The Public Plan : Break up the banks

Rep. Barney Frank released a proposal for the failing banks but got a lot slack from reform advocates like us. He responded to this criticism by saying, "People say break 'em up. I don't anyone who can tell me in the abstract how to break them up."Today, we're launching the Write Them" Center because we have the policy plan and everyone, including Barney Frank needs to know. Our front page has the public plan. It's already the most popular -- it has 50,000 signatures already.

We need everyone to write the bloggers, Congressmembers, and communities they love or read or just belong to and tell them that there is something they can do to restore the economy and create a better political economy - sign onto the pledge to break up the banks. Our Write Them Center is an easy tool to send these letters to Congress and to your local papers - try it.

Also, Richard Castonon, a recent ANWF volunteer has made a FOIA request draft that you can use. It requests our senators and reps give us all the documents, memos, etc. that justify the bailing out of the largest banks rather than have them go through a bankruptcy process as they should have, as any failing company does.

Go to the Write Them Center and get Congress, your favorite bloggers and organizations on board!

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CEO Blankfein Apologizes for Goldman Sachs Role in Crisis

"Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc., apologized for the firm’s role in some of the activities leading to the financial crisis.

“We participated in things that were clearly wrong and have reason to regret,” Blankfein, 55, said at a conference in New York hosted by the Directorship magazine. “We apologize.”

"

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On Money and China

Via Joe Costello's new Archein blog, cross-posted here:
On Money and China

SIGTARP, the Special Inspector General for TARP, who is supposedly charged to make sure your tax dollars going to the banks aren't wasted, which is funny in itself, released their first report, which is a joke in itself. The report basically says the New York Fed under Mr. Geithner was basically played by the banks in the money paid through AIG. Of course, that's not really true, AIG was simply used to funnel money into the banks, that was without a doubt always the idea. Whether you think that was criminal or in the public interest, well it was criminal. Yves Smith has a longer take down.

Of course this all plays into the growing global currency hoedown. The debate about who is beggaring thy neighbor is growing louder. Marshall Auerback has a piece at ND 2.0 entitled, Should America Kowtow to China. It's an unfortunate title, though accurate for the piece's tone, nonetheless it has some interesting bits on monetary history and thought of the 20th century. China and US at this point are tied at the hip, like it or not. More importantly, it is has been Wall Street and American mega-corporations that have profited from the past two decades of Chinese industrialization as much as anyone. It's their model, I would argue, the Chinese have mistakenly adopted.
The talk of China as a "major power" is greatly misconstrued. It is a very unstable society at this point, which is par for the course historically for the process of industrialization. China still has 800 million people who are subsistence farmers, that's almost three times the population of the US. As far as industrial development, China is more in the position the US was in the 1930s and Franklin Roosevelt depreciated the dollar. Asking the Chinese now to raise the Yuan is to say the least problematic, as Gary Shilling points out over capacity is endemic and growing. China could be the next big leg down, and who knows what that will mean.

All the money the Fed has pumped into the banks, propping up the real estate market, zero interest rates, and deficits have let the markets play with the dollar. The dollar as reserve currency has in certain respects the role gold played back under the gold standard. The dollar standard is being undermined, but not simply by the moves of the Fed and treasury of the last two years, but just as much by our mega-corporations' and Wall Street's deindustrialization policies of the past four decades. The dollar still represents the largest manufacturing and military power on the globe, but it is a power much decreased from just three decades ago. We need to rethink the global financial system.

The United States has 5% of the world's population and we use 25% of the world's resources. If 2/3 of the Chinese used oil at the same per capita rate as the United States, there wouldn't be a drop for anyone else. This is unsustainable. The old order is shaking and we need to go through some serious restructuring both here and globally. A restructuring that is going to take some time. Why should the Chinese be exporting anything? 20th century industrial-market thinking is not going to get us anywhere. You can't have a Banana Republic financial system and then act like you can throw your weight around. If Americans want to stand up to somebody, lets start with Wall Street and our mega-corporations.

