Thoughts to Consider

In this edition:

- Obama's Choice: Failed War President or the Prince of Peace?
- How Did America Fall So Fast?
- Simon Johnson at Baseline Scenario--Big Banks Fail
- Bob Dylan--"High Water"
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Obama's Choice: Failed War President or the Prince of Peace?
Thursday 22 October 2009
by: Nick Turse | TomDispatch.com
http://www.truthout.org/1022099

". . . .
More than 100 years after their early counterinsurgency efforts on two tiny islands in the Philippines, U.S. troops are still dying there at the hands of Muslim guerillas. More than 50 years later, the U.S. still garrisons the southern part of the Korean peninsula as a result of a stalemate war and a peace as yet unmade. More recently, the American experience has included outright defeat in Vietnam, failures in Laos and Cambodia; debacles in Lebanon and Somalia; a never-ending four-president-long war in Iraq; and almost a decade of wheel-spinning in Afghanistan without any sign of success, no less victory. What could make the limits of American power any clearer?

The record should be as sobering as it is dismal, while the costs to the peoples in those countries are as appalling as they are unfathomable to Americans. The blood and futility of this American past ought to be apparent to Nobel Peace Prize-winner Obama, even if his predecessors have been incredibly resistant to clear-eyed assessments of American power or the real consequences of U.S. wars.

Two paths stretch out before this first-year president. Two destinations beckon: peace or failure."

For entire article, see:
http://www.truthout.org/1022099
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Nick Turse is the associate editor of TomDispatch.com and the winner of a 2009 Ridenhour Prize for Reportorial Distinction as well as a James Aronson Award for Social Justice Journalism. His work has appeared in the Los Angeles Times, the Nation, In These Times, and regularly at TomDispatch. A paperback edition of his book The Complex: How the Military Invades Our Everyday Lives (Metropolitan Books), an exploration of the new military-corporate complex in America, has recently been published. His website is NickTurse.com.
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How Did America Fall So Fast?
By Washington Blog

"And as for Wall Street, the best possible time to pillage is when your victim is at the peak of wealth. With America in a huge bubble phase of wealth and power, the Wall Street looters sucked out vast sums through fraudulent subprime loans, derivatives and securitization schemes, Ponzi schemes and high frequency trading and dark pools and all of the rest."
http://www.informationclearinghouse.info/article23788.htm

October 21, 2009 "Washington Blog" -- In 2000, America was described as the sole remaining superpower - or even the world's "hyperpower". Now we're in real trouble (at the very least, you have to admit that we're losing power and wealth in comparison with China).
How did it happen so fast?

As everyone knows, the war in Iraq - which will end up costing $3-5 trillion dollars - was launched based upon false justifications. Indeed, the government apparently planned both the Afghanistan war (see this and this) and the Iraq war before 9/11.

And the financial system collapsed last year due to looting and fraud.

How Empires Fall

But Paul Farrel provides a bigger-picture analysis, quoting Jared Diamond and Marc Faber.

Diamond's book 's, Collapse: How Societies Choose to Fail or Succeed, studies the collapse of civilizations throughout history, and finds:

Civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power...

One of the choices has depended on the courage to practice long-term thinking, and to make bold, courageous, anticipatory decisions at a time when problems have become perceptible but before they reach crisis proportions

And PhD economist Faber states:

How [am I] so sure about this final collapse?

Of all the questions I have about the future, this is the easiest one to answer. Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent ... overspends ... costly wars ... wealth inequity and social tensions increase; and society enters a secular decline.

[Quoting 18th century Scottish historian Alexander Fraser Tytler:] The average life span of the world's greatest civilizations has been 200 years progressing from "bondage to spiritual faith ... to great courage ... to liberty ... to abundance ... to selfishness ... to complacency ... to apathy ... to dependence and ... back into bondage"

[Where is America in the cycle?] It is most unlikely that Western societies, and especially the U.S., will be an exception to this typical "society cycle." ... The U.S. is somewhere between the phase where it moves "from complacency to apathy" and "from apathy to dependence."

In other words, America's rapid fall is not really that novel after all.

