The Democratic party is supposedly divided between a rightwing faction and a liberal faction. In reality, the Democratic party, like the GOP, is in thrall to the revolving door faction. The revolving door Dems found their emblem and hero in Peter Orszag, the Obama advisor who, going from strength to strength, helped plan Obama’s “pivot” to the issue of the deficit before launching a career for himself in the financial world that Obama’s Treasury and Obama’s appointee to the head of the Federal Reserve so amply supported with 16 trillion dollars in loans over the last three years.
Orszag, though, is easy pickings, an amoral DLC-er who pathetically wowed the kids hired to fluff for Obama in the press – people like Ezra Klein – because he had that shark vibe and was reportedly good with the babes – wow! How neat! It is hard to take the likes of him seriously, given the likes of those who take him seriously.
The revolving door is a term that helps us understand the government/corporation complex as one big building. It involves SEC enforcers who go on to become Goldman Sachs shills, and then sometimes even go back to the SEC, where they become ever more valuable by diverting or blocking enforcement until they go out again. It involves Congressmen, Senators, and their aids, who go from legislating energy policy to shilling for Nukes. The revolving door zone is the shadow government that operates much like shadow finance – it is where all the disgusting bits are stuffed. You as the voter want the Public Option, and vote for the candidate who promises it? Tom Daschle, as the big Pharma lobbyists, tweaks your desire and out comes – crap mandatory private insurance accounts for the middle class!
The on and on goes on and on, we can rock this way to the break of dawn…
So lets examine a bit of the career of Rob Cogorno, a true poster boy of the Obama era. As his peppy bio tells us at the Elmerdorf/Ryan site:
“With experience at the center of the major public policy fights in Congress over the last fifteen years, Rob Cogorno brings an unparalleled expertise in the legislative process to Elmendorf | Ryan. In particular, Cogorno offers clients a singular understanding of the complex dynam- ics in the House of Representatives and the House Democratic Caucus that ultimately shape legislative decisions for the two parties on both sides of the Capitol.”
Bringing experience – how delightful! What is this entity to which he has brought his experience in ‘shaping legislative decisions”?
Here’s a little hint, from a Reuters story:
“Expert network firm Gerson Lehrman Group has hired a Washington lobby firm with close ties to the Democratic party as it braces for fallout from a U.S. insider trading investigation, according to two people familiar with the matter.
Gerson Lehrman, the largest of a group of firms that specialize in matching hedge funds with industry consultants, began interviewing lobbying firms a few weeks ago and selected Elmendorf Ryan in the past few days, said these people, who asked not to be named because they were not authorized to disclose the information to the media.
The hiring of Elmendorf Ryan comes as federal prosecutors in New York have charged at least eight people associated with a rival expert network firm with giving confidential corporate information to traders and analysts with hedge funds.
The unfolding investigation has caused some hedge funds to scale back their use of expert network firms.”
The strong ties with the Democratic party are the result of the firms close association with some of the sterling losers of the past twenty years. You remember the clueless opposition that, during the Bush years, proved that the worm doesn’t necessarily turn? This is where they ended up! The firm is headed by Dick Gephardt’s former top aid, Steven Elmendorf. And as you’d suspect, Rob Cogorno also used to work for Gephardt. You see, times have changed since old soldier’s fade away – now they fade into fat jobs with lobbying firms, and so do retired or defeated Congressmen. Congress is now something like a prep school for the real money –a fact well known to all Congressmen and their staffers. Thus, even before you make the leap for the revolving door, you want to show that you are a player. This is the ‘experience’ you can bring to K street.
Interestingly, while campaign finance reform has a strong claque among editors, who love to opine about it partly because it is a freebie – nothing is ever going to get done, as everybody knows – the revolving door culture is never discussed in terms of ‘reform’. So in 2008, the Politico could put in this announcement about Rob Cogorno and everybody in the know politely applauded:
“Cogorno joins Elmendorf
House Majority Leader Steny H. Hoyer (D-Md.) has shuffled his staff a lot lately, starting with Rob Cogorno.
Most recently, Cogorno was the floor director to Hoyer in both his majority leader and Democratic whip offices, until Cogorno recently joined Elmendorf Strategies.
Prior to working with Hoyer, Cogorno was the research director and appropriations policy adviser to then-House Democratic Leader Richard Gephardt (Mo.), where he developed floor strategy for the consideration of all appropriations bills and was Gephardt’s chief liaison to the House Appropriations Committee.
“As a counselor to House Democratic Leaders Steny Hoyer and Dick Gephardt, Rob has been at the center of every major public policy fight in Congress over the last 15 years,” said Steve Elmendorf, founder and president of the firm. “Rob brings an unparalleled expertise in legislative process to Elmendorf Strategies, offering our clients a singular understanding of the complex dynamics in the House of Representatives and the House Democratic caucus. Those dynamics ultimately shape legislative decisions for the two parties on both sides of the Capitol.”
Elmendorf’s prose here has all the charm of the smell of a nasty aftershave lotion clinging to a cheap suit. More interesting is the fact that such parasites on the Republic can strut their stuff as though this were normal business. It isn’t. It can be changed. There is no way the ‘singular understanding’ of a Rob Cogorno should be used to help Gerson Lehrman skate around an investigation. We would be up in arms if suspected bank robbers were able to make donations to the Judge Retirement Fund before trial, but we let such stinky business transpire in the supposed halls of power. Our halls of power. We shouldn’t. No top aid should be able to work for a lobbying firm for a goodly period of time – say five years – after he leaves the aid business. And for Congress folk, the period should be longer – ten years at least. Election to public office shouldn’t be a preface to gorging on the gravy train.
Let's pour rat poison in the gravy train. And if that means we can't get 'qualified' people to advise us on legislative policy - if that means the plutocrats don't have their clawprints all over the legislation meant to rein them in - all the better. .
Tuesday, October 11, 2011
Monday, October 10, 2011
What is the natural economy
Historians who try to describe the rupture between capitalism and pre-capitalist modes of production face a dilemma. The predominant narrative that describes this rupture places capitalism in a teleological position vis-à-vis what came before it, and this makes it hard to describe pre-capitalistic economies in their own terms. This is especially true in as much as the clerks who existed in these pre-capitalist economies did not conceptualize the economy in the same way that economists conceptualize economies. The grounding condition for economics as a science is a recognition of economics as a social fact – and this conditions indissolubly binds together economics and capitalism.
Even anti-capitalist economics, given its most systematic form by Marx, often falls prey to the teleological assumption that history slouches, inevitably, towards capitalism – although Marx backed away from that interpretation, as is clear from the letters he exchanged with Russian populists, where he confines the history he sketches in Capital to Western Europe, and declines to provide a ‘general philosophico-historical’ theory – in other words, Marx quits the universal history business. But universal history, disguised as the World Market, had by this time has armed itself with gunboats and penetrated into Chinese ports and taken up machetes and gone into Congolese jungles. The world market, celebrated in the Communist Manifesto, was not giving a-capitalist societies much choice in the matter.
In Germany, the attempt to find terms with which to conceptualize pre-capitalist systems revolved around the idea of the “natural economy.” This would be an economy dependent on in kind exchange – barter. It was an economy in which credit was not developed, and money was treated with suspicion. It was an economy, moreover, pervaded by a non-individualistic mentality. The latter is what makes it natural, because it takes the dynamics of the household – whose “naturalness” was assumed by Aristotle, but of which the wild varieties of form were known to the 19th century sociologists – and projects it upon the world.
The natural economy is associated with the historical school in Germany, but in the contemporary study of peasant societies, it is associated with theory of A.V. Chayanov, the economist who wrote a very influential book about peasant economies that was re-discovered in the 1960s – although Chayanov himself was not, for by that time his bones had long decayed in some Gulag camp. Chayanov infused it, as well, with suggestions from Rousseau’s brilliant reconstruction of the primitive economy in the Discourse on Inequality. Rousseau’s keen sense of the function – the necessary function – of idleness, revery and sleep in the existence of his primitives finds its economic language in Chayanov’s thesis. This is how how Charles Perrings, in “The Natural Economy Revisited”, describes it:
“He proposed … that the objectives of the head of such a household are qualitatively different from those of a capitalist enterprise, in that the former seeks not to maximize either output or profits but to balance the marginal utility of income and the marginal disutility (the drudgery) of the work of all members of the household. In general, he claimed, the intensity of labor expended by members of the household is inversely related to its productive capability, implying a sharply declining marginal utility of income in excess of that deemed
"necessary."
On the other hand, there is a line of French anthropological thought that dismisses the concept of the natural economy. Marcel Mauss, for instance, in his essay on the gift, writes that this category deforms the notion of the gift and counter-gift that forms the economic background, in his view, of not only primitive, but also modern societies. From the German historicists to Chayanov, there is an insistence on the supreme value of utility as the basis of all calculation, even if these calculations are not made with well defined units.
Mauss summed up his comparisons and analyses of various rites and customs of gift and counter gift in a last chapter that reads like a blast at utilitarian economic thinking and its projection upon all forms of human activity:
“These facts respond as well to a crowd of questions concerning the forms and reasons that one names so inappropriately exchange, the barter, the permutatio of useful things, that following the prudent Latins, who were following themselves Aristotle, a economic history puts at the base of the division of labor. It is something other than the useful that circulates in these societies of all types, the most of which have already been illuminated. Clans, ages and generally sexs – due to the multiple relations to which contacts give rise – are in a state of perpetual economic effervescence and this excitement is itself very little material; it is much less prosaic than our sales and purchases, then our wages of service or our plays on the stock market.”
Mauss, I think, is approaching economics not through the calculation of advantage as the economists see it, which is even prevalent in the historical school’s nostalgia for a natural economy, but instead as a form of life in which advantage encloses qualities and adventures that quantity does not cover.
It is against this background that I’d like to look at a controversy in the historiography of ‘peasant economies’ and proto-industrialisation in an upcoming post.
the golden bullet proof golf shirt
In the 1990s, Thomas Friedman wrote a book that, in a sense, was the founding document of neo-smarm – a pundit style for the end of history crowd. It was called the Lexus and the Olive Tree, or something like that, and it was littered with phrases that are instantly bullet point-able - amply demonstrating the difference between the art of the epigram and the banality of the sound byte. Neo-smarm is neo-liberalism that has kicked off its shoes, and Friedman is its master.
I mention this not to attack the latest Friedman column – who cares about the latest Friedman column, or the one before that, or the one before that? Rather, it is to borrow a phrase from his book that struck me at the time. Friedman coined the phrase ‘golden strait-jacket’ to refer to the ‘de-politicizing’ of economic decisions. By de-politicizing, he really means the segregating of political decisions from the will of the people, as evidenced in elections and other such Christmas ornaments. . Not that Friedman was opposed to democracy, now – he loved the use of democratization. For him, day trading ‘democratizes’ the stock market. In fact, any popular consumerist fad immediately gets the “democratizing” label from Friedman, who’d like the producers of wealth to confine their politics to the consumption of brands. Meanwhile, the smart guys in the room, in Treasury, the Fed, and the board rooms of the great and good banks, make all the macro economic decisions for us. Cause they have the models, you see.
Since Friedman’s paen to the end of the business cycle, we’ve had – the business cycle. The first one whipped the butt of NASDAQ, and the second one whipped the butt of about every American corporation, including the business of shopping malls, from which Friedman’s wife, and Friedman, derived their considerable wealth.
And yet, the golden strait-jacket survives and flourishes. Its biggest fan is the President. And its effects are strewn across the Great Recession. What other democratic society would look at the destruction of the wealth of the middle class – the destruction of 12 trillion dollars in their assets – and decide to loan, at less than one percent, 16 trillion dollars to the investor class? The answer is no democracy would do that. For that, we need a golden straight jacket.
It has taken some time, but the rest of the populace, it now appears, understands that golden strait jackets are really made of another material – one excreted, I believe, by mammals.
And so, as the golden straitjacket evolved, so did the bullet proof golf shirt. Via a fascinating article on couture for the plutocrats in the New Yorker by David Owen, it appears that Colombians, after having to undergo the violent wars of the 80s and 90s that pitted a pathological guerilla left against a pathological paramilitary right and both against a pathological network of cocaine cartels, have emerged from that din and casualty count with some innovative ideas about safety. Just as Big Pharma learned from the dime drug dealer how to market its anti-depressants and other various pills, so, too, from the world of kidnapping and drive-bys has emerged a cottage industry for protecting the plutocratic gut from the hollow tipped bullet.
The man the article centers on is a designer named Manuel Cabellero, who demonstrates his product by shooting the visitor: “the founder and chief executive of a company that makes "specialized personal protection," and when he shot me I was wearing one of his products, a black suede jacket with lightweight bulletproof panels in the lining. The company, which is called Miguel Caballero, makes fashion-oriented body armor, and sells it mainly to executives, celebrities, political figures, and others who have security concerns but don't want to dress like members of a SWAT team.
Popular items include a three-button blazer, a V-necked wool sweater, a Nehru vest (for customers in the subcontinent and, conceivably, for anxious idolizers of Sammy Davis, Jr.), and a polo shirt, which, because of its extra bulk, may usefully promote a compact golf swing. Caballero also makes bulletproof camouflaged hunting clothes, to protect hunters from misdirected shots fired by their companions--an eventuality that he referred to as "a Dick Cheney accident."
