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Monday, September 10, 2012

It's the stupid economy stupid



World economy faces 'perfect storm' - economist
Experts and leaders gathered in Italy may disagree on the cure, but the malady seems clear: the world economy faces a "perfect storm" of risks that include prolonged crisis in a structurally flawed Europe.

80 years after the first great depression, Keynesian managed capitalism post Bretton Woods is on the verge of collapse because of the neo liberal deregulation free market virus that has infected much of the international financial hegemony. This collapse isn't just the boom bust of dynamic capitalism, it is a challenge to the legitimacy of capitalism in the exact same way the Great Depression was a challenge to the legitimacy of capitalism. The social destruction these crashes cause in terms of mass unemployment make large numbers of people disillusioned with the system, it was from this social malaise that Capitalism was forced to adopt a welfare state in order to avoid citizens rioting in the street and becoming tempted away by communism or fascism.

One of the wonderful things about the great recession is watching the right running around trying to explain what happened to their precious deregulated economic model that was supposed to be immune to the boom and bust cycle. The other wonderful thing is watching the white knights of capitalism who were the first to scream 'NO GOVERNMENT' being the exact same voices that went begging to the State for a hand out.

Contempt doesn't even begin to describe the way we should feel towards our Captains of Financial Industry, but at least they are being forced to pay

All too quietly, Wall Street firms are being sued for their many transgressions. A study by Gary Null found that over $430 billion has been paid to victimized parties by Wall Street firms in over 1500 cases.
Some examples:
* Bank of America has spent $14.9 billion to settle 15 cases alleging various charges such as securities violations and mismanagement;

* Citigroup has spent over $13.9 billion to settle 12 cases alleging various charges including abusive lending practices and involvement in fraudulent activities;

* Merrill Lynch has spent $12.2 billion to settle cases involving various allegations including negligence and mismanagement of funds;

* Morgan Stanley has spent over $5 billion to settle 11 cases involving various allegations including failure to disclose material information to customers;

* Wachovia has spent over $9.5 billion to resolve allegations including misleading investors and conflicts of interest;

UBS has spent $19.5 billion to settle 6 cases with various charges including misleading investors.


As fulfilling as it is to watch these corporate maggots bleed, they are still the cause for the second impending collapse of the W recession, look how the corporate elite got away with setting the Greeks up...

Goldman Helped Greece Hide Catastrophic Debt
(Newser) – Greece's budget problems were allowed to grow to their current monstrous size with the help of a Goldman Sachs deal worthy of an Oscar for creative accounting. Greek government officials—no strangers to number-juggling themselves—used the US bank to concoct a derivatives deal that allowed the country to circumvent EU rules requiring member nations not to run deficits exceeding 3% of GDP, Der Speigel reports. The deal, agreed in early 2002, circumvented EU rules with a credit swap in which government-issued bonds in dollars and yen were traded for debt in euros. Such transactions don't need to be reported to EU authorities. The Goldman-Greece deal exploited this loophole by inventing a fictional exchange rate, allowing Greece to borrow billions more and mask the true size of its debt. Greece's deficit problem will become even greater when the Goldman bonds mature over the next 10 to 15 years. Greece's exploding debt is now threatening to bring down the euro.

Taking their weapons of mass financial destruction but instead of domestic consumption for the sub-prime mortgage market, Goldman Sachs on sold it to a country. Will the sovereign debt collapse spark off the next massive downward spiral in the W recession? Is Greece a moral hazard too far for the EU with Ireland, Portugaul and Spain knocking on the door? With China tapping the breaks already on banking loan restrictions looks like those pronouncements that the recession was over are more akin to Hoover's "Prosperity is just around the corner" quote.

Goldman Sachs Group Inc's role in hiding billions of dollars worth of Greek debt, all the while betting that the Greek economy would collapse is like buying fire insurance for a house, leaving the gas on and inviting the owners around for a cigar evening.

