New Issue! Plus–Fed Rate Hike Explained

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Our new issue is at the printers!  Print subscribers should get their copies in the first week of January (the holidays will delay things a bit), and I expect to email the issue to e-subscribers early next week.

We have posted one feature from the issue, Marty Wolfson’s The Fed Raises Rates–by Paying the Banks.  (For more on the Fed’s rate hike, see Gerald Epstein’s The Fed’s New “Operation Twist”:  Twisted Logic over at our sister blog, Triple Crisis.)  You can see the table of contents of the Jan/Feb issue here.  And here is our p. 2 editors’ note, which gives an overview of the issue:

Greed?

In this issue, we paired the article “How Private Equity Works—And Why It Matters,” by Eileen Appelbaum and Rosemary Batt, with Dutch Renaissance painter Pieter Bruegel’s Avaritia, from his Seven Deadly Sins. Breugel depicts not only Greed (as a mythological figure), but a host of surrounding figures whose machinations illustrate the sin. And Bruegel lived in the 16th century, so he didn’t know the half of it.
Greed would appear to come up in this issue over and over again:
Appelbaum and Batt describe how private equity firms buy out target companies with borrowed money, load them up with debt, strip them of valuable assets, and pay themselves extraordinary dividends and fees. And it’s (mostly) legal.
In his article on the Federal Reserve’s recently announced interest-rate hike, Marty Wolfson explains that the Fed is planning on paying banks billions of dollars in interest (even though it need not). It’s a windfall for the banks, and just another example of how the public authority acts in the service of private “greed.” The Fed’s conduct of monetary policy is channeled through private banks and beholden to their interests. More, its decision-makers see it as their sacred mission to act as protectors and benefactors to high finance.
Matías Vernengo gives us yet another example, this one from Argentina. The country’s newly elected right-wing president has promised currency and spending policies that would be misguided—though could be rationalized—as responses to a serious international payments crisis. Yet there is no such crisis in Argentina! The only way to make sense of these policies is as a deliberate offensive, on behalf of the wealthy elite, against the laboring masses.
The neoliberalism that Vernengo recognizes as “resurgent” in Argentina, after an interlude of relatively pro-worker and pro-poor policies, meanwhile, has been the dominant tendency of capitalism worldwide for decades. As David Kotz argues in his cover story on “Neoliberalism, Its Crisis, and What Comes Next,” this epoch has seen the most predatory and destructive forces of capitalism unleashed from the restraints of labor organization and state regulation.
A critique of greed, a condemnation of it as a sin (as Breughel’s engraving frames it), however, simply does not suffice. In the medieval morality play, the social order torn asunder by sin is restored by purgation and repentance. In the police procedural of modern capitalist society, the social order upset by crime is restored by the administration of justice.
If sin is an offense against the social order, though, greed is no sin today. As Noam Chomsky put it back in the mid-1990s, amidst a surge in media criticism of “corporate greed”: “Talk about corporate greed is nonsense. Corporations are greedy by their nature. They’re nothing else. … You can’t make them more or less greedy.”
Far from being an offense against the order of contemporary capitalist society, greed is at its foundation. Greed is neither a sin whose perpetrators must fear for their souls, nor a crime whose perpetrators must fear earthly justice. And the battle against institutionalized greed seeks not to restore the social order, but to overturn it.

Tuesday Links: London Whale, S.A.C. Capital, Jeff Madrick

Apologies about the break from posts for the past week plus.  I just moved apartments, and that kept me from blogging. (Though around the same time I was moving we had some troubles with our sister blog, Triple Crisis, which also took up a lot of time. I have found some temporary fixes for our troubles, but if there are any WordPress developers out there who could give us some pro bono help with our two blogs (which both run on WordPress) and our website (which we intend to shift over to WordPress), please drop us a line.) Here are my latest links:

(1) Jeff Madrick’s Seven Bad Ideas:  I have been listening to, and enjoying, the audiobook version of the new book by Challenge editor and economic journalist Jeff Madrick, Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World. If you’re in the DC area, Madrick will be speaking about his book at EPI this Thursday (1-2:30pm) with Brad DeLong and EPI’s Josh Bivens. Event announcement here. Find a pretty positive review of the book in the NYT by Krugman here.  And find an interview Alternet’s Lynn Parramore did with Madrick here.

(2) Scathing report critical of NY Fed:  The Inspector General of the Federal Reserve just put out a report (summary here; article from Bloomberg here) saying that as early as 2008 and 2009, the NY Fed had info about problems with JPMorgan’s investment office that eventually lost billions because of the so-called “London Whale,” but failed to follow up on the information. This is very juicy, especially given what has come out about the NY Fed as a result of the 46 hours of secret recordings made by NY Fed examiner Carmen Segarra, who was apparently fired for asking too many questions about the bank she was “embedded” in, Goldman Sachs.  The This American Life episode about Segarra (here) is well worth listening to; the reporting was done in partnership with Pro Publica’s Jake Bernstein (here).

(3) Patrick Radden Keefe, “The Empire of Edge”: A great piece in the second-most-recent New Yorker (hat-tip TM) about hedge-fund billionaire Steven A. Cohen of what was S.A.C. Capital and insider trading, “The Empire of Edge: How a doctor, a trader, and the billionaire Steven A. Cohen Got entangled in a vast financial scandal.” The elderly Alzheimer’s researcher who provided the inside information that allowed Cohen and his company to make hundreds of millions shorting stock of two pharmaceutical companies was disgraced; the trader for S.A.C. Capital who courted the doctor and presumably brought the info to Cohen, or at least got him to sell his shares and then short them, Mathew Martoma was sentenced to nine years in federal prison. But Cohen couldn’t even be indicted, and from what the article’s author says it seems to be simply because he doesn’t allow his employees to say anything explicit about the insider information that is the basis of how they are advising him to invest (or disinvest):

Cohen would never be so foolish as to sit and listen while a subordinate laid out the full provenance of an illegal tip. At some firms, … there is an unwritten “don’t ask, don’t tell” policy, where the fact that a piece of information came from an insider would be conveyed not in so many words but with a facial expression, a tone of voice, or coded language (say, a conviction level of nine). The sociologist Diego Gambetta, in his book “Codes of the Underworld,” explains that people engaged in criminal conduct often evolve an elaborate semiotics to communicate with one another, because they cannot speak openly about their plans. One federal official who has investigated S.A.C. told me, “In the Mob, sometimes it’s just an expression. One expression means ‘Kill him.’ Another expression means ‘Don’t kill him.’ How do you bring that to a jury?”

The skit from the BBC’s Mitchell & Webb at the top of this post (see it on the Youtube here) humorously illustrates mobsters’ use of “needlessly ambiguous terms” (hat-tip Kannan). Of course, the gag is that the ambiguity isn’t needless at all for organized crime outfits like the mob and S.A.C. Capital–it can keep you out of jail. But they do manage to indict and convict mobsters–why not banksters and fraudstsers too?

That’s it for now.

–Chris Sturr