive bankers to act as if they cared about the interests of shareholders was for the shareholders to bribe the CEOs and for the CEOs to own a controlling interest in the banks they managed.  The failure of Myerson’s designs to have any effect in containing the epidemic of accounting control fraud did not dissuade Myerson from his faith in plutocracy, cause him to read any of the relevant criminology literature, or to consider the work of a fellow Nobel Laureate in Economics, George Akerlof on “looting” (with Paul Romer).

Instead, Myerson has doubled-down on his pandering to plutocrats.  Here is his suggestion on how we should respond to the latest wave of looting by financial CEOs.

“In this sense, a tax on poor workers to subsidize rich bankers may actually benefit the workers, as the increase of investment and employment can raise their wages by more than the cost of the tax [p. 25].”

The reader may wonder whether Myerson is making an effort at irony.  No.  Our family rule that it is impossible to compete with unintentional self-parody is once again vindicated.

–William K.  Black

The post Bill Black: Taxing Poor Workers to Subsidize Rich Bankers appeared first on Dollars & Sense Blog.

(1) Watch the interview with NSA whistleblower Edward Snowden, by journalist (not mere “blogger,” NYT!) and filmmaker Laura Pointras, if you haven’t already:

Yves Smith’s remarks on why the interview is so powerful are spot on:

You could not have done better if you had gone to central casting and had a professional scriptwriter. He’s on the nerdy side of attractive, sensible-sounding and relaxed, articulate, and able to deliver key points in a compact, mass market friendly manner. Sadly, who carriers the message matters a great deal to Americans, and Snowden has revealed himself to be credible and likeable. In other words, as Foreign Policy noted a couple of days ago, the PR battle is on, and Glenn Greenwald and the Guardian team have played this very well. The releasing of key pieces over a series of days has kept the story on a full boil, and having Snowden agree to the taping and releasing it towards the end was astute

(2) Greenwald on On Point:  Tom Ashbrook’s interview with Greenwald on yesterday’s episode of WBUR’s On Point is worth listening to:

Greenwald is so great on this. He’s been on the TV circuit too, I know from his Twitter feed–I assume he’s been equally withering in his responses to NSA/Obama apologists there. I love that he ridicules the idea that the apologists (including Obama himself!) are now saying that they “welcome debate” on this, while they simultaneously say that Snowden should be punished for breaking the law (I heard Mass. Dem. Senate candidate Ed Markey say both of these things on a WBUR interview this morning, alas). Here’s Greenwald, from the transcript:

Everybody loves to say, “We should have a healthy debate about this.” President Obama said, “I welcome the debate.” The problem, though, is that there hasn’t ever been a debate about these programs. And because it’s all shrouded in top secrecy and the government constantly either threatens to prosecute or actually prosecutes anyone who talks about it, there never can be a debate. So what we have is this completely hypocritical contradiction, which is everybody goes around saying, “Of course we should have a debate about our surveillance policies. We shouldn’t just let the government do it and have us not know about it and not be able to debate it.” And yet, at the same time, when somebody comes forward — like Mr. Snowden — and courageously does the only thing there is to do to make us know about it, to let us debate it, they start calling for their heads. “He’s a traitor. Put him in prison.” So it is impossible to have a debate about any of these issues, precisely because they’re being conducted completely in the dark.

(3) If You Were Reading D&S in March 2010:  You got some good background on the privatization, and massive expansion, of the national security state, including the role of Booz Allen Hamilton, where Edward Snowden worked, in Tom Barry’s feature article Synergy in Security: The Rise of the National Security Complex. From the introduction:

Since Sept. 11, 2001, a vastly broadened government-industry complex has emerged—one that brings together all aspects of national security. Several interrelated trends are responsible for its formation and explosive growth: 1) the dramatic growth in government outsourcing since the early 1990s, and particularly since the beginning of the George W. Bush administration, 2) the post-Sept. 11 focus on homeland security, 3) the wars in Iraq and Afghanistan, 4) the Bush-era surge in intelligence budget and intelligence contracts, and 5) the cross-agency focus on information and communications technology.

The term “military-industrial complex” no longer adequately describes the multi-headed monster that has emerged in our times. The industrial (that is, big business) part of the military-industrial complex has become ever more deeply integrated into government—no longer simply providing arms but also increasingly offering their services on the fronts of war and deep inside the halls of government—commissioned to carry out the very missions of the DoD, DHS, and intelligence agencies. In the national security complex, it is ever more difficult to determine what is private sector and what is public sector—and whose interests are being served.

The article is particularly good for understanding the revolving door between the private security contractors and government agencies, and for the shift toward computing and information. (I heard a segment on NPR this morning that touched on this, but their angle was that one of the problems with privatization and expansion of private national security companies is that it broadens the number of people who have access to state secrets, and thereby makes leaks by people like Snowden more likely.  Funny, I was thinking that was a rare silver lining to privatization!)

(4) Other links:

• Juan Cole, It’s the Corporations, Stupid:   Excellent analysis about why the U.S. gov’t has been induced to 2nd Amendment fundamentalism, but not 4th Amendment fundamentalism.  It’s because big corporations would be harmed by gun control, but no big corporations are harmed by massive NSA-type surveillance.
• Former CIA agent Ray McGovern on the Real News Network on why Snowden did the right thing.
• Jane Mayer in The New Yorker: What’s the Matter with Metadata?
• John Cassidy in The New Yorker:  Why Edward Snowden Is a Hero.
• Maureen Dowd in NYT:  Peeping Barry.
• James Fallows in The Atlantic:  Edward Snowden in Hong Kong.

But is he still in Hong Kong?  Reports say that he checked out of a hotel there.

More on this soon.

–Chris Sturr

The post NSA, Greenwald, Snowden appeared first on Dollars & Sense Blog.