Are we all seeing ‘growth industry” here? We should be. As from the American ashes there begins to grow an American third world culture, I do not think the plutocrats are going to be able to do without the third world billionaire’s accessories, among which are the four car squadron (which I have seen, negotiating the streets of Mexico City), the bodyguards and bodyguards of bodyguards (the latter selected to stop the first line of bodyguard if, as it sometimes turns out, the first line gets the idea to kidnap the body they are guarding) and the appropriate security procedures. The age of the golden bulletproof polo shirt is definitely here.
“When he started making bulletproof garments, nineteen years ago, his customers were almost exclusively Colombian--a reflection both of the small scale of his original enterprise and of the turmoil in the country at the time. Today, ninety-eight per cent of his production is for export. He has dealers in two dozen countries and customers in more than fifty, and he has a retail boutique in Harrods, where some of his golf shirts sell for the equivalent of about twelve thousand dollars.”
Twelve thousand dollars is a significant sum. How significant? According to a recent probe into the underbelly of the wondrous neo-liberal age prophecied by Tom Friedman: From Andy Kroll in Tom's Dispatch
“According to Census data, between 2009 and 2010 alone the black poverty rate jumped from 25% to 27%. For Hispanics, it climbed from 25% to 26%, and for whites, from 9.4% to 9.9%. At 16.4 million, more children now live in poverty than at any time since 1962. Put another way, 22% of kids currently live below the poverty line, a 17-year record.
America’s lost decade also did a remarkable job of destroying the wealth of nonwhite families, the Pew Research Center reported in July. Between 2005 and 2009, the household wealth of a typical black family dropped off a cliff, plunging by a whopping 53%; for a typical Hispanic family, it was even worse, at 66%. For white middle-class households, losses on average totaled “only” 16%.
Here's a more eye-opening way to look at it: in 2009, the median wealth for a white family was $113,149, for a black family $5,677, and for a Hispanic family $6,325. The second half of the lost decade, in other words, laid ruin to whatever wealth was possessed by blacks and Hispanics -- largely home ownership devastated by the popping of the housing bubble.”
So, we can evaluate the golf shirt as double the wealth of a median Hispanic family. Fun, eh?
“I had heard that President Obama, during his Inauguration, wore clothing made by Caballero. Neither Ballesteros nor Caballero would say anything about that, but they did tell me that the company's customers include King Abdullah II of Jordan, the Prince of Asturias, a Thai princess, and the leaders of El Salvador, Guatemala, Honduras, Paraguay, Panama, and Malaysia.”
I mention this not to attack the latest Friedman column – who cares about the latest Friedman column, or the one before that, or the one before that? Rather, it is to borrow a phrase from his book that struck me at the time. Friedman coined the phrase ‘golden strait-jacket’ to refer to the ‘de-politicizing’ of economic decisions. By de-politicizing, he really means the segregating of political decisions from the will of the people, as evidenced in elections and other such Christmas ornaments. . Not that Friedman was opposed to democracy, now – he loved the use of democratization. For him, day trading ‘democratizes’ the stock market. In fact, any popular consumerist fad immediately gets the “democratizing” label from Friedman, who’d like the producers of wealth to confine their politics to the consumption of brands. Meanwhile, the smart guys in the room, in Treasury, the Fed, and the board rooms of the great and good banks, make all the macro economic decisions for us. Cause they have the models, you see.
Since Friedman’s paen to the end of the business cycle, we’ve had – the business cycle. The first one whipped the butt of NASDAQ, and the second one whipped the butt of about every American corporation, including the business of shopping malls, from which Friedman’s wife, and Friedman, derived their considerable wealth.
And yet, the golden strait-jacket survives and flourishes. Its biggest fan is the President. And its effects are strewn across the Great Recession. What other democratic society would look at the destruction of the wealth of the middle class – the destruction of 12 trillion dollars in their assets – and decide to loan, at less than one percent, 16 trillion dollars to the investor class? The answer is no democracy would do that. For that, we need a golden straight jacket.
It has taken some time, but the rest of the populace, it now appears, understands that golden strait jackets are really made of another material – one excreted, I believe, by mammals.
And so, as the golden straitjacket evolved, so did the bullet proof golf shirt. Via a fascinating article on couture for the plutocrats in the New Yorker by David Owen, it appears that Colombians, after having to undergo the violent wars of the 80s and 90s that pitted a pathological guerilla left against a pathological paramilitary right and both against a pathological network of cocaine cartels, have emerged from that din and casualty count with some innovative ideas about safety. Just as Big Pharma learned from the dime drug dealer how to market its anti-depressants and other various pills, so, too, from the world of kidnapping and drive-bys has emerged a cottage industry for protecting the plutocratic gut from the hollow tipped bullet.
The man the article centers on is a designer named Manuel Cabellero, who demonstrates his product by shooting the visitor: “the founder and chief executive of a company that makes "specialized personal protection," and when he shot me I was wearing one of his products, a black suede jacket with lightweight bulletproof panels in the lining. The company, which is called Miguel Caballero, makes fashion-oriented body armor, and sells it mainly to executives, celebrities, political figures, and others who have security concerns but don't want to dress like members of a SWAT team.
Popular items include a three-button blazer, a V-necked wool sweater, a Nehru vest (for customers in the subcontinent and, conceivably, for anxious idolizers of Sammy Davis, Jr.), and a polo shirt, which, because of its extra bulk, may usefully promote a compact golf swing. Caballero also makes bulletproof camouflaged hunting clothes, to protect hunters from misdirected shots fired by their companions--an eventuality that he referred to as "a Dick Cheney accident."
Are we all seeing ‘growth industry” here? We should be. As from the American ashes there begins to grow an American third world culture, I do not think the plutocrats are going to be able to do without the third world billionaire’s accessories, among which are the four car squadron (which I have seen, negotiating the streets of Mexico City), the bodyguards and bodyguards of bodyguards (the latter selected to stop the first line of bodyguard if, as it sometimes turns out, the first line gets the idea to kidnap the body they are guarding) and the appropriate security procedures. The age of the golden bulletproof polo shirt is definitely here.
“When he started making bulletproof garments, nineteen years ago, his customers were almost exclusively Colombian--a reflection both of the small scale of his original enterprise and of the turmoil in the country at the time. Today, ninety-eight per cent of his production is for export. He has dealers in two dozen countries and customers in more than fifty, and he has a retail boutique in Harrods, where some of his golf shirts sell for the equivalent of about twelve thousand dollars.”
Twelve thousand dollars is a significant sum. How significant? According to a recent probe into the underbelly of the wondrous neo-liberal age prophecied by Tom Friedman: From Andy Kroll in Tom's Dispatch
“According to Census data, between 2009 and 2010 alone the black poverty rate jumped from 25% to 27%. For Hispanics, it climbed from 25% to 26%, and for whites, from 9.4% to 9.9%. At 16.4 million, more children now live in poverty than at any time since 1962. Put another way, 22% of kids currently live below the poverty line, a 17-year record.
America’s lost decade also did a remarkable job of destroying the wealth of nonwhite families, the Pew Research Center reported in July. Between 2005 and 2009, the household wealth of a typical black family dropped off a cliff, plunging by a whopping 53%; for a typical Hispanic family, it was even worse, at 66%. For white middle-class households, losses on average totaled “only” 16%.
Here's a more eye-opening way to look at it: in 2009, the median wealth for a white family was $113,149, for a black family $5,677, and for a Hispanic family $6,325. The second half of the lost decade, in other words, laid ruin to whatever wealth was possessed by blacks and Hispanics -- largely home ownership devastated by the popping of the housing bubble.”
So, we can evaluate the golf shirt as double the wealth of a median Hispanic family. Fun, eh?
“I had heard that President Obama, during his Inauguration, wore clothing made by Caballero. Neither Ballesteros nor Caballero would say anything about that, but they did tell me that the company's customers include King Abdullah II of Jordan, the Prince of Asturias, a Thai princess, and the leaders of El Salvador, Guatemala, Honduras, Paraguay, Panama, and Malaysia.”
Saturday, October 08, 2011
History lesson for Occupy Wall Street: smash the stock market
In the election of 1910, Democrats took control of the House of Representatives. The economy still hadn’t recovered from the bust of 1907. The original impetus for the progressive legislation that had received support and scorn in equal measure from Teddy Roosevelt – America’s most bipolar president – had not died out, which is why President Taft couldn’t block the amendment to the Constitution instituting a federal income tax. Unfortunately, the move to force corporations to incorporate federally, instead of in the states, failed.
There was, back in those days, a burning issue that has flamed out so much since that the very word brings an eery blank to the mind: overcapitalization. The reason this figured so heavily as a scare word among the progressives is that the era from the turn of the century to the establishment of the Interstate Commerce Commission, in 1914 – which is generally taken to bookend the progressive moment – saw the instantiation of what Lawrence Mitchell, in The Speculation Economy, claims is the founding moment of modern American capitalism: the subjugation of industry to finance. This was a moment that expressed itself on several fronts – for instance, the Courts finally cleared up the confusion about how property law applied to corporations – creating a new form of property, defined by John Commons this way: [the old common law definition] … is Property, the other is Business. The one is property in the sense of Things owned, the other is property in the sense of exchange-value of things. One is physical objects, the other is marketable assets.” [quoted by Sklar, page 50]
One of the results of this legal change, or rather, one of the reasons it came about, was that the notion of a corporation as a body issuing stock was changing. And that change brought up the charge of overcapitalization – that a corporation, instead of finding its raison d’etre in using its assets to produce a good or service on which it made a profit, was now an entity wrapped up entirely in the market for its stocks.
In 1911, a bill was voted through the House of Representatives and narrowly turned down in the Senate that would have smashed this legal structure. S. 232 built on legislative ideas already crafted during Roosevelt’s term (remember, Roosevelt was in the wings in 1911, and would run in 1912, thus ruining Taft’s chance at a second term). S. 232 would not only have required federal incorporation of all interstate businesses. Here’s Mitchell’s description of it:
“It would have replaced traditional state corporate finance law by preventing companies from issuing “new stock” for more than the cash value of their assets, addressing both traditional antitrust concerns and newer worries about the stability of the stock market by preventing overcapitalization. But it would have done much more.
S. 232 was designed to restore industry to its primary role in American business, subjugating finance to its service. It would have directed the proceeds of securities issues to industrial progress by preventing corporations from issuing stock except “for the purpose of enlarging or extending the business of such corporation or for improvements or betterments”, and only with the permission of the Secretary of Commerce and Labor. Corporations would only be permitted to issue stock to finance revenue-generating industrial activities rather than finance the ambitions of sellers and promoters. … S. 232 would have restored the industrial business model to American corporate capitalism and prevented the spread of the finance combination from continuing it dominance of American industry.” (137) In Sklar’s account of the Roosevelt era draft, ‘whenever the amount of outstanding stock should exceed the value of assets, the secretary would require the corporation to call in all staock and issue new stock in lieu thereof in an amount not exceeding the value of assets, and each stockholder would be required to surrender the old stock and receive the new issue in an amount proportionate to the old holdings.”
This may well be the most radical legislation every considered by Congress. Think of it – the stock market as we know it today simply wouldn’t exist. Instead of being a legal fiction, the stock holders would literally own the company, and their profits would be limited to the profits of the company. The price to earnings index would level out so that the stock price would only hover marginally above earnings.
Needless to say, America did not go down this path, and the powers that be found the experience so traumatic that it dropped out of any account of our history. We accept the equities market as it is as an expression of American capitalism. It is really an expression of changes in the physiology of American capitalism that came about during this era – almost overnight, in Mitchell’s view.
Changes can be changed. Incorporating all companies nationally, with the Commerce department, instead of this bogus crosspatch of state incorporations, would be one radical change we could make to take control of our economy. Another would be to get rid of a market based on P/E, and make it a market based on P/A - for Price to Assets.
There was, back in those days, a burning issue that has flamed out so much since that the very word brings an eery blank to the mind: overcapitalization. The reason this figured so heavily as a scare word among the progressives is that the era from the turn of the century to the establishment of the Interstate Commerce Commission, in 1914 – which is generally taken to bookend the progressive moment – saw the instantiation of what Lawrence Mitchell, in The Speculation Economy, claims is the founding moment of modern American capitalism: the subjugation of industry to finance. This was a moment that expressed itself on several fronts – for instance, the Courts finally cleared up the confusion about how property law applied to corporations – creating a new form of property, defined by John Commons this way: [the old common law definition] … is Property, the other is Business. The one is property in the sense of Things owned, the other is property in the sense of exchange-value of things. One is physical objects, the other is marketable assets.” [quoted by Sklar, page 50]
One of the results of this legal change, or rather, one of the reasons it came about, was that the notion of a corporation as a body issuing stock was changing. And that change brought up the charge of overcapitalization – that a corporation, instead of finding its raison d’etre in using its assets to produce a good or service on which it made a profit, was now an entity wrapped up entirely in the market for its stocks.
In 1911, a bill was voted through the House of Representatives and narrowly turned down in the Senate that would have smashed this legal structure. S. 232 built on legislative ideas already crafted during Roosevelt’s term (remember, Roosevelt was in the wings in 1911, and would run in 1912, thus ruining Taft’s chance at a second term). S. 232 would not only have required federal incorporation of all interstate businesses. Here’s Mitchell’s description of it:
“It would have replaced traditional state corporate finance law by preventing companies from issuing “new stock” for more than the cash value of their assets, addressing both traditional antitrust concerns and newer worries about the stability of the stock market by preventing overcapitalization. But it would have done much more.
