Group Think in a Banana Republic?

Group Think in a Banana Republic?

Across the globe a backlash is building against China for its initial mishandling of the crisis that helped loose the coronavirus on the world, creating a deeply polarizing battle of narratives and setting back China’s ambition to fill the leadership vacuum left by the United States.

- Global Backlash Builds Against China Over Coronavirus – NY Times.

By J.M. Hamilton (5-3-2020)

Trump is such a polarizing president, that either side of the centrist political spectrum often comes down hard as pro-Trump or anti-Trump.  For establishment Dems & voters, if Trump says it, surely, it must be wrong; conversely, for Trump’s base, if the POTUS says it, then it must be right.  Additionally, for many Americans & journalists - attempting the herculean feat of survival, during a time of pandemic - it’s easier to defer to the respective establishment political party’s talking points.

The reality, however, often a slightly more nuanced response is called for by mainstream media, politicians, and voters.  

Take Trump’s recent attacks on China.  Dem leadership has struggled with this issue and have a long history of supporting globalism and trade with China (as did many establishment republicans, up until a few short months ago).  Remember Obama’s & Biden’s support for the TPP trade agreement, US labor be damned?

We can see that Trump hasn’t forgotten and will be attacking Biden w/ ads arriving this Fall, if not sooner.  A slightly more nuanced analysis of the GOP’s & Trump’s sudden Neo-Cold War rhetoric might reveal the following.

One, is Trump attempting to deflect blame from his administration’s – and congress’ - own failings and responsibility for rising US pandemic deaths, by attacking China?  Absolutely.

Two, are Chinese & Asian Americans, at the risk of generalization, excellent citizens, in terms of being hard working, loyal, smart, entrepreneurial, diligent.  Well, generally, yes again.

Three, should America kowtow to communist China’s dictator… and adhere to their demands that the US, and US multinationals, not recognize Taiwan as a sovereign nation?  Should the US refrain from voicing loud support for the brave citizens of Hong Kong, who have taken to the streets to fight for freedom and democracy, as desired by communist China leadership?  The answer, here, is the US should always support freedom and democracy, and not bow to communist party wishes.  (And if US multinationals are booted off mainland China, so be it.  Allowing US billionaires and multinationals to dictate US domestic, foreign, and trade policy has been a complete disaster.)

Four, should America fully investigate China’s, the US’, and the WHO’s role in the coronavirus outbreak and its spread?  Here again, unequivocally, the answer is yes.  And let the chips fall where they may… based upon the timeline so far, it appears that communist leadership, the WHO, and American leadership (Congress and the POTUS) badly botched the initial response to the viral outbreak.

The point JMH is attempting to make is the answer is not as pat, nor as binary, in response to the POTUS’s attack upon China, as the donor class, DNC and RNC leadership, and the MSM would often have us believe.  Few, if any, Americans would support totalitarian China’s gulags & slave labor colonies, anymore than the same Americans should support the US criminal justice industrial complex and mass incarceration.  Both are equally repugnant.  (Excepting, of course, cloying American multinational C-Suites, who always seem to find an excuse to bow down to their communist master). 

There are many more examples of group think - or sheer intellectual laziness - but I’ll provide you with one more. Senate majority leader, Mitch McConnell, recently came down hard on state bailouts, after years of federal & state budgetary malpractice.  Here again, rather than the polarizing response this received in the MSM, and from Dem and GOP leadership, a more discerning response is called for. 

One, is Mr. McConnell one of the most reactionary leaders of our day, nearly always siding w/ billionaires and multinationals against the American economy, labor, and the consumer?  Responsible for stacking the SCOTUS, and federal judiciary, w/ right-wing ideologues and politicians?  Of that, there is zero doubt.

Two, was Leader McConnell one hundred percent correct in identifying state debt (and indirectly, national debt) as one of the key problems of our times?  Absolutely.  However, it’s worth noting, Mr. McConnell did announce his opposition to state debt bailouts, after trillions in pandemic welfare for Wall St, US multinationals, and billionaires (provided by congress and the federal reserve) had already sailed through the senate. 

