People fight a lot about priorities at DKos. Groups accuse other groups with different priorities of being "concern trolls" or "purity trolls" or of expressing "poutrage". No matter what you think is important, someone else will be happy to tell you it really isn't as important as their pet issue. Here's my way out of that dilemma.
Prosecuting criminal behavior is a post-Bush theme that unifies all groups. To solve our economic problems, we need to prosecute present (and, inevitably, past) criminal behavior and the malign deregulation that enabled such criminality. To get ourselves out of foreign wars, we need to prosecute the war crimes that got us into those wars and the ongoing war crimes and frauds that those operations continue to produce. To solve our healthcare problems, we need to prevent criminal behavior, such as recision, on the part of healthcare-denial companies.
But, isn't fighting crime obvious? Not in the age of deregulation. Not in the age of the politicized DOJ. In order to fight crime, we must first restore regulations with teeth. We need to become "law and order Democrats". Below the fold I will lay out the rationale behind that seeming oxymoron.
I have spent the last twenty years battling the psuedo-scientific fraud that is neoliberal economics - the ludicrous model of "equilibrium" in markets, the metaphysical concept of "utility", the non-existent "perfectly rational economic man", and the "rational expectations" theory that, by using a single agent, collapses the complexity of macroeconomics to the simple-minded nonsense of microeconomics. And its hardly my private crusade. Here's a rant published in the Financial Times: Baroque fantasies of a most peculiar science.
In 2000, a group of disgruntled economists (including people such as Dean Baker, James Galbraith, Paul Omerod, and many others) formed their own economics forum, called the Post-Autisitc Economics Network. I highly recommend the free online journal of this forum, the Real World Economics Review (RWER) to DKos readers with economic interests.
To return to the main point, I always battled my side of the economics wars with the assumption that the neoliberal players didn't need to cheat because they had already rigged the rules of the game so that their depredations were perfectly legal. I assumed that the neolibs would play by the rules.
I WAS WRONG.
The bulk of this diary reviews an article from an RWER online book which persuasively argues that the deregulation demanded and obtained by neoliberal economists has allowed the line between legitimate and criminal behavior to become blurred, thereby promoting crime.
The article is titled "The triumph - and costs - of greed (Part I)" by Clive Dilnot, who is a colleague of David Harvey at the New School. (See my earlier diary about David Harvey.) Don't forget to check out Mr. Dilnot's footnotes, which lead to many interesting websites and authors. Now, on to excerpting the article
1. Crime in the New Economy
Mr. Dilnot uses a UK version of Enron, the Northern Rock Bank, as a constant point of reference for financial crime; so its important to know parts of the story:
...from the UK New Statesman of 20th October 2008: "The Treasury minister Yvette Cooper discovered to her dismay that Northern Rock didn't own half its own mortgages: £50bn ($75bn) had been hived off to a Jersey-based company, Granite, registered as a charity benefiting Down's syndrome children in the north-east of England...Located off-shore, in a schema of ownership that made it extremely difficult to discern by whom it was controlled, it was, in effect, all but impervious to taxation and, equally importantly, given what it held, detailed scrutiny...Like Madoff, Enron—and today Stanford—and many others before it, a litany that is getting much too long for comfort, Northern Rock’s act is in danger of blurring the line between business and crime.
Shades of Enron's infamous off-shore accounts! With that specific anchor, Dilnot begins to explore how criminal behavior has permeated our economic system.
The question of ‘personal gain’ sits uncomfortably in modern economic discourse. That it does so is surely not unconnected with the difficulty of accepting over the last decades that the processes of financial wealth-creation have been transposed to become primarily structures of wealth-diversion, dispossession and extraction.
The terminology "creation...extraction" was first popularized by David Korten in When Corporations Rule the World; while the term "dispossession" has been revived by David Harvey, mentioned above. The major point of these authors, and others (such as Ha-Joon Chang) is that neoliberalism is nothing but a cover story for massive, criminal looting by global financial elites.
crime is indeed a redistribution of wealth, but there is nothing of Robin Hood about it. It is the most regressive form of "taxation" and the one most debilitating, in all its consequences, to social well-being. (For the wider social—and economic— costs of crime, it should suffice to look, for example, at southern Italy, where criminality at this level has been in operation for generations and little or nothing escapes its take.)