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Financial Crisis Inquiry Commission Starts Their Hire

The Angelides Commission, convened by Congress to investigate the financial meltdown of 2008, today announced a passel of "senior staff" appointments. Earlier, the commission appointed an executive director, Thomas Greene. It has held one public meeting, on Sept. 17. Yet to come: a calendar of public hearings, which are expected to start in December. The panel is supposed to report on its findings by mid-December 2010.

Here's the announcement of its appointees:

·   Bart Dzivi has been appointed as special counsel.  Dzivi has served as counsel for the Federal Home Loan Bank, where he handled enforcement matters and supervised investigative auditors during the
savings-and-loan crisis; was counsel to the U.S. Senate Banking Committee, where he organized investigative hearings on savings-and-loan issues; and served in the private sector at several law firms with an emphasis on banking litigation and policy
matters.

 ·  Martin Biegelman has been named an assistant director for the commission.  He was most recently director of financial integrity for Microsoft Corp., where he led a global investigative program focused on fraud and corruption. Biegelman took a leave of absence from Microsoft to join the commission.  He previously conducted internal corporate investigations in the private sector and was a federal law enforcement professional for the U.S. Postal Inspection Service, highly regarded by state and federal prosecutors for his work on white-collar crimes.

 ·   Thomas L. Krebs has been appointed as an assistant director and deputy general counsel.  Krebs is the former director of the Alabama Securities Commission, an agency he reinvigorated with major wins in the Alabama Supreme Court.  He is a former president of the North American Securities Administrators Assn. and founder of a six-state task force that prosecuted financial crimes.  He is nationally recognized for his ability to investigate and prosecute financial corruption.

 ·    Bradley J. Bondi has been appointed as an assistant director and deputy general counsel.  He was previously a partner with the law firm of Kirkland & Ellis, where he investigated and litigated complex financial and securities cases.  He briefly served as counsel at the Securities and Exchange Commission, where he advised commissioners on improving agency enforcement.  He also teaches securities law at Georgetown University Law Center and George Mason Law School. 

 ·  Dixie Noonan has been named investigative counsel.  At the law firms of both Sullivan & Cromwell and O’Melveny & Myers, she worked on complex securities cases and conducted internal investigations for corporate boards and audit committees. 

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Raging Microeconomies

I'm really interested in microeconomies and making them work well. In the US and elsewhere there are really interesting microeconomies. Sometimes, it gets really interesting when the government supports it. Here in Brazil there is a food and everything else market. In the middle of this area is probably one of the most lively, interesting, family-oriented places I have seen to drink a beer and eat food at night. It's right on the water and there is probably a 5000 square foot area with 5*5 boxes with 2 sides of counter in groups of 4, perfectly spaced throughout. Behind each box is usually a cook and maybe a family member as dishwasher. Customers sit at the counter and the place is packed. Ships are nearby and during the day it's a relaxed, animated place to watch futbol. Now, I can write a whole book on what I think a family or community oriented place of FUN is, but suffice it to say that you'd raise your eyebrows at the engagement level here. On the microeconomies side what is interesting is this -- government and/or the cultural heritage helped to build this area (unverified, but it doesn't matter). It's set up so that everyone can have their little restaurant, they benefit from being in the center of it all, and although they're all selling similar food, they each have to share the total number of customers. Yet, there is room for diversity and real competition -- who makes the better fish, who has lower prices? Sometimes, these models are boring because everyone sells the same thing. Further, what's interesting is that everyone has a chance of being an entrepeneur and to grow their total net worth. I don't know how practical it is to get rich off of a restaurant like that but if you think about it from the other end - poor people without these kinds of set ups in similar gdp countries are more likely to be hawking wares on the street. This kind of set up seems like good infrastructure for setting up the poor to be slightly better off. The other interesting side is the diversity and creativity that is forced from this situation.

The point really is that to get people out of poverty, some smarter economists and urban policy makers (I studied urban planning) need to think about infrastructure that build on people's relationships and give everyone a fighting chance. That's what healthcare is, that's what headstart is -- it gave me a fighting chance. The secret to understanding how to have a better world is not economics per se, but more behavioral economics and political economy issues. How do you make it so that each person is inspired to do something with their lives and then do it? Then, how to end the corruption between people who have made it. I have a few answers to the first and the second...