Three, and what of the Dem reaction?  Which was the idea that catastrophic state debt must be sacrosanct, back stopped, and supported with more debt or more grants, backed by still more national debt?  To be clear, the Dem establishment came down in favor of yet more catastrophic debt.  In the US, public debt has been allowed to accrue to unacceptable levels through an endless series of tax cuts for the wealthy, freebies and corporate welfare for multinationals, and at the federal level, the financing of endless credit card wars.  Moreover, and this is crucial, government debt is used as an excuse to forego childcare & education for our children, to prevent a UBI and Medicare for All for our citizens, and to ensure that student debt is never cancelled.  Infrastructure in the US?  Forget about it, too much government debt. (Note: Nearly nobody asks how do we pay for tax cuts for the rich, corporate welfare, and endless war?)  So the Dem response, Mr. Cuomo’s response, was disingenuous at best.  

That is, Dems & GOP should both be leading the crusade against catastrophic federal & state debt, and how best to appropriately deal with it, w/out screwing over the American people. (And if both parties want to escape humiliation, they should put the federal reserve to work on that project… it’s called debt forgiveness.)

Four, and finally, who profits off all this federal and state debt?  Well, that would be a major donor to both establishment political parties: Wall Street.  Wall Street makes money off the interest income, the debt issuance, the advisory fees, as well as, the derivatives & swaps used to insure and speculate on public debt.  Ironically, much of this debt was accumulated bailing out Wall Street executives for their actions, as well as, the fallout from their actions, repeatedly (see 2008 and our present financial crisis). Would Wall Street survive w/out all this interest income, if public debt was gradually & methodically written down?  The answer is yes. The banks and financial services would have to charge higher fees and premiums, rather than rely upon the crutch/free ride of national & state debt.  Additionally, w/ interest rates headed to zero bound, if not negative, that interest income will likely soon evaporate or be significantly mitigated.

Here again, the political response – the group think response – in either situation was not as binary, nor should it be as polarized, as the two establishment political parties and the MSM would have us believe.  We may not like Messrs. McConnell’s & Trump’s (nor Mr. Cuomo's) motives or politics, but they are correct to bring up the twin threats of communist China and unsustainable public debt.

In fact, in both examples, China and government debt, the answer should be a little more thoughtful but also universally accepted across the political spectrum.  It goes back to first principles.  Doesn’t it?  

Democracy good.  Freedom good.  Authoritarian & totalitarian hegemony & rule – and oppression - are bad.  Public debt used to bailout and reward C-Suites & Wall Street for failure, repeatedly, and to provide tax cuts for multinational predators, ad nauseam – while the American people suffer – is bad.  Debt or MMT used, responsibly, to finance infrastructure projects, a Green New deal, and a student debt amnesty is good. 

If the US wants to escape the fate of banana republics, it must eliminate some of the polarized thinking that has been allowed to divide the nation, so that nothing is ever accomplished, and problems are never solved.  

Indeed, it appears to be the defining feature of the present Washington establishment: bicker endlessly; maintain a good show of disagreement – backed by MSM talking heads; do nothing; and ultimately, preserve a failed status quo that serves a predatory few. 

In banana republics, the elite divide and conquer a nation, while looting the Treasury and the people suffer grinding poverty.  

Sound familiar?  

Profits are privatized, and losses are nationalized.  In a banana republic, the currency is stretched eight different ways, so that cronyism and corruption – between the state and the multinationals & oligarchy that own the state - are essentially monetized, until the currency falls.  

It’s time to end the political duopoly’s group think, if the US has any hope of escaping the fate of emerging market countries.  America’s exorbitant privilege may not last forever.  And if the two centrist parties won’t respond, it is the responsibility of Americans to support third parties that will take appropriate action. 

Copyright JM Hamilton Publishing 2020

Moral Hazard Economy

Moral Hazard Economy

On Thursday, the Fed boss, who once worked in private equity, announced another $2.3tn worth of support for capital markets. The US central bank will offer to buy or backstop securities that would have seemed wildly inappropriate a month ago. The package includes so-called “fallen angel” junk bonds, junk bond ETFs, municipal debt and an array of asset-backed securities.

