During 2008, we were told that the government’s hands were tied and that sanctity of contracts had to be honored. This was when the Federal Reserve authorized 100% payouts to the likes of Goldman Sachs on AIG’s credit default swaps (in effect allowing the Fed to act as an extra budgetary vehicle of the Treasury, which is a violation of the Constitution and shows how patently false the Fed’s claims of independence are). But I don’t seem to recall many Wall Street types going on about the sanctity of contracts when agreements with the UAW were reworked to save GM or now when public employee union pension benefits are under attack. The argument seems to be that the states are suffering from a genuine solvency crisis in which everybody has to make sacrifices, including the “greedy” unions. So why should big financial firms, which would otherwise have been toast but for the munificence of the suffering American taxpayer, be any different? If the attacks outlined in the NYTimes piece reflect a broader trend this year, then it has ominous implications for the country as a whole. ...
The revolving door between Wall Street and Washington calls attention to the rotten heart at the core of the American polity today — what James Galbraith has felicitously termed “the predator state”. The state has become too weak and therefore remains another instrument of corporate predation. The revolving door policy (eagerly embraced by this president, much like his predecessors) perpetuates the problem because it enhances the dominance of the so-called “FIRE” (finance, insurance, real estate) sector of the economy.
The FIRE sector simply acts as a parasite on the production and consumption core, extracting financial and rent charges that are not technologically or economically necessary costs. Its revenue takes the form of what classical economists called “economic rent,” a broad category that includes interest, monopoly super-profits (price gouging) and land rent, as well as “capital” gains.
Its ethos consists largely of denuding the state of any provision of public goods, privatizing the public domain and erecting tollbooths to charge access fees for basic necessities such as health insurance, land sites, home ownership, the communication spectrum (cable and phone rights), patent medicine, water and electricity, and other public utilities, including the use of credit cards or the credit needed to get by. It’s a zero-sum economic activity. One party’s gain (that of Wall Street usually) is another’s loss. It looks like we’ll have much more of the same as we enter into 2011.