S. 232 was designed to restore industry to its primary role in American business, subjugating finance to its service. It would have directed the proceeds of securities issues to industrial progress by preventing corporations from issuing stock except “for the purpose of enlarging or extending the business of such corporation or for improvements or betterments”, and only with the permission of the Secretary of Commerce and Labor. Corporations would only be permitted to issue stock to finance revenue-generating industrial activities rather than finance the ambitions of sellers and promoters. … S. 232 would have restored the industrial business model to American corporate capitalism and prevented the spread of the finance combination from continuing it dominance of American industry.” (137) In Sklar’s account of the Roosevelt era draft, ‘whenever the amount of outstanding stock should exceed the value of assets, the secretary would require the corporation to call in all staock and issue new stock in lieu thereof in an amount not exceeding the value of assets, and each stockholder would be required to surrender the old stock and receive the new issue in an amount proportionate to the old holdings.”
This may well be the most radical legislation every considered by Congress. Think of it – the stock market as we know it today simply wouldn’t exist. Instead of being a legal fiction, the stock holders would literally own the company, and their profits would be limited to the profits of the company. The price to earnings index would level out so that the stock price would only hover marginally above earnings.
Needless to say, America did not go down this path, and the powers that be found the experience so traumatic that it dropped out of any account of our history. We accept the equities market as it is as an expression of American capitalism. It is really an expression of changes in the physiology of American capitalism that came about during this era – almost overnight, in Mitchell’s view.
Changes can be changed. Incorporating all companies nationally, with the Commerce department, instead of this bogus crosspatch of state incorporations, would be one radical change we could make to take control of our economy. Another would be to get rid of a market based on P/E, and make it a market based on P/A - for Price to Assets.
Thursday, October 06, 2011
to be buried naked
For Mr. T.
I am fascinated and mystified by Chinese history. I am always coming across stories that are on the edge of allegory – but unlike allegory, don’t seem to reference any larger exterior abstraction. Rather, they seem to allegorize concepts I have never thought, and which I suspect have not been thought, at least not yet. Allegories of the virtual, quoi.
Which is my preface to this passage I found in an essay by a French sinonolgue, Jacques Gernet, entitled: To be buried Naked. From 300 B.C. to 100 BC, Chinese nobles engaged in a status contest of more and more luxuriant funeral ceremonies. It was not enough to be buried in one coffin – one coffin was put in another, all made of different and rare substances. It was not enough to be buried with ceremonial robes, but the finest jewelry had to be added. It got to the point that families ruined themselves to bury their dead.
Gernet notes: “It was thus necessary to be an original to go against practices that had imposed on all of society such powerful motifs, and to want to be buried nude, like a certain Wang Yangsun to which the History of the Han consecrated the following notice:
Yang Wangun was a man of the epoch of the Emperor Xioaowu. He studied the techniques of Huangdi and of Lao Tze. Very rich, he had given himself without counting to cost to various longevity practices. Being sick and on the point of dying, he addressed his sons as follows: “I want to be buried naked in order to make a return to my true nature. Don’t change my wishes the slightest jot: when I am dead, make a canvas sack, put my body in it, and dig a hole seven meters deep. When he put me in it, pull the sack off me from the direction of my feet, in order that my body might be in contact with the earth.” His sons, discovering that it was difficult not to obey his orders and insupportable to obey them, went to see his friend, the marquis of Qi (K’I), who wrote him this letter: “Although you are suffering, I have to accompany the emperor to Yong for the sacrifices and cannot come to see you. I am praying that you remain alive. Don’t worry, take your medicines and you will be properly sustained. I learned that your last wish was to be buried naked. If the dead are unconscious, there would be nothing to say about that. But if they are conscious, you would inflict a cruel torment on your cadaver underground; and you will be going to present yourself naked to your ancestors. This is something that, in your interest, I cannot accept. Moreover, doesn’t the Classic of Filial Piety say: “They will make him a first and a second coffin, as well as a suit and a winding sheet? “ These are the rules that have been handed down to us from the saints. How can one be so stubborn and act individually, following one’s own knowledge?” To which Yang Wangsun responded: “I have heard that the sainted kings of old instituted the funeral rites, because men at that time did not have any regard for their deceased parents. But, in our days, we go too far. This is why I am having myself buried naked in order to redress the customs of my age. Sumptuous funerals are really of no use to the dead, and yet everyone tries to surpass his neighbor; this results in an unfettered waste of wealth, which will decay under the earth. What is put in the earth today is sometimes dug up tomorrow [by the pillagers of tombs]. But besides, death is only the final transformation and the return of all beings. When this return is accomplished and the transformation is perfect, beings return to their true nature. This return to the obscure indistinct which has neither form nor voice is the union with the Dao. The display of luxury aims to blind the crowd, but sumptuary funerals keep the dead from returning to their true nature. To act in such a way that the return cannot happen and the transformation cannot come to its destined end is to deprive beings of their natural place. But I have also heard that the spirit belongs to heaven and the body to the earth. When the spirit quits the body, each of them returns to their true nature. This is why one speaks of gui [the revenant]; gui means return. How can the cadaver, which remains as alone as a brute thing, be conscious? However, one wraps it in silks, one isolates it in two coffins, one ties up its limbs and its body in ribbons, one puts jade in its mouth, and in order that the transformation cannot happen, one mummifies it. It is only a thousand years later, when the coffins have decayed, that the dead can at last return to the earth and find their true home. By this logic, what good is it to be a guest of the earth for so long? In the past, in the time of King Yao, in high antiquity, in order to bury the dead, one scooped out a tree in the form of a coffin and one made cords from bamboo. One never dug too deeply, in order not to trouble the springs of water, but deep enough that the miasmas could not escape outside. The sainted kings loved simplicity above everything in life as in death. They never bothered with useless things and did not spend their goods on them. The great sums we now spend on burials retard the return and prevent the destined end. The dead have no consciousness of what is done in their honor, and the living don’t find any value in it either. It is a double fraud. And this, I will not do.” The maquis of Qi approved these words, and Yang Wangsun was thus buried nude.”
I am fascinated and mystified by Chinese history. I am always coming across stories that are on the edge of allegory – but unlike allegory, don’t seem to reference any larger exterior abstraction. Rather, they seem to allegorize concepts I have never thought, and which I suspect have not been thought, at least not yet. Allegories of the virtual, quoi.
Which is my preface to this passage I found in an essay by a French sinonolgue, Jacques Gernet, entitled: To be buried Naked. From 300 B.C. to 100 BC, Chinese nobles engaged in a status contest of more and more luxuriant funeral ceremonies. It was not enough to be buried in one coffin – one coffin was put in another, all made of different and rare substances. It was not enough to be buried with ceremonial robes, but the finest jewelry had to be added. It got to the point that families ruined themselves to bury their dead.
Gernet notes: “It was thus necessary to be an original to go against practices that had imposed on all of society such powerful motifs, and to want to be buried nude, like a certain Wang Yangsun to which the History of the Han consecrated the following notice:
Yang Wangun was a man of the epoch of the Emperor Xioaowu. He studied the techniques of Huangdi and of Lao Tze. Very rich, he had given himself without counting to cost to various longevity practices. Being sick and on the point of dying, he addressed his sons as follows: “I want to be buried naked in order to make a return to my true nature. Don’t change my wishes the slightest jot: when I am dead, make a canvas sack, put my body in it, and dig a hole seven meters deep. When he put me in it, pull the sack off me from the direction of my feet, in order that my body might be in contact with the earth.” His sons, discovering that it was difficult not to obey his orders and insupportable to obey them, went to see his friend, the marquis of Qi (K’I), who wrote him this letter: “Although you are suffering, I have to accompany the emperor to Yong for the sacrifices and cannot come to see you. I am praying that you remain alive. Don’t worry, take your medicines and you will be properly sustained. I learned that your last wish was to be buried naked. If the dead are unconscious, there would be nothing to say about that. But if they are conscious, you would inflict a cruel torment on your cadaver underground; and you will be going to present yourself naked to your ancestors. This is something that, in your interest, I cannot accept. Moreover, doesn’t the Classic of Filial Piety say: “They will make him a first and a second coffin, as well as a suit and a winding sheet? “ These are the rules that have been handed down to us from the saints. How can one be so stubborn and act individually, following one’s own knowledge?” To which Yang Wangsun responded: “I have heard that the sainted kings of old instituted the funeral rites, because men at that time did not have any regard for their deceased parents. But, in our days, we go too far. This is why I am having myself buried naked in order to redress the customs of my age. Sumptuous funerals are really of no use to the dead, and yet everyone tries to surpass his neighbor; this results in an unfettered waste of wealth, which will decay under the earth. What is put in the earth today is sometimes dug up tomorrow [by the pillagers of tombs]. But besides, death is only the final transformation and the return of all beings. When this return is accomplished and the transformation is perfect, beings return to their true nature. This return to the obscure indistinct which has neither form nor voice is the union with the Dao. The display of luxury aims to blind the crowd, but sumptuary funerals keep the dead from returning to their true nature. To act in such a way that the return cannot happen and the transformation cannot come to its destined end is to deprive beings of their natural place. But I have also heard that the spirit belongs to heaven and the body to the earth. When the spirit quits the body, each of them returns to their true nature. This is why one speaks of gui [the revenant]; gui means return. How can the cadaver, which remains as alone as a brute thing, be conscious? However, one wraps it in silks, one isolates it in two coffins, one ties up its limbs and its body in ribbons, one puts jade in its mouth, and in order that the transformation cannot happen, one mummifies it. It is only a thousand years later, when the coffins have decayed, that the dead can at last return to the earth and find their true home. By this logic, what good is it to be a guest of the earth for so long? In the past, in the time of King Yao, in high antiquity, in order to bury the dead, one scooped out a tree in the form of a coffin and one made cords from bamboo. One never dug too deeply, in order not to trouble the springs of water, but deep enough that the miasmas could not escape outside. The sainted kings loved simplicity above everything in life as in death. They never bothered with useless things and did not spend their goods on them. The great sums we now spend on burials retard the return and prevent the destined end. The dead have no consciousness of what is done in their honor, and the living don’t find any value in it either. It is a double fraud. And this, I will not do.” The maquis of Qi approved these words, and Yang Wangsun was thus buried nude.”
Wednesday, October 05, 2011
Wallfare around the world! and my definition of democracy
The case of the Arab Banking Corp.
Among the banks that got TALF money from the Fed was a certain entity called Arab Banking Corp. Arab Banking Corp has a New York Branch and, when the ‘window’ of TALF was opened during the bad, bad financial blizzard of 2008, the Fed, in the best spirit of American hospitality, gave the bank emergency loans – on which interest ranged from 05 to 1 percent! to a bank that is partly owned and controlled by the Central Bank of Libya. Gadhafi’s bank.
According to Bloomberg, which broke the story -- -- the bank got five billion in loans. We, the people of the US, decided in our infinite wisdom, as routed of course through the ouija board that Ben Bernanke uses to decide these things, to loan the bank five billion dollars. And do you know that the bank paid it all back? That was so sweet. Of course, if I was given 72 rounds of money at one percent interest or below, I might be able to pay it back with interest and… even make a profit!
The Arab Banking Corp apparently made a wonderful impression on the Fed, on the Treasury, and on the Obama administration overall! Read the last paragraph of this passage from the Bloomberg story:
“The bank, then 29 percent-owned by the Libyan state, had aggregate borrowings in that period of $35 billion -- while the largest single loan amount outstanding was $1.2 billion in July 2009, according to Fed data released yesterday. In October 2008, when lending to financial institutions by the central bank’s so- called discount window peaked at $111 billion, Arab Banking took repeated loans totaling more than $2 billion.
Fed officials say all the discount window loans made during the worst financial crisis since the 1930s have been repaid with interest.
The U.S. government has frozen assets linked to the regime of Libyan ruler Muammar Qaddafi and engaged in air strikes against his military forces, which are battling a rebel uprising in the North African country. Arab Banking got an exemption that allows the firm to continue operating while barring it from engaging in any transactions with the Libyan government, according to the U.S. Treasury Department.”
Oh, those banks! The way the government treats them, it makes you dream… Dream the utopian dream of a government that treats its citizens the same way it treats international banks! I believe that dream is called democracy, and one day we will certainly have it.
Among the banks that got TALF money from the Fed was a certain entity called Arab Banking Corp. Arab Banking Corp has a New York Branch and, when the ‘window’ of TALF was opened during the bad, bad financial blizzard of 2008, the Fed, in the best spirit of American hospitality, gave the bank emergency loans – on which interest ranged from 05 to 1 percent! to a bank that is partly owned and controlled by the Central Bank of Libya. Gadhafi’s bank.
According to Bloomberg, which broke the story -- -- the bank got five billion in loans. We, the people of the US, decided in our infinite wisdom, as routed of course through the ouija board that Ben Bernanke uses to decide these things, to loan the bank five billion dollars. And do you know that the bank paid it all back? That was so sweet. Of course, if I was given 72 rounds of money at one percent interest or below, I might be able to pay it back with interest and… even make a profit!
The Arab Banking Corp apparently made a wonderful impression on the Fed, on the Treasury, and on the Obama administration overall! Read the last paragraph of this passage from the Bloomberg story:
“The bank, then 29 percent-owned by the Libyan state, had aggregate borrowings in that period of $35 billion -- while the largest single loan amount outstanding was $1.2 billion in July 2009, according to Fed data released yesterday. In October 2008, when lending to financial institutions by the central bank’s so- called discount window peaked at $111 billion, Arab Banking took repeated loans totaling more than $2 billion.
Fed officials say all the discount window loans made during the worst financial crisis since the 1930s have been repaid with interest.