-       Fed’s $2.3 Trillion bailout: fielding falling angels – Financial Times.

Moral hazard is the risk that a party has not entered into a contract in good faith or has provided misleading information about its assets, liabilities, or credit capacity. In addition, moral hazard also may mean a party has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles. Moral hazards can be present at any time two parties come into agreement with one another. Each party in a contract may have the opportunity to gain from acting contrary to the principles laid out by the agreement.

-       Investopedia

By JM Hamilton (4-20-2020)

How exactly did moral hazard come to be the defining feature of the US economy? 

First, what is moral hazard?  Moral hazard is when a party enters into a contract in bad faith.  A classic example would be when someone enters into a bank loan, fraudulently, w/ zero intent to pay back the loan.  In insurance, the oft-used example is when a house is already on fire, and the owner calls up an insurance carrier looking for coverage or additional coverage, perhaps a second property policy?  A close cousin of moral hazard, if not a synonym, is bad faith or in street vernacular, a scam.

Banks and insurance companies avoid moral hazard like… well, the plague.  And yet, banks and insurance carriers support, directly and indirectly, the very definition of moral hazard on a daily basis, the private equity model (PE).  The private equity model buys up businesses using catastrophic debt/leverage, w/ other people’s money: front loads profit; declares themselves unearned dividends; charges outrageous management fees, often for running companies into the ground; lobbies for and has obtained preferential tax treatment; is known to take out swaps and derivative bets against the very third party debt used to support its efforts; and either flips or liquidates the business at the end of a five year investment period. And that’s just scratching the surface.  

PE LBOs are done under the oft-cited premise that they are here to improve or rescue a business, but, as is often the case, they end up burying the business, along w/ jobs & opportunity.  

The private equity loot & pillage model defines moral hazard.  PE makes money eight ways to Sunday, faster than a person can say, “leveraged buyout.”  At a micro-level, PE makes money on a one-off deal, and it generally, cares less if the bondholders, the business, and the employees survive or not… because there’s always another set of investors who are starved for bond yield thanks to the FED.  At a macro-level, this entire industry has become so pervasive that the PE model has been adopted by both public and private companies, only it goes under the nom de guerre financial engineering.

Companies that are leveraged up (be they private or public), so as to reward management & ownership interests in a rather piggish manner… have done the company, local businesses (suppliers), and labor a serious disservice because these enterprises are ill prepared for crisis.  At a macro level, entire business sectors – concentrated – and leveraged to the hilt – have set themselves up for ruin and are unable to fend off any exogenous & endogenous shock that comes along.  The virus – an entirely foreseeable event - has brought the private equity model into clear view, for what it is: not capitalism but organized crime.

How can this be?  Afterall, if an individual commits insurance fraud or enters into a loan with a bank, via bad faith, surely, they’ll be prosecuted to the Nth degree by said financial institution.  Rightfully so. 

One of the ways that private equity, as an industry, or say, the airlines, is able to accomplish this is through scale.  If an individual steals from a business or a set of investors, it’s a crime.  When an entire industry, or a too big to fail (TBTF) monopoly, engages in what is tantamount to theft from other businesses, bondholders, the US economy, labor, or the American taxpayer…. well, that’s grounds for a congressional and federal reserve bailout. Not only do TBTF companies and industries engage in moral hazard at a macro and micro-level, but they also buyoff and lobby the US congress for preferential treatment.  It’s as if a drug cartel has purchased the executive, judicial and legislative branches of the US government.  Mission accomplished, democracy subverted. And since the neoliberal economy – the anything goes economy – produces so few jobs, these highly leveraged industries are able to hold up the prospect of losing jobs, and investor harm (such as pension funds), as a means to extort bailouts from congress… or at least provide congress - which is in on the scam - w/ a convenient reason to bailout said industry. 

