Paul Krugman warned in 2002 that crony capitalism took root during the Bush Administration. Crony capitalism means that connections (particularly government connections) matter more than merit. Obama economic Czar Lawrence Summers is the epitome of crony capitalism: after making millions with his Wall Street Connections he has successfully burrowed himself into the highest echelons of the Obama Administration where he now dictates Wall Street Policy. In part because of Summers, I posit that things worsened recently and the Obama Administration failed to turn back to a merit based economy. Can we really tell the difference between the Bush-Paulson-Geithner-Bernanke Wall Street policies and the Obama-Geithner-Summers-Bernanke policies?
In terms of gentleness towards Wall Street elites the policies seem identical. For example, would it surprise you to learn that despite the government's massive bail outs in the financial sector, and despite its massive ownership positions, as well as the massive losses brought on by massive incompetence (or worse), 9 out of ten senior bank executives retained their positions, and the only ones leaving either retired or died? Or, "92 percent of the directors who approved the dramatically flawed compensation policies and ineffectual risk management practices that led to global financial failure are still in place and have received $12 trillion of taxpayer support." Where is the great American meritocracy? Wall Street incumbents remain incumbents under both administrations, regardless of ineptitude.
Alternatively, consider this: Goldman Sachs, Citigroup, and JP Morgan Chase gave the Obama campaign about $2.5 million. McCain's top contributors include Merrill Lynch, Citigroup, Morgan Stanley, Golden Sachs, and JP Morgan Chase, giving a total of $1.5 million. I suppose on Wall Street that would be termed a political straddle or hedge.
This has been the case for years. The charts at left show contributions for the five years leading up to the election. The same banks are supporting both candidates.
Citizens United will greatly exacerbate this problem. That decision creates a new corporate free fire zone during the last 60 days of every campaign. Hedges can be adjusted, and straddles can be lifted or put on up to the very end, limited only by the time available to produce commercials and buy air time. Moreover, by waiting until the last minute the campaigns will frequently be deprived of an effective rebuttal.
Think about financial and economic theory: would a trader in global markets be more or less effective if there were a no trade zone of 60 days prior to release of, say, GDP numbers? If you could spend money on the weekend prior to an election, knowing that the opposing campaign could not effectively respond prior to polls opening, would you increase your bets or decrease them? Simple logic thus suggests that the numbers shown above will increase and that our political leaders must be more attentive to the corporate leaders sitting atop mountains of wealth.
So, what to do? Well, first reformers must recognize what we are up against and match their tactics. It is a political monolith. The two parties are now one. If the most sophisticated financial traders in the world recognize this (just follow the Goldman Sachs and JP Morgan money) it is time for sophisticated reformers to recognize this central truth. The financial sector wins no matter which candidate is elected. Right now, I feel reform loses no matter which candidate prevails.
There is a third way. I argued in 2004 (in the Washington & Lee Law Review) that reform wins only when backed by sufficient political and economic power, and that reform in the corporate sector is no different than racial reform generally. There is only one way to break up crony capitalism and it is diversity. Citizens United means corporate governance must now reflect America generally. I will blog on that fact next. But today, the point I am trying to make is that the goal of diversifying corporate America must be pursued without any partisan pretense, with any support necessary from either party. With the election looming, a bi-partisan coalition must be marshaled now.
Perhaps, the Civil Rights Act of 1964, when more Democratic senators than GOP senators voted against the bill, furnishes the model for real reform in this environment. As GOP Senator Dirksen from Illinois then stated: "I trust that the time will never come in my political career when the waters of partisanship will flow so swift and so deep as to obscure my estimate of the national interest. . . . I trust I can disenthrall myself from all bias, from all prejudice, from all irrelevancies, from all immaterial matters, and see clearly and cleanly what the issue is and then render an independent judgment." Ultimately, the Senate Minority Leader mustered 27 0f 33 GOP votes in favor of cloture, shutting down the filibuster of the southern Democrats.
My point is simply that the battle against crony capitalism must disenthrall itself from the premise that the path to reform lies with either party.
I do not believe crony capitalism took root in the Bush Administration. If you are defining the term as political connections being placed ahead of merit, or merit being replaced with political connections altogether. This is not a new occurance, but a very old one. However, I don't know that the fact that the candidates all receive money from major corporate giants signal that reform is not taking place. What I'm more interested in is what if anything is being done in return for making these contributions. Not taking money from a corporations does not necessarily mean a politician is not being influenced by that same corporation. Similarly, taking contributions from a corporation does not prove that the politician is going to show favortism to that entity. Despite the fact that republican and democratic candidates received money from major players like Goldman Sachs, I think that so far Obama seems to be less influenced by the political connections than the previous administration. He has taken some pretty advesarial stances that would not appear to support a claim that a Wall Street Giant has Obama in his back pocket. Nevertheless, I look forward to the day that our political leaders are not swayed by their wealthy connections. Personally, I think we are getting much closer than in the previous administration, if any attempts were even made in the previous administration to address the problem.