Bacon Toothpaste

(1) Wall Street Real Estate Buying Spree:  You heard it from us first in our March/April cover story by Darwin BondGraham, Whose Housing Recovery? (Ok, other outlets had reported on it, but not as critically and thoroughly as Darwin did.) Now that there is more of a media buzz about the jump in housing prices, we’re hearing more about Wall Street investors buying up foreclosed homes and what might be problematic about that. The New York Times had a Dealbook piece that made the cover of Monday’s paper, Behind the Rise in House Prices, Wall Street Buyers. And from Reuters (via Fiscal Times), Can Cash-Rich Investors Keep Snapping Up Homes? And a little earlier, in late April, from WashPo (via Fiscal TImes), Buying a Home? Better Get to it before Wall Street Does. And more detailed and critical analysis from Naked Capitalism, questioning whether big-money investors are up for being landlords: So Who Is the Dumb Money Ruining the Rental Housing Market?

(2) Doubling Poverty:  Yesterday I posted a longer version of Jeannette Wicks-Lim’s piece from our current issue, Undercounting the Poor.  Jeannette looks at the Census Bureau’s relatively new Supplemental Poverty Measure, which does a better job of capturing how many of us in the United States are poor than the official poverty line does, but the SPM is still inadequate. With her analysis, Jeannette is able to double the percentage of people in the United States who are poor. (Jeez, thanks a lot, Jeannette! Just kidding.) You can see and hear Jeannette talking about her research and findings on the Real News Network’s interview with her: Actual US Poverty Twice Official Figure.

(3) Après moi, le déluge:  Speaking of TRNN:  I have been meaning for a while to post/link to the excellent interview Paul Jay did with German economist Heiner Flassbeck, Après moi le déluge: Make Money Now, To Hell With Tomorrow. It’s part of a series of interviews with Flassbeck covering dysfunctions of savings and investment, misfunctioning of the labor and financial markets, and the idea that taxing corporate profits will force investment.  Worth watching.  We will cover many of these issues in our July/August issue, in an interview with Bob Pollin, UMass-Amherst economist, D&S author, and part of the team that took down Rogaine & Braveheart, uh, I mean Rogoff & Reinhart. We’ll ask him about that too.

(4) Marjolein van der Veen and Naomi Klein:  We have been heavily promoting our lead feature in the current issue, Greece and the Crisis of Europe: Which Way Out? What I admire most about that piece is that Marjo makes a point of talking about options out of the Greek debt crisis and the eurozone crisis that are to the left of Keynesianism and are more worker-friendly. An original piece at Common Dreams by staff writer Andrea Germanos entitled Naomi Klein: ‘Anti-Shock Doctrines’ Show the Way to Resist quotes extensively from Marjo’s discussion of the worker takeover of the Vio.me factory in Greece, to illustrate Klein’s point that people need to see that there are viable alternatives to austerity.

(5) Jerry Friedman on Single Payer in North Carolina:  Nice piece quoting D&S columnist Jerry Friedman in the Charlotte (N.C.) Business Journal, Economist: NC could save $18.7B by adopting single-payer for health care. 

(6) Sasha Breger on Finance and Agriculure:  Sasha Breger, who is writing a piece on agricultural derivatives for our July/August issue, has a series going on Naked Capitalism on big finance and agriculture, including How Big Finance Is Eating the World’s Lunch Agricultural Wealth.

(7) George Packer on Silicon Valley:  I keep meaning to link to George Packer’s New Yorker article from a couple of weeks ago about inequality and the tech industry and Silicon Valley and politics, Change the World. (Sorry, it looks like it’s behind a paywall.) It covers some of the same issues that Rebecca Solnit did in this piece in the London Review of Books, which I blogged about here. It has an extensive quote from my former student Sam Lessin, who is now a bigshot, I gather, at Facebook;  Packer is critical of Sam’s defense of the role of high tech in the economy, but it’s not the most ridiculous view from the industry Packer reports on.  Anyhow, maybe the full text will become available soon. Some people I know (hi, Allen!) are not ready to forgive Packer for his influential support of the Iraq war–I had actually forgotten, but they have a point, especially the parts of the article where Packer seems to be casting aspersions on people’s moral character.

That’s it for now.  I am en route (via Amtrak!) to NYC for Left Forum.  I hope to see many D&S  readers and blog readers there.

–Chris Sturr

The post Links and Upcoming Articles appeared first on Dollars & Sense Blog.

If you didn’t catch this opinion piece by Heriberto Araujo and Juan Pablo Cardenal in the Sunday Review of the New York Times (6/2/2013), I recommend taking a look at it.

I think it reinforces the point that (from pure economic point of view (disregarding democracy, human rights, and the environment) “Authoritarian State Capitalism” easily trumps “Neoliberal Anglo-American Capitalism”.  The Chinese are developing their real economy and world wide sources of supply (including necessary infrastructure and markets [e.g. see this piece about the Chinese and Iraqi oil from Monday 6/2's NYT. --CS]) as we are growing hedge fund billionaires and and destroying our real economy.  Old style “Neoliberal Capitalism” oriented to individual self-benefit does not work and only makes things worse.  The only viable existing democratic alternative is “social democratic capitalism” and for this to really compete with the authoritarian model it probably needs to be pushed more toward democratic socialism. (See the last point in my MayDay manifesto.) Why exactly do we need a private financial sector? Finance after all has very little to do with a “competitive market.” When it’s working well it should be functioning more like a “regulated utility” administering a system of credit rationing and long-term investment planning that supports the real economy. The “Asian Model” has shown that public direction of credit and investment is highly beneficial to long-term growth. The Chinese have just taken this a step farther and in a more authoritarian direction with a much larger economy.

Araujo and Cardenal support the looming “Trans-Pacific  Partnership” trade agreement as an alternative to European inability to combat Chinese predatory state capitalism. But this dystopian nightmare of an agreement would undermine national democratic sovereignty in multiple ways and strengthen the Neoliberal corporatist world economy thus making life even worse for the citizens of the countries included in this agreement as opposed to multinational corporations and their investors. This is the opposite of the direction we need to go as “Authoritarian Corporate Capitalism” is probably even worse than “Authoritarian State Capitalism” which at least has a nationalistic interest in developing one country!  If the former verges on what we used to call nationalistic “fascism,” the latter diminishes the power of the nation-state (democratic or not) altogether in favor of world corporate tyranny by multinationals and their investors. (See for example this New York Times piece.)