From Stephanomics, a recap of a radio program with political philosopher Michael Sandel.

"I was interested in the economists [in the Obama Administration] who were making this critique. They said it's terribly greedy. What I wish the journalists had asked them was is there a distinction between greed and self-interest, do you think?

Strictly speaking, no mainstream economist would recognise any such distinction, and yet for political purposes they attack greed as if it's a thing independent of self-interest... Citizens generally who looked at this - at the bailouts and the bonuses and been outraged - they believe there is a difference between greed and self-interest. But there's no way of capturing that intuition in economic analysis because, according to economic analysis, in any case one is deploying self-interest or greed, which is simply self-interest squared, to serve a social purpose. That's what the economic model says. And you have to introduce some normative assumption about what is excessive pursuit of gain in order to make sense of greed as a vice independent of the self-interest that all of the economic models presuppose. So I think there are intuitions in everyday life that people have that the economic models simply don't capture, and greed is one of them."

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What the big banks want is a no brainer

Jamie Dimon, CEO of JP Morgan Chase, also the darling of the Geithner administration because of their proactive public gestures, wrote an op-ed piece published in the Washington Post the other day. He makes arguments as to why too-big-to-fail should not be eligible for bailouts and how they should be wound down when they fail. He attacks the idea of breaking up the biggest banks and makes a half-hearted cry for better regulation, both done unsubstantially. Comically, he begins with, "And if some unforeseen circumstance should put this firm at risk of collapse, I believe we should be allowed to fail." Hopefully, he's helping people figure out what they should be for and against when it comes to reform by showing people what the reforms that would help the big banks and nothing much else.

Here's Dimon's 4 arguments against capping bank size, each point is not supported by any evidence. The big bankers continue to make these arguments without pointing to any concrete evidence that what they are saying is true:

1) A size cap doesn't prevent companies from being too interconnected to fail.

We need to stop insane interconnectedness across the board. We need to ban things like securities built on securities built on mortgage backed securities. Interconnectedness needs to fit into the equation in such a way that a non-interconnected bank can be allowed to get bigger than a very interconnected one.

2) Big banks that stay within their core area of competence build scale for the benefit of their shareholders and customer.

Then why do the biggest banks have the highest interest rates and overdraft fees? Why doesn't their size let them offer more reasonable rates? Scale seems to be promoting anti-competitive behavior rather than delivering any benefits to customers. Anti-competitive behavior is, of course, good for shareholders. So is the 10.2% unemployment rate and resulting efficiencies. Should we also keep 10.2% of Americans out of work?

3) Big banks have the capacity to lend to states and municipalities.

Big banks bankrupted the government by promoting the housing bubble (among other things). When it burst and people lost their homes and jobs, and town states lost a lot of their revenue. So, states and towns can lend at insane rates from private banks now that the fed government has been thoroughly drained by the same banks.

4) Capping U.S. bank size would make U.S. businesses work with foreign banks.
a. Well, even if that is true, we shouldn't have a system that leads to catastrophe and is immoral. Still, England is seeing some break up of big banks without worrying about this "problem"
b. Banks that are too big are more unstable and pose a risk to the system. They take on higher risks and have had lower requirements on how much cash to hold against their bets because they are bigger. These theoretically larger foreign banks will take down a fall eventually -- it's better to be safe than sorry.
c.

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God's Will Changes With Power, We need a culture of THE NEW

The blog has been a little silent this week as I travel to Brazil to visit a friend, while also continuing to build our operations here at A New Way Forward.

I've been planning to write about power. My answer to power is that we need a culture of accepting "THE NEW". What if we had a book publishing system that was extremely accepting of new voices and published new people as long as they had a scintillating, worthwhile book? What would our literature look like and how much more will our minds develop? I think MIT is pretty open from what I have seen, but what if the majority of publishers did the same? Would we have more writers and more importantly more thinkers? But, we can't go overboard - we need to be open to new, but also new has to be "good"/interesting. But, back to power and how that relates to newness. I recently heard a radio program on NPR about people who go into their political jobs with a plan to fix everything but then end up seeing their "activism" really differently and they find themselves as corrupt as the next when they get there. The speaker likened power to going mountain climbing - you promise that when you get to the top of the mountain you won't endanger yourself by staying too long, but once you get there you've been through so much and there's less oxygen and you get used to your surroundings that your thinking HAS changed. The way the man on the radio explained the many politicians we see in power who just don't get enough done is you just get used to the power, you get used to the nice cars and the special treatment, and you're friends with people in power and so you understand them, you come to expect that higher standard of living and in the end work to preserve the status quo rather than change it. How many people have you voted for who have simply just changed when they got into positions of power in office?

