This is a follow up to Mark Sumner's outstanding post he titled "Three Strikes Against Wall Street" , a few requested I expand into a diary. Before I go on actually Mark your metaphor using baseball is good but a better one continues with the baseball but from the movie "Bang the Drum Slowly" and specifically the fictional game T.E.G.W.A.R., (meaning---a game basically designed to separate a sucker from his cash the acronym meaning The Exciting Game Without Any Rules."
Here is what George Friedman head of STRATFOR, a firm that "[P]rovides strategic intelligence on global business, economic, security and geopolitical affairs to corporate and high end investors.
Financial panics are an integral part of capitalism. So are economic recessions. The system generates them and it becomes stronger because of them. Like forest fires, they are painful when they occur, yet without them, the forest could not survive. They impose discipline, punishing the reckless, rewarding the cautious. They do so imperfectly, of course, as at times the reckless are rewarded and the cautious penalized. Political crises - as opposed to normal financial panics - emerge when the reckless appear to be the beneficiaries of the crisis they have caused, while the rest of society bears the burdens of their recklessness. At that point, the crisis ceases to be financial or economic. It becomes political. [emphasis added]
Political, that means everything under the stars; the moon and the sun, in a democratic society---be it elections within a republic process, petitioning the government, political speech or even Town Hall style assembly---this also includes direct action, i.e., at the street level, as in street protests, lawful assemblies, expressions of free political speech and even civil disobedience. Direct action is always the result when a society's leaders, be they political or other ex-officio elites, continue to be unresponsive to the needs of the people.
It is that simple. Unmoved or unswayed by recognizable social inequities and injustices the people have no other option but to begin the process of direct action. It was the case in 1774 and it is the case now.
In short, the Occupy Movement is calling their leaders to account for allowing these economic and social inequities take place and continue. We (the 99%'ers) are in the first stage of the process, informing our leaders in no uncertain terms how serious their unresponsiveness is! If continued non-responsiveness persists, the inability to redress of known grievances, then the process will escalate. Democracy offers little other choice. It is a one-way railroad. And now the locomotive has now left the station. Only the leaders can derail this process and not by retribution or oppression, but by changing their ways.
Eventually this railroad could lead to a democratically led removal of all or most of those unresponsive leaders from either and all political parties, if that proves unsuccessful---then the process continues fostering open rebellion and even overthrow. That does not mean some Communist or Socialist or Fascist or Totalitarian revolution, in fact, it is the tyranny of those who are unresponsive who are acting like totalitarians---this is what democracy does, (forget what it looks like), it is deeply visceral within every citizen who knows that if there is not a genuine representative form of governance he or she has no chance for self-determination.
Let me return to Sumner's extraordinary metaphor of using baseball. Wall Street has in fact co-opted the umpires and even the rules committee, where they have different sets of rules for their opposing teams. Let us call them the Robber Barons of Wall Street, (with their mascot as a 1% sign) and as the opposing team, who must follow the traditional rules of baseball, let us call them Everybody Else (with their mascot a former hippie unemployed worker, a 99%'er). Secondly, let us imagine that each game is being played for real money where each run represents money won or lost by each respective team. Let us say any hit is recorded a home run for the Robber Barons, where they also get six strikes for an out instead of three, and correspondingly, six outs per there "up's". You do the math. How long would you or Everybody Else continue to play this game of basically designed to separate a sucker from his/her cash.
In other words, in political economic terms: when the reckless appear (or in this case are--Report World's Wealthy Recover) to be the beneficiaries of the crisis they have caused. Do you think your T.E.G.W.A.R. baseball game would have a market or TV audience? Think of the Globetrotters, they gamed basketball for entertainment purposes and would barnstorm high school gyms across America, but were they the draw of NCAA college basketball?
Now what would you consider recklessness in above made up gameT.E.G.W.A.R. Baseball ? The idea of gaming the system? How about using ownership to gain a systemic advantage for one team creating such inequities to make the game lacking in any integrity is is a form of recklessness? How about gaming the system but doing everything to keep the gaming of the system secret? Let us say having the umpires (Moody's) call balls and strikes where they say it is still 3 strikes and your out but in reality it is 6 strikes for the Robber Barons and three for Everyone Else. And then when the gig is discovered and thereby bringing down the game, and the illusion of integrity of the game, baseball blames everyone else but themselves. Then in a further stroke of genius they turn to the local governments to bail out their debt on the stadiums they built otherwise baseball will go away forever!
