“The modern conservative is engaged in one of man’s oldest exercises in moral philosophy: that is the search for a superior moral justification for selfishness.” ~ John Kenneth Galbraith

“Capitalism is the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work for the benefit of all.” ~ John Maynard Keynes

I disagree with Keynes that capitalism is a “belief”. If one were to strip away all belief, and leave men to their essence – what you would have could be called capitalism, laissez-faire brand. The nastiest of men would rise to the surface and come to dominate us all. In fact, that is what happens in spite of higher belief systems. It’s a simple working principle of human existence that power accrues to those who desire to be powerful, and that those who harbor such desires often (not always) do so for malevolent purpose. In fascist states, beasts take center stage for all to see. There was no mistaking Franco or Pinochet for a democratic ruler.

In democracies, the beasts are often off-stage, holding strings, putting up friendly faces to cover their essential nastiness. Such were the roles of Ronald Reagan and George W. Bush – front men, velvet gloves covering steel fists.

So philosophies have sprung up over the years, the goals of which are to somehow harness this system of nastiness so that we can all benefit. Some systems go so far as to crush our spirits under collectivism. But the beasts are waiting in the bushes and spring upon us again in the collectivist systems, and we end up with communism. It was identical in all aspects to tyranny everywhere and through all time, except for that name.

Odd, however, and contradictory, that communism toppled with hardly any bloodshed. That messes up my pretty picture. All it took was a congealing of popular movements, and the beasts stepped aside. That’s an interesting phenomenon – I beg for any conservative to explain it. And then I ask if any popular movement, be it for single-payer health insurance or unionization or to simply get our country to stop its brutal occupation of Iraq – if any of that can succeed in our country. We may be the majority, but we do not rule.

It appears on the surface that people of Russia and Ukraine and Romania had more ability to command their own fate than do we ours. Is all of this democracy around us really an illusion?

Virgil, who put together the dismissive musical chart in the post below, has also done the same thing with books. booksthatmakeyoudumb is also a product of his fertile mind.

I see in his chart at the top and towards the far right (of the chart) that Ayn Rand’s Atlas Shrugged scores high. That book is a foundation-crumbling tome that in the end may be as damaging as Das Kapital. It’s still got appeal for the young, one of whom went on to become head the Federal Reserve, and whose activities had a large part in fomenting our current crisis.

The book has a mesmerizing effect on young intellects. The same can be said of Scientology or Marxism, but most people outgrow youthful siren songs as the complexities of life become apparent. I am sure I would have fallen for it had I read it before I did in my thirties. But Atlas lingers in its devotees, it seems. They don’t discard the wooden characters full of false emotions. The economics are as suspect as the attitude of Rand herself about love and attraction and altruism.

Rand’s heroes – Galt and Roark and Reardon, are the engines that drive the economy and culture. Rand was full of contempt for most people, especially ordinary people. She saw no value in them, and had them living as remorra on the sharks who give us our sustenance. She created a cultural meme that has spawned many offspring. Her ugly philosophy underlies the supply side, the flat tax with special favors for the investing class, and the very notion of “trickle down”.

All of us have benefited from the creative efforts of a few, but little of that creative effort would have come about without a system that fosters mutual aid. Bill Gates epitomizes the successful entrepreneur, but he merely took a software developed by others used on a product that came about in large part (not totally) because of government-sponsored research, and built a business model around it. That model was dependent on patent, a government protection, and monopoly, the natural end-product of unregulated markets.

The same can be said of pioneers of aviation and communication. The Internet that allows me to publish my lightly-read prose came about because of government, but it took the private sector to make it into a wonderful toy even adolescents can enjoy. If it were government alone, the Internet would be a dreary tool used for back-channel communication among embassies and colleges. If it were the private sector alone – there would be no internet. The research that spawned it was expensive, and none involved could see a profitable outcome.

Atlas constructed an imaginary world, one that formed a Utopian vision for those who bought in. Rand herself thought it would transform our world. It has succeeded to a small degree. It is like a perfume that lingers long after the ugly aunt who overuses it has left the room.