Given the constant drumbeat of financial crime in the news (Stanford, Madoff, Goldman Sachs front-running, AIG bonuses), it is hard to dismiss this characterization of our financial system. It's the criminality, stupid.
2. The Undermining of the Economic System
But, it is not mere criminality. The criminality creates a distortion in the structure of the "free market":
John Christensen of the London-based Tax Justice Network explains:
The ability of multinational businesses to structure their trade and investment flows through tax-haven subsidiaries provides them with a massive financial advantage over nationally based competitors. Local firms, regardless of whether they are technically more efficient or more innovative, find themselves competing on an uneven basis. In practice this market distortion favors the large business over the small, the international business over the national, and the long-established business over the start-up. The outcome has been that both in theory and in practice the use of tax havens by virtually every major global bank and multinational business has nullified David Ricardo’s doctrine of comparative advantage. Fundamentalist advocates of a no-holds-barred approach to free trade have persistently turned a blind eye to this problem. For those like Baker – and myself – who believe that free and fair trade can generate viable economic growth and spread its benefits across society, the blatant unwillingness of key players like the IMF, the World Bank and the UK government to tackle these global market failures says a lot about their real intentions.
The completely valid, academic criticism that outsourcing and tax havens destroy the Ricardian premise of local loyalty has been ignored since the beginning of the free trade madness. That is because neoliberal economics is not a science where premises are debated, it is a propaganda platform. The IMF and the World Bank have long been treated as loan sharks as leg breakers by their third world victims. It's the Criminality, Stupid.
ASIDE:
I used to think that the small-business, Chamber of Commerce crowd were just ignorant conservatives who couldn't adapt to modern conditions. Now I understand that they have been screwed out of existence by exactly the tactics above. Of course, the CoC crowd have drunk the kool-aid and blamed "liberal regulators" for their problem. But, if a real progressive party could offer an explanation that legitimized their grievances, it could capture the small business base back from the paleo-craziness that now dominates it. Just sayin.
3. Organized Criminality
But, it goes further than destroying competition and promoting monopoly by distorting the "free market". It goes to outright crime:
Christensen is surely correct on this point. But one wonders too if this increased acceptance of the fluid or porous border between mainstream economy and crime—and this is a global phenomena, visible in every major geographic center of accumulation—is only an accidental by-product of the process? There seem to be two aspects at work here. Once you not only allow but insist as the IMF began to from the 1980s onwards, that ‘the world’ be opened up to the operation of ‘free-markets financial services’ (meaning also the free flow of capital) there is no effective way of policing what occurs. You thus by necessity create an economy that is remarkably hospitable to organized criminality’
For me, this is the basic insight that Mr. Dilnot brings to the table. You can't stop crime if you have no right to observe, investigate, and regulate. If everything is merely the market in action, then what's to stop someone from robbery by spreadsheet? Nothing. And this is the basis for "law and order Democrats". We want law and order restored to our financial (and political and military) world. It's the criminality, stupid.
...criminality, in the wide sense, is far more present (i.e., is far more structurally internalized) in the accumulative economy than, in general, we would like to concede....to admit the real relation with criminality is also to have to concede that many of our current modes of so-called "wealth creation" are in truth less creative than extractive. The real problem therefore is not only criminality per se, but our effective shift into a mainstream economy dominated by models of wealth extraction and not wealth-creation and characterized by the pursuit of modes of accumulation focused on dispossession, diversion and extraction.
It has been a stock quip of mine that the only group which has profited from globalization is organized crime. Its nice to see a theoretical foundation put underneath my intuitive grasp of the situation. (If your tinfoil hat is tight, you can dig deeper with Peter Dale Scott.
Evidence for this is all around us in the debris of the crisis. It is now perfectly clear, for example, that for all their apparent sophistication, a significant percentage of what was sold in the sub-prime markets was considerably closer to the pyramid-selling or Ponzi rackets of door- to-door salesman than the industry would like to admit.