Now going into the real world of politics, would it be reckless if our political and ex-officio elites "sold out" (enriching themselves in the meantime) their fiduciary responsibilities of sustaining fair and equitable society allowing T.E.G.W.A.R. principles to take over the Financial and Banking Industry? How about the Big Corporate Culture in general that is wrought with T.E.G.W.A.R? Isn't all that a form of recklessness? Of course it is.
Now let me discuss the concept of what a political economy is. Many of you probably never actually heard or even pondered what economics used to be known before it was called modern economics--- a political economy. Consider the current sanctimonious concept known as the modern American capitalist economic system---and specifically the concept we call the modern corporation. Understand before late 19th century Tort reform and some Supreme and Appellate Court decisions corporations were temporary or limited entities only chartered by an act of Congress or a State Legislature. But modern times has found that quaint and burdensome to the advance of wealth creation.
The modern for profit corporation is the foundation of our modern capitalist system, constructed around the idea of limited liability for its investors. In other words; an investor may own all or part of a company, but that investor is not responsible what the corporation does beyond his/her "paid in capital" or the subsequent market value of the stock representing the ownership stake of the investment. This appears quite simple but also possessing profound implications, meaning the only tenable relationship between owners and management is the abstract responsibility he/she has as a shareholder with the workings of the company is non other than a financial value or reward. "Don't tell me how you made the money just pay out the rewards."
Now whereas supply and demand has existed in practically all history of human times, the idea of limited liability, is quite new and unique concept to modern capitalism and correspondingly has reshaped the dynamic of supply and demand---meaning commerce and trade of goods and services. So any religious defenders of the capitalist faith be warned, it is not so deeply rooted as you may have us believe.
More importantly the modern capitalist system and its derivative concept---the corporation is solely and purely a POLITICAL INVENTION, not an economic one. Therefore the series of societal decisions creating corporations possessing limit liability flows from myriad of political decisions. Implemented through the legal subsystem as part of our politics and democratic political system. Thus, the underlying principle that the STATE and its politics define the structure of corporate risk remains a constant. This is critical to understand today, the inequities present in today's financial and banking markets and the international corporate world, the seemingly unmoving political climate and the unresponsiveness of our country's leaders.
Going further in context the [political] financial and economic systems (again from George Friedman)
[...]are subsystems of the broader political system. More precisely, think of nations as consisting of three basic systems: political, economic and military. Each of these systems has elites that manage it. The three systems are constantly interacting - and in a healthy polity, balancing each other, compensating for failures in one as well as taking advantage of success. Every nation has a different configuration within and between these systems. The relative weight of each system differs, as does the importance of its elites. But each nation contains these systems, and no system exists without the other two.
So over time our elites using the political system
[...]reallocated risk away from the owners of companies to the companies' creditors and customers by allowing corporations to become bankrupt without pulling in the owners.
In other words; redistributed of wealth---remember hearing that phrase? Now normally bankruptcy, provides the orderly dissolution of assets and liabilities of a failed business or person(s) from economic recklessness. But why we didn't allow bankruptcy to perform its purpose for the banks in 2008? Instead---we bailed them out! Friedman continues:
The precise distribution of risk within an economic system is a political matter expressed through the law; it differs from nation to nation and over time.
Remember what the quote of Friendman earlier:
Political crises - as opposed to normal financial panics - emerge when the reckless appear to be the beneficiaries of the crisis they have caused, while the rest of society bears the burdens of their recklessness. At that point, the crisis ceases to be financial or economic. It becomes political.
May I recall 2008 and TARP:
On October 3, 2008, the Senate passed the $700 billion bank bailout bill. The guts of the bill was the same as the three page document submitted on September 21, 2008, by Treasury Secretary Henry Paulson. Paulson had asked Congress to approve a $700 billion bailout to buy mortgage-backed securities that were in danger of defaulting.
Now recall when the House of Representatives originally rejected the bill:
The $700 billion bank bailout bill failed in the U.S. House of Representatives on September 30, 2008. Why did the bank bailout bill implode? Opponents were rightly concerned their constituents saw the bill as bailing out Wall Street at the expense of taxpayers.