In short, the taxpayer bails out avaricious management teams, setting the precedent for a continuous loot & pillage cycle; the taxpayer bails out these crime lords, when the money is desperately needed for a Green New Deal, Medicare for All, or student debt forgiveness.  

Capitalism used to mean the risk takers were rewarded for good business practices and suffered losses for egregious business conduct that was detrimental to the company and the public at large… under the moral hazard economy, financial engineering and private equity are rewarded no matter how badly they fail and no matter how adverse their behavior is to the American economy and public.  

Moral hazard as the defining feature of the economy didn’t happen in a vacuum.  Financial engineering, moral hazard, and private equity didn’t just flourish on their own.  No, these businesses and business practices had to be nurtured and created under the right set of circumstances, engineered in a highly controlled environment… not unlike a virus. 

Enter the Federal Reserve (FED) and central banks. 

W/out the FED engaged in highly accommodative monetary policy and suppressing interest rates - and essentially providing free money to a predatory financial elite - the private equity model couldn’t exist or certainly wouldn’t be as profitable.  (Those extraordinary profits, in turn, could not be used to perform an LBO on the US congress.) 

Why does the FED do it… why does it engage in exceptionally easy money polices?  Well, one, we have catastrophic national debt, much of it derived bailing out banks from the 2008 and the current crisis and financing endless war.  Two, the private sector – engaged in moral hazard (see this article) – is in debt up to its eyeballs.  And three, banks and insurance companies sell hundreds of trillions (notional value) in derivates and swaps, much of it insuring & speculating on all this debt.  These swaps and derivative products are essentially the financial gun held to the FED’s head, that ensures the whole rigged process – of enriching the predatory few, at the expense of hundreds of millions of Americans – continues infinitum. 

The final reason ultra-accommodative monetary policy continues, the FED is accountable to no one (certainly not the American people), but rather, to the congress of the United States, which we all know by now has turned abdicating its responsibilities into an art form. And given all the insider stock trading conducted by the American legislative branch, and the fact that the FED lets the house and senate members off the hook from doing its job – by monetizing the national debt - the congress has zero interest in reining the FED in.  

And yet, the FED is the god of the moral hazard economy.

Now, w/ the coronavirus crisis at hand, the FED has ramped up moral hazard to a whole new level.   With money flowing out of the stock & high yield debt markets (because the American consumer, the driver of the economy – in most instances - is now tapped out & unemployed), and those highly leveraged balance sheet increasingly look like a noose for piggish management teams…   The FED has printed up $4.0 trillion to backstop various debt and stock markets.  The FED backstop, or bailout, is for the personal enrichment of a privileged few: bondholders, failed management teams, & shareholders, specifically.  Notice, the FED is not bailing out American labor… there’s no UBI, and there is no infrastructure program.  There is a $1200 check, maybe, and a supplement for unemployment benefits through the end of July.  Gig workers … the majority appear to be on their own.  

The FED, like an arsonist, is essentially throwing $4.0 trillion in jet fuel onto the burning inferno that is the moral hazard economy: doubling down, if you will, on the US caste system, the death of the American Dream, near zero social mobility, and catastrophic wage & wealth inequality.  In doing so, like private equity, the FED has mortgaged – to the hilt – future generations’ and the nation’s future.

The lie that these management teams & ownership did nothing to create the circumstances of their own immolation, must come from some alternative Bizarro Universe.  Private equity and moral hazard are both receiving an exceptional bailout with the FED buying up JUNK DEBT…. hundreds of billions of it.  The FED is also issuing loans to overleveraged industries and corporations.  Moreover, per the Washington Post, it appears that the FED and Treasury may agree not to name which companies are on the public dole.  Once again, backstopping bad faith, moral hazard, and theft; and confirming, once again, all great crimes happen under cover of night, or cover provided by an opaque government.  Thanks to the FED, we see that profits are privatized, while losses are transferred from the private sector and placed upon the FED’s balance sheet… the American people’s balance sheet.  As for the overpaid management – that set these companies and industries ablaze – they face zero hardship: not job loss, not nationalization, not even public shares w/in their companies, and they can return to biz as usual (once their public debts are paid, if not sooner). Who knows?  Thanks to congress… this is the largest, most opaque, bailout this country has ever seen.