The post Ron Baiman: China’s State Capitalism Trumps Neo-Liberal Capitalism appeared first on Dollars & Sense Blog.

Left Form 2013: We hope lots of people go to this year’s Left Forum, now being held in early June vs. March as it used to be, but again at Pace University in lower Manhattan.  I will be personing the D&S exhibit table hawking subscriptions and D&S books and catching up with people.  This year’s theme is “Mobilizing for Ecological/Economic Transformation.”

D&S is co-sponsoring just one panel this year, organized by our esteemed former co-editor Abby Scher, “Unions and the Worker Coop Movement Building Power.” Some details:

Pace University, New York City
Room: W510, Time: Sunday, 9th of June 03:00pm-04:50pm

Abstract: Unions like the United Food and Commercial Workers, UE, Steelworkers and SEIU are doing more than forming worker coops; they are trying to solve some of the key problems in the worker coop movement. Scaling up,financing, gaining government support, and solving legal obstacles are all on the agenda of a core of union members who are also worker coop activists. Hybrid union co-ops are in development that merge the Mondragon worker-owned co-op model from Spain with the traditional U.S. union model based on collective bargaining.

Chair, Speakers: Abby Scher — Dollars & Sense, Denise Hernandez — Cooperative Home Care Associates, Michael Peck — Mondragon-Steelworkenrs partnership, Carmen Huertas-Noble — CUNY School of Law, Brendan Martin — Working World

Our sister organization and pals the Union for Radical Political Economics have put together a whole slew of panels–eight in all!  Here are the details:

1) Primitive Accumulation in Light of the Current Onslaught of Austerity

Session 2. Saturday 12 noon , Room W613

Michael Perelman • David McNally • Michael Hudson

This panel addresses the damage austerity is doing to the economy and society.  Its backdrop will be Karl Marx’s analysis of the role of classical primitive accumulation.  For all its brutality, classical political accumulation may deserve some credit in promoting the development of capitalism’s productive capacity.  In contrast to classical primitive accumulation, the modern variant seems to be almost entirely extractive, feeding the voracious appetite of finance capital, by consuming what might otherwise nourish the lives of the people, including those parts of the public sector that serve human needs.

2) The Wealth Gap for Women – Have We Really Come a Long Way?

Session 2. Saturday 12 noon, Room E304

Peg Rapp • Susan Pashkoff • Diana Zavala • Barbara Garson • Irene Ortiz Rosen

The wage gap between women’s and men’s individual wages is the most standard indicator used to define women’s march toward equality. The wealth gap for women, in contrast, is defined as the total wealth a woman has obtained, minus any wealth contributed by inheritance or a spouse. In the overall wealth gap, women have 8% of the wealth of men, a much greater degree of inequality than indicated by the wage gap. Since the wealth gap is also based on many more variables, we will show how the wealth gap is a much more effective indicator of women’s oppression since it can approach the analysis not only in terms of the individual wage, but in relation to the patriarchal institutions of marriage and the family, as well as class, race and imperialism. We will show how the patriarchal system under capitalism has not provided an adequate alternative structure to deal with social needs provided outside the capitalist market and how excluding women, people of color and subsistence workers in imperialized countries from the capitalist wage labor paradigm creates a group of super-oppressed predominantly women workers. We will discuss how women have fought for the social safety nets provided by society to support unpaid caretaking work – free public education, public health clinics, childcare and eldercare – only to see them being cut worldwide in an effort to “re-privatize” women’s labor so that capitalist society will not be held responsible for the cost of women’s work outside the market.

3) The Political Economy of US Healthcare, the Medical Industrial Complex and the Affordable Care Act

Session 2. Saturday 12 noon, Room W511

Robert Chernomas • Robert Kemp • Matt Anderson • Francesca Lo Basso

The US healthcare system is the most expensive (as a percent of GDP) of all the advanced industrial countries, and despite that produces healthcare outcomes that rank among the lowest. This difference is both a result and cause of the extraordinarily high profits in the industry, and more broadly of being a healthcare for profit system. This panel looks carefully at the political economy of the US Medical Industrial Complex, the current Affordable Healthcare Act, and what would be necessary to create an acceptable alternative.

4) Eco-Capitalism and the Myths of the “Green Economy”

Session 3. Saturday 3:40 pm, Room E304

Brian Tokar • Les Levidow • Rachel Smolker • Carlos Marentes

— Cosponsored by the Global Justice Ecology Project and URPE —

The goal of “greening” the economy, once promoted by environmental activists worldwide, is now increasingly co-opted by those who seek to control, plunder and commodify all of nature. This agenda has played out at several recent international gatherings, in an aggressive “green economy” development agenda, in economic assessments of natural resources, and in new financial instruments to create markets for them. Proponents suggest that economic growth and current consumption levels can be made environmentally sustainable by shifting to more resource-efficient modes and more flexible resource allocations without challenging capitalism. This panel will offer diverse critical perspectives on the new eco-capitalism, as well as how people are organizing globally to challenge this agenda and advance alternative development models.

5) Climate Justice: Challenges and Prospects for an Emerging Movement

Session 4. Saturday 5:30 pm, Room E303

Brian Tokar • Patrick Bond • Chris Williams • Marcela Olivera • Jacqui Patterson

“Climate justice” has become a unifying call for movements for indigenous rights, racial justice, alternatives to capitalism, and more. The overarching aims are to highlight the social dimensions and underlying inequities of the global climate crisis, press for genuine, justice-centered solutions, and influence the broader climate movement in a more countersystemic direction. This panel will offer a variety of US and international perspectives on the current state of climate justice, and the potential for a more unified and radical movement to challenge the root causes of global climate disruptions.