Repeating for effect:
Political crises - as opposed to normal financial panics - emerge when the reckless appear to be the beneficiaries of the crisis they have caused, while the rest of society bears the burdens of their recklessness. At that point, the crisis ceases to be financial or economic. It becomes political.
Finally I need to continue to prosecute how and when the financial banking industry a subsystem of the political system, was able co-opt and corrupt its supposed hierarchy, the political system, creating this thing I am calling T.E.G.W.A.R. system into the current political crisis.
Tracing it back what might surprise you is that both Democratic and Republican Presidents were complicit in this charade. Not to be outdone were Democratic and Republican Congresses who conceived and passed the laws. It is not really a recent event but a series of political decisions made dating back to 1978, back when I was a long-haired collegian, though even then, I was cognizant that as these banking laws changed where not going to be positive to the financial and political landscape.
The story begins in 1978 when the Democratic Congress passed the passed the Revenue Act of 1978, named after the Code of the IRS for its provision, allowed for employees to participate in the 401K Plan of deferred compensation this was nothing else but a financial Trojan Horse.
Because I am in my mid-50's I can recall that in the 1970s, things were good. Statistically over 62% of all working Americans, (mostly one working adult households), were enrolled as beneficiaries in a company or government pension system, known as a qualified plan, highly regulated and managed. That coupled with their Social Security benefits would more or less guarantee that they would be able to enjoy a stable retirement. This was not a promise for affluent living, but the idea that a secure retirement was there after working to old age--it was part of the American Dream. Also Americans saved, private savings stood above 10% of GDP. This pile of money did not go unnoticed by the sharks on Wall Street, (those who practice the art of T.E.G.W.A.R.), as well as their management partner in Big Corporate America. It was a time when short term quarterly returns began to takeover the concern of corporate managers instead of the underlying management of their company, their products or their company's welfare or workers. One could only recall the shit box cars built by Detroit and planned obsolescence creep.
The 401K was initially billed as a supplemental to a pension plan but Corporate America seized this unregulated opportunity for themselves and converted their responsibility of providing a retirement from them to their employees. It was a perfect mutuality, And what better way to invest in this new plan was to invest in Wall Street. It was a a golden opportunity for big business to get out from under previous retirement provisions, and for Wall Street they had a automatic payroll deposit from America's workers every two weeks inflating the stock market values where they could also begin picking the pockets of the average working American. T.E.G.W.A.R.!
Now this created only more wanton greed for Wall Street and the banking industry where in 1980 banking got another windfall move: DEPOSITORY INSTITUTIONS DEREGULATION AND MONETARY CONTROL ACT OF 1980 where essentially deregulated the usury laws established in the Great Depression. Not satisfied bankers continued in the Reagan Administration and requested and got the GARN-ST GERMAIN DEPOSITORY INSTITUTIONS ACT OF 1982 which allowed the flexible home mortgage industry to begin.
But even though banking and the entire financial industry grew beyond historical New Deal levels to pre-Great Depression imbalances, banking was not satisfied. As commercial banks lobbied that they were being left behind global expansion and its markets the final New Deal firewall was taken down with the repeal of the Glass-Steagall Act of 1933 merging again investment banking and commercial banking. This was repealed in 1999, so the stage was set for political crisis of today!
Much has been written describing how totally reckless Wall Street became with residential mortgages and its derivatives or credit swaps markets. In simple terms it was nothing other than T.E.G.W.A.R.. In short it was America's political leaders who brought this about and the elite in Wall Street who have taken advantage of this.
So recklessness am I talking about? Political, economic or now, authoritarian as in the cops responding to the natural reaction of direct action. If you have come this far, than where does this go from here. Well there is no going back, the world has identified those who have benefited from their recklessness as they are the ones who have recovered from the meltdown. Lest us not forget the political players, the elected officials who have either; apologized, continued to support, offered continued masking of the T.E.G.W.A.R. game, and even not stepped up to oppose it and continued to receive the public's paychecks and the bank's contributions. Then there are big corporate who have exported our jobs and assets for nothing but short term profits at the cost of the good Earth and our only biosphere. This is not partisan, and it is not class warfare either, it is merely direct action in a democracy.
Robert Nemanich