Well, whether or not you identify with this cultural phenomena that power corrupts takes a personal revelation, I believe. I say this because I know when I heard the radio program I felt I still naively believe that I would maintain my cool if I were the president of the Federal Reserve or some such. But I know that as I have gotten older, I have somewhat gotten used to a higher standard of living (my vices are a cleaner house than I accepted in my early 20's and paying for better food) that as a younger rascal I avoided and wasn't comfortable with. But, we believe in leaders because we want to believe in heros or have grown to accept that someone like Martin Luther King Jr. and millions of civil rights activists will do something amazing. We want to believe in heros, until we really sit down and think about THEM -- these people are better off with power and all the fancy people they've come to know have become their buddies. It's simply practical for them to maintain their status quo and it's WHAT THEY KNOW.

But, the reason I had my personal revelation that power really does corrupt is because of people like Greenspan and Volcker, ex-Fed chiefs that, during their tenure, didn't care how many jobs were lost as long as their theories were working out in some way for the growth of the stock market or what have you. Why do their recent statements that too-big-to-fail is too-big-to-exist or that the banks need to be broken fit so closely with my beliefs? They're out of power now and they can see more clearly that propping up the biggest banks isn't the answer to real world issues and is simply not a public service.

As more and more people step out to make humble statements that are thoughtful and compelling, and as Frank points out the anti-too-big-to-fail platform is becoming a meme, we need to think about how to nip power in the bud. ANWF thinks we need to start over and cut the giants down to size to make markets more competitive and beneficial to the public and the freed up power will then flow throughout society and we'll have a more equitable political and economic system. But, if this happened, eventually people will start fighting to grow enormously again and overturn these measures after the activists of this century die. What we need is a culture of newness and thoughtfulness where we accept as a basic fundamental code that new ideas that have merit that inherently come from the bottom and serve the bottom should be valued and instantly worth your time to consider and work with. We need the best ideas that come from the bottom to be a cultural mantra and we're getting there. But, and Donny and I spoke on this issue a few months back, our society preserves the status quo in millions of ways - even the nonprofit public interest groups in DC are waxing their power and keep out the grassroots in a powerful, powerful way. The bottom can keep the top in check and can move things forward, help to create progress. I have met other public interest groups that do feed off the bottom and they are amazingly more effective at achieving what they want to achieve because of it. We only need to believe that something new can be good and that the old is a preservation of power because it is.

In my earlier work, I helped to create a platform that would allow the public to open the political system and make the political system. It's working better than ever these days, but there's a lot more to go. It's not that I think every idea from someone poor or disenfranchised or powerless is a good idea. Believe me, I am cyniCAL. It's more that I believe that when you get the public going, get them educated, get them brainstorming, get them seeing that small conversations can turn into something really effective, you help to transform what policies get passed and what the policies are representing, and pull out some of the most transformative ideas ever. How can we understand the culture of acceptance of THE NEW in practical terms? If someone in power is not coming up with new ideas to solve real and actual criticism or problems that come as they go, then they're probably maintaining the status quo. But, anyway, it's the culture of acceptance and open-mindedness that I want to see happen.

John S. Reed, head of Citigroup, has recently said, "I'm sorry" for his role in creating the largest financial institution we now know of as Citigroup and that it should be broken up. Citi lobbied hard to end protections for personal bank deposits that the Glass-Steagall Act gave and President Clinton did his part to do the same. The first time I talked to Joe Trippi, he told me that the pen that was used to sign the bill to end G-S is sitting in the Citigroup boardroom. Reed said, “We learn from our mistakes. When you’re running a company, you do what you think is right for the stockholders. Right now I’m looking at this as a citizen.”. It seems that policies that can help citizens thrive in a large economy must come from those not covered in the concentration of power and those not in power need a system and platform to realize the best of their ideas.