Thanks to the FED's machinations and a flat yield curve, investors and pension funds – starved for returns – are conveniently herded into a stock market, w/ astronomical - highly speculative/suspect - valuations.  A stock market that has no basis in reality and a very poor foundation, in terms of business fundamentals.  Don’t like the stock market?  Well there’s always alternative investments, w/ the arsonists over at private equity.  How convenient.  (The analogy that financial engineering & private equity were created, & nurtured, like some rogue bioweapon or virus, in some mad banker’s lab holds.)

Moral hazard affirmed by the US congress and the FED once again. The preeminence of the rigged economy, oligarchy, and the private equity model, supported w/ trillions in debt, courtesy of the FED and a complicit congress: confirmed.  The American people, on the other hand, will be facing: an economy that will struggle for many months, if not years, to recover lost ground; diminished benefit & wage prospects, accompanied by possible deflation; zero bound interest returns on their savings; and almost certainly, endless austerity from the federal government. 

How do we end the cycle of catastrophic theft, welfare for plutocrats, and ceaseless austerity for the American people?  Easy, remove any of the excuses the FED has for ultra-accommodative monetary policy: one, write down the national debt, much of it generated bailing out & enriching so-called expert bondholders, management teams, and shareholders; two, democratize the FED; three, limit campaign contributions to public money, only; four, cap the leverage ratio on all businesses, private equity owned or otherwise; and finally, five, outlaw all speculative derivatives and swaps.

By enacting these measures, the moral hazard economy maybe far less exciting… but excitement in times of ever increasing economic & financial crises is overrated.  So is a highly corrupt government and its ownership, oligarchy, backstopped by an unaccountable/undemocratic Federal Reserve.  

It’s time that the predators who run this country actually learn what capitalism is all about.

Copyright JM Hamilton Publishing 2020

Death Panels

Death Panels

“Our civil rights laws protect the equal dignity of every human life from ruthless utilitarianism,” Roger Severino, the office’s director, said in a news release. “Persons with disabilities, with limited English skills and older persons should not be put at the end of the line for health care during emergencies.”

-       U.S. Civil Rights Office Rejects Rationing Medical Care Based on Disability, Age - NY Times

By JM Hamilton (4-4-2020)

Neoliberalism, or market rule, suffered several more body blows this week.  It now appears, that more deadly than the virus itself, is the laissez faire economy that allow companies and corporate C-suite brass to do anything they please.  The coronavirus, an insidious disease, is both a great leveler and revealer of how badly the US economy has been mismanaged by the political duopoly… in the service of a handful of oligarchs & to the complete detriment of nearly half the American population.

Unemployment has soared w/ 6.6 million more Americans cutoff from badly needed wages, in the matter of just one week (this comes at a time when 40% of American can’t meet a $400 emergency payment), and some economists now expect that unemployment may actually exceed Great Depression levels. Retail, restaurants and hospitality have all taken significant hits, as the entire economy suffers cascading effects from the virus & self-inflicted neoliberal/globalist economic policies.

Notably, in response to the economic pandemic created by our neoliberal economy’s inability to suffer a crisis of this magnitude, Congress - and The Federal Reserve (FED) - stepped in to bailout the usual suspects (once again):  Banks, Billionaires, Multinationals, Private Equity businesses that thrive off debt, and of course, US Healthcare.  More specifically, Congress passed a CARES Act worth $2.3 trillion, all of it financed, and the FED will be adding another $4.0 trillion in debt to the $2.3 trillion figure.  The average American can expect to see a onetime payment of $1200, whereas Wall Street can expect the FED to ride to its rescue w/ approximately $4.4 trillion (w/ little or no oversight… it’s 2008 all over again, only worse). Increasingly, we are told, by the Wall Street cognoscenti, w/ the neoliberal economy crashing down all around us, that we are not, repeat “not,” in another financial crisis.  Those assurances are falling on incredulous ears w/ the FED rolling out program after program to salvage Wall St, stock, repo, corporate debt, commercial/residential mortgages, and small business lending markets.