6) Iran: The Presidential Election of June 2013

Session 4. Saturday 5:30 pm, Room E330

G. Reza Ghorashi • Hamideh Sedghi • Mohammad Soleymani • Hamid Zangeneh

On June 15th Iran will elect a new president. Some have suggested this is the most crucial election that the Islamic Republic has faced. In this panel the major candidates and their chances for being elected will be evaluated. Furthermore, potential socioeconomic and political consequences of their election will be explained.

7) Electoral Politics: Demobilizing Swamp or Tactic for Social Transformation?

Session 5. Sunday 10 am, Room W211

Al Campbell • David Laibman • Stephan Edel

From its earliest days, the working-class movement has debated the nature of the representative state in capitalist societies and the desirability of participation in national electoral processes as a means to contest for political power and lay foundations for revolutionary transition.  This panel has several goals: to bring systematic political-economic thinking to bear on this issue; to consider whether capitalist evolution, from mid-19th century to the present, requires new perspectives on the electoral state; and to broaden the framework for this discussion to include present-day globalizing capitalism, the Global South, the BRIC countries, and the impact of transnationalization and neoliberalism.

8) The Revolutionary Project of Social Ecology

Session 6. Sunday 12 noon, Room E307

Brian Tokar • Dan Chodorkoff • Chaia Heller • Eleanor Finley

Since the 1960s, social ecologists have advanced a revolutionary outlook that examines the problematic relationships between society, capitalism, social hierarchy and the natural world. Three generations of social ecologists will discuss social ecology in historical, philosophical, and political terms, focusing significantly on social ecology’s political strategy, which is rooted in confederated direct democracy. We will also trace the role that social ecology has played in informing movements from the anti-nuclear movement and ecofeminism, to the alter-globalization movement (Seattle, 1999), and Occupy and its many offshoots.

Wow!  I am hoping to catch some of these, especially Perelman/McNally/Hudson.

Subscribers and blog followers, please stop by the D&S table to say “hi”!

–Chris Stur

The post Left Forum 2013, June 7-9, NYC appeared first on Dollars & Sense Blog.

(1) Greece and the Crisis of Europe: Which Way Out?  We’re happy to have just posted to our website the lead feature article from our current issue, Greece and the Crisis of Europe: Which Way Out? by Marjolein van der Veen. We’ve covered Greece and the eurozone crisis pretty thoroughly over the past couple of years. This article makes a new contribution by not just reviewing the neoliberal “solutions” to the eurozone crisis and Greece’s problems in particular, but by looking at alternatives;  and by looking at not just Keynesian alternatives, but also socialist alternatives.

(2) Bhaskar Sunkara’s Open Letter in The Nation:  I recommend a piece by the editor of Jacobin magazine, Bhaskar Sunkara, in the current issue of The Nation:  Letter to The Nation from a Young Radical.  The piece grabbed me from the first few paragraphs:

When I was growing up, the dinner table in my household was full of extremes. My immigrant parents encouraged intemperate arguments. Depth of knowledge was no barrier to entry, and only one rule applied: don’t be boring. It was an easy environment in which to loudly proclaim oneself a socialist.

Things were different at the dinner tables of my childhood friends. Maybe it was because the conversations were kept to reasonable volumes or more cutlery was used, but I found myself wishing for different convictions. The chatter would inevitably turn to politics in conventional terms: Kerry or Bush, liberal or conservative, pre-emptive bombing or targeted sanctions? There was no “none of the above” on the menu. When pressed, I would meekly call myself a socialist, all the while regretting that I couldn’t just utter the word “liberal” instead.

“Like Sweden?” I would be asked. “No, like the Russian Revolution before its degeneration into Stalinism.” It’s a wonder I was ever invited back. But liberalism—including in the pages of The Nation, save for a few redeeming essays and columns—seemed, even at its best moments, well-intentioned but inadequate. It’s a feeling that I haven’t been able to shake.

Sunkara’s friends’ dinner tables–where you don’t feel comfortable talking about socialism–are an apt metaphor for left-liberal circles in the United States these days, though we hope that is changing.

(3) Ron Baiman of CPEG on Apple’s Tax Evasion:  Ron Baiman of the Chicago Political Economy Group will be blogging for us regularly we hope.  Here’s a post from him on Apple and corporate tax evasion: 

 Special “People”, Special Countries, Special States, and Special Schools

It’s been interesting following the recent press on corporate tax avoidance, and in Chicago, the ignominious public school closings. I thought it would be useful to take a minute to draw out the linkages.

The biggest revelation from Apple’s tax avoidance strategy has been its scheme to set up “corporate persons” who don’t reside anywhere. Apple set up an Irish subsidiary incorporated in Ireland (and therefore not liable for U.S. corporate taxes) but managed from California (and therefore not subject under Irish law to Irish taxation) that has rights to the income from all of the companies trademarks and patents in Asia, Africa, and Europe.  Presto!  This special corporate person is not legally liable for any taxes – a step up from the usual multinational “transfer pricing” and “off-shore” tax haven strategies where the poor “corporate person” still has to at least have a place of residence!

But it turns out that, toward the U.S. at least, we should be (as most of the U.S. Senate was) thankful to Apple as it is more generous than many of its rivals’, like Microsoft, as it “…appears to be almost conservative in its approach of not trying to move any portion of profits on sales to U.S. customers into its overseas structure as some other groups of done.” (The quote is from Univ. of Washington Law Prof. Jeffrey Kadet.) Thank you, thank you, Apple!  The funny thing is that most of us “real people” don’t have this choice to decide where “a spirit of generosity” (or political astuteness) will strike us and induce us to actually pay some taxes.

I say “most” of us “real people” as last year it became apparent that some “real people” (or maybe not so “real” people – like Mitt Romney–remember him? ) have found a way to turn all of their often obscene compensation into earnings for their special corporate “person” who can pay an extra low (15%) “capital gains” tax on this so-called “carried interest” instead subjecting it to a real “biological person’s” income tax rates.  So these real people have found a way to turn themselves (or their tax liability anyway) into that of a corporate “person.”