The issue here, again, is less the specific instance (which doubtless could be reproduced ad nauseum—the whole process after all lends itself to these maneuvers) than it is the extractive slide between the accumulative and the criminal; the creation of structures of accumulation (and lack of regulation) which allow—and to a degree encourage practices that are sometimes criminal in the individual case, often borderline criminal, but widely accepted, and in all cases markedly deeply erosive of both institutions and markets. It is this slippage— this slide into what we can call "structurally irresponsible accumulation" —that is so consequential for the debacle and hence for the collapse of the banking sector as a whole.
This is an even deeper criticism than "you can't stop crime without regulation". This criticism is that, if you don't call crime "crime", then you won't even think to investigate it. Neoliberal propaganda is an exercise in calling crime business-as-usual and being "outraged" that anyone would get in the way of the "workings of the free market". This normalization of pathology was so successful by the year 2000, with the repeal of Glass-Steagal and the refusal of CTFC to regulate derivatives, that the whole system of high finance crossed over into high criminality. It's the criminality, stupid.
4. Wall Street's New Clothes - the Securitization Fraud
Let me finish the excerpts with Mr. Dilnot's convincing description of the real-estate/securitization bubble economy.
The second point that arises...is that such practices, or those close to them, will necessarily occur whenever returns are demanded from models of "wealth-creation" that cannot supply the level of return demanded. Packing and bundling sub-prime mortgages could never create the additional billions of value attributed to these "innovations" by the industry. That they appeared for a time to do so derived from a cocktail of financial euphoria, debt-fuelled liquidity, crony capitalism and the pressure of huge incentives (i.e., individual and collective profit) to make-believe that this was possible.
But this tells us, as we now know, that the extractable-value supposedly won from these transactions—let us say some $400 billion on Wall St at the height of the bubble—has proved largely illusory
...in the absence of real wealth-creation accumulation finds a substitute. For the banks and financial houses of Wall St. and the City what mattered was not the creation of wealth (a process infinitely too long-term to contemplate, even as their own project matured over a considerable period of time - for one should really see this crisis as 25 years in the making) but the extraction of realizable value from capital that could be made to flow through the institution. This explains the ‘relentless’ drive for expanded balance sheets ‘at all costs’—and for expansion on both sides of the balance sheet, assets and liabilities alike. Value is here a cull. Innovation is creating the conditions under which, and from which, immediate surplus can be won from flows of capital.
To make possible these levels of returns additional flows of capital are required. The agency of this additional flow is debt. Debt enables vast increases in the flows of capital through the institution. In so doing it directly secures accumulation. But it brings in train two questions at some point which take us back to the underlying issue of whether, in all of this, wealth was ever created at all? The first question is whether the immediate profits won in such a situation are "created"—or merely purchased. The second is whether the surplus extracted from the throughput is greater than the real costs of borrowing—and whether the cycle of short-term borrowing to finance long-term liabilities could be sustainable.
Post-crisis, we know the answer to both questions. Profits were essentially "bought"— at the price of debt and a tranche of liabilities that are not at this point resolved as to their value.
All together now: It's the criminality stupid.
Why are we not prosecuting the crap out of the top executives of Wall Street, who engineeered this mass looting? Why isn't Alan Greenspan in jail for dereliction of his duties? Just asking.
CONCLUSION
This is such a huge topic that I have barely scratched the surface. You can read the various books and websites referenced in the diary. Another useful book not yet mentioned is James Galbraith's The Predator State.
I hope I have the energy to write more diaries, explaining the un-investigated, un-prosecuted criminality in our military industrial prison complex, in our fraudulent healthcare-denial system, in the legalized bribery of our politics, and on and on.
Criminality is the word that mainstream Democrats don't want to talk about. The prosecution of crimes is always about things that happened in the past. And, if regulations can be kept off the books, crime is never "crime" in the legal sense. So, I think that
It's the criminality, stupid.
should be the Progressive's rallying cry. They could find thousands of talking points in the facts being ignored by the surreal dialogue of the corporate media and the inside-the-beltway political elites. I, for one, am totally sick of whitewashing crime (except in the case of designated scapegoats like Eliot Spitzer) in the name of political expediency, whether that expediency favors Dems or GOPers.
Just call me a "law and order Democrat".