The U.S. government has frozen assets linked to the regime of Libyan ruler Muammar Qaddafi and engaged in air strikes against his military forces, which are battling a rebel uprising in the North African country. Arab Banking got an exemption that allows the firm to continue operating while barring it from engaging in any transactions with the Libyan government, according to the U.S. Treasury Department.”
Oh, those banks! The way the government treats them, it makes you dream… Dream the utopian dream of a government that treats its citizens the same way it treats international banks! I believe that dream is called democracy, and one day we will certainly have it.
From the files of Wallfare: Yorkville associates, come on down!
In a series meant to probe that underappreciated beast, the toiling trader, Joris Luyendjik interviewed one pathological specimen in a high frequency trading joint who, after describing what he did – basically using a computer to poach micropoint, icrosecond advantages, which must be the reductio ad absurdam of the ‘market’ as an in any way useful social entity – regaled the readers of the Guardian with his philosophy, a sort of autistic egotism wrapped in Darwinian slogans that were exploded by my grandpa’s grandpa. However, the sad soul of the trader, and the sad state of an economy that hasn’t regulated him into extinction, is not the point of this post. The point was a bit of lore he spouted, that is now the common currency not only of the City, but of the Street.
“Some of the commenters [on the Guardian] figured out that I work for a hedge fund, meaning we use money given to us by clients. Hedge funds did not receive any bailout money. They also seem to think that these traders effectively trade with a safety net because of these bailouts. Clearly since no bailout money is given to hedge funds, they don't have this safety net.”
Of course, the trader is as wrong about his own business as he is about Darwin. Not that I blame the poor pathetic rascal: the amnesia about what the U.S. government did is miles deep on the Street. Wallfare has been so normalized that the traders and the high salarymen cannot even see it, now.
Here’s the story of one hedgefund that did get Wallfare:
“A Jersey City, N.J., hedge fund under Securities and Exchange Commission investigation received more than $230 million in federal loans as part of a government bailout program.
Yorkville Advisors has been part of the Term Asset-Backed Securities Loan Facility Program since last year. Under TALF, the Federal Reserve Bank of New York has up to $1 billion to lend as part of an effort to inject liquidity into the ABS market.
Yorkville received some $233 million of that financing, using it to buy $253 million in securities last year for its flagship, YA Global Investments. The TALF deals were made via a subsidiary of the fund, New Earthshell Corp., and placed with a special-purpose entity called YA TALF Holdings, Forbes reports. The hedge fund still owes the Fed $162 million.”
This is of course a pennyante amount. You, my friend, may not be able to get one cent from the Fed even if you write them and ask pretty please and include pics of your starving kids, but to other of the higher players in the Wallfare world, that loan is pocket change.
Since it isn’t pocket change to me, though (if I and one thousand of my clones worked one thousand years at the rate in which I make money, we would not have collected anything near 230 million dollars), I figure that it might be a good idea to poke around Yorkville Associates, and see what they are about.
So what does Yorkville do, and why would we want to loan it money?
Here’s a good summary of one of Yorkville’s big money makers:
“Yorkville Advisors, founded by 38-year-old Mark Angelo in 2001, is one of the largest hedge fund firms specializing in investing in thinly-traded and often illiquid outfits by making private investments in public equities, also known as PIPEs. The hedge fund firm reported nearly $1 billion in assets as recently as 2008. Angelo’s variation on PIPEs is a structured product called a standby equity distribution agreement, which like most PIPEs often causes the stock of the company receiving the investment to drop because it results in Yorkville’s funds collecting discounted shares.
A report prepared by Sagient Research’s PlacementTracker shows that Yorkville has entered into $762 million in PIPE deals since 2001, causing the underlying stocks to drop 38% on average in the first year. Most of those investments were made by Yorkville’s Cornell Capital Partners, which later changed its name to YA Global Investments.
YA Global Investments reported a total return of 6.04% in 2009 and 6.22% in 2008, its financial statements say. It reported a net investment loss of 0.09% in 2009 and net investment income of 5.43% in 2008.
According to the one-page independent auditor’s report prepared on August 13 by McGladrey & Pullen, YA Global Investments’ consolidated financial statements include investments valued at $804 million, representing 94% of its partners’ capital plus the amounts due to certain Yorkville special purpose vehicles, “whose fair values have been estimated” by Yorkville Advisors “in the absence of readily ascertainable fair values.”
Now, that seems a bit curious. We gave this outfit money so that it could use the money to mount a play to make selected stock prices drop, which made it money.
Hmm, how is this possible? Well, here’s an explanation of PIPE action as it pertains to another fund, the NIR group, written by Matthew Goldstein at Reuters:
"But what’s surprising to me is why the SEC is just looking into the NIR funds now, given that it has been a dominant player in so-called “death spiral” convertible market. These securities have gotten a bad rap over the years because they include a trigger that permits bonds to be converted into common shares whenever there is a precipitous drop in the prices of a company’s stock.
Back in 2004, the SEC launched a sweeping probe into the market for these and other so-called PIPEs–private investments in public equity. Most PIPEs are a form of a convertible bond, mainly sold by small-cap companies, with terms highly favorable to hedge fund investors.
The shorts love PIPEs because the flood of stock in these highly-illiquid small cap companies invariably pushes the share prices lower. Not surprisingly, death spirals are real popular with short sellers.
The SEC probe led to a number of actions against hedge funds charged with improper short selling. Many of the hedge funds nabbed by the SEC were found to be shorting companies doing PIPES in advance of the offering–in effect trying to game the deal.
When I worked at TheStreet.com I did a lot of reporting on PIPE abuses and the SEC investigation. NIR was never charged with any wrongoing by the SEC during that long-running investigation. And it’s very well possible that NIR did nothing wrong in the death spirals it invested in–just as it is possible Ribotsky’s firm has done nothing improper this time around either.
But in 2006, I wrote a story for TheStreet.com about the surprising return of the death spiral, and in it I noted that NIR was one of the biggest players in this kind of PIPE deal. Back then I reported that there were no allegations of wrongdoing by NIR, but the firm did report having “some stellar annual returns.””
Well, okay. The Federal Government can’t exactly loan money to the deadbeat homeowner. What would he use it for? Paying off his mortgage? The Fed just chuckles about such obvious inefficient wastes of money. The Government will, indirectly, loan to students, but not at one percent interest – cause that would barely cover the penthouses of the CEOs of the lending companies. As for poor children’s health care – who is gonna pay any loan there back? Forget about it. As Mr. O. and his Republican opponents are agreed, we just have to cut back entitlements to the non-value crowd.
But in the case of Mr. Angelo’s death spiral fund, different criteria apply. We need to loan to Mr. Angelo’s death spiral fund because we want to prevent Depression. We want to prevent catastrophe. We want to preserve civilization.
The death spiral fund is the kind of thing the government pats on the head. It is the kind of thing it loans 230 million dollars to.
Now, one of the arguments made in comments sections of blogs and newspaper stories about Occupy Wall Street is that the financial section is flailing. It is not racking up the profits. This argument is apparently oriented towards getting us to pity this sector, but it raises the question: you mean we loaned out 16 trillion dollars and the financial sector is still rotten?
In miniature, this seems to be the problem with Yorkville. Thus, the headline in Forbes earlier this year:
“New Jersey Hedge Fund Posts Its First Down Year In A Decade”
Turns out that the company has problems stemming from 2008 that it still can’t cope with. And even as the stock market recovered, a poor little fund that depends on a complicated mechanism to pull stock prices lower and benefit from the short side can’t seem to get no traction.
“The hedge fund firm, which reported nearly $1 billion in assets as recently as 2008, specializes in a structured product called a standby equity distribution agreement. In connection with investor redemptions it could not meet in 2008, however, Yorkville Advisors restructured its hedge fund operations, creating special purpose vehicles and giving redeeming investors the option of receiving securities in-kind or ownership in the SPVs. The SPVs were distributed pro-rata participation interests in YA Global Investments’ securities. The plan has been for the SPVs to get cash distributions as YA Global Investments liquidates its assets and for the SPVs to pay out its members.”
Ahh, financial gobbledy gook! In plain English, the fund resorted towards various shifts to cover up a money losing strategy, and lost money anyway.
Still, given these facts, our loan saved the company from bankruptcy, and so surely contributed to the greater good. Which brings up the question: what kind of greater good has Yorkville been generating over the past decade?
Looking up the company’s history, one discovers that it lies in a profusion of nomenclature and ‘vehicles’, which make it a little difficult to follow in any linear fashion. But one thing at least is clear. Yorkville is a legal entity created as part of something called Cornell Capital. And Cornell Capital, and Mr. Angelo, certainly have some interesting associates!
In 2007, an investor group named sleuthshares ran an investigation of a number of New Jersey companies that had two things in common: their directors had records for fraud, and they were connected to Cornell Capital.
“Sharesleuth’s investigation uncovered a daisy-chain of dealmaking that has provided millions in hedge fund money to small, struggling companies and has generated millions in stock and cash for consultants, promoters and other financial middlemenWell, heavens, what the internet turns up! It is hard to believe that a little blogger, moi, could find this out and the Federal Reserve couldn’t. So I suppose we must conclude that a death spiral fund with a shaky history - the kind of fund that engineers drops in share prices and has associates that have been fingered for pump and dump kind of operations in the past - is just the kind of thing that we must prop up so as to not suffer from Depression and other horrendous events. And now that we have propped up this financial services sector, we shouldn’t go around taxing its CEOs too onerously – poor babies had quite enough scares for one decade!
Sharesleuth will outline those connections in a series of articles over the next few weeks.
At the center of the deal making is Robert D. Press, who a decade ago was president of a company that ran a boiler-room brokerage called PCM Securities Ltd. He was in his early 30s at the time.
Federal prosecutors charged in 1999 that PCM and several related brokerages were infiltrated by organized crime and became part of a vast “pump and dump’ scheme that cheated investors out of more than $150 million.
More than 50 people connected to PCM and three other firms – Hanover Sterling & Co., Norfolk Securities Corp. and Capital Planning Associates Inc. -- either pleaded guilty or were found guilty of racketeering or fraud charges.
Press was not among those indicted.
Press more recently has been a presence at several firms that provided money or consulting services to small public companies, including Cargo Connection and others listed in the New Jersey court documents.
From November 2004 until late 2006, Press also was co-portfolio manager for one of Cornell’s affiliated funds, Montgomery Equity Partners Ltd.
Yorkville Advisors LLC is the general partner of Cornell Capital, and also was general partner of two other funds, Montgomery Equity Partners and Highgate House Funds Ltd. The latter two funds have been consolidated into Cornell.
Mark A. Angelo, the managing member of Yorkville Advisors and president of Cornell, was the co-portfolio manager of all three funds.
Cornell said it no longer has any association with Press, noting that “it didn’t work out, so we parted ways.’’ However, Press still has an active telephone extension that is reachable through the hedge fund’s main switchboard.
Sharesleuth’s investigation shows that Press and the Cornell family of funds participated in at least two financing deals alongside Robert H. Pozner, who was one of the original defendants indicted in the New Jersey fraud case in 2005.
Pozner, a former stock broker and trader, has signed a plea agreement that calls for a maximum of five years in prison. He previously pleaded guilty to securities fraud and perjury charges in another stock manipulation case and served three months in prison.”
But we should righteously cut the entitlements that the wage class uses to pursue its frivolous lifestyle.
Ask an economist, and this is the answer he’ll give you.
Of course, we could give them all the raspberry and occupy Wallfare Street.
Tuesday, October 04, 2011
the fed dole: hartford insurance, come on down!
Spotlighting Wall Street's Welfare companies
I've been loving the Occupy Wall Street group. And their newly published newspaper, the Occupy Wall Street Journal. So far it is only four pages. I'd suggest that the paper feature spotlights - easily assembled bits of new analysis about the entities on Wall Street that the Federal Reserve helped out, in a friendly way, with its 16 tril. in emergency loans.
So, without further ado, let's go on to one of them: Hartford Financial Services, which is of course more famous as Hartford Insurance. The Hartford took a heady flyer in the 00s, and alas, due to its CDS biz with AIG and its role in the sub-prime market biz, it was gonna have to go bankrupt when AIG had to go bankrupt. But luckily, Uncle Sam arrived! According to the Inspector General’s report on TARP:
“The Hartford Financial Services Group, Inc, which received 3.4 billion, reported that it invested 3.2 billion (94 percent) in high quality short-term investments or money market funds. This allowed the company to issue additional insurance policies. Hartford also provided $195 million (6 percent) in TARP funds to Federal Trust Bank…”
Now you might think, gee, isn’t it just sweet of Uncle Sam to loan out money to businesses who can then “invest’ them in short term money markets, i.e. put a couple billion down on a crap table? Why it is sweet. In fact, perhaps you should write your congressman suggesting that Uncle Sam loan you 3.4 billion dollars to invest in short term money markets. You can assure Uncle that you, too, will do something ultra virtuous with the profits.
But then, you might not have the pull Hartford has. Let’s look at their stellar CEOs!
The CEO in 2008, when Hartford needed just that pinch of help from Uncle, was a guy named Ramani Ayer. Now, you might think a CEO who steered the company near bankruptcy would be suffering at least a bit of a salary cut. You’d be right! According to Forbes, Ayer went from being the 76th on the list of CEO salaries all the way down to 151st. His total compensation was only 9.8 million, and that plummeted the figure for his five year compensation down to a mere 77.86 million. A man can barely buy a good cheeseburger (and a small town in Maine) for such a paltry sum.