ReplyDeletePaul Krugman warned in 2002 that crony capitalism took root during the Bush Administration.
ReplyDeleteYeah, right. It all "took root" with Bush. Perhaps Paul Krugman, and you, could avoid this kind of uninformed smear if you would simply read the entire paper - his paper: Enron Received Many Loans From U.S. For Foreign Projects During the 1990's, New York Times
Krugman was on Enron's payroll, a detail that he omits in his anti-Bush rant. He squeals that, "Enron helped Dick Cheney devise an energy plan ...", but fails to mention that Ken Lay donated over $100,000 to Bill Clinton's inauguration and visited the Clinton White House 11 times. Enron executives routinely traveled with Clinton Secretary of Commerce Ron Brown on trade missions. Under Clinton, Enron struck taxpayer-financed deals with countries like Russia, India, Indonesia and China. Enron offered Robert Rubin, Bill Clinton's Treasury Secretary, a position on it's BoD which he turned down for a job at Citigroup, Enron's largest creditor. And when Enron was on the verge of bankruptcy they called Robert Rubin for help with trying to convince the Bush administration to intervene. Bush said NO.
Krugman whines that, "... the [Bush] administration signaled its intention to weaken pollution rules on power plants ...", without mentioning that the rules "weakened" simply allowed power plants to perform maintenance without having to replace the entire facility. Leftists had written regulations requiring extensive and costly upgrades, constituting almost a complete replacement, should a power plant perform certain kinds of maintenance. As a result plant owners simply deferred this maintenance and ran their plants less efficiently. The changes actually resulted in LESS pollution.
I did find this line interesting, "... the Clinton administration took us to the edge of a trade war on behalf of Chiquita bananas, a major campaign contributor", since I had just finished reading this article: Chiquita Must Face U.S. Suit Over Colombian Terrorist Murders, Bloomberg. I seem to recall that the Columbian government found communications between the FARC and certain Democrats on a FARC computer following a raid that freed U.S. and Columbian hostages. Small world.
And, according to Krugman, when the evil Republicans are not trying to pollute the environment or rig energy policy, they're trying to poison us. Of course, Krugman leaves out the fact that the diseased cattle was found to have come from Canada: "The BSE cow that was discovered in Washington state in December 2003 had been imported to the U.S. in September 2001 from the same province of Canada (Alberta) in which the Canadian BSE cow had earlier been identified ... Regulatory agencies in Canada and the U.S., primed by the mad-cow scare in Great Britain and continental Europe, reacted quickly in response to the discovery of the infected cows ... the U.S. has both the motivation and resources to answer, once and for all, the vexing question of whether or not BSE occurs spontaneously. Mad-Cow Disease in Cattle and Human Beings, American Scientist
ReplyDeleteLet's recap. No indigenously infected cattle. Regulatory agencies acted quickly. A concerted effort to find the cause of BSE. Yep, it sounds just like Upton Sinclair's, The Jungle.
This, by the way, is what rigging the energy market looks like:
In fact, the declaration of 1.7 million Utah acres as a national monument, thereby depriving an energy-starved U.S. up to 62 billion tons of environmentally safe low-sulfur coal worth $1.2 trillion and minable with minimal surface impact, was a political payoff to the family of James Riady.
He's the son of Lippo Group owner Mochtar Riady. James was found guilty of — and paid a multimillion dollar fine for — funneling more than $1 million in illegal political contributions through Lippo Bank into various American political campaigns, including Bill Clinton's presidential run in 1992.
Clinton took off the world market the largest known deposit of clean-burning coal. And who owned and controlled the second-largest deposit in the world of this clean coal? The Indonesian Lippo Group of James Riady. It is found and strip-mined on the Indonesian island of Kalimantan.
The Utah reserve contains a kind of low-sulfur, low-ash and therefore low-polluting coal that can be found in only a couple of places in the world. It burns so cleanly that it meets the requirements of the Clean Air Act without additional technology.
The Clintons' Coal-Gate, Investor's Business Daily
Not only did he pay off a foreign political contributor, but he was lauded by the environmental community as well.
And on and on, with conspiracy theories about the Carlyle Group. To paraphrase Krugman - sad to say, smearing people isn't clearly illegal - it just stinks to high heaven.
The reason that Republicans are often hesitant to regulate has more to do with regulations impact on small businesses rather than deference to large corporations. For instance, many FDA and USDA rules hurt small farmers, who can no longer butcher their own meat because of regulations in place as a result of meat-processing abuses committed by the largest producers. Large corporations often lobby for increased regulation knowing that the cost of implementation works a disproportionate hardship on their smaller competitors forcing many out of business. One of the reasons that we have so few oil refiners is that years of incremental regulation forced independent refiners, who could not afford to execute costly upgrades, out of business. The power to regulate, like the power to tax, is the power to kill. Government should always hesitate and consider the impact of regulation before acting. The less regulated the industry the more intense the competition.