Speaking of those special “people,” I learned in intro economics that one of the main advantages of  a “corporate person” is that it’s “owners” i.e investors (funny I thought that we’d at least gone beyond outright slavery–that is one person “owning” another person!) were not “personally liable” if the “corporate person” went bankrupt–only the investments in the corporations were liable. In return for this and other special privileges granted to “corporate persons” but not regular persons, these legal constructions had to pay something back to the community in taxes and fees, which through the accumulation of decades of loopholes has declined from about 26% of federal revenue in 1950 to less than 10% in 2013. Instead of corporate “people,” real people have had to pay these taxes and in the most regressive way, as the federal revenue share of the payroll tax has correspondingly increased from 11% to 35% today.

But  it turns out that corporate “persons” have not just figured out a way to “live” without legally residing anywhere – they can also be “corporations” without actually being “corporations” – by becoming so-called “pass through corporations” – “sort-of corporations” that enjoy many of the benefits of the “real” corporations including “increased protection against personal liability for their businesses debts” without having to pay corporate income tax. Wow!  These very special corporate “persons” can be “persons” when it come to privileges but “non-persons” when it comes to taxes. “Pass-through corporate ghosts” that, I imagine, reside in the same “never land” with the real corporate “people” that live no where. It turns out that beginning in the 1980s (the time when so many other glorious Neo-Liberal economic “reforms” originated) when about one quarter of net business income came from “pass-throughs,” these “ghost corporate persons” now dominate the “corporate” landscape making up 32 million of the 34 million business tax returns filed in 2009 and 70% of net business income. Many of these are “small businesses” but increasingly they are large companies as well.

Anyone up for a new religion?  For a  large fee the new religion would be able to transmigrate your soul from physical being to corporate “being” to an even more ephemeral “special” corporate beings with no-residence, and back again – if you so desired to a  “sort-of corporate being” that is not (for legal tax purposes) a “corporate person” at all – but presto! (for tax purposes)–a “real” person again!

OK–what about those “special” countries?  These are the “shirkers,” “scabs,” “free-loaders,” “right-to-workers,” or what-ever you want to call them. Countries that undermine collective decisions by exempting themselves from the rules, or standards, set by the larger community of nations. By doing this they are effectively robbing everyone else of billions in tax revenues (and investment, employment and income).  The Congressional Research Service found in 2008, for example, that the U.S. corporations operating in the top five tax havens (the Netherlands, Ireland, Bermuda, Switzerland, and Luxemburg) supposedly generated 43% of their foreign profits in these tiny countries even though they had only 4% of their foreign employees and 7 percent of their foreign investment located in them.

Moreover this is not just an international phenomenon.  It also happens right here in the good old USA as part of “competition” between states. Seven states: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, for example have no personal income tax. When I was analyzing the Illinois tax system I found that the highest income earners (with over a million dollars in federal AGI) had an effective Illinois tax rate that was about half of that of average upper income filers.  It turns out that a key reason for this is that many of these filers are “non-resident” and therefore can be taxed only on income that originates in Illinois. By buying a condo in Florida for example and claiming residency there – presto! – no taxes on any income (especially property and financial) that is sourced from outside the state! Conveniently, Florida also offers “homestead protection” from creditors, so if you sink your ill-gotten millions into a mansion on the beach no one can take it away from you!  Also, conveniently, many of these filers are S-Corps (Illinois’ version of “pass-through” corporations).  Oh, and five of the seven including Florida (all except Alaska and Washington) are “Right to Work for Less” states as well! I guess it’s lucky that they don’t uphold the “right” of a “real person” to own a “real person slave”!  Whops, I forgot for a moment!  We fought a civil war to abolish at least this kind of “special-ness”!

And what about those “special schools”?   Most of you outside of Chicago have probably not heard of our Mayor’s new scheme to close scores of public schools (claiming lack of revenue) and at the same time come up with $ 55 million in public revenue to subsidize a sports arena for a private Catholic College with a less-than-stellar basketball team. Many of us are quite convinced that this is part of an ongoing effort to penalize the Chicago Teacher’s Union for decisively clobbering the Mayor and his Education Czar during last year’s strike and to continue the ongoing effort by, Rahm, Obama–through U.S. Education Secretary (and former Daley School Board Chief) Arne Duncan, and Penny Priztker and the “Stand for Children” crowd, to undermine public education in favor of a mostly non-union private “charter school” system. It turns out that Rahm’s children (and those of Obama, and probably Duncan and Pritzker if they have any–Duncan’s a Lab School graduate) go to private schools with small class sizes and strong teacher’s unions (at least in Rahm’s case) with generous contracts and clauses that give the teachers a large role in school administration–the opposite of the “Charter School” model. These schools also “cream skim” students from the highest income and most involved parents, schools that can also exclude the most-disruptive and learning challenged students. In other words, “special schools” like “special corporations,” “special states,” and “special countries” that undermine collective standards and gain special benefits by offsetting social burdens on everyone else.

I realize that none of this is “rocket science”–but it seems important to point out these connections!

–Ron Baiman

(5) Bill Black on Money Laundering:  We’ll be cross-posting Bill Black’s posts from New Economic Perspectives (and other sites).  Here’s his latest, comparing the Department of Justice’s charges of money laundering against Liberty Reserve with the case HSBC:

How Dare DOJ Insult HSBC’s Crooks as Less “Professional” than Liberty Reserve’s Crooks?

