Tuesday, December 27, 2011

Steveo's Comment: On Financial Conspiracies

In response to my post about our brave new conspiratorial world, Steveo commented that the government's handling of the financial crisis has also followed a conspiratorial script http://majiasblog.blogspot.com/2011/12/when-conspiracy-theories-dont-seem-so.html

I agree that deception characterizes the US response to the financial crisis and that policy responses have disproportionately benefited elites, facilitating the transfer of wealth from the many to the few.

Here is an excerpt from some of my work on the financial crisis:

The financial crisis that began in 2007 ushered in an era of disaster capitalism and economic austerity measures that further impoverished populations and set the stage for significant curtailments of economic access and political liberties.[i] The larger economic crisis stemmed from transnational capitalist over-production and growing global inequality. The specific financial crisis stemmed directly from institutionalized greed and corruption in the U.S. (and to a lesser extent western European) real-estate, stock, and bond markets. The powerful financial agents that created the financial crisis were able to use it to wreck the finances of public entities, thereby creating contexts for the selling off of public assets and enforced economic austerity. For instance, Goldman and J.P. Morgan indebted local municipal entities and school districts by selling interest rate swaps that ended up exponentially increasing the interest rates these public entities were forced to pay on their debt, resulting in bankruptcies, raided public pensions, and/or higher local taxes.[ii] Goldman and other investment banks also sold synthetic collateralized debt obligations to public entities, which they subsequently betted against.[iii] The US government declined to prosecute those financial agents responsible for the crisis, for betting against clients, and for profiteering subsequently in rampant foreclosure fraud.[iv]
The economic shock to the lower and middle-classes caused by skyrocketing unemployment and constricted access to capital was met with the logic of structural adjustment in many regions of the world, especially the U.S. and parts of Europe (e.g., Greece, and Latvia). Austerity was implemented as states slashed spending on social-welfare and education programs. The federal government in the U.S. declined to adequately supplement local (i.e., state) funding, thereby ensuring that austerity would prevail despite the pleas of social-welfare activists and educators.
The economic dispossession of the populace is not restricted to the U.S. but can also be found in Europe’s austerity measures, particularly around the European periphery. The real economic contagion afflicting Europe is the austerity-driven “shock doctrine” of financial warfare.[v] Countries such as Greece and Belarus were subject to extreme pressure by the IMF and European agencies to sell off national resources such as Greece’s Hellenic Telecommunications Organization and one of Belarus’ most valued state resources, Belaruskali, a potash company.[vi]  Greek “lawmakers” voted for austerity and for selling off national assets at the end of June 2011, against the popular will of Greek citizens.[vii] The agreement reached by Greek officials calls for privatization of 50 billion euros in state assets, including ports, telecommunications, real estate, and shares of the public power corporation, in addition to more than 2 billion Euros in cuts to health care and social assistance. Ireland, Portugal, and Spain are slated for the same outcome by international speculators preying upon fire-sales of privatized assets.
European assets are being acquired by wealthy transnational corporations, billionaire investors, and Chinese sovereign wealth funds. Acquisitions are reorganized to improve efficiencies, primarily by eliminating employees, or are simply stripped of assets and disassembled or resold. The process of privatization essentially shifts assets from the larger population to the control of global financial elites, leaving populaces and their local community services bankrupt.
In contrast to the eroding status of the liberal economic subject, the economic subject of might—the modern transnational corporation—grew in power and influence during the great economic contraction. In 2011, Bloomberg news reported that “Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages.”[viii] In 2009, Graham Bowley reported in The New York Times  that the federal financial “bailout helps fuel a new era of Wall Street wealth” enabling “hefty bonuses” to corporate Wall Street executives.[ix] Goldman Sachs alone received $70 billion in combined funds from TARP, the Federal Reserve, AIG, and the FDIC.[x] Economist Simon Johnson observed: "The US increasingly displays characteristics that we have seen many times in middle-income “emerging markets” – new dimensions of vast inequality, forms of financial instability that benefit the best connected, and consistently easy credit for the privileged."[xi] Concluding that little more could be extracted from the spent U.S. consumer, investment banks and hedge funds turned in earnest to commodities. U.S. corporations started selling more products and services abroad, facilitating the record earnings reported in 2011 despite ongoing contraction of the US labor market.

[i]              See Naomi Klein The Shock Doctrine: The Rise of Disaster Capitalism (New York: Metropolitan Books, 2007).
[ii]             Matt Taibbi “ Looting Main Street,” The Rolling Stone (2010, March 31): http://www.rollingstone.com/politics/story/32906678/looting_main_street
[iii]             Ianthe J. Dugan “Scrutiny for Bets on Municipal Deals,” The Wall Street Journal (2010, May 14): C1, C3.

[iv]            See for example, Janet Tavakoli “Goldman Sachs: Spinning Gold,” Huffington Post (2010, April 7): from http://www.huffingtonpost.com/janet-tavakoli/goldman-sachs-spinning-go_b_528144.html.

[v]             Klein The Shock Doctrine.

[vi]            See Christopher Lawton and Laura Stevens “Bargain Hunting in Greece,” The Wall Street Journal (2011, June 7): B10 and Kolyandr, Alexander “Belarus Mulls Sale of Potash Produce,” The Wall Street Journal (2011, June 7): B3.

[vii]            Rachel Donadio “Greece Approves Tough Measures on Economy,” The New York Times (2011, June 30): http://www.nytimes.com/2011/06/30/world/europe/30greece.html?ref=lizalderman

[viii]           Bradlye Keoun and Phil Kuntz “Wall Street Aristocracy Got $1.2 Trillion From Fed,” Bloomberg (2011, August 22): http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html
[ix]             Graham Bowley “Bailout Helps Fuel a New Era of Wall Street Wealth,” The New York Times (2009, October 17): http://www.nytimes.com/2009/10/17/business/economy/17wall.html?_r=1&th&emc=th

[x]             Dylan Ratigan “Goldman Sachs' Black Magic, Here's How They Did It,” The Huffington Post (2009, October 16): http://www.huffingtonpost.com/dylan-ratigan/goldman-sachs-black-magic_b_324095.html

[xi]             Simon Johnson “Who is Carlos Slim,” Baseline Scenario (2009, October 17): http://baselinescenario.com/2009/10/17/who-is-carlos-slim/.

Other Links

Austerity Equals an Asset Grab by Finance

Austerity and Impoverishment of Populations

Neoliberal Government and the Origins of the Financial Crisis

Criminal Fraud Caused Financial Crisis

Kenneth Galbraith on Financial Industry Criminality
The US is a Plutonomy, Here Comes Neofeudalism

Austerity is Class Warfare

Great Land and Asset Grab by the Global Elite

No Criminal Charges?

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