Well, Ayer had generally a good run. The usual bumlicking profiles were issued about him in the 00s. He had the touch! He superbly managed the company - and how about that stock price. All the way up to when everything blew up on him. When he received criticism like this:
“The company and its stock price have taken such a battering that a retiree of The Hartford asked Ayer at the annual meeting when he would resign.
"Congratulations on driving The Hartford into the ground," Justin Winthrop, 88, of West Hartford, told Ayer. "You've destroyed the image, reputation and the name of The Hartford. When may we expect your resignation?"
Winthrop said he has been a stockholder since the 1940s, retired from The Hartford in 1982 after more than 30 years, and had been a secretary of the company — an officer level below vice president. He told Ayer if he didn't step down, the company's directors, who have "had their heads in the sand," should consider firing him.
Ayer, in response at the shareholder meeting, said nothing about resigning but said he understood it has been a traumatic time for shareholders and that he and the company are trying hard to restore its image.
In the interview, he added, "I feel we are in a very good place now with all the actions we have taken, the strategic thinking we have done. I really for now am focused on making sure we just continue that work."
In Connecticut, where the company had 12,500 employees at year-end, Ayer said the life and annuity operations "will certainly be impacted" by layoffs — the variable annuity business is being scaled back — and he expects property-casualty operations "would not be impacted anywhere near the same extent."
Now, to be fair, in response to the crisis and getting a little allowance from the Fed, Ayer’s compensation, as we pointed out, did go way down. And in due course he was canned, and the new CEO came in with an inflation adjusted salary – times are tough, and we can’t blame the new CEO, Liam McGee, for taking a bit more – he was given a mere 4. 8 million in cash and 7.26 million in stock.
He is not, of course, the only millionaire working in the upper management of Hartford. The Courier ran a nice article about the upper management compensation of Hartford last year, that should make us all proud that we helped these guys out:
"By any measure, 2010 was a significant turn-around year for The Hartford," said company spokeswoman Shannon Lapierre. "We reported $1.7 billion in net income versus a net loss of more than $888 million in the prior year."
Chief Financial Officer Christopher Swift received $2.1 million last year in salary, incentive pay, change in pension value, stocks vested and other compensation. Additionally, he received stock awards valued at $1.79 million when they were granted which will vest at a later date.
Swift, a former AIG life insurance executive, took over as chief financial officer in February 2010.
Lizabeth Zlatkus, the former chief financial officer and current chief risk officer, received $4.89 million in salary, incentive pay, change in pension value, stocks vested and other compensation. She also received stock awards valued at $2.67 million when they were granted and will vest later.
David Levenson, president of the company's wealth management division, was compensated $3.2 million, not including $1.3 million in stock awards that vest later.
Gregory McGreevey, chief investment officer and president of Hartford Investment Management Co., was compensated $2.55 million, not including $1.2 million in stock awards that vest later.
Andrew Pinkes, executive vice president of claims and head of commercial markets, was compensated $2.26 million, not including $782,617 in stock awards that vest later.
Former Chief Operating Officer John Walters received $5.37 million in salary, stocks vested, severance and other compensation, which doesn't include $1.77 million in stock awards that vest later. Walters left in July to "pursue other opportunities."
I particularly liked the fact that Hartford could cough up so many bucks for Walters when, apparently, he only worked at the company half a year. Good job! I'm sure that the money bought very valuable intangible good will from Walters, whereever his other opportunities lead him.
Among the comments to thsi Hartford Courier article, we especially like this one:
“Been with this company since coming out of college about 10 yrs ago. I do have a degree and several certifications. Upper mgmt lowered most employess tiers (demotion) because they wanted to restructure our career paths. Pay is low for someone who starts at the bottom and a typical annual increase is 2.5% of your salary. Work here only out of desperation.”
Well, times change, and Hartford changes with the times, too! After the Fed bailouts, Congress, pretending to care, passed a package of regulatory changes that especially impacted on systematically important financial players. Now, one definition of that is a player who is an insurance company who gets 3.2 billion dollars to ‘invest’ in the short term money markets from Uncle Sam. But apparently, it is no longer going to do that stuff, no sir! According to a recent NYT article, with which I’ll end this spotlight:
“A few big insurers have sheared off businesses that would land them under the Federal Reserve’s thumb.
In May, the Hartford Financial Services Group sold off a thrift it bought in 2009 to secure billions of dollars of bailout funds designated for banks. In February, the Allstate Corporation sold a similar bank that had made it eligible for aid, though it decided not to accept the cash.
Now, both Hartford and Allstate are arguing that they should not be deemed systemically important — a claim raising eyebrows in financial policymaking circles.
“You would want to be particularly attentive to firms that got themselves into trouble during the crisis, needed government assistance, and now that they are subject to real supervision at the federal level, are hoping to escape additional regulation,” said Michael S. Barr, who recently stepped down as the assistant Treasury secretary for financial institutions to return to the University of Michigan law school.
A Hartford Financial spokesman, David Snowden, said the sale was part of a broader strategy of “focusing our resources on our core business and insurance operations.” Allstate, in a statement, said its decision was partly due to concerns that the new financial legislation would impose rules that the company “did not consider beneficial given the limited role of the Allstate Bank in our overall strategic plans.”
I've been loving the Occupy Wall Street group. And their newly published newspaper, the Occupy Wall Street Journal. So far it is only four pages. I'd suggest that the paper feature spotlights - easily assembled bits of new analysis about the entities on Wall Street that the Federal Reserve helped out, in a friendly way, with its 16 tril. in emergency loans.
So, without further ado, let's go on to one of them: Hartford Financial Services, which is of course more famous as Hartford Insurance. The Hartford took a heady flyer in the 00s, and alas, due to its CDS biz with AIG and its role in the sub-prime market biz, it was gonna have to go bankrupt when AIG had to go bankrupt. But luckily, Uncle Sam arrived! According to the Inspector General’s report on TARP:
“The Hartford Financial Services Group, Inc, which received 3.4 billion, reported that it invested 3.2 billion (94 percent) in high quality short-term investments or money market funds. This allowed the company to issue additional insurance policies. Hartford also provided $195 million (6 percent) in TARP funds to Federal Trust Bank…”
Now you might think, gee, isn’t it just sweet of Uncle Sam to loan out money to businesses who can then “invest’ them in short term money markets, i.e. put a couple billion down on a crap table? Why it is sweet. In fact, perhaps you should write your congressman suggesting that Uncle Sam loan you 3.4 billion dollars to invest in short term money markets. You can assure Uncle that you, too, will do something ultra virtuous with the profits.
But then, you might not have the pull Hartford has. Let’s look at their stellar CEOs!
The CEO in 2008, when Hartford needed just that pinch of help from Uncle, was a guy named Ramani Ayer. Now, you might think a CEO who steered the company near bankruptcy would be suffering at least a bit of a salary cut. You’d be right! According to Forbes, Ayer went from being the 76th on the list of CEO salaries all the way down to 151st. His total compensation was only 9.8 million, and that plummeted the figure for his five year compensation down to a mere 77.86 million. A man can barely buy a good cheeseburger (and a small town in Maine) for such a paltry sum.
Well, Ayer had generally a good run. The usual bumlicking profiles were issued about him in the 00s. He had the touch! He superbly managed the company - and how about that stock price. All the way up to when everything blew up on him. When he received criticism like this:
“The company and its stock price have taken such a battering that a retiree of The Hartford asked Ayer at the annual meeting when he would resign.
"Congratulations on driving The Hartford into the ground," Justin Winthrop, 88, of West Hartford, told Ayer. "You've destroyed the image, reputation and the name of The Hartford. When may we expect your resignation?"
Winthrop said he has been a stockholder since the 1940s, retired from The Hartford in 1982 after more than 30 years, and had been a secretary of the company — an officer level below vice president. He told Ayer if he didn't step down, the company's directors, who have "had their heads in the sand," should consider firing him.
Ayer, in response at the shareholder meeting, said nothing about resigning but said he understood it has been a traumatic time for shareholders and that he and the company are trying hard to restore its image.
In the interview, he added, "I feel we are in a very good place now with all the actions we have taken, the strategic thinking we have done. I really for now am focused on making sure we just continue that work."
In Connecticut, where the company had 12,500 employees at year-end, Ayer said the life and annuity operations "will certainly be impacted" by layoffs — the variable annuity business is being scaled back — and he expects property-casualty operations "would not be impacted anywhere near the same extent."
Now, to be fair, in response to the crisis and getting a little allowance from the Fed, Ayer’s compensation, as we pointed out, did go way down. And in due course he was canned, and the new CEO came in with an inflation adjusted salary – times are tough, and we can’t blame the new CEO, Liam McGee, for taking a bit more – he was given a mere 4. 8 million in cash and 7.26 million in stock.
He is not, of course, the only millionaire working in the upper management of Hartford. The Courier ran a nice article about the upper management compensation of Hartford last year, that should make us all proud that we helped these guys out:
"By any measure, 2010 was a significant turn-around year for The Hartford," said company spokeswoman Shannon Lapierre. "We reported $1.7 billion in net income versus a net loss of more than $888 million in the prior year."
Chief Financial Officer Christopher Swift received $2.1 million last year in salary, incentive pay, change in pension value, stocks vested and other compensation. Additionally, he received stock awards valued at $1.79 million when they were granted which will vest at a later date.
Swift, a former AIG life insurance executive, took over as chief financial officer in February 2010.
Lizabeth Zlatkus, the former chief financial officer and current chief risk officer, received $4.89 million in salary, incentive pay, change in pension value, stocks vested and other compensation. She also received stock awards valued at $2.67 million when they were granted and will vest later.
David Levenson, president of the company's wealth management division, was compensated $3.2 million, not including $1.3 million in stock awards that vest later.
Gregory McGreevey, chief investment officer and president of Hartford Investment Management Co., was compensated $2.55 million, not including $1.2 million in stock awards that vest later.
Andrew Pinkes, executive vice president of claims and head of commercial markets, was compensated $2.26 million, not including $782,617 in stock awards that vest later.
Former Chief Operating Officer John Walters received $5.37 million in salary, stocks vested, severance and other compensation, which doesn't include $1.77 million in stock awards that vest later. Walters left in July to "pursue other opportunities."
I particularly liked the fact that Hartford could cough up so many bucks for Walters when, apparently, he only worked at the company half a year. Good job! I'm sure that the money bought very valuable intangible good will from Walters, whereever his other opportunities lead him.
Among the comments to thsi Hartford Courier article, we especially like this one:
“Been with this company since coming out of college about 10 yrs ago. I do have a degree and several certifications. Upper mgmt lowered most employess tiers (demotion) because they wanted to restructure our career paths. Pay is low for someone who starts at the bottom and a typical annual increase is 2.5% of your salary. Work here only out of desperation.”
Well, times change, and Hartford changes with the times, too! After the Fed bailouts, Congress, pretending to care, passed a package of regulatory changes that especially impacted on systematically important financial players. Now, one definition of that is a player who is an insurance company who gets 3.2 billion dollars to ‘invest’ in the short term money markets from Uncle Sam. But apparently, it is no longer going to do that stuff, no sir! According to a recent NYT article, with which I’ll end this spotlight:
“A few big insurers have sheared off businesses that would land them under the Federal Reserve’s thumb.
In May, the Hartford Financial Services Group sold off a thrift it bought in 2009 to secure billions of dollars of bailout funds designated for banks. In February, the Allstate Corporation sold a similar bank that had made it eligible for aid, though it decided not to accept the cash.
Now, both Hartford and Allstate are arguing that they should not be deemed systemically important — a claim raising eyebrows in financial policymaking circles.
“You would want to be particularly attentive to firms that got themselves into trouble during the crisis, needed government assistance, and now that they are subject to real supervision at the federal level, are hoping to escape additional regulation,” said Michael S. Barr, who recently stepped down as the assistant Treasury secretary for financial institutions to return to the University of Michigan law school.
A Hartford Financial spokesman, David Snowden, said the sale was part of a broader strategy of “focusing our resources on our core business and insurance operations.” Allstate, in a statement, said its decision was partly due to concerns that the new financial legislation would impose rules that the company “did not consider beneficial given the limited role of the Allstate Bank in our overall strategic plans.”
Monday, October 03, 2011
be realistic, demand the impossible
Another note for Occupy Wall Street.
One of the problems with the rhetoric of populism is that it has a tendency to lead one to the individual malfactor - which has its uses, but often masks the larger structure that normalized malfeasance. And so it is with the charge that the bankers are greedy. Well, they are. However, it has two bad side effects: it can be used to trivialize the protest, and it displaces the real focus, which should be on the banks themselves. I don't really care whether individual bankers are greedy - I care that the system in which they operate doesn't constrain their greed, as it should. Thus, greed becomes not a personal trait, but a standard operating procedure incorporated impersonally into the way business has to be conducted.
Long ago, at the very beginning of the capitalist mentality, Mandeville wrote about the fact that private vices can be public virtues. Greed and envy can very well motivate moneymaking as well as the sense of justice among individual players. But their effects are secondary to the systems in which these passions are allowed to operate. Or, in less muckity muck wording, greed and envy can operate for the general good, as long as constraints are in place to keep them from becoming perverse incentives. It is the general good that counts, and that fills the charge of greed with a political content.
It is the systematic will to power of the investor class - however motivated - that needs to be counter-acted. It is impossible to predict whether a protest movement will actually generate a real and successful antidote to our general ills. Most protests do fail. Some succeed. I doubt that the roots of success or failure can be predicted outside of the particular situation of the protest. But one of the things we can do is use the protest and the attention space it takes up to propose the most radical changes to the system possible.