How Consumers, Politicians and Wall Street All Contributed to the Fall

On the individual level, people became "fat and happy", the abundance led to selfishness ("greed is good"), and then complacency, and then apathy.

Indeed, if you think back about tv and radio ads over the last couple of decades, you can trace the tone of voice of the characters from Gordon Gecko-like, to complacent, to apathetic and know-nothing.

On the political level, there was no courage in the White House or Congress "to practice long-term thinking, and to make bold, courageous, anticipatory decisions". Of course, the bucket loads of donations from Wall Street didn't hurt, but there was also a religion of deregulation promoted by Greenspan, Rubin, Gensler and others which preached that the economy was self-stabilizing and self-sustaining. This type of false ideology only can spread during times of abundance and complacency, when an empire is at its peak and people can fool themselves into thinking "the empire has always been prosperous, we've solved all of the problems, and we will always prosper" (incidentally, this type of false thinking was also common in the 1920's, when government and financial leaders said that the "modern banking system" - overseen by the Federal Reserve - had destroyed instability once and for all).

And as for Wall Street, the best possible time to pillage is when your victim is at the peak of wealth. With America in a huge bubble phase of wealth and power, the Wall Street looters sucked out vast sums through fraudulent subprime loans, derivatives and securitization schemes, Ponzi schemes and high frequency trading and dark pools and all of the rest.

Like the mugger who waits until his victim has made a withdrawal from the ATM, the white collar criminals pounced when America's economy was booming (at least on paper).

Given that the people were in a contented stupor of consumption, and the politicians were flush with cash and feel-good platitudes, the job of the criminals became easier.

A study of the crash of the Roman - or almost any other - empire would show something very similar.
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Simon Johnson at Baseline Scenario

Big Banks Fail
Posted: 22 Oct 2009 04:35 AM PDT

"The key insight at the heart of breaking up Standard Oil in 1911 was that it was too big to regulate. That breakup may have been good for competition; it was certainly good for democracy.

As Nicolas Trist – secretary to President Andrew Jackson – said about the incredibly powerful privately owned Second Bank of the United States, “Independently of its misdeeds, the mere power, — the bare existence of such a power, — is a thing irreconcilable with the nature and spirit of our institutions.” (Schlesinger, The Age of Jackson, p.102)"

http://mail.google.com/mail/?ui=2&shva=1#inbox/1247ecc7df3f9eba

[To follow all of Simon Johnson's documentation in this article, you will have to go to the link above, but if you want to truly understand what he is saying, that will help you.]

In the Wall Street Journal on Tuesday morning, Charles Calomiris, a leading banking expert, published an op ed entitled “In the World of Banks, Bigger can be Better.” It begins,

“Legitimate concern about the risks to taxpayers and the economy posed by banks that are “too-big-to-fail” has prompted some observers, among them Simon Johnson, former chief economist of the International Monetary Fund, to favor draconian limits on financial institution size. This is misguided. There are sizable gains from retaining large, complex, global financial institutions—and other ways to credibly protect taxpayers from the cost of government bailouts.”

And the article goes on to make the detailed case for keeping intact our largest banks – in contrast to the recently expressed views of two former Federal Reserve chairs (Paul Volcker, Alan Greenspan) and – late Tuesday – the current governor of the Bank of England (Mervyn King), who are calling for these banks to be broken up in some fashion.

Professor Calomiris, to his credit, emphasizes (in his second paragraph) that we cannot currently deal with the failure of large cross-border financial institutions and this huge hole in our regulatory structures has helped and will help large banks to press for bailouts. But he also insists “the challenge of coordinating the efforts [when a bank fails] among different countries’ regulators can be met through prearranged, loss-sharing arrangements that assign assets to particular subsidiaries based on clear rules. This would make it possible to transfer control over the assets and operations of a large international financial institution in an orderly fashion, in case of its failure.”

Theoretically, he may be right. But how far are we from being able to implement such a process?

The G20 should have taken this on as an essential priority at Pittsburgh, but it did not. The IMF has for years pushed the European Union or at least the eurozone to adopt the kind of framework that Calomiris advocates, but to little avail.

Perhaps this is due to bureaucratic inertia. More likely it is, once again, the blocking power of big banks.