Standard Chartered and HSBC’s leaders must be doubly humiliated by the description by Mythili Raman, the acting head of the U.S. Department of Justice’s (DOJ) Criminal Division, of Liberty Reserve’s money laundering operation.  UK laws are, of course, very congenial to those suing for libel and I am sure that these banking titans are meeting with their solicitors to demand a retraction and apology from Raman.  In the very first clause of her May 28, 2013 statement to the media on the actions against Liberty Reserve’s controlling officers, Raman emphasized how “professional” they were as money launderers:  “Today, we strike a severe blow against a professional money laundering enterprise charged with laundering over $6 billion in criminal proceeds.”   In four paragraphs, she used the word “professional” three times and “sophisticated” once to describe Liberty Reserve’s money laundering.

In her second sentence she continued her emphasis on how large Liberty Reserve’s money laundering operations were.  Raman claimed that DOJ’s action against Liberty Reserve was “the largest international money laundering prosecution in the history of the Department.”  She described the scale of Liberty Reserve’s operations as “enormous” and a “massive criminal enterprise.”  Paragraph 10 of the indictment labels the scope of operations as “staggering.”

http://www.justice.gov/criminal/pr/speeches/2013/crm-speech-130528.html

The indignant response of Standard Chartered and HSBC’s leaders to Raman has to be:  “and what are we, chopped liver?”  The government charged Standard Chartered was a massive money launderer that Iran used to escape sanctions designed to keep them from developing nuclear weapons,

[T]he New York State Department of Financial Services [NYDFS] accused Standard Chartered of laundering $250 billion for the state of Iran and other Iran-based clients over a 10-year period which, the regulator said, “left the US financial system vulnerable to terrorists, weapons dealers, drugs kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity”.

NYDFS found that Standard Chartered laundered funds for Iran for a decade and made elaborate efforts to prevent regulators from learning of their frauds.  Like fish, Standard Chartered rotted from the head.  When an American officer objected to the bank’s frauds the response was heated.

“Richard Meddings, Standard Chartered’s executive director, was quoted using expletives to disparage America’s insistence on an economic blockade of Iran. He told an official in the bank’s New York branch:. ‘You f***ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?’”

http://www.heraldscotland.com/business/company-news/banking-industry-must-rebuild-from-new-foundations.18556736

I described in a prior article how HSBC hit the money launderer’s trifecta.

1.         Laundered billions of dollars for some of the most murderous drug gangs in the world. These gangs have murdered many thousands of Mexicans and devastated much of the nation.

2.         Aided Iranian entities to evade U.S. financial sanctions on Iran. If Iran is actually developing a nuclear weapon and if it uses such a weapon to attack it could kill tens of thousands of people and HSBC and Standard Chartered will likely have proven useful to Iran in developing the weapon..

3.         Aided Hamas, Hezbollah, and al Qaeda to evade U.S. financial sanctions. The U.S. considers them terrorist organizations.

http://neweconomicperspectives.org/2012/12/the-second-great-betrayal-obama-and-cameron-decide-that-banks-are-above-the-law.html

“In total, the bank’s U.S. and Mexican units failed to monitor more than $670 billion in wire transfers and more than $9.4 billion in purchases of U.S. dollars from HSBC Mexico (BIBC), Breuer said.”

http://www.bloomberg.com/news/2012-12-12/hsbc-mexican-branches-said-to-be-traffickers-favorites.html

To sum it up, just one facet of Standard Chartered’s money laundering and one facet of HSBC’s money laundering operation were, respectively, over 40 and 100 times larger than Liberty Reserve’s “staggering” total money laundering for all purposes.  The frauds came from the top and in the case of Standard Chartered the sincerity of the remorse at the top was promptly and publicly demonstrated.

“Peace, who told reporters at a March 5 press conference that the firm had no ‘willful’ intention to dodge U.S. rules, said in a statement today that earlier claim was ‘wrong.’

Standard Chartered Plc Chairman John Peace said his original comment “directly contradicts Standard Chartered’s acceptance of responsibility in the deferred prosecution agreement.”

Standard Chartered Plc Chairman John Peace said his original comment “directly contradicts Standard Chartered’s acceptance of responsibility in the deferred prosecution agreement.”

Under the settlement it reached with U.S. regulators last year, the bank entered into a deferred prosecution agreement with the Department of Justice. As part of that deal, the U.S. charged the bank with conspiring to violate the International Emergency Economic Powers Act, a charge that will be dismissed after two years as long as the bank abides by the agreement.

‘As part of these agreements, we rigorously monitor the banks for continued compliance, and subsequently addressed this violation by Standard Chartered for not accepting responsibility for its misconduct,’ Joan Vollero, a spokeswoman for the Manhattan District Attorney, said by e-mail. ‘We demanded a public repudiation and they complied.’

Peace, 64, said his original comment ‘directly contradicts Standard Chartered’s acceptance of responsibility in the deferred prosecution agreement.’ The firm ‘unequivocally acknowledges and accepts responsibility, on behalf of the bank and its employees, for past knowing and willful criminal conduct in violating U.S. economic sanctions.’”

http://www.bloomberg.com/news/2013-03-21/standard-chartered-chairman-apologizes-for-sanctions-claim-1-.html

What this all means is that two of the largest banks in the world, which reap massive explicit and implicit subsidies from the government, were criminal enterprises for at least a decade.  Each engaged in violations that were vastly larger than Liberty Reserve.  Liberty Reserve’s violations were huge, severe, and warranted the toughest possible prosecution – complete with freezing and forfeiting all of its accounts.  The violations of the banks, by contrast, were massively larger, occurred over a longer period, led to vastly greater profits for the banks and the officers, and did vastly greater harm to the world including the loss of life and the potential mass loss of life in the future.  DOJ refused to prosecute any of the officers for “knowing and willful criminal conduct.”  Incredibly, it insisted on only a two-year period of DOJ leverage over Standard Chartered’s operations to ensure (short-term) compliance with the law.  Standard Chartered promptly violated the agreement – and DOJ insisted they apologize.