There as a slogan in 1968, be realistic, demand the impossible. I think that slogan may once again come into play in the current situation.
Sunday, October 02, 2011
Defund Wall Street!
The Occupy Wall Street people are definitely making me feel high on solidarity this morning. The press keeps telling us that the aims of the group are ‘uncertain’ or ‘unrealistic’ – and this is what one would expect from a press that has been supine for the last decade, and still has not lifted a finger to examine the 16 trillion dollars in ‘emergency loans’ that the Fed made available to the banks in the last three years. The GAO report has still not even been mentioned in the NYT, as far as I can tell.
Uncertain and unrealistic are the hallmarks of the great task that lies ahead. The model, here, should be the French revolution, when the whole country made their complaints known in a survey that had quasi-governmental approval. Now we have bloggers instead of peasants and clerks. Here’s one bloggers suggestion:
Defund Wall Street.
In the 70s and 80s, we took the first step towards the domination by the financial sector in this country. We took it via a bi-partisan program to get the populace to invest in the stock market. The government made such investments, by IRA and latter the 401k, attractive by giving them special tax status.
As Jim Mosquera in ‘Escaping Oz’ puts it: “At the last major stock market bottom in 1982, American households were not that interested in owning stocks. The growth of the stock industry was aided by the creation of IRA accounts (1974) and 401(k) plans (1980). IRA accounts came during the stock market bottom of 1974 and 401k plans arrived just before the major stock market bottom of 1982. Stock ownership comprised barely 12 percent of all household financial assets in 1982, where not 2/3 of investors have half their financial assets in mutual funds. Stocks litter IRA and 401k accounts, the most precious of saving vehicles. Fifty-four percent (54%) of households own stock mutual funds and 37% own individual stocks in their IRA accounts.”
Stock mutual funds currently amount to some 5 trillion dollars in assets.
It is time to reverse the flow. This can happen in two easy steps. Step one is to make available government savings vehicles that guarantee a 3 percent return per year, as has been outlined by Teresa Ghilarducci in her book, When I’m sixty four – the plot against pensions… The great experiment in getting the population to invest in its own immiseration has finally reached the logical point of no return. Unfortunately, that logical point is also an existential trap – millions cannot afford to cut off Wall Street. When the trillions went into the banks, the snake oil merchants (the Larry Summers type) would fan out to assure all and sundry that in saving the banks, we were saving ourselves. In reality, ‘banks’ named all the wealthy investor class, for that is the sum total of what our political elite represents. However, it is also true that, as housing values crashed, the mass of middle americans had to hope that their mutual funds survived. Thus, the protest against the grotesque misallocation of government funds was muted. And as the welfare was disguised as “loans” [a disguise that wore perilously thin as the interest on loans went down in many cases to .01 percent], the pretense was maintained that the government wasn’t doing what it was doing: putting out the dole for the wealthiest.
It is necessary to de-fund the whole machinery that makes it impossible for the wage class to actually find a politics that reflects its advantage. And the way to do that is simple. The same government that loaned its 16 trillion could, well, do it again to a much larger spectrum of people – the vast majority of the U.S. population. We could, in effect, liquidate the loans people have – from student loans to credit card debt to mortgages – by a policy using a government modality like the post office (which one had a bank capability) and simply make loans at much lower interest available to all citizens. We could use the interest from those loans to capitalize a government savings program that would be tax free, and phase in taxes on the other savings programs which, besides being designed to sluice money to wall street, have not served their purpose – they have not provided anything like the advantage conferred by the old system of pensions.
Defund Wall Street. Shrink em all, and let God sort em out.
Saturday, October 01, 2011
instructions pour gens d'affaires 1
The double change brought about under capitalism – the creation of wage labor under the regime of industrialization and the introduction of a revamped and quantitatively huge sphere of circulation under the regime of consumerism – is one that particularly effects the place of the clerk. The fictional commodities of land and labor, and the international trade in everyday household and psychoactive commodities – sugar, chocolate, alcohol, coffee - that underlay the great transformation required a new system of description and calculation that opened up a new vocational form – and into that form came the clerk. When Marx speaks of the way the bourgeois economists invert the processes that constitute the nature of the commodity so that it seems like the commodity comes first and constitutes the unsurpassable horizon of the world, what he is really talking about is the codification of the economy from the point of view of its managers in the sphere of circulation – for them, gazing at the world through their maps, spread sheets, instructions, and sales, the exterior world really does seem to be a price-driven market system, a great dualism between demand and supply.
In 1770, a Bordeaux lawyer named Joseph Rousselle published a how to book on management: “Instructions pour les seigneurs et leurs gens d'affaires”. The book divides into what the seigneur should look for in a manager – a gen d’affair – and what the manager should do. Among the latter, listed in the table of contents, is: “state of the domestics, properties and officials on the lands; archives of the seigneur and the state of his property; debts and charges; general knowledge of the lands; archives of the lands; active and passive transfers concerning the fiefs”; etc.
Rousselle begins the book by sounding a note of urgency: “Prudence demands that they [the seigneurs] found their principle existence on their patrimonial properties; yet the greater part of these properties are so badly guided, so badly administered, there reigns such abuses, that the Seigneurs lose considerably, be it by infidelity, be it by the incapacity of their agents.” (3)
What Rousselle is complaining about here has a long reach: we see this among the reformers in England and the novelists in Russia in the 19th century. Eventually, this story is about the end of the ancien regime – but as Thomas Mann puts it in Doctor Faustus, that regime didn’t wholly end until 1917 – until World War I.
In Rousselle’s time, certain among the corps of gens d’affaires were philosophes – including perhaps the most influential, Rousseau.
...
One can too easily make it seem that production and circulation are spheres that do not intersect because they are spheres that must be separated analytically and have different structures. In reality, these spheres interpenetrate: from the factory to the fashion show, production and circulation are interlocking parts of one whole. It is that interpenetration which gives to class its everyday value as something performed in routines – while everyday class differences are then registered in income differentials, and social positioning. In effect, one of the narratives Marx unfolds, in the Grundrisse and then in Capital, concerns the production of different forms of rationality that correspond to class strategies that dominate in the sphere of circulation and in the sphere of production.
There’s a striking passage in Plutarch’s essay on the Fortune of the Romans in which he considers the meaning of the fact that the Romans built a temple to Fortune centuries before they built a temple to any of the virtues. In a sense, this is a metaphor for the whole pre-capitalist economy in Europe from the time of the Romans to the early modern age. All the virtues – the province of the philosopher, the scientist, the clerk – were subordinate to the warrior class, who saw in Fortune the rationality of the system of war. However, the warriors couldn’t actually live on war – they lived on treasure, they lived on the slavery of those planted on the lands they conquered or were rewarded. Fortune, which provided that final margin which balanced the battle, sealed the alliance of the warrior caste and the Gods. The slave – the man who ‘owed’ his life to his conqueror, redeeming that debt, as David Graeber shows in his Debt: the first 5,000 years, by dedicating his life to enriching the man who spared it. Not, of course, that the slave volunteered for this fate, but along with physically direct coercion there came a morale of defeat.
It would be a huge mistake to equate the slave economy of the Ancients and the economy of the Middle Ages. The Christians, for good reason, fought against Fortune, and it wasn’t simply because Fortune was diabolic – it was because Fortune pitted itself, at the deepest level, against the virtues.
Thursday, September 29, 2011
our debt problem
In important ways, the D.C. drone drone drone about deficits and debt is right. Unfortunately, they have targeted the wrong debt. It isn't the government's debt that is the problem: it is the people's debt.
Unfortunately, the government could have chosen to do something radical about debt in 2009 and it didn't. No, I don't mean that we could have balanced the budget in D.C. - we could have helped balance the budget in the U.S.
Instead of loaning, at 1 percent, 16 trillion dollars to the American people, which would have effectively re-liquidated every American household, this is what the Federal Reserve - which is the government - did: it chose to loan that 16 trillion to the banks in the 2008-2010 period. What was the beneficial effect of this policy? It saved the banks. What does that mean? The government loans money to banks at 1 percent or below, so the banks can loan money to businesses, people and the government at from 2 percent to 14 percent (for you lucky credit card holders).
What does this mean? It means that the investment class was given a free ride, while the vast majority of people - for whom the economy exists - were given an elbow in the mouth.
Here is what debt politics should be about: our debts. A combination of policies to radically crush private debt while creating a large enough deficit to counter-act the private sector's collapse of demand for labor - for instance, by simply hiring every unemployed person - would have taken us out of the Great Recession by now.
As I have pointed out, will point out, and will probably mumble on my deathbed, the policies and politics of our epoch are determined by the curious fact that we have left the wealth of the wealthy out of the equation. We pretend that we can't afford to do things that we could do in the fifties or sixties, when we were much poorer. We actually can. However, to do so we would cut deeply into the wealth of the wealthiest, who are the investor class who massively benefited by the Government's welfare for banks scheme, and who would not benefit from liquidated the debt bondage in which the mass of Americans are held - quite the contrary.
Let's not end on an exasperated note. Let's end as one ends a love letter. This love letter is to the Occupy Wall Street people. You are right. Think big. Operating in the interests of the majority, you will either win now or win later, but you will win. The elites, the pluto-parties that monopolize our politics at the moment, are not so different from the horrific and racist parties that dominated the political scene in America in 1900. Don't worry that we are too senile as a nation, have filled our veins too full of shit and our heads too full of trivia, to live. That old nation will die, in fact is in its death throes, but a new one will arise.
Unfortunately, the government could have chosen to do something radical about debt in 2009 and it didn't. No, I don't mean that we could have balanced the budget in D.C. - we could have helped balance the budget in the U.S.
Instead of loaning, at 1 percent, 16 trillion dollars to the American people, which would have effectively re-liquidated every American household, this is what the Federal Reserve - which is the government - did: it chose to loan that 16 trillion to the banks in the 2008-2010 period. What was the beneficial effect of this policy? It saved the banks. What does that mean? The government loans money to banks at 1 percent or below, so the banks can loan money to businesses, people and the government at from 2 percent to 14 percent (for you lucky credit card holders).
What does this mean? It means that the investment class was given a free ride, while the vast majority of people - for whom the economy exists - were given an elbow in the mouth.
Here is what debt politics should be about: our debts. A combination of policies to radically crush private debt while creating a large enough deficit to counter-act the private sector's collapse of demand for labor - for instance, by simply hiring every unemployed person - would have taken us out of the Great Recession by now.
As I have pointed out, will point out, and will probably mumble on my deathbed, the policies and politics of our epoch are determined by the curious fact that we have left the wealth of the wealthy out of the equation. We pretend that we can't afford to do things that we could do in the fifties or sixties, when we were much poorer. We actually can. However, to do so we would cut deeply into the wealth of the wealthiest, who are the investor class who massively benefited by the Government's welfare for banks scheme, and who would not benefit from liquidated the debt bondage in which the mass of Americans are held - quite the contrary.
Let's not end on an exasperated note. Let's end as one ends a love letter. This love letter is to the Occupy Wall Street people. You are right. Think big. Operating in the interests of the majority, you will either win now or win later, but you will win. The elites, the pluto-parties that monopolize our politics at the moment, are not so different from the horrific and racist parties that dominated the political scene in America in 1900. Don't worry that we are too senile as a nation, have filled our veins too full of shit and our heads too full of trivia, to live. That old nation will die, in fact is in its death throes, but a new one will arise.
Tuesday, September 27, 2011
the boytoy "left"
I have read with amazement the news about the speeches at the Labour conference that is going on this week. Labour has discovered its niche in the political sphere, apparently: support for ‘deficit reduction”, i.e. mass employment and wage deflation, combined with a strong on crime stance. Thus, the silent majority may huddle in their homes waiting for the layoff slip or the round of unaffordable bills, but at least they can have the satisfaction of seeing the noisy unemployed person in the house next door put out in the street.
This is what the supposed “Left” has come to.
Clearly, the Blairist poobahs that have reformed Labour have no time for the economic sillyness of their forefathers. Someone like Bevin, surveying the current scene, would have summed up the deficit debate very simply: we will cure deficits by curing unemployment and stimulating higher wages. In the interim, we will consider nationalizing the bond markets if they can’t do a better job of pricing the risk in bonds. And in the future, we will consider whether the idea of a private bond market for state finance isn’t altogether archaic.
It bears repeating, as nobody repeats it: bond traders work for financial institutions, banks, mutual funds, hedge funds, etc. Financial institutions were, worldwide, floated by 16 trillion dollars in emergency funds by the Federal Reserve. Instead of loaning sixteen trillion dollars to the working class – to those making below 100 thousand dollars – in the U.S., through easily created modalities (the Post Office, anyone), the Fed chose to continue a system that can’t clear. Let’s say this again: cant clear. It can’t clear because clearing would cause mutual collapse on all sides. The EU and various European governments, on a lesser scale, also propped up the financial system, which then turns around and loans to the European governments through buying bonds, which are then, through the auctioning system, repriced – in effect, the interest rates the bonds pay are increased. What we have here is obviously a vicious circle of borrowing, A “loaning” at .05 percent to B, which then loans at 2 percent to A - which exists only partly to do what the state and private financial enterprise are supposed to do – guard the well being of the population and supply capital for private enterprises and credit for consumers – and majorly to insure the fortunes of the richest. Another way of saying this is: we are paying the rich to sit on our faces.
Labour’s boytoys want us to be outraged because – as the rich sit on our faces, somebody with dreadlocks or a dyed Mohawk has moved into the apartment down the street!