Hedges can be adjusted, and straddles can be lifted or put on up to the very end, limited only by the time available to produce commercials and buy air time. Moreover, by waiting until the last minute the campaigns will frequently be deprived of an effective rebuttal.
ReplyDeleteIt's interesting that the Left doesn't find the special status carve out for corporations like the New York Times, the Washington Post, the L.A. Times, Liberty Media/CNN, GE/NBC, Disney/ABC, CBS, FOX, etc., etc. , a threat to our political system. Why is this "political monolith" allowed to launch political attacks, "the weekend prior to an election, knowing that the opposing campaign could not effectively respond prior to polls opening"; the way CBS did with it's use of fabricated documents and false testimony to attack Bush on the eve of the 2004 elections. Could it be because the media leans left and supporting Democrats and their ancillary organizations?
The Citizens United case is a simple restoration of corporation First Amendment rights. A corporation is simply a group of citizens entitled to the right of free speech whether acting individually or, in the case of corporate speech, together. Would you strip corporations of their Fourth and Fifth Amendment rights as well? It is easy to see why some would want to create and maintain a system where left-leaning media corporations control the national debate and anyone who disagrees with their political slant is forced to act as an individual using only his own resources, thus depriving them of "an effective rebuttal".
Your position reduces the American people to zombies, too stupid to consider the arguments being made and who is making them. It assumes that they will fall in line with their corporate masters pulling the appropriate lever on command. Bull shit.
Crony Capitalism seems to be an area that is creating quite a bit of controversy amongst both political parties. I am not particularly sure why both political parties have support from some of the same companies, nor do I believe that there is this underlying factor that the major corporations have a lot of power or has the ability to allow their executives to infiltrate the American political system. I believe that the particular reform options are ok, but I think there needs to be more of an understanding of why the businesses may be in support of the democratic and republican parties. Two parties have not united into one, because the core fundamental principles of both are very distinct and easily identifiable. However, the corporations may be more interested I supporting both parties because of securing the right person who they believe is best fitted for the position, and where there is support for both parties, it may be that the companies are supporting both parties because the people who work for them may be a part of both. Hopefully there can be more time spent on developing theories that are actually indicative of the current political system in America and work on tactics that can actually be more unifying.
ReplyDelete-David H. Kenton
Money, finances and politics go hand and hand especially in the United States.
ReplyDeleteFor example, most of the Obama's financial administration were also financial leaders in Bill Clinton's administration as well.
Even though the administration changed, it still is business as usual on Wall Street. To realistically believe that would change (in a fast amount of time at least) is unreasonsble.
My point is that the elite level of powerbroekrs in finance, media, law, and politics likely work very hard to ensure the status quo does not change because they stand to profit from the system. A major aspect of this is poltiical giving as pointed out in this article.
Diversity may help - but when will those new people begin to buy into the system in order to watch out for thier own well being? Additionally, most people getting the jobs in these firms are Ivy League-rs anyway who are not "diverse" no matter their skim or background.
I do not see a change coming in this system.
Citizens United does not help. However, the principle of Citizens United and its support of the FIRST AMENDMENT is too strong to overlook.
People and entities ability to express themselves must not be eliminated. If the SCOTUS ruled they could it would set a chilling, eventual down fall of First Amendment rights - a cornerstone of our great democracy,
-Jason Silver - St. Thomas Law - Miami
I believe crony capitalism began before the Bush Administration but undoubtedly elevated during the said administration. It is quite clear that with the election of the “Second Bush,” connections matter more than merit. But the Obama Administration Wall Street Policies, in my opinion as well as others are not identical to those of the Bush administration.
ReplyDelete“President Obama's new proposals to crack down on Wall Street — first the new tax on big banks last week (January 22, 2010), then Thursday's new restrictions on big banks — signal a somewhat new approach to financial reform. But they also signal a very new approach to politics and governing: more populist, more confrontational, less deferential to Congress, less eager for common ground. His uncharacteristically blunt message to financial giants and their political defenders said it all: ‘If these folks want a fight, it's a fight I'm ready to have.’"
See http://www.time.com/time/politics/article/0,8599,1955808,00.html
So In terms of gentleness towards Wall Street elites, the policies don’t really seem identical.
Not being naïve, I do believe that the parties have differences. Although there are many banks supporting the same candidates, I do not think that is makes the parties necessarily the same. I believe that “sophisticated financial traders” may give money to both parties in order to have stake in whomever may win; not due to the recognition that the two parties are now one. Corporate mindset: Despite who wins, a contribution has been given and the chosen candidate should “look out.” (For the company that is)