The DOJ’s claim that Liberty Reserve’s leadership was “professional” and “sophisticated” is farcical.  They were clowns.  Their web site is illiterate (once one gets past the initial screen).  Their invitations to join the many Ponzi schemes they pushed on their web pages are so unprofessional (though littered with the word “professional”) and unsophisticated that one cannot have any sympathy for anyone victimized by the Ponzis.  Here’s an example of one of the pitches that is more literate in English (but financially illiterate):

“By far our most popular investment pays investors a daily return of 900% daily [sic] for a period of 4 days for a total return of 3600% with a minimum investment of only $50,000 USD!”

The word DOJ should have ascribed to the leaders of the Liberty Reserve control fraud was “audacity” – not any variant of “professional” or “sophisticated.”  Audacity is the characteristic that separates the most dangerous frauds from their peers.

For their massive and highly profitable crimes, DOJ took no action against any officer of Standard Chartered or HSBC.  It announced, instead, the shameful “too big to prosecute” doctrine that announced DOJ’s surrender to crony capitalism.  Now, DOJ wishes to tout Liberty Reserve as the great triumph that proves that money laundering will never succeed.  But Liberty Reserve’s criminal customers overwhelmingly succeeded.  First, they succeeded because the initial sentence of five years imprisonment for the leaders of what would become Liberty Reserve for their crimes at their prior firm that specialized in money laundering was reduced to probation.  The leaders immediately began their new fraudulent scheme.  Criminal justice penalties for white-collar frauds are often absurdly low.  Second, DOJ failed to act for years even though Raman emphasized that the co-founder of the Liberty Reserve control fraud noted that DOJ knew it was a control fraud.

“His co-founder doubled down on that sentiment in an online chat captured by law enforcement, noting that ‘everyone’ in the United States, such as ‘DOJ,’ knows that Liberty Reserve is a ‘money laundering operation that hackers use.’”

The obvious question for reporters to ask is when DOJ first knew that Liberty Reserve was a money laundering operation.  Given the criminal records of its controlling officers, the public manner in which Liberty Reserve operated, its structuring of every aspect of the firm’s operations to assist money laundering, and the fact that the DOJ states that the users of Liberty Reserve’s services were “virtually all” criminals (including 200,000 in the U.S.) DOJ should have had ample intelligence on Liberty Reserve’s criminal nature within weeks of when it began operation in 2006.  (See Indictment, paragraph 10.)  The government eventually had an investigator open Liberty Reserve accounts, which confirmed the anonymity and lack of anti-money laundering systems.  The government could have done so at any time.

We know from paragraph 10 of the indictment that once Liberty Reserve ramped up its operations (it began by “growing exponentially,” Indictment, paragraph 13), every year the DOJ delayed closing down Liberty Reserve an average of 12 million unlawful financial transactions occurred totaling $1.2 billion.  We also know that during its over six years of operations Liberty Reserve conducted roughly 55 million (“virtually all” criminal) financial transactions totaling over $6 billion and that DOJ has asked the court to issue a forfeiture order for $6 billion.

Paragraph 19 of the Indictment contains this wonderfully revealing insight into DOJ’s willful blindness about Standard Chartered and HSBC’s vastly larger, longer lasting, and more damaging money laundering: “Liberty Reserve users … engaged in criminal transactions with an impunity that would have been impossible in the legitimate financial system.”  Right, unless, of course, we consider Standard Chartered and HSBC.  The DOJ shares the unintentional irony of the finance professors who recently authored a study that concluded that control fraud was “pervasive” at our “most reputable” banks during the run-up to the ongoing crisis.

http://neweconomicperspectives.org/2013/02/pervasive-fraud-by-our-most-reputable-banks.html

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2215422

Paragraph 26 of the Indictment reveals that FinCEN sent out an alert on November 18, 2011 that Liberty Reserve was being used by criminals to launder funds.

Raman boasted at the press conference that DOJ and its international partners had succeeded in “restraining over $25 million in criminal proceeds.”  That represents less than one-half of one percent of the money that was laundered.  Raman claims that the greatly delayed prosecution of Liberty Reserve sent the message that law enforcement always triumphs over money laundering.  The reality (revealed by DOJ’s own indictment) is that over a million criminals were able to launder over $6 billion in criminal proceeds through Liberty Reserve for over six years.  Other criminals were able to launder far greater amounts through Standard Chartered and HSBC for over a decade.  DOJ keeps calling massive defeats stirring victories.

The thing that is most troubling about Liberty Reserve is that it had no political power in the U.S.  No one in power in the U.S. would have pushed back if DOJ had put Liberty Reserve out of business in 2006 or early 2007.  The FBI, DEA, Secret Service, and Treasury would have learned about Liberty Reserve’s illegal operations almost immediately – they were too large, too open, and it was run by felons who were known money launderers.  With a million money launderers using the site we must have had scores of informants who knew that Liberty Reserve was being used to launder proceeds and there must have been thousands of criminals arrested who had the incentive and ability to reduce their sentence by informing on Liberty Reserve.  The fact that a money laundering operation as blatant and crude as Liberty Reserve’s (the web site screams “fraud”) with no political patrons in the U.S., and no concerns about “too big to prosecute” could stay in operation for over six years despite the government’s knowledge that it was engaged in massive money laundering and be allowed to “grow exponentially” and become “the bank of choice for the criminal underworld” (Indictment, paragraphs 13, 19) demonstrates how badly our criminal justice system has failed against control frauds.

We use the phrase “Pyrrhic victory” because of the candor of King Pyrrhus of Epirus.  He won multiple victories over the Romans, already renowned for their military prowess, in southern Italy.  When he was offered congratulations on these victories he replied that one more such victory would ruin his army.  Pyrrhus’ victories were real.  He inflicted greater losses on the Roman troops and he held the field after the battles.  Pyrrhus demonstrated competence as a military leader and bravery in the field.  Pyrrhus understood, however, that his lines of supply were long and that he could not replenish his lost men and experienced officers while the Romans could do so.  The Justice Department has been losing the struggle against control frauds for well over a decade.  Pyrrhus was competent and candid enough to proclaim that his tactical victories represented a strategic defeat.  DOJ propagandists are now expert at claiming that abject defeats represent triumphs.  In honor of the unintentional comic genius dubbed “Baghdad Bob” who announced Iraqi forces’ fictional triumphs over the U.S. army, we should honor the DOJ’s propagandists with the sobriquet: “Beltway Bob.”