Trivia, timewasting, and a plutocratic ideology in which the leaders of a party formerly representing the workers has drowned themselves has now become the U.K’s opposition party. Really.
Stamp out the parties.
“The sweetest sleep and fairest-boding dreams
That ever ent'red in a drowsy head
Have I since your departure had, my lords.
Methought their souls whose bodies Richard murder'd
Came to my tent and cried on victory.
I promise you my soul is very jocund
In the remembrance of so fair a dream.”
Monday, September 26, 2011
the battle and the market: geneology of unintended consequences, two
The battle and the market
“Might one, then … bring on the Romans once more as witnesses in behalf of Fortune, on the ground that they assigned more to Fortune than to Virtue? At least, it was only recently and after many years that Scipio Numantinus built a shrine of Virtue in Rome; elater Marcellus23 built what is called the Temple of Virtue and Honour;24 and Aemilius Scaurus,25 who lived in the time of the Cimbrian Wars, built the shrine of Mens socalled, which might be considered a Temple of Reason. For at this time rhetoric, sophistry, and argumentation had already found their way into the City; and people were beginning to magnify such pursuits. But even to this day they have no shrine of Wisdom or Prudence or Magnanimity or Constancy or Moderation. But of Fortune there are splendid and ancient shrines, all but coeval with the first foundations of the City.” – Plutarch, On the Fortune of the Romans
In an essay exploring the concept of Fortuna in the Latin world, Nicole Hequet-Noti demonstrates the parallel between the growth of the cult of the goddess and the growth of the military aspect of Rome. In other words, as Rome became a great generator of battles, it also became a great worshipper of that mysterious quality associated with being lucky. As Hecquet-Noti puts it, paraphrasing Cicero’s praise of Sylla: ‘That gift, originally exterior to man, is incorporated in order to become an immanent force in this man, a good properly belonging to him, conferring a particular force superior to that of others…” 18
This double development should be remembered when considering the place of Fortune in Plutarch’s Moralia and biographical writings – an unconsidered source for what became articulated, in the Enlightenment, as the programmatic concept of unintended consequences, except that somewhere in this line of transmission – which might be thought of as the modern moment, co-ordinate with the de-legitimation of glory as the reason of the State - the market is substituted for the battle.
Plutarch’s moralia and his history seem have been divided among different sorts of scholars, who commonly don’t take the time to connect the two text types systematically. What Plutarch meant by his parallel lives, though, was more than just the telling of a history through the lives of great men. Rather, biography here serves as a sort of laboratory in which, through different situations, we see the sentiments or virtues – which are, abstractly, atomic and unified – express themselves differently. This is the doxic force of tyche, of chance.
Now of course in the synthesis of luck and reason that ‘builds’ the market system (as well as the war system), virtue – Plutarchian practical reason – is not wholly powerless before luck. But luck has on its side sheer incident; and sheer incident is hard to treat neutrally. Sheer incident is the screen upon which we project the uncanny, in the Freudian sense. Plutarch tells a story to illustrate how the force of fortune can impose upon virtue – a lesson that is surely underneath the discovery of ‘unintended consequences’ in the Enlightenment:
” Caesar's son, who was the first to be styled Augustus, and who ruled for fifty-four years, ewhen he was sending forth his grandson to war, did he not pray to the goddess to bestow upon the young man the courage of Scipio, the popularity of Pompey, and his own Fortune,38 thus recording Fortune as the creator of himself, quite as though he were inscribing the artist's name on a great monument?a For it was Fortune that imposed him upon Cicero, Lepidus, Pansa, Hirtius, and Mark Antony, and by their displays of valour, their deeds, victories, fleets, wars, armies, raised him on high to be the first of Roman citizens; and she cast down these men, through whom he had mounted, and left him to rule alone. p343It was, in fact, for him that Cicero governed the State, that Lepidus commanded armies, that Pansa conquered, that Hirtius fell, that Antony played the wanton. fFor I reckon even Cleopatra as a part of Caesar's Fortune, on whom, as on a reef, even so great a commander as Antony was wrecked and crushed that Caesar might rule alone. The tale39 is told of Caesar and Antony that, when there was much familiarity and intimacy between them, they often devoted their leisure to a game of ball or dice or even to fights of pet birds, such as quails or cocks; and Antony always retired from the field defeated. It is further related40 that one of his friends, who prided himself on his knowledge of divination, was often wont to speak freely to him and admonish him, 320"Sir, what business have you with this youth? Avoid him! Your repute is greater, you are older, you govern more men, you have fought in wars, you excel in experience; but your Guardian Spirit fears this man's Spirit. Your Fortune is mighty by herself, but abases herself before his. Unless you keep far away from him, your Fortune will depart and go over to him!”
The uncanny has a collective effect that we should not underestimate. Marx’s idea that the political economists had endowed things with a power that they did not have – that, in other words, by avoiding examining human power, political economists were the blind promoters of ideology – plucks out this uncanny moment that binds Roman Fortune and the Invisible Hand of the Scots. Plutarch’s trope concerning Augustus is at least distantly echoed in Smith’s famous passage about the Invisible Hand:
“As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”
In the Plutarch passage, the work of virtue in those who went before Augustus resulted – in spite of themselves – in adding to Augustus’ glory. The movement, here, is from the virtuous to the fortunate. In Smith, it is an opposite movement – the fortunate make their fortune, in spite of their concentration on selfish gainseeking ends, only by making the larger fortune of others, i.e. the nation itself.
“Might one, then … bring on the Romans once more as witnesses in behalf of Fortune, on the ground that they assigned more to Fortune than to Virtue? At least, it was only recently and after many years that Scipio Numantinus built a shrine of Virtue in Rome; elater Marcellus23 built what is called the Temple of Virtue and Honour;24 and Aemilius Scaurus,25 who lived in the time of the Cimbrian Wars, built the shrine of Mens socalled, which might be considered a Temple of Reason. For at this time rhetoric, sophistry, and argumentation had already found their way into the City; and people were beginning to magnify such pursuits. But even to this day they have no shrine of Wisdom or Prudence or Magnanimity or Constancy or Moderation. But of Fortune there are splendid and ancient shrines, all but coeval with the first foundations of the City.” – Plutarch, On the Fortune of the Romans
In an essay exploring the concept of Fortuna in the Latin world, Nicole Hequet-Noti demonstrates the parallel between the growth of the cult of the goddess and the growth of the military aspect of Rome. In other words, as Rome became a great generator of battles, it also became a great worshipper of that mysterious quality associated with being lucky. As Hecquet-Noti puts it, paraphrasing Cicero’s praise of Sylla: ‘That gift, originally exterior to man, is incorporated in order to become an immanent force in this man, a good properly belonging to him, conferring a particular force superior to that of others…” 18
This double development should be remembered when considering the place of Fortune in Plutarch’s Moralia and biographical writings – an unconsidered source for what became articulated, in the Enlightenment, as the programmatic concept of unintended consequences, except that somewhere in this line of transmission – which might be thought of as the modern moment, co-ordinate with the de-legitimation of glory as the reason of the State - the market is substituted for the battle.
Plutarch’s moralia and his history seem have been divided among different sorts of scholars, who commonly don’t take the time to connect the two text types systematically. What Plutarch meant by his parallel lives, though, was more than just the telling of a history through the lives of great men. Rather, biography here serves as a sort of laboratory in which, through different situations, we see the sentiments or virtues – which are, abstractly, atomic and unified – express themselves differently. This is the doxic force of tyche, of chance.
Now of course in the synthesis of luck and reason that ‘builds’ the market system (as well as the war system), virtue – Plutarchian practical reason – is not wholly powerless before luck. But luck has on its side sheer incident; and sheer incident is hard to treat neutrally. Sheer incident is the screen upon which we project the uncanny, in the Freudian sense. Plutarch tells a story to illustrate how the force of fortune can impose upon virtue – a lesson that is surely underneath the discovery of ‘unintended consequences’ in the Enlightenment:
” Caesar's son, who was the first to be styled Augustus, and who ruled for fifty-four years, ewhen he was sending forth his grandson to war, did he not pray to the goddess to bestow upon the young man the courage of Scipio, the popularity of Pompey, and his own Fortune,38 thus recording Fortune as the creator of himself, quite as though he were inscribing the artist's name on a great monument?a For it was Fortune that imposed him upon Cicero, Lepidus, Pansa, Hirtius, and Mark Antony, and by their displays of valour, their deeds, victories, fleets, wars, armies, raised him on high to be the first of Roman citizens; and she cast down these men, through whom he had mounted, and left him to rule alone. p343It was, in fact, for him that Cicero governed the State, that Lepidus commanded armies, that Pansa conquered, that Hirtius fell, that Antony played the wanton. fFor I reckon even Cleopatra as a part of Caesar's Fortune, on whom, as on a reef, even so great a commander as Antony was wrecked and crushed that Caesar might rule alone. The tale39 is told of Caesar and Antony that, when there was much familiarity and intimacy between them, they often devoted their leisure to a game of ball or dice or even to fights of pet birds, such as quails or cocks; and Antony always retired from the field defeated. It is further related40 that one of his friends, who prided himself on his knowledge of divination, was often wont to speak freely to him and admonish him, 320"Sir, what business have you with this youth? Avoid him! Your repute is greater, you are older, you govern more men, you have fought in wars, you excel in experience; but your Guardian Spirit fears this man's Spirit. Your Fortune is mighty by herself, but abases herself before his. Unless you keep far away from him, your Fortune will depart and go over to him!”
The uncanny has a collective effect that we should not underestimate. Marx’s idea that the political economists had endowed things with a power that they did not have – that, in other words, by avoiding examining human power, political economists were the blind promoters of ideology – plucks out this uncanny moment that binds Roman Fortune and the Invisible Hand of the Scots. Plutarch’s trope concerning Augustus is at least distantly echoed in Smith’s famous passage about the Invisible Hand:
“As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”
In the Plutarch passage, the work of virtue in those who went before Augustus resulted – in spite of themselves – in adding to Augustus’ glory. The movement, here, is from the virtuous to the fortunate. In Smith, it is an opposite movement – the fortunate make their fortune, in spite of their concentration on selfish gainseeking ends, only by making the larger fortune of others, i.e. the nation itself.
Friday, September 23, 2011
A little history of the Income Tax
Naturally, LI finds the class warfare cry that has gone up with Obama’s proposal to tax the wealthy at a less onerous rate than they were taxed in the 90s rather comic, as class warfare is precisely what is at the heart of progressive taxation. Progressive taxation can best be seen as one of those complex treaties, like that which officially divided up Yugoslavia, that takes a situation of ongoing hostility and freezes it in place. It allows the wealthy to continue to exploit and flourish, but at a cost.
However, there is one aspect of the right’s class warfare meme that seems to have taken root with a considerable number of middle class citizens, which is that there is something unfair about the wealthy paying 50 percent of the total of the income tax collected by the government. The usual response to this by liberals is to point out that federal taxes also consist of taxes for social security and medicare, so that the figure for income tax alone is distorting. This is true.
However, it also concedes the point, and this is bogus. A little historical research will tell us why.
In W. Elliot Brownlee’s dry as a cracker history of the Income Tax (Federal Taxation in America: a history) there is an account of the roots of the Income Tax and the intentions of its designers that makes it clear that the designers meant the income tax to be paid completely, lock stock and barrel, by the rich.
Back in 1916, as Wilson plotted to get America into WWI, the financing of that war was high on the agenda. Southern Democrats, who back then combined racism and populism, saw this as a good opportunity to create a truly progressive tax system.
In Brownlee’s words:
“The Democratic tax program, which was implemented in the
wartime Revenue Acts, transformed the experimental, rather tentative
income tax into the foremost instrument of federal taxation.
The Revenue Act of 1916 imposed the first significant tax on personal
incomes, doubled (to 2 percent) the tax on corporate incomes,
and introduced an excess profits tax of 12.5 percent on munitions
makers. It rejected a broadly based personal income tax—
one falling most heavily on wages and salaries—and focused on
the taxation of the wealthiest families. Among the provisions of the
1916 legislation was the elimination of the personal exemption for
dividends. Thus, the act deliberately introduced the double taxation
of corporate earnings distributed as dividends. In effect, the
1916 legislation embraced the concept of using the corporate and
personal income taxes as two different means of taxing the rich.
The architects of the Revenue Act of 1916 intended to implement
on one hand, through the personal income tax, an “ability-to-pay”
philosophy and on the other hand, through corporate taxation, a
“benefit” theory of taxation.”
What was the result of this?
“In 1918, only about 15 percent of American families had to
pay personal income taxes, and the tax payments of the wealthiest
1 percent of American families accounted for about 80 percent
of the revenues from the personal income tax. Even without taking
into account the incidence of the corporate income tax on the rich,
this wealthiest 1 percent of taxpayers paid marginal tax rates ranging
from 15 to 77 percent and effective rates averaging 15 percent,
having increased from 3 percent in 1916.”
Say it loud and say it proud: Only the rich should pay income tax! That was the intent, that was the early history, and that was how even the Republican administrations of the 1920s saw things. But the Republican administrations were, after all, business friendly, and one of the things they did was to erase as much as they could indirect taxes – tariffs and corporate taxes – and thereby accidentally increased the importance of the income tax as a funding vehicle for government:
“Mellon’s tax program consolidated the flow of income-tax revenues
into the Treasury. The portion of general revenues provided
to the federal government by indirect taxes (largely the tariff) fell
from almost 75 percent in 1902 to about 25 percent in the 1920s;
meanwhile, income-tax revenues increased, accounting for nearly
50 percent of the federal government’s general revenues. As had
been the case in World War I, income-tax revenues proved to be
more abundant than the Treasury experts had forecast, and the
Republican administrations enjoyed substantial, growing budget
surpluses until the onset of the Great Depression.”
