Games Oligarchs Play

Games Oligarchs Play

For what shall it profit a man, if he shall gain the whole world, and lose his own soul?

Mark 8:36

By J.M. Hamilton (8-5-2018)

Alas, greed and an unquenchable lust for power makes the world go round.

Maybe a more modern version of the aforementioned Bible passage would be as follows:

What profit it a man, if he shall gain all the money in the world, and economic & political domination, at the risk of losing: his bank account; his government & country that protects him; and even the world, itself?  And w/ a nod to believers … perhaps, one’s very own soul?

These are no longer mere idle speculations, or prognostications of doom.  We are seeing, throughout the West, the limits of untrammelled greed - as an economic & political model - play out in real time, before our very eyes.

Billionaires and multinationals own and operate our democracies for their own gain, at the expense of many and future generations.  Call it Oligarchy, call it Kleptocracy… but the impact is the destruction of our economic and political system, and more importantly, the world itself.  Nihilism - among the elite & oligarchy - appears to be in vogue.

As a result, citizens are losing faith in democracy, and mainstream political parties, which have been wholly revealed as malignantly corrupt, and entirely owned.

Here’s three very recent examples of multinationals & oligarchs gone bad:

The NY Times ran several pieces on climate change last week, outlining how insufferable, and uninhabitable, parts of the world are rapidly becoming, due to fossil fuel emissions.  And yet, the elites, multinationals, and oligarchs have zero plans to deal with the issue, in earnest.  As with seemingly every other problem, our politicians – operating at the behest of their masters, the donor class – kick the can down the road (setting interminable deadlines for various Climate accords, agreements, & protocols, while the world bakes). Everybody pays lip service to it: The DOD calls it a national security threat; Exxon swears it’s on the same page, that climate change is real (in the face of litigation from several state attorney generals); and in the ultimate acknowledgement, citizens around the globe are dropping dead from the heat.  Meanwhile, the first official trip POTUS Trump made – w/ many US CEOs in tow – was to the Oil Kingdom of Saudi Arabia (perhaps the most morally bankrupt country on the planet, and that’s pretty hard to achieve).

At the current rate of contamination and resulting climatic devolution, how long before the world gives out?  That is if Monsanto – and their new owners, Bayer – doesn’t destroy our farmlands & natural resources first.

Of course, one cannot talk about Big Oil, and planetary contamination, w/out bringing in the Koch Brothers.  The Kochs inherited a fortune, compounded it via Big Carbon, and going huge into financial services, namely derivatives and swaps.  The combined net worth of the Kochs is estimated to be north of $100 billion.  They are not content to own: governors' mansions, state legislative bodies, the Federal government, think tanks, and academia… the Kochs must control and rule all.  And despite POTUS Trump placing w/in his cabinet Koch cronies, dismantling the EPA, and enacting a GOP led tax-cut law that only an oligarch could love, et al.… it’s still not enough for the Kochs.  Charles Koch recently spoke out against Trump – like Reagan before him – for having the audacity to defy him on free trade.  What constitutes “free trade” to Mr. Charles Koch are closed door/crony government deals, whereby multinationals dictate the terms and divide up the spoils, in a never ending game of global labor, regulatory, and tax law arbitrage.  You guessed it: this brand of free trade is great for our rulers, the oligarchs, and bad for just about everyone else.  It’s no accident that the rise of free trade, as presently practiced, from the late eighties forward, saw the rise of wage stagnation and an exponential increase in wealth inequality.

Perhaps one of the few decent things the Trump administration has done - for the long neglected American worker - is to push back on failed free trade dogma, that has crushed: US labor, the tax base, and clearly demonstrates how neoliberalism, w/out proper guardrails & management, metastasizes into cartel, monopoly, and ruinous rent-seeking utilities.  Charles – with his brother, David, ailing – pledges to fight on, in search of the Holy Grail, the POTUS who will be the perfect supplicant.

Mr. Pence stands at the ready.

One cannot talk about free trade & insatiable greed, w/out talking about Silicon Valley and Big Tech.  Apple reached a milestone last week, by having achieved a trillion dollar market cap.  The first company to achieve the trillion dollar benchmark.  Apple achieved this mark, not only by providing great products & services, but through strategic acquisitions (blocking competition) & organic growth, and thanks to free trade, as presently practiced, exploiting highly inexpensive Chinese labor.  Apple is the classic example of what free trade has become: abusing subcontracted labor, via Foxconn; exploiting tax loopholes, around the globe; and cozying up to dictators, like China’s communist leader, Xi (China, ironically --- despite its fondness for protectionist measures, history of currency manipulation, engaging in commercial espionage, and operating a highly repressive regime that has zero respect for human rights, and is presently engaged in genocide --- now claims to be the free trade champion).

There’s your first trillion dollar multinational, America… the poster-child for everything that is wrong w/ free trade today.

Hot on Apple’s heals, in terms of market cap, is Google.  And we learned last week that Google was willing to sell its soul to Dictator Xi, by creating a search engine for China (complete with all the oppressive totalitarian editing features to better keep China’s citizens and journalist in the dark). 