–William K. Black

That’s it for today–sorry about how long this post is.  In future we’ll post Ron’s and Bill’s (and other guest contributors’) posts separately.

–Chris Sturr

The post Baiman on Apple; Black on Money Laundering; etc. appeared first on Dollars & Sense Blog.

Protest Potatoes

(1) David Cay Johnston on IRS “Scandal”:  There was a very good Salon.com piece about this, The real IRS scandal: Targeting by class, quoting David Cay Johnston. Here are key nuggets:

It’s pretty simple, then, to figure out what took place. The IRS, faced with the enormous task of dealing with a surge of 501(c)(4) groups taking advantage of an often contradictory law, performed triage by taking the path of least resistance – going after the most obvious targets, who didn’t have the resources to artfully stay within the tax laws, or to fight back against invasive reviews. They shied away from the heavily lawyered-up big-money groups, and instead focused on battles they thought they could win.

This has precedent within other parts of the IRS. According to data from the Transactional Records Access Clearinghouse at Syracuse University, IRS audits of the largest and richest corporations have steadily declined since 2005, down 22 percent in the ensuing four years and even more from 2011-2013. In the same period, the agency accelerated its scrutiny of small and midsize corporations. Since 2000, the IRS has been more likely to audit the working poor, individuals and families making under $25,000 a year, than those making over $100,000 annually. The middle class received disproportionately more audits throughout the past decade as well. An IRS unit formed in 2009 called the Global High Wealth Industry Group, designed to give special attention to tax compliance of high-wealth individuals, performed exactly two audits in 2010 and 11 in 2011.

Salon asked David Cay Johnston, author of many of the above-linked reports, whether it was fair to assess the IRS fixing its attention on more vulnerable populations as a pattern. “We know broadly that when government takes enforcement actions, it tends to go after the little guy,” he replied. Johnston gave the example of so-called financial fraud prosecutions that target penny-ante operators instead of the largest Wall Street institutions. And just as the Justice Department tends to avoid suspects with more clever lawyers, the IRS could shy away from more fearsome individuals and groups as well.

The rest is worth reading.  And here is David Cay Johnston on Democracy Now!.

The other big tax news, of course, is the spectacle of Apple’s Tim Cook getting hauled before a Senate subcommittee about Apple’s tax evasion and lecturing them on how the corporate tax code should be changed. So corporations shape the tax code to the point where they can legally avoid paying taxes on billions, and when criticized for this they demand that they be able to further dictate the tax code.  Anyhow, I haven’t seen anything great on this–suggestions would be appreciated.  (I heard a kind of crappy interview with Carl Levin on Marketplace–Kai Risdall kept getting Levin to admit that he was responsible for Apple’s sins, because he’s been a senator for so many years.)

(2) Voices of Foreclosure Fraud:  I keep meaning to post a link to the incredible Naked Capitalism post from a week or so ago, Voices of the Harmed Borrowers on Rust Consulting.  It’s really moving.  Rust Consulting is the firm that is supposed to send out settlement checks from the botched Independent Foreclosure Review.  They are giving people the runaround bigtime, and people have found an outlet in Naked Capitalism for their stories.

For good news on this front, check this out:  500 people from a group called the Home Defenders League protested “too big to jail” at the Department of Justice, with 27 arrested.  Let’s have more of this, please.

(3) Tim DeChristopher Released:  Climate activist and former University of Utah econ major (and probably D&S textbook user) Tim DeChristopher was released after 21 months in federal prison.  (Info about him from the last time I posted about him, here.) Here’s an interview with him on the Real News Network. We hear he’s coming to our neck of the woods, as a student at Harvard Divinity School.  And there’s a new documentary out about him, Bidder 70.

(4) Monsanto Targets Scientific Journals:  Another great piece from sometime D&S author Jonathan Latham (he wrote our March/April 2012 cover story, Way Beyond Greenwashing) of Independent Science News, on how Monsanto is suppressing scientific research by placing sympathetic scientists on a journal’s editorial board. The piece (co-authored by Latham and Claire Robinson)  is called The Goodman Affair: Monsanto Targets the Heart of Science, and it is well worth reading.  The piece mentions an earlier hair-raising case of big pharma company Merck getting scientific publisher Elsevier to publish a fake journal, including reprints of articles from other Elsevier journals, just so it could include Merck-friendly (and non-refereed) articles. The fake journal was called the Australasian Journal of Bone and Joint Medicine. Who would have suspected?

It all reminds me of the Rogaine & Braveheart–er, I mean the Rogoff & Reinhart affair, where elites’ handpicked economists plant a data-challenged non-refereed article in a leading journal and thereby influence policy.  Except that economics never really had much claim to being a science.  Speaking of which…

(5) More Heterodox Grad Students Pile onto R&R:  Some grad students from the University of Missouri at Kansas City (another of the great heterodox economics departments, and adopter of D&S textbooks), Matthew Berg and Brian Hartley, have found further flaws in Rogoff and Reinhart’s paper, in a post the the New Economic Perspectives site entitled Debt-to-GDP Ratios and Growth: Country Heterogeneity and Reverse Causation, the Case of Japan (Ultra Wonky).  Read if you dare.  (Actually, though it’s harder-going than the Herndon-Ash-Pollin paper, I could get the main points, and apparently in some ways it’s more devastating, from what I gather from the comments section.)

(6) More Retro Reports:  I mentioned that my friend Harry Hanbury is now with a great new project/organization called Retro Report, which looks back at how the news media screwed up media frenzies way back when.  They have two more short videos out, both of which are great:  The Legacy of Tailhook, and Crack Babies: A Tale from the Drug Wars.

That’s it for now.

–Chris Sturr

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