Those income tax revenues, mind, came from the wealthiest income group. In a country where the median income was some 2 thousand dollars per year, the first 3,000 dollars of income was not taxed. As Mellon, the conservative Treasury Secretary put it:
“Mellon went so faras to advocate providing a greater reduction in taxes on “earned”
than on “unearned” income, and the Revenue Act of 1924 included
such a provision. “The fairness of taxing more lightly incomes from
wages, salaries, or from investments is beyond question,” Mellon
asserted. “In the first case, the income is uncertain and limited in
duration; sickness or death destroys it and old age diminishes it;
in the other, the source of income continues; the income may be
disposed of during a man’s life and it descends to his heirs.”
While this was a plea for greater death taxes, it was also a concession to the Edgeworthian logic of the tax, in which the determining factor is the marginal utility of income. As the marginal utility of a dollar to a man making 50,000 dollars is much greater than it is for a man making 1 million dollars, the logical thing is to tax the man making 1 million dollars. It does less harm.
So far, so good. But the worm in this apple lies in the notion of ‘investments”. Income, after all, must provide for current expenses and savings in a household. Up until the seventies, the savings of a middle class household were presumed to be in some private pension in combination with social security. Then, of course, the neo-liberal ideology began putting its sharp little teeth in the hide of the developed economies. Why not use tax deductions to get the mass of that savings flowing into the markets? Oh, what a win win proposition. In fact, the winners were naturally in the financial sector – they were the very malefactors of great wealth Roosevelt talked about 70 years before. And so the assets of middle income households were gradually tied to the private financial services sector - stocks and bonds – as their taxes went up to provide for government services and their incomes stagnated. The latter fact was not separate from their investments in the market – in effect, middle class households began betting on their own lack of income growth. This was all very well as long as there were bubbles to make those stock investments grow. Bubbles aren’t bad or good things – they are just the way that technology, population growth and capital converge. However, they let you down in a pinch. Thus, the empire of pensions built up by white collar workers since the Depression, and union workers too, was dissipated in the fine frenzy of the financial markets, and after the first wave, the 401(k) ripoff replaced the traditional pension.
It is this which has introduced an interesting variant into our class war. Their assets of households have made them the allies of the wealthy (this was the intended political dimension of neo-liberal policies) even though the wealthy are really not their allies at all, as any business cycle will show you.
If there were a progressive community in America, this story would be on their radar and they would be fighting against it. One way is to divorce Main Street and Wall Street. This is why LI is a big fan of the government providing a means of investing money with a guaranteed safe rate of return outside of the stock market. Theresa Ghilarducci made a suggestion in 2008 that we stop giving a tax credit to 401(k)s and introduce Guaranteed Retirement Accounts, in which the average person can simply open a government account and park money in it, earning non-taxed interest, with the aim of creating a retirement fund worth 70 percent of a person’s pre-retirement income.
This would be the single biggest blow against the neo-lib agenda since the seventies. A truly liberal president would have Ghilarducci as his advisor. One day we will have such a president, although I imagine Ghilarducci will be retired at that point. At present, we have a president named Obama who is a bit to the right of Andrew Mellon on economic issues. A pity, that.
Wednesday, September 21, 2011
The geneology of unintended consequences
In the note he devoted to the Regency in his Precis of the Reign of Louis XV, Voltaire marveled at the consequences of the rise and fall of Law’s system in France: “Finally, that famous system of Law or Lass, which seemed it must ruin the regency and the state, in fact sustained one and the other by some consequences that nobody could have foreseen.”
The idea of unforeseen consequences will have a long history in economic thought. Voltaire introduces it hear in a marveling tone – and yet, what he shows is not a marvel, but the development of a trend that developed because of the ‘side effects’ of Law’s system. This is one of Voltaire’s signal contributions to that product of the Enlightenment, the conjectural history, of which the most famous example is Adam Smith’s Wealth of Nations. Even as Montesquieu adheres to the classic rise and fall model of the economy, one in which Nemesis is still visible, the watermark beneath the elegant system, Voltaire dispenses with Nemesis and introduces the complexities of a feedback system that defies, to an extent, any easy moral analysis.
“The cupidity that it awakened in all conditions, from the lowest people up to the magistrates, to the bishops and the princes, diverted the attention of all minds from the public good and all political and ambitious views in filling them with the fear of losing and the avidity of gain. It was a new and prodigious game, when all citizens bet one against the other. Avid gamblers do not quit their cards in order to trouble the government. It happened, by a prestige of which the mechanism was not visible except to the strongest and finest eyes, that a completely chimeric system gave birth to real commerce, and the rebirth of the India Company, established in the past by the famous Colbert and ruined in the wars. At last, if many private fortunes were destroyed, the nation soon became more commercial and rich. This system lit up intellects in the same way the civil wars sharpened courage.”
Voltaire’s is a brief account of the rise and fall of the System, putting into a few paragraphs a broad description of the ‘complexity and rapidity of the machine”. Voltaire does not moralize upon the upsurge of greed, for he saw pretty clearly that greed was not the vice that France was suffering from, but famine and disease. The sudden fortunes acquired by upstarts was, in comparison, a comedy, and one with the strange effect of securing the state. Surely in being able to see these things calmly, Voltaire was influenced by Mandeville, as well as an proto-economist named Melon. And yet Voltaire was enough of a moraliste to understand the symbolism of what he testifies that he saw: Law, an ‘unknown’ and an adventurer, ‘arrive at the halls of the Palais Royale followed by Dukes and Pairs, Marshals of France and Bishops.” The world was only briefly turned upside down, but in that moment a glimpse was given of another possible world.
That possible world is masked by the image of the Age of Reason, which, although an excellent pamphleteering title was not, pace Tom Paine, a very informative description of what the Enlightenment wrought. From Voltaire to Adam Smith, the unintended consequences of action – particularly political action – was the theme constantly sounded against the schemes of sovereign reason, until finally, in the Critique of Pure Reason, reason itself becomes a sort of impotent god, like one of those deified people selected in certain tribes described in the Golden Bough, whose divine life was spent incommunicado, walled up, and generally tabooed. Although it is also true that reason plays a more multitudinous role in the writings of all these writers – if the unintended consequences of political reason, or of the passion for gain, operates as a positive force in the cultivation of progressive society, its negative dimension can be countered by the citizen’s virtue, or practical reason. Paine could just as easily have spoken of the Age of Virtue, for it was virtue that was evoked in the Assembly as the basis of the revolution.
Behind Voltaire and Mandeville’s tonally different but thematically similar analysis of the unexpected social virtues of private vices there lies, in fact, a Plutarchian theme: that of the dispute between virtue and fortune. The contest is staged in two of Plutarch’s speeches – on the fortune of the Romans and on the Fortune of Alexander, as well as in his biographies.
In the speech on the Romans, the contest between Fortune – which is amoral – and virtue – which is moral – is identified with another contest, between fortune and forethought.
“Wherefore our present discourse
does, in a measure, bestow a fair and enviable dignity
upon Rome, if we raise the question over her, even
as we do over earth and sea, heaven and stars, whether
she has come to her present state by Fortune or by
Forethought."
Fortune, it should be said, is not merely chance. In another essay on Fate, Plutarch distinguishes between the contingencies that can befall anything, living or non-living, and the fortune that impinges upon the course of human life:
‘that which is fortuitous allows also chance, and belongs to things practical; but what is by chance cannot be also by fortune, for it belongs to things without action: Fortune, moreover, pertains to rational beings, but chance to rational and irrational beings alike, and even to inanimate things.” Although Plutarch attributes this doctrine to Aristotle, he fundamentally agrees with it, and uses it to give an illustration of unintended effects, or the effects of fortune: ‘Now the cause by accident, when it is found in a thing which not only is done for some end but has in it free will and election, is then called Fortune; as is the finding a treasure while one is digging a hole to plant a tree…” (Volume 3, Essays and Miscellenies)
The example is, as any good Derridean would expect, mysteriously influential on the concept exemplified. Fortune (for Plutarch, tyche) and treasure are bound together through a deal of etymological weather, which is why the beginning of political economic discourse begins by replaying the Plutarchian dramatis personae…
The idea of unforeseen consequences will have a long history in economic thought. Voltaire introduces it hear in a marveling tone – and yet, what he shows is not a marvel, but the development of a trend that developed because of the ‘side effects’ of Law’s system. This is one of Voltaire’s signal contributions to that product of the Enlightenment, the conjectural history, of which the most famous example is Adam Smith’s Wealth of Nations. Even as Montesquieu adheres to the classic rise and fall model of the economy, one in which Nemesis is still visible, the watermark beneath the elegant system, Voltaire dispenses with Nemesis and introduces the complexities of a feedback system that defies, to an extent, any easy moral analysis.
“The cupidity that it awakened in all conditions, from the lowest people up to the magistrates, to the bishops and the princes, diverted the attention of all minds from the public good and all political and ambitious views in filling them with the fear of losing and the avidity of gain. It was a new and prodigious game, when all citizens bet one against the other. Avid gamblers do not quit their cards in order to trouble the government. It happened, by a prestige of which the mechanism was not visible except to the strongest and finest eyes, that a completely chimeric system gave birth to real commerce, and the rebirth of the India Company, established in the past by the famous Colbert and ruined in the wars. At last, if many private fortunes were destroyed, the nation soon became more commercial and rich. This system lit up intellects in the same way the civil wars sharpened courage.”
Voltaire’s is a brief account of the rise and fall of the System, putting into a few paragraphs a broad description of the ‘complexity and rapidity of the machine”. Voltaire does not moralize upon the upsurge of greed, for he saw pretty clearly that greed was not the vice that France was suffering from, but famine and disease. The sudden fortunes acquired by upstarts was, in comparison, a comedy, and one with the strange effect of securing the state. Surely in being able to see these things calmly, Voltaire was influenced by Mandeville, as well as an proto-economist named Melon. And yet Voltaire was enough of a moraliste to understand the symbolism of what he testifies that he saw: Law, an ‘unknown’ and an adventurer, ‘arrive at the halls of the Palais Royale followed by Dukes and Pairs, Marshals of France and Bishops.” The world was only briefly turned upside down, but in that moment a glimpse was given of another possible world.
That possible world is masked by the image of the Age of Reason, which, although an excellent pamphleteering title was not, pace Tom Paine, a very informative description of what the Enlightenment wrought. From Voltaire to Adam Smith, the unintended consequences of action – particularly political action – was the theme constantly sounded against the schemes of sovereign reason, until finally, in the Critique of Pure Reason, reason itself becomes a sort of impotent god, like one of those deified people selected in certain tribes described in the Golden Bough, whose divine life was spent incommunicado, walled up, and generally tabooed. Although it is also true that reason plays a more multitudinous role in the writings of all these writers – if the unintended consequences of political reason, or of the passion for gain, operates as a positive force in the cultivation of progressive society, its negative dimension can be countered by the citizen’s virtue, or practical reason. Paine could just as easily have spoken of the Age of Virtue, for it was virtue that was evoked in the Assembly as the basis of the revolution.
Behind Voltaire and Mandeville’s tonally different but thematically similar analysis of the unexpected social virtues of private vices there lies, in fact, a Plutarchian theme: that of the dispute between virtue and fortune. The contest is staged in two of Plutarch’s speeches – on the fortune of the Romans and on the Fortune of Alexander, as well as in his biographies.
In the speech on the Romans, the contest between Fortune – which is amoral – and virtue – which is moral – is identified with another contest, between fortune and forethought.
“Wherefore our present discourse
does, in a measure, bestow a fair and enviable dignity
upon Rome, if we raise the question over her, even
as we do over earth and sea, heaven and stars, whether
she has come to her present state by Fortune or by
Forethought."
Fortune, it should be said, is not merely chance. In another essay on Fate, Plutarch distinguishes between the contingencies that can befall anything, living or non-living, and the fortune that impinges upon the course of human life:
‘that which is fortuitous allows also chance, and belongs to things practical; but what is by chance cannot be also by fortune, for it belongs to things without action: Fortune, moreover, pertains to rational beings, but chance to rational and irrational beings alike, and even to inanimate things.” Although Plutarch attributes this doctrine to Aristotle, he fundamentally agrees with it, and uses it to give an illustration of unintended effects, or the effects of fortune: ‘Now the cause by accident, when it is found in a thing which not only is done for some end but has in it free will and election, is then called Fortune; as is the finding a treasure while one is digging a hole to plant a tree…” (Volume 3, Essays and Miscellenies)
The example is, as any good Derridean would expect, mysteriously influential on the concept exemplified. Fortune (for Plutarch, tyche) and treasure are bound together through a deal of etymological weather, which is why the beginning of political economic discourse begins by replaying the Plutarchian dramatis personae…
Subscribe to:
Posts (Atom)
from the ancien regime to hemingway
In the Revue Critique of May 23, 1921, there was a brief notice about the death of Comte Greppi at Milan. He was more than one hundred yea...
-
You can skip this boring part ... LI has not been able to keep up with Chabert in her multi-entry assault on Derrida. As in a proper duel, t... -
Ladies and Gentlemen... the moment you have all been waiting for! An adventure beyond your wildest dreams! An adrenaline rush from start to... -
LI feels like a little note on politics is called for. The comments thread following the dialectics of diddling post made me realize that, ...