CEO of Goldman Sachs, Lloyd Blankfein, recently made some splashes when he said he was doing God's work': "He starts with a little humility. He understands that “people are pissed off, mad, and bent out of shape” at bankers’ actions. Goldman played its part in the meltdown that almost destroyed the global financial system. It, like most other banks, lent too much money, made its first quarterly loss for more than a decade last year and ended up taking bail-out cash from Washington. “I know I could slit my wrists and people would cheer,” he says. But then, he slowly begins to argue the case for modern banking. “We’re very important,” he says, abandoning self-flagellation. “We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle.” To drive home his point, he makes a remarkably bold claim. “We have a social purpose.”"

Cafe Hayek comments, "I used to feel this way. I used to think that Wall Street innovation was part of our prosperity because the innovation made markets more efficient. But that only works when firms face profits and losses. When losses are truncated by bailouts, you get anti-social risk-taking. You get a cycle not of virtue but of vice. You get $1.5 trillion poured down the black hole of subprime lending. The bottom line of the current system is that Blankfein won and the we, the people, lost. Shame on the people who allowed him to play with our money instead of his own. Shame on him for pretending he earned our money and the profits he made playing with it."

After days of going hungry, people have been lining up at midnight as soon as their paychecks clear to buy groceries at stores like Wal-mart, according to the NY Times. The hungry don't think that when they get to the top they'll be as ruthless and aid starvation the way monetary policies passed by Fed chiefs do. But, it's been so often verified that these kinds of desperate life experiences don't guarantee staying away from short-sighted elitism just the same.

And here is James Kwak on explaining that size isn't the point, but it's what size means that is the point. Here's James Kwak introducing newness. Couldn't have said it better, but isn't this what we're all wondering/thinking?:

I think this whole “interconnectedness” theme is a clever rhetorical trick — a way of defusing the “too big to fail” argument by making a correct but ultimately minor point. I agree that if you simply cap balance sheet assets, that will not be enough. Technically speaking, a derivatives dealer can have ZERO balance sheet assets yet have an unlimited amount of open derivatives positions. If my memory of When Genius Failed is correct, LTCM just before its collapse had about $130 billion in assets and $1.4 trillion in open derivatives positions (that’s market value, not notional [wrong, see below]) on top of $4 billion in capital.

But who said that “big” in “too big to fail” had to mean balance sheet assets? When I say “big,” the concept I am referring to is the overall shadow the institution casts over the financial system and the amount of collateral damage it would cause were it to fail. That damage can take various forms: debt that becomes worthless, derivatives positions that can’t be closed, hedge fund collateral that can’t be pulled back, etc. So call it “too interconnected to fail” or “too systemically important to fail” if you want, but you haven’t made the problem go away. The only thing you’ve done is pointed out that it can be tricky to measure overall importance, but none of us ever denied that to begin with.

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Ben's Bet

Ben's Bet

I was recently reading some economic
material on Depression of the 30s trying to figure out what Ben's bet of the
dollar means for the global economy. I began to worry my memory was
faulty, an occurrence of greater frequency these days. However, on this
matter, it wasn't my memory. Instead, I discovered "revisionist
history" had occurred, and this makes me even more nervous about
Ben's bet.

The matter I researched was the "beggar thy neighbor" policies of the
30s, where countries enacted trade tariffs, import restrictions, and
currency depreciations in the fight against economic contraction. I
had understood currency depreciation to be an important aspect of
beggar thy neighbor policies. In the early 30s, a number of countries raced to
devalue their currencies for export advantage, only aggravating global
deflationary movements. However, I found Micheal Pettis, who has some interesting insights on China, had linked to a paper being touted by the National Bureau of Economic Research entitled, "The Roots of
Protectionism." The abstract states:

Thus, the 1930s' rush to protectionism was not so
much a triumph of special-interest politics as it was a result of second-best
macroeconomic policies, the authors write. Their study "suggests that
had more countries been willing to abandon the gold standard and use
monetary policy to counter the slump, fewer would have been driven to
impose trade restrictions."

So, there it was. As monetary theory ascended, history was rewritten or
revised accordingly. Currency depreciation moved from the "beggar thy
neighbor" problem column, onto the monetary solution part of the
ledger. So, I thought, "This is what wily old Ben is thinking." I went
and looked up Mr. Bernanke's "Essays on the Great Depression," and in chapter-three(page 78), Mr. Bernanke writes:

Eichengreen and Sachs(1985) similarly focused on the
beneficial effects of currency depreciation(i.e., abandonment of the
gold standard or devaluation). For a sample of ten European countries, they showed that depreciating countries enjoyed faster growth of exports and industrial
production, than countries which did not depreciate. Depreciating
countries also experienced lower real wages and greater profitability,
which presumably helped to increase production. Eichengreen and
Sachs argued that depreciation, in this context, should not necessarily be
thought of as a "beggar they neighbor" policy; because
depreciations reduce constraints on the growth of world money supplies, they may have
conferred benefits abroad as well as home(although a coordinated
depreciation presumbly would have been better than the uncoordinated
sequence of depreciations that in fact took place).

Professor Bernanke writes:

If monetary contraction propagated by the gold standard was
the source of the worldwide deflation and depression, then countries abandoning
the gold standard(or never adopting it) should have avoided much of the
deflationary pressure. This seems to be the case.

"This seems to be the case." Now there's scientific rigor. Why
such a hedge? Because data from the 30s, particularly worldwide is
notoriously sketchy, as Bernanke writes further down, "We included
countries for which the League of Nations collected
reasonably complete data on industrial production, price levels, and
money supplies." Hey-ho - "reasonably complete data," good enough for
the science of economics.



Both Professor Eichengreen and Professor Bernanke state the data show
countries which abandoned the gold standard, that is depreciated their
currencies, were the first to mitigate deflationary problems. First,
the data remains at best sketchy to come up with any grand conclusions,
and in fact if it is of value, proves "beggar thy neighbor" worked -- if you acted first.



Secondly, even if the data is of much value, the Professors, looking to
prove the case of a monetary hammer for pounding all economic nails, at
best commit the eternal freshman mistake of correlation as causation.
The "money shot" is then Professor Bernanke's conclusion:

The expected differences in the monetary policies of the
gold and non-gold countries seem to be in the data, although somewhat less
clearly than we had anticipated.

In summary, data from our sample of twenty-four countries support the
view that there was a strong link between adherence to the gold
standard and the severity of both deflation and depression. The data
are also consistent with the hypothesis that increased freedom to
engage in monetary expansion was a reason for the better performance of
countries leaving the gold standard early in the 1930s, although
evidence in this case is a bit less clear-cut.

There's the golden words of economics -- "seem to be in the data," --
even better, "although the evidence in this case is a bit less
clear-cut." Good enough evidence for now Chairman Bernanke to bet the
dollar like some drunken sailor at the roulette table, "It's been black
four times in a row, 'seems to be' red is now inevitable. Bet the wad!"
And that's what we're doing.



Now, I'm not making an argument that getting off the gold standard
wasn't helpful. What I'm questioning is the value of a coordinated
global currency deprecation. Mr. Bernanke's monetary policy of
depreciating the dollar, classic beggar thy neighbor, is hurting exporting nations not pegged to the dollar. East Asian countries intervened in currency markets a few
weeks ago to try and keep the dollar up, and the dollar's
weakness continues to impact Euro-zone exports. As the dollar is the
equivalent of the gold standard today, we are not depreciating just
currency, but the standard itself. Despite all worrying about the
dollar, what we are seeing is the Fed Chairman trying to instill his
theorized policies prescriptions for the 1930s of "coordinated
depreciation." Mr. Bernanke, it would seem, is trying to force currency
depreciations across the board to prove his theory "a coordinated
depreciation presumably would have been better."



Monetarists' theory was behind this financial crisis, a belief in what
Professor Eichengreen calls, "the self-equilibrating tendencies of the
market." Phew -- "self-equilibrating." In the 30s that would have been
known as a ten-cent word, it's a belief today that has cost us tens of
trillions, and counting. the The financial crisis was proof of the
fallacy of much of theory at the foundation of monetarism and other
market theory, the idea it's going to get us out of the mess seems
incredulous. We're in the hands of academics trying to bend reality to
their theories. Place your bets, Professor Chairman Ben has made his.

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Twilight of the Economists

Or How to do Political Economy with a Hammer(apologies F.N.)

I've understood for a long time why people don't read economics or the financial press. I do it simply because it is the philosophy of contemporary America's power structure, and if you believe we need to change our ways, we're going to have to change the power structure. What our modern theology of economics has done best is erase any notion of power from it's tablets of laws. Across the ages, this is always job one of any successful power structure, eliminate, as best can be done, questions of power. This is most traditionally accomplished by instilling the idea the system's fundamental constructs are a priori, bestowed from somewhere above. We humans seem easily seduced by such notions.

Nonetheless, over the course of time, all human power arrangements meet challenges, many of their own making, and the philosophy and myths which have grown as the rationalizations of power suddenly lose their legitimacy. The system's underlying power reality becomes nakedly obvious, that is, for any who want to look. Such has been the situation of the financial crisis in the last two years. It doesn't matter what any economists says about this or that economic law, or what this equation shows, we have seen a very oligarchic financial sector cling to power by extorting trillions of dollars of taxpayer money using a compliant, no, a subservient political class.

We are in the midst of a Wizard of Oz moment. The financial crisis is Toto and it has pulled the curtain back for us all to see. The boys in the financial sector, the political class, and the economic priesthood from Paul Krugman to Alan Greenspan are furiously pumping out more smoke, thunder, everything they can manage, while shouting, "Pay no attention to that man behind the curtain." It's working to a degree, but there's great problems in the Emerald City.

There are two simple things that need to be done. First and foremost, the financial sector of the US economy needs to be at the very least cut by half, two thirds better yet. We can start by getting rid of derivatives, they serve no purpose, they are parasitic. Yves Smith has taken up the call on this and it needs support. To show how difficult to simply make this happen in "DC corrupt," Rob Johnson's, former economist for the Senate Banking Committee, testimony was in a Stalinesque manner disappeared from the record of that great progressive Barney Frank's committee.

Truth is, derivatives are small potatoes in the economic power game. The real load-stone of power, like Yahweh in the Old Testament, whose name shall go unuttered is the American empire. Actively occupying Afghanistan, Iraq, bases in Germany, Italy, Japan, and many other countries, the American empire is part of no modern economic equation. Accruing wealth through conquest might be older than markets themselves, both have prehistoric roots.

What is the value of empire to the American economy, in one word, large. Much larger than any economists' equation. Want proof? Go ask any Russian what the value of the Soviet empire was to the equations of "scientific socialism." All the chatter by the financiers and economists on the value of the dollar, well its foundation at this point is built much less on markets, than what Bismark called, blut und eisen.

Our political economy needs a fundamental restructuring.

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Sanders Break Up The Banks Bill Complies with our Statement on Breaking 'Em Up

Sick of banks' corrupting powers? Sick of banks getting richer while our country feels a little dumpy? Senator Sanders is sponsoring a real Break Up the Banks bill. We recently put up a statement on the front page of the site on what it actually means to break up the banks, and not just in name only. We're reacting to a number of bills calling themselves the too-big-to-fail bill or the break up the banks bill. Our statement on breaking up the banks is a reference point for comparison to any bills that come up -- if any new bills don't prescribe breaking up the banks by function or size, they're not really helping to resolve the problems of too-big-to-fail. Check it out.

Sanders' bill is two-pages long and simply calls for a break up of the bailed-out humongous banks. You can see his great video and bill language here. We're proud of Sanders -- he's really with it.

Senator Sanders office has also put out an official announcement and link to a petition around the bill - smart.

We'll be rallying for this bill and will set up a way for people to send emails to their representatives, asking them to co-sponsor the bill. Ready to start getting something done?

Also, of note is another financial regulatory bill that Rep. Kanjorski is introducing in reaction to Frank's bill. He says Frank's bill is too weak. We'll see if Kanjorski's bill is any better.

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