The private equity/financial engineering model is now so pervasive, w/in the American economy, that debt and leverage has left few mid-sized & large companies able to withstand the crisis, w/out welfare from the FED and the federal government. That is to say, management & ownership set many of these companies up for failure – w/ leveraged buyouts, mergers, stock buybacks, & financed dividends.  A fact that often seems omitted from the financial press and the MSM.

But perhaps no industry – and there are many standouts – represents the gross corruption, cronyism, and ineptitude of the neoliberal economy better than the healthcare industry.  The US Healthcare industry is a disaster, and is not only dangerous to their employees -- the brave women and men who serve on the front lines of the pandemic -- but it’s a threat to Americans and the American economy (like a vampire, sucking out approximately double the GDP, as nearly all other Western democracies, or close to 20%).

Some of the middlemen, the healthcare insurers, know they are in trouble, and we can see this firsthand by their sudden willingness to wave copays and deductibles, in the treatment of the coronavirus.  Quite the humanitarians?  Meanwhile, while many blame the federal government for the failure to plan and warn for the raging pandemic (and the congress and executive branch certainly share in that blame)… few w/in government & journalism are asking why the private sector didn’t have appropriate stockpiles available for an entirely foreseeable event?  Can you say, “shareholder litigation?”

And now the failure to plan – or fiduciary irresponsibility, simple negligence, & professional incompetence - is leading to the very real prospect that the US healthcare industry will have to institute death panels.  Death panels are where administrative and professional healthcare staff will make life or death decisions as who, and who will not, receive lifesaving care.  

Such irony, Republicans used to argue that socialized medicine would lead to shortages of care and death panels, but nope, it’s the for-profit – debt & greed soaked – US healthcare system that will, likely, be instituting death panels (if they are not already in place w/in viral hotspots).

At this point, Americans should ask why they are paying double, in GDP, for a healthcare system that is collapsing and failing to provide them care, in the middle of a life & death crisis?  Why does this same industry engage in shock & awe billing, and why is healthcare the leading cause of personal bankruptcy?

Moreover, much of our for-profit - inveterate - healthcare system is addicted to government welfare, at the same time it reports out tens of billions in profits. 

Consider:

Medicare;

Medicaid;

Medicare, Part D (Big Pharma welfare);

The ACA (Corporate welfare defined);

$100 Billion in Hospital subsidies, courtesy of the freshly minted CARES Act.

(The US healthcare model is so irrevocably dangerous - placing profits before the health of the American people and the US economy - that the POTUS had to utilize the Defense Production Act just to get US multinationals off their hind quarters and producing critical lifesaving machinery, such as ventilators.) 

In short, the entire for-profit healthcare industry is backstopped by government (like every other too big to fail multinational w/in the US economy). A federal government that operates w/ both arms tied behind its back, in that it forgoes nearly all powers that would allow it to curtail & mitigate excessive profit taking by the healthcare & Big Pharma industries.  And that's exactly what makes the aforementioned government programs corporate welfare. 

Our elected leaders' campaign coffers, from both parties, grow wealthy from healthcare industry donations and the whole death dealing cycle repeats.

Meanwhile, here again, is an industry, loaded w/ middlemen and overhead, that privatizes profits, while socializing losses (for greed, gross incompetence, and failure).

None of this is directed at the brave healthcare women and men, who are putting their lives, and their families’ lives, on the line, as they selflessly fight a war against an invisible & silent killer. All of this piece is aimed at the billionaires, healthcare multinational executives, and Wall Street financiers & fund managers, who insist upon maintaining a broken healthcare system for their own personal profit. 

A healthcare system that is essentially a death panel for the American people & the US economy.  Unfortunately, the United States is well past sixty-five years of age, and we appear to have many self-inflicted wounds... not the least of which are globalism, imperialism, and neoliberalism.

Copyright JM Hamilton Publishing 2020