In support of the communist government, Google will perhaps have to shorten its motto to: Do Evil.

Interestingly, there was a time where American corporations wouldn’t do business with communist or totalitarian regimes.  There was also a time when both Dems and GOP administrations had robust antitrust enforcement… it was part of the social contract.  But avarice, corruption, myopia, and oligarchs rigging elections w/ dollars have eliminated all that.  And so retrograde industries, like Big Oil, and behemoths, like Big Tech, threaten the social order & our economic and political systems, back despots and tyrants, and particularly in the case of Big Oil, contaminate & destroy the planet.

This, my fellow Americans, is what it is like to be ruled by quarterly statement.

As much as the term “industrial policy” is reviled by the C-Suite class, America has had an industrial policy for the last thirty-eight years: it’s called the jungle, or laissez faire, which has created an Ayn Randian wasteland (throughout the Midwest and America’s once great industrial centers).  And we are seeing the fruits of that neoliberal industrial policy in: a poisoned planet; mass migration away from the equator & war zones; the rise of dangerous nationalist & right-wing populist movements; and dictators, & their authoritarian/totalitarian reign, further strengthened by US multinationals.

Clearly, America needs a new industrial policy, with a foundation based upon: consistent and expanded antitrust enforcement; leveraging US economic might and markets, not just for fairer trade, but insisting upon democratic reforms w/in authoritarian/totalitarian regimes; an industrial policy that places human rights, and fair & equitable global wages, above monopolistic profits; and we need to dump Big Oil & Coal, not in a matter of decades, but within a matter of years.  (Rolling back the financialization of the economy, where seemingly many companies are all too often leveraged to the hilt, so that shareholders can obtain immediate gratification, should also be high on the list of reforms.)

The next recession is, likely, around the corner, and what better way to pull the economy out of a slump than by creating an alternative energy grid across the nation (and rebuilding America’s crumbling infrastructure).

Couple a nationwide renewable energy infrastructure w/ the introduction of a universal basic income, so as to mitigate the loss of Big Carbon jobs, and who knows, America just might contain the populist revolt, the scapegoating of immigrants & minorities, and become a role model for planetary sustainability.  Now that's leadership.

Some might call this saving capitalism from itself.

Finally, the argument that the stock market needs Big Oil equities for the sake of 401Ks, pension & retirement plans… simply does not hold water, if these very industries are turning the world into an inferno. 

Copyright JM Hamilton Publishing 2018 

Three Wise Men

Three Wise Men

Ben Bernanke, Timothy Geithner and Henry Paulson all voiced varying degrees of concern about America’s ability to combat another financial meltdown 10 years after they played prominent roles battling the last one.

While agreeing that the banking system is a lot stronger than it was back then, they saw some weak spots in the country’s crisis-fighting arsenal that didn’t exist a decade ago. The trio also decried the nation’s ballooning budget deficits in a joint briefing with reporters.

-       Bernanke, Geithner, Paulson Voice Some Concern About Next Crisis, Bloomberg

By J.M. Hamilton  (7-22-2018)

Amidst the denial, fury, and hubris surrounding many of the elites at the center of the 2008 Financial Crisis, and the subsequent bailout (a bailout that arguably continues to this very day, especially via accommodative monetary policy), were solemn assurances that: this must not happen again; banks & financials institutions should no longer be bailed out by the taxpayer; and Dodd-Frank and subsequent rule making – written in large part, behind closed doors - would prevent the next crisis (or certainly mitigate the possibility of a reoccurrence). 

We were also told the Fed’s multi-trillion dollar – money printing -  largesse to The Street (banks, hedge funds, private equity, multinationals, etc. etc.) was an opportunity for everyone to deleverage, which did not transpire.

Now, the three wise men – on point during the Fall of 2008 –are back again, to warn us that the country is ill equipped to handle the next financial crisis.

To which JMH responds, what do Messrs. Bernanke, Geithner, and Paulson know that we don’t?  The fallout from the 2008 financial Armageddon continues, like the bailout itself, to this very day.  Among repercussions from the Fall of 2008:

Businesses - and the country itself - are leveraged to the hilt, as is much of the globe.

The Banks have only grown more consolidated, powerful, and too big to fail.

The M&A activity leading up to the financial crisis has only picked up, so that the US economy, indeed the world economy, is now – in many major sectors – dominated not by competition, but rent-seeking cartels and monopolies.

Debt securitization & asset backed securities are the rage again, as investors and a surfeit of global liquidity travel the world in search of yield.  (Yields that have been suppressed by central banks.)

Due to global central bank intervention, junk debt is grossly underpriced, and often covenant free.

The sword of Damocles, the 1.2 quadrillion (notional value) swaps and derivatives market (moral hazard defined), guarantees that the taxpayer will be on the hook yet again.  And that if something does go wrong - debt, derivatives, and swaps will likely be the epicenter of the next crisis.  Here, keep your eye on emerging markets, in particular.