The financialization of the global economy has created corporate gangsters and they haven't been curbed enough to prevent them from gambling all our social gains away. Brain Easton has pointed out in his brilliant essay last year how the left have to create an alternative economic argument that goes beyond the failed free market systems the Greens are reliant on to create their green sustainable economy.

The reality is that while the environment is in collapse, the economic hegemonic structure that is helping destroy that environment is in a faster terminal decline. This Great Recession can still turn into a Great Depression before the ice caps melt.

The derivatives market is valued at $600 trillion, 10 times the actual total GDP of the planet, Milton Friedman's free market unregulated dogma has created a monster whose greed is imploding upon itself. Dealing to that economic reality is where the left must focus their attention.

The lefts appeal must be as Easton argues, to articulate and create an economic alternative to the free market failure...

While this battle rages overseas the New Zealand left is faced with the challenge of renewal too. Neo-liberals may be zombies but every reader of thrillers knows that is not enough for social democrats to triumph. Neo-liberalism has been a much more fearsome opponent than the conservatism that the left faced in the nineteenth century. The likelihood is that in due course – perhaps after they open themselves up to the evidence and criticism – there will be some sort of neo-liberal revival. The traditional battle of radicals versus conservatives may be a thing of the past, or at least cut across by radicals of the right versus radicals of the left.

If trends continue, today’s left may continue to drift into the irrelevance that its traditionalism offers. Certainly its concerns of foreign policy, civil rights and social diversity are very important but over half the respondents to a survey just before the 2011 election said their main concern was the economy or one of its manifestations of failure, such as unemployment. (Expect the proportion to go up during the next three years.) Adding poverty and inequality to the traditionalists’ concerns does not help much unless there is a coherent explanation of how they occur and how to address them. Nor is adding a spiritual concern with the environment of much use unless there is a robust analysis of how the economy impacts on the environment. So we are back to a social democratic analysis.


The left need to articulate a 'NZ economic solution' wedded to egalitarianism, public ownership and progressive taxation and it needs to establish those solutions with actions NZers can see in real terms like universal union membership, a financial transaction tax and tax-free basic income alongside a living wage.

To allow our real 9.1% unemployment rate to continue without tackling the poverty that rots it is not an option for the cohesion of society. We must reform our economic model away from deregulated free market dogma towards managed Keynesian capitalism

The 99% has every justification to want to burn the 1%, all the 99% needs is an opposition who can articulate that.

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2 Comments:

At 10/9/12 9:24 am, Blogger Nitrium said...

The 99% are at least in part responsible for what has happened. It is after all THEY who voted for "free lunches", promises of wealth, of a upper middle class life they don't want to (or can't) work for, of unaffordable unsustainable health care (the sacred cow, NO ONE wants to talk about) - and then as the icing on the cake demand tax cuts to go with it all.
The current situation is a FAILURE of democracy more than anything. The politicians (who are increasingly resembling psychopaths) who are so desperate to gain power they are willing to offer the masses ANYTHING to get elected. Out of control social spending with tax cuts is what they wanted, and it is what they got.

Meanwhile the banksters just keep on COUNTERFEITING our money, with the the scam that is fractional reserve lending. Think about what credit actually is - it IS effectively money because it spends exactly like it, but it wasn't generated by CURRENT economic surplus, but by a PROMISE to generate it tomorrow! Again, the 99% are responsible for this - they demand to be able to buy new cars, new kitchens, new lounge suites, iPads, cruises, university educations, you name it, but refuse to SAVE for it.

We have all collectively reaped what we have sown. The last THIRTY years was a façade, a mirage of wealth and progress predicated on the notion that credit and pulling forward demand could not only be sustained but increased forever. The day of reckoning for our largess is approaching.

 
At 10/9/12 11:18 am, Blogger Doug Ditfort said...

Humans have invented only one sustainable economy ever, that is the hunter gatherer economy (mahinga kai) with a bit of trade (kai hau kai). It'll be a bit of a challenge to reinstate that

 

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