In any case, once this hurdle is overcome, we can talk in more detail about the Calomiris arguments that big firms need big banks (odd, because big firms can go directly to securities markets), that the latest banking mergers created great value (possible, just not generally what most research finds), and that the rise of banking-as-derivatives-trading over the past 30 years has had big positive effects on the rest of the economy (strange, as there is no supporting evidence in the literature).

Competition between banks is good – on this Calomiris and I agree. We differ with regard to whether allowing large quasi-monopoly banks to dominate the landscape (e.g., Goldman Sachs and JP Morgan Chase today) is helpful to competition in any sense.

We should also throw into the mix three additional considerations.

First, the expected costs of allowing “too big to fail” banks to continue to operate are huge. The Calomiris benefits might be positive, you need to weigh these against what we have just seen: a huge recession (and the risk of worse), a big increase in government debt (perhaps 40% of GDP, when all is said and done), and almost 6 million jobs lost. Calomiris wants to assume these away, with an “immaculate regulation”, but this is simply implausible.

Second, the big banks definitely create some private benefits – mostly for the insiders, in the form of upside (e.g., bonuses) when times are good. The costs are born by society and not just by people who lose their homes – it’s businesses all across America that have lost income, fired people, and are now struggling to stay afloat. This is not only unfair, it is inefficient. Excessive risk taking by big banks generates massive negative externalities. You can either price this appropriately (and good luck with imposing that tax) or break up the banks – down to a size where we know the FDIC can handle bank failures (see the latest failed bank list).

Third, our big banks have demonstrated an unmatched ability to take over regulators and to convince politicians that a dangerous financial structure is good for America. These same people will almost certainly render ineffective whatever new regulations you put in place. More broadly, how can you run a well-functioning political system when a few large banks are so powerful?

The key insight at the heart of breaking up Standard Oil in 1911 was that it was too big to regulate. That breakup may have been good for competition; it was certainly good for democracy.

As Nicolas Trist – secretary to President Andrew Jackson – said about the incredibly powerful privately owned Second Bank of the United States, “Independently of its misdeeds, the mere power, — the bare existence of such a power, — is a thing irreconcilable with the nature and spirit of our institutions.” (Schlesinger, The Age of Jackson, p.102)

By Simon Johnson
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High Water (for Charlie Patton)
Bob Dylan

High water risin' - risin' night and day
All the gold and silver are being stolen away
Big Joe Turner lookin' East and West
From the dark room of his mind
He made it to Kansas City
Twelfth Street and Vine
Nothing standing there
High water everywhere

High water risin', the shacks are slidin' down
Folks lose their possessions - folks are leaving town
Bertha Mason shook it - broke it
Then she hung it on a wall
Says, "You're dancin' with whom they tell you to
Or you don't dance at all."
It's tough out there
High water everywhere

I got a cravin' love for blazing speed
Got a hopped up Mustang Ford
Jump into the wagon, love, throw your panties overboard
I can write you poems, make a strong man lose his mind
I'm no pig without a wig
I hope you treat me kind
Things are breakin' up out there
High water everywhere

High water risin', six inches 'bove my head
Coffins droppin' in the street
Like balloons made out of lead
Water pourin' into Vicksburg, don't know what I'm going to do
"Don't reach out for me," she said
"Can't you see I'm drownin' too?"
It's rough out there
High water everywhere

Well, George Lewis told the Englishman, the Italian and the Jew
"You can't open your mind, boys
To every conceivable point of view."
They got Charles Darwin trapped out there on Highway Five
Judge says to the High Sheriff,
"I want him dead or alive
Either one, I don't care."
High Water everywhere

The Cuckoo is a pretty bird, she warbles as she flies
I'm preachin' the Word of God
I'm puttin' out your eyes
I asked Fat Nancy for something to eat, she said, "Take it off the shelf -
As great as you are a man,
You'll never be greater than yourself."
I told her I didn't really care
High water everywhere

I'm getting' up in the morning - I believe I'll dust my broom
Keeping away from the women
I'm givin' 'em lots of room
Thunder rolling over Clarksdale, everything is looking blue
I just can't be happy, love
Unless you're happy too
It's bad out there
High water everywhere

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