I suppose it was inevitable – people list their favorite music on Facebook, and the average SAT scores for colleges are published in other places. It only took Virgil at CalTech to put it all together into a chart of SAT levels and musical tastes. He took the ten most-mentioned favorite musicians from many colleges, and made a chart

Check it out at musicthatmakesyoudumb – the chart is far too big for this page.

It’s mostly non-informative – most musicians are somewhere in the middle. But there are some outliers – Sufjan Stevens and Ben Folds, who I don’t know, and Dylan and Radiohead and U2 and Counting Crows are on the far right of the chart. It appears that the lowest scorers follow Lil Wayne, Gospel, Hip Hop and Beyonce.

Draw your own conclusions. Mine: It’s tongue-in-cheek. As the author says, correlation ≠ causation. And hip hop has got to be a form of protest. Why else would it exist?

There’s a major effort underway right now by the right wing to deflect any blame for the current financial crisis. Part of it is to simply dump the whole mess on Fannie Mae and Freddie Mac, which had some dalliances with Democratic legislators. Another part of it is simply to muddy the waters so that a person can’t see the forest for the trees (see comment #30 in this thread). In the end, it becomes a pissing match and a D vs R fight, and Wall Street quietly exits out the back door.

Let’s be sure to pin the blame where it belongs: Deregulation and failure to enforce existing regulations, in some cases, actually fighting those who were trying to enforce regulations.

The following article is a summary of a report by Robert Weissman and James Donahue of Essential Information. The report is a very large report (3 mg), but is summarized as follows:

Wall Street’s Best Investment II: 12 Deregulatory Steps to Financial Meltdown

By Robert Weissman
March 6, 2009

What can $5 billion buy in Washington?

Quite a lot.

Over the 1998-2008 period, the financial sector spent more than $5 billion on U.S. federal campaign contributions and lobbying expenditures.

This extraordinary investment paid off fabulously. Congress and executive agencies rolled back long-standing regulatory restraints, refused to impose new regulations on rapidly evolving and mushrooming areas of finance, and shunned calls to enforce rules still in place.

“Sold Out: How Wall Street and Washington Betrayed America,” a report released by Essential Information and the Consumer Education Foundation (and which I co-authored), details a dozen crucial deregulatory moves over the last decade — each a direct response to heavy lobbying from Wall Street and the broader financial sector, as the report details. Combined, these deregulatory moves helped pave the way for the current financial meltdown.

Here are 12 deregulatory steps to financial meltdown:

1. The repeal of Glass-Steagall

The Financial Services Modernization Act of 1999 formally repealed the Glass-Steagall Act of 1933 and related rules, which prohibited banks from offering investment, commercial banking, and insurance services. In 1998, Citibank and Travelers Group merged on the expectation that Glass-Steagall would be repealed. Then they set out, successfully, to make it so. The subsequent result was the infusion of the investment bank speculative culture into the world of commercial banking. The 1999 repeal of Glass-Steagall helped create the conditions in which banks invested monies from checking and savings accounts into creative financial instruments such as mortgage-backed securities and credit default swaps, investment gambles that led many of the banks to ruin and rocked the financial markets in 2008.

2. Off-the-books accounting for banks

Holding assets off the balance sheet generally allows companies to avoid disclosing ³toxic² or money-losing assets to investors in order to make the company appear more valuable than it is. Accounting rules — lobbied for by big banks — permitted the accounting fictions that continue to obscure banks’ actual condition.

3. CFTC blocked from regulating derivatives

Financial derivatives are unregulated. By all accounts this has been a disaster, as Warren Buffett’s warning that they represent “weapons of mass financial destruction” has proven prescient — they have amplified the financial crisis far beyond the unavoidable troubles connected to the popping of the housing bubble. During the Clinton administration, the Commodity Futures Trading Commission (CFTC) sought to exert regulatory control over financial derivatives, but the agency was quashed by opposition from Robert Rubin and Fed Chair Alan Greenspan.

4. Formal financial derivative deregulation: the Commodities Futures Modernization Act

The deregulation — or non-regulation — of financial derivatives was sealed in 2000, with the Commodities Futures Modernization Act. Its passage orchestrated by the industry-friendly Senator Phil Gramm, the Act prohibits the CFTC from regulating financial derivatives.

5. SEC removes capital limits on investment banks and the voluntary regulation regime

In 1975, the Securities and Exchange Commission (SEC) promulgated a rule requiring investment banks to maintain a debt to-net capital ratio of less than 15 to 1. In simpler terms, this limited the amount of borrowed money the investment banks could use. In 2004, however, the SEC succumbed to a push from the big investment banks — led by Goldman Sachs, and its then-chair, Henry Paulson — and authorized investment banks to develop net capital requirements based on their own risk assessment models. With this new freedom, investment banks pushed ratios to as high as 40 to 1. This super-leverage not only made the investment banks more vulnerable when the housing bubble popped, it enabled the banks to create a more tangled mess of derivative investments — so that their individual failures, or the potential of failure, became systemic crises.

6. Basel II weakening of capital reserve requirements for banks

Rules adopted by global bank regulators — known as Basel II, and heavily influenced by the banks themselves — would let commercial banks rely on their own internal risk-assessment models (exactly the same approach as the SEC took for investment banks). Luckily, technical challenges and intra-industry disputes about Basel II have delayed implementation — hopefully permanently — of the regulatory scheme.

7. No predatory lending enforcement

Even in a deregulated environment, the banking regulators retained authority to crack down on predatory lending abuses. Such enforcement activity would have protected homeowners, and lessened though not prevented the current financial crisis. But the regulators sat on their hands. The Federal Reserve took three formal actions against subprime lenders from 2002 to 2007. The Office of Comptroller of the Currency, which has authority over almost 1,800 banks, took three consumer-protection enforcement actions from 2004 to 2006.

8. Federal preemption of state enforcement against predatory lending

When the states sought to fill the vacuum created by federal non-enforcement of consumer protection laws against predatory lenders, the Feds — responding to commercial bank petitions — jumped to attention to stop them. The Office of the Comptroller of the Currency and the Office of Thrift Supervision each prohibited states from enforcing consumer protection rules against nationally chartered banks.

9. Blocking the courthouse doors: Assignee Liability Escape

Under the doctrine of assignee liability, anyone profiting from predatory lending practices should be held financially accountable, including Wall Street investors who bought bundles of mortgages (even if the investors had no role in abuses committed by mortgage originators). With some limited exceptions, however, assignee liability does not apply to mortgage loans, however. Representative Bob Ney — a great friend of financial interests, and who subsequently went to prison in connection with the Abramoff scandal — worked hard, and successfully, to ensure this effective immunity was maintained.

10. Fannie and Freddie enter subprime

At the peak of the housing boom, Fannie Mae and Freddie Mac were dominant purchasers in the subprime secondary market. The Government-Sponsored Enterprises were followers, not leaders, but they did end up taking on substantial subprime assets — at least $57 billion. The purchase of subprime assets was a break from prior practice, justified by theories of expanded access to homeownership for low-income families and rationalized by mathematical models allegedly able to identify and assess risk to newer levels of precision. In fact, the motivation was the for-profit nature of the institutions and their particular executive incentive schemes. Massive lobbying — including especially but not only of Democratic friends of the institutions — enabled them to divert from their traditional exclusive focus on prime loans.

Fannie and Freddie are not responsible for the financial crisis. They are responsible for their own demise, and the resultant massive taxpayer liability.

11. Merger mania

The effective abandonment of antitrust and related regulatory principles over the last two decades has enabled a remarkable concentration in the banking sector, even in advance of recent moves to combine firms as a means to preserve the functioning of the financial system. The megabanks achieved too-big-to-fail status. While this should have meant they be treated as public utilities requiring heightened regulation and risk control, other deregulatory maneuvers (including repeal of Glass-Steagall) enabled them to combine size, explicit and implicit federal guarantees, and reckless high-risk investments.

12. Credit rating agency failure

With Wall Street packaging mortgage loans into pools of securitized assets and then slicing them into tranches, the resultant financial instruments were attractive to many buyers because they promised high returns. But pension funds and other investors could only enter the game if the securities were highly rated.

The credit rating agencies enabled these investors to enter the game, by attaching high ratings to securities that actually were high risk — as subsequent events have revealed. The credit rating agencies have a bias to offering favorable ratings to new instruments because of their complex relationships with issuers, and their desire to maintain and obtain other business dealings with issuers.

This institutional failure and conflict of interest might and should have been forestalled by the SEC, but the Credit Rating Agencies Reform Act of 2006 gave the SEC insufficient oversight authority. In fact, the SEC must give an approval rating to credit ratings agencies if they are adhering to their own standards — even if the SEC knows those standards to be flawed.

From a financial regulatory standpoint, what should be done going forward? The first step is certainly to undo what Wall Street has wrought. More in future columns on an affirmative agenda to restrain the financial sector.

None of this will be easy, however. Wall Street may be disgraced, but it is not prostrate. Financial sector lobbyists continue to roam the halls of Congress, former Wall Street executives have high positions in the Obama administration, and financial sector propagandists continue to warn of the dangers of interfering with “financial innovation.”

Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor, and director of Essential Action .

h/t: Ladybug

An explosion rocked downtown Bozeman yesterday, killing one woman, creating a nightmare scene on Main Street. People are in shock.

I can’t help but be reminded that my country routinely drops bombs of much larger magnitude on cities in other countries. Most people here are impressed when we do that. The Pentagon even allows us to watch films of bombs blasting – from a distance, and dehumanized. Our bombs make a big, titillating boom.

This is what it’s like on the other end.

Gaza After Israel Attacked

The “H.I. Bunker Buster” (Humanely Intended) – a U.S. Bomb Dropped on Iraq (military target, of course).

I got a phone call from my brother in Livingston this morning. He told me that a friend of his told him that there had been an explosion in downtown Bozeman at a restaurant called Boodles.

I went to the radio and scanned the dial. Nothing. (I don’t think we have any locally owned stations.) I went to the web page for the Bozeman Daily Chronicle. Nothing. (It’s pay-based.) I turned on the TV for local channels – they were running The View, The Price is Right, and The Morning Show with Mike and Juliet.

Finally, I went to the Billings Gazette. I found the story there.

Blast levels Main Street businesses in Bozeman

By The Gazette Staff

An explosion on Main Street in Bozeman shook downtown and leveled at least one building at 8:30 a.m. today.

Broken glass littered the pavement for several blocks. The blast was near the Boodles Restaurant and the Rocking R Bar. Fire crews and [sic] are on the scene

Check the Gazette’s Web site for updates.

We still have news. It’s old fashioned, I know. A “newspaper.”

Update: A local Clear Channel radio station had some coverage, but has now gone back to Rush Limbaugh. The Chronicle has coverage at their website now. A local TV station did a helicopter flyover. It’s pretty devastating. The explosion was heard six miles away, and blew out windows of all businesses around. The governor has offered the National Guard to prevent looting. The city has distributed a flyer asking local residents to provide housing and support for people displaced by the blast. Local government is stressed to the max, but they are doing a great job. People attempting to get into the area are turned away, and threatened with arrest if the persist. Big news for a small town.

Update II: People below tell me I’m all wet about news coverage, that it was there and quite good from the time it happened on. My bad. That’s why I am an accountant, a lion tamer, and not a journalist.

I am inspired by Big Swede, a frequent commenter here and elsewhere who has his own brand – the somewhat-non-sequitur. The man has his own charm, and I’ve come to appreciate it. He did, in his own fashion, make a sort-of-dead-on comment over at Missoulapolis – here’s the original quotation he is responding to – Carole links to Haaretz:

First of all, even with their very long-term view, CalPERS and funds like it couldn’t achieve returns greater than 9% a year, as they did over the last 25 years. Long-term government bonds trading at a yield of 3% create too much of a burden on returns, which translate into excessively high expectations of the portfolio’s stocks component…

Secondly, dropping yields on government bonds over time requires savers and public employers to increase their provision into savings, at the expense of consumption. That is the price of very low interest rates. In some cases, it can wind up depressing private and public consumption instead of stimulating them. We seem to have reached that point.

To which Swede responds:

Consider this vicious cycle.

People out of work, less money to spend.
Leads to
Sales and income tax declines.
Leads to
State govt. running deficits.
Leads to
State govt. raising taxes.
Leads to
Business leaving state or country.
Leads to
People out of work, less money to spend……..and on and on and on……

It does indeed seem like a downward spiral. The theory behind the stimulus package is that government has to step in and halt the spiral by injecting fresh cash into the system, creating demand. The stimulus package, however, was besotted with tax cuts directed at the upper middle class, so its impact will be muted somewhat. There will probably be another stimulus package in our future. In the meantime, Republicans are like a broken pull-string doll … tax cuts … tax cuts … tax cuts …

The word that comes to mind is “chaos”, at least apparent chaos as we move back towards order. But how much pain must we endure? I don’t know if the stimulus package will work. I sort of doubt it. I look at Obama’s $1.75 trillion deficit, and shudder. China is our good buddy, but are they that good? If not, do we merely create the money? If we do that, do we spiral into inflation? Hyperinflation?

History repeats, somewhat. Asset inflation and easy money and low taxes and paper chases preceded the Great Depression. We supposedly know more now, and have a Federal Reserve wise to its own mishandling of the banking system back then. Nobody wants chaos or depression or inflation, except perhaps some mentally challenged Republicans who want Obama to fail.

But I wonder if it is all beyond our reach, if we have to crash, bottom out, and again come to know what our forebears learned from the first Depression: We need financial regulation and high marginal tax rates to keep this marvelous engine from overheating.

In their seminal paper “Flying in Tune: Sexual recognition in mosquitoes”, Gabrielle Gibson and and Ian Russel from the University of Greenwich discovered an inspiring phenomenon: male mosquitoes change their buzzing frequency to match that of a female mosquito. This synchronization brings their wing beats to within a millisecond or less of one another. The authors suggest that this phenomenon facilitates the mosquitoes’ ability to copulate mid-flight.

Courtesy of Truce via Metafilter

Paul Craig Roberts, once of supply-side fame, as written a disturbing piece, Obama’s Budget, on line at Counterpunch. Every liberal still starry-eyed over the election needs to read it – surprise surprise! The new administration is carrying forth with the Bush policies on spying and detention. Little noted, Obama’s “withdrawal” plan for Iraq leaves 50,000 troops there permanently. The joke’s on us! That was McCain’s plan! That was Bush’s plan! That’s a knee-slapper!

Here’s an excerpt:

Obama is requesting $130 billion for wars in Iraq and Afghanistan during 2010 plus a $75 billion supplemental request for the wars during 2009. This $205 billion is on top of $534 billion for the Pentagon in 2010, for total military spending of $739 billion.

The Chinese government’s budget shows China’s military spending at $59 billion in 2008. (The Pentagon claims Chinese military spending is between $97 billion and $139 billion.) Russia’s military spending in 2009 is projected to be about $50 billion.

That is, we are outspending China and Russia combined by possibly as much as seven-to-one. Roberts further speculates that since Obama has adopted the Cheney/Bolton hard line against Iran, that perhaps he intends to open up a third front in our war on peace. Or, call it a fourth front, with Pakistan being the third.

In the Reaganist view of the country, government is the enemy of prosperity and needs to be reined in. Since government programs are popular and the public supports funding, these programs have to be undermined. One way to do that is to create so much debt that sustaining them becomes an impossibility.

Reagan used military spending to do this, as did Bush. The military budget is beyond criticism – no one dare cut it. Nor do they talk about deficits in terms of what the military is doing to us. It’s always Social Security (self-funded) and Medicare, and for the less-educated, “welfare”. Out-of-whack military budgets are seen as essential to security. Propaganda rules.

“Starving the beast” has always been a threat, but it has never materialized. Social programs have increased funding since 1980, and Bush even added a pharmaceutical industry subsidy (that somewhat benefits seniors) to Medicare.

But past budget deficits were mild compared to the maniac we now have in the White House. It could be that “The One” will be the one who undid progressive movement. Isn’t it ironic?

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