And the fallout for the public, as a result of the Wall St. bailout: wage and wealth inequality have only grown worse.  Despite being very late into the current “recovery,” wages – thanks in large part to collusion, non-compete agreements, and cartel dominated biz sectors – remain stagnant.  As a result, the public has turned against establishment political parties, throughout the West, who are in supranational banks' pockets.

JMH has written extensively about The Federal Reserve, and its awesome and unaccountable power, as the fourth branch of government.  Despite its dual mandate, the Fed is accountable to no one but Wall Street, which is the primary conduit for executing monetary policy.  The Fed board and chairperson are not popularly elected.  Presidents have been known to jawbone the Fed, often w/ no or at best, mixed success.

(To see what JMH has written about the Fed in the past, read: here, here, here, here, and here.)

Three Wise Men

A sad state of affairs indeed, brought to you by establishment Treasury Secretaries: Paulson (GOP) & Geithner (Dem)…  and the former Fed Chairman, Bernanke.

More importantly, when the next financial crisis hits – and my guess is the root cause will be debt, asset backed securities, or swaps – what should be the country’s response?  Will the US – and our legislative body - respond to yet another financial crisis, like a frightened band of sheep (a la circa 2008); or will the country finally take proactive measures, this time, to insure that our banks and financial sector are, finally, placed on a very short leash? 

And what might those steps look like.

For starters, all financial institutions at the center of the next financial crisis – including the Fed – should give up its C-Suite management teams, immediately, w/out bonus or pay.  These management teams should be investigated to the fullest extent of the law for criminal, fiduciary, RICO, and malfeasance activities and failings, and if appropriate, prosecuted (or sued) to the fullest extent of the law.  Don’t cry too much for Wall St. bank execs.  The law is rigged against prosecuting white-collar crime, especially for the exceptionally wealthy.

These failed institutions should be nationalized, run as not-for-profits (so as to remain out of the hands of corrupt public officials), and broken up, so that they are no longer TBTF.  Any profits accruing from these nationalized institutions would be allocated to the US taxpayer – not just for the inevitable recapitalization, but for the resulting collateral damage throughout the US economy.  Here, be thinking decades of public sector ownership (under not-for-profit governance/stewardship), particularly in regards commercial banking.

Bond & stockholders of the failed institutions should take the hit, and their bonds and shares eliminated and rendered valueless (in perpetuity): Capitalism 101. No coming back later (like Mr. Greenberg or Freddie/Fannie shareholders), and demanding future earning, or ownership, from institutions recapitalized by the public.

Glass-Steagall should be put in place, Dodd/Frank should be, largely, abandoned, and investment-banking houses shorn clean from commercial lending institutions, so that there is NO FEDERAL BACKSTOP FOR SPECULATION.

The derivatives and swaps market must be cut down to size, so that only parties, and counterparties, who have a direct holding in the commodity or bond – covered by the derivative or swap contract – are allowed to purchase the insurance product.  Swaps and derivatives issued purely for speculation: done, finito, as in – hence forth – never more. 

Rehypothecation, offshore LLCs and subsidiaries - utilized to skirt future financial reform, rules & regs - should no longer be allowed.  And on that note, outlaw countries – where speculation is rampant and laws, rules & regs found lax or wanting (e.g. The City in London) – US institutions should no longer be allowed to operate w/in; and likewise, foreign based financial institutions, who do not hold up to US standards, globally, should not have access to US markets.

And here’s the kicker, any future bailout/recapitalization should be laden w/ covenants, so that those first to be bailed out are the 99% (that is, those most scrod over by the last financial crisis).  Fiscal & monetary largesse from the federal government, and the Federal Reserve, would be directly allocated to the American taxpayer.  Placing money in the hands of the people, in lieu of the financial elite, would increase aggregate demand, and in turn, spur a weakened economy, hit by another financial crisis.

Given the state of the nation's fiscal & monetary affairs, how on earth could the US afford such as bailout?  Quite easy, the Fed should absorb the national debt, and slowly and methodically begin to forgive/write down said national debt, starting w/ the trillions, in public debt, presently held on the Fed’s balance sheet.

To deal w/ the inevitable economic fallout from the next financial crisis, all student debt should be forgiven, and a UBI (universal basic income) should be installed, immediately.

Paint me crazy, but perhaps I’m one of those few souls in the world that believes we should learn from our past mistakes.  Bernanke (who immediately went on the Wall St. speaking circuit, post-Fed career), Geithner (now head of a private equity firm, the incarnation of all things evil), and Paulson (formerly with Goldman Sachs) showed us exactly where their allegiances were, in their handling of the 2008 financial crisis.  

And, contrary to popular fiction, they sure weren’t looking out for the American public. 

Their actions in the Fall of 2008 are being felt to this very day, w/ both foreseen and unforeseen consequences… most of them bad.  Excepting, of course, the financial elite and Wall St. banks have made out like bandits.

Thankfully, these three wise men have shown us exactly how future financial crises should not be handled.

Copyright JM